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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
(MARK ONE)
/ / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED ____________________
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM AUGUST 1, 1999 TO DECEMBER 31, 1999
COMMISSION FILE NUMBER 0-10964
MAXWELL TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 95-2390133
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
9275 SKY PARK COURT
SAN DIEGO, CALIFORNIA 92123
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (858) 279-5100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: COMMON STOCK, PAR
VALUE $.10 PER SHARE
NAME OF EACH EXCHANGE ON WHICH REGISTERED: NASDAQ NATIONAL MARKET ("NASDAQ")
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES /X/ NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates of the Registrant on February 29, 2000, based on the closing
price at which the Common Stock was sold on Nasdaq as of February 29, 2000, was
$157,125,553.
The number of shares of the Registrant's Common Stock outstanding as of
February 29, 2000 was 9,753,420 shares.
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MAXWELL TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
FOR THE TRANSITION PERIOD FROM AUGUST 1, 1999 TO DECEMBER 31, 1999
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PART I
Item 1. Business.......................................................................................... 1
Item 2. Properties........................................................................................ 20
Item 3. Legal Proceedings................................................................................. 21
Item 4. Submission of Matters to a Vote of Security Holders............................................... 21
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters............................. 22
Item 6. Selected Consolidated Financial Data.............................................................. 23
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations............. 24
Item 7a. Quantitative and Qualitative Disclosures about Market Risk........................................ 36
Item 8. Consolidated Financial Statements................................................................. 36
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............. 61
PART III
Item 10. Directors and Executive Officers of the Registrant................................................ 61
Item 11. Executive Compensation............................................................................ 63
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................... 72
Item 13. Certain Relationships and Related Transactions.................................................... 72
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................. 73
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PART I
AS USED IN THIS ANNUAL REPORT ON FORM 10-K ("FORM 10-K"), UNLESS THE
CONTEXT INDICATES OTHERWISE, THE TERMS "COMPANY" AND "MAXWELL" REFER TO MAXWELL
TECHNOLOGIES, INC., A DELAWARE CORPORATION, AND ITS CONSOLIDATED SUBSIDIARIES.
EFFECTIVE WITH CALENDAR YEAR 2000, THE COMPANY HAS CHANGED ITS FISCAL YEAR TO A
12-MONTH PERIOD ENDING DECEMBER 31. AS USED IN THIS FORM 10-K, THE TERM FISCAL
YEAR SHALL REFER TO PRIOR FISCAL YEARS CONSISTING OF 12-MONTH PERIODS ENDED JULY
31. THE TERM "CURRENT FISCAL YEAR" SHALL REFER TO THE 12-MONTH PERIOD ENDING
DECEMBER 31, 2000. THE FIVE-MONTH PERIOD AUGUST 1 - DECEMBER 31, 1999 IS
REFERRED TO IN THIS FORM 10-K AS THE "SHORT FISCAL YEAR". SHARE OR PER SHARE
INFORMATION IN THIS FORM 10-K FOR PERIODS PRIOR TO DECEMBER 17, 1996, IS
ADJUSTED TO REFLECT A 2-FOR-1 STOCK SPLIT. THIS FORM 10-K MAY CONTAIN
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933 AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934. SUCH
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL
RESULTS MAY DIFFER SIGNIFICANTLY FROM THE RESULTS DISCUSSED IN ANY
FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE SUCH A DIFFERENCE INCLUDE,
BUT ARE NOT LIMITED TO, THOSE DISCUSSED IN "RISK FACTORS" HEREIN. DISCUSSIONS
CONTAINING SUCH FORWARD-LOOKING STATEMENTS MAY BE FOUND IN THE MATERIAL SET
FORTH UNDER "ITEM 1. BUSINESS", AND "ITEM 7. MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS", AS WELL AS WITHIN
THIS FORM 10-K GENERALLY.
ITEM 1. BUSINESS
GENERAL
Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies
industry-leading capabilities in power and computing to develop and market
products and services for customers in multiple industries, including energy,
satellite, defense, telecommunications, consumer electronics, medical and
bioprocessing markets.
During the Short Fiscal Year, the Company adopted a plan to restructure
its operations (the "Restructuring Plan") and to change its fiscal year to a
calendar year effective January 1, 2000. This Restructuring Plan (i)
consolidates certain commercial business operations and improves their
manufacturing and other operational capabilities, (ii) focuses the defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories, (iii) focuses the application of
PUREBRIGHT-Registered Trademark- technology on bioprocessing, medical and
consumer water markets, and (iv) provides for the sale of certain
non-strategic business operations.
Beginning with the Current Fiscal Year, the Company has combined its
industrial computer business and its power quality business. The Company has
also combined three components businesses - POWERCACHE-TM- ultracapacitors,
electromagnetic interference ("EMI") filters and other ceramic capacitor
products and radiation-hardened microelectronics - into a commercial,
high-reliability electronic components group. The Company has focused its
defense contracting business on pulsed power systems and computer-based analysis
for government and national laboratories. Maxwell's PurePulse Technologies
subsidiary will concentrate on significant opportunities in the application of
PUREBRIGHT technology to pathogen inactivation in medical and bioprocessing
markets and to consumer water applications. Finally, the Company has initiated
the sale of its businesses involving high voltage wound film capacitors, high
voltage power supplies, time card and job cost accounting software and
glass-to-metal seals. On February 29, 2000, the Company sold the high voltage
wound film capacitors and high voltage power supplies businesses for cash of
$3.5 million.
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PRODUCTS AND SERVICES
POWER AND COMPUTING SYSTEMS
Since the early 1990s the Company has designed, manufactured and sold
custom, semi-custom and standard industrial computer systems and subsystems
through its I-Bus, Inc. subsidiary, primarily to original equipment
manufacturers ("OEMs") for incorporation into the OEMs' products. In recent
years, the Company has added industrial computer operations in the United
Kingdom, France and Germany and has become a major supplier of industrial
computer products throughout Europe. In fiscal year 1998, the Company added a
line of custom power quality protection products, including power conditioning
units, power distribution units and uninterruptible power supplies, through the
acquisition of San Diego-based Phoenix Power Systems, Inc.
As part of the Restructuring Plan, the Company is integrating the
operations of I-Bus, Inc. with those of Phoenix Power Systems, Inc.
("I-Bus/Phoenix"). The new I-Bus/Phoenix operation will expand the former
industrial computer product line with complementary power quality products and
broaden the global reach of the power quality products. The Company is combining
the San Diego operations of these two subsidiaries into a single facility in San
Diego. The new facility is being designed for highly-efficient manufacturing,
with improved processes, improved personnel training and more disciplined cost
control practices.
INDUSTRIAL COMPUTERS. The Company designs, manufactures and supplies
standard, custom and semi-custom industrial computer modules, platforms and
fully-integrated systems to OEMs, on a worldwide basis. The Company's
I-Bus/Phoenix product line ranges from enclosures, CPU boards and backplanes to
fully integrated and highly customized computer systems. This product line
primarily employs passive backplane architecture, complemented by a
newly-introduced CompactPCI line of products.
The Company's custom and semi-custom components and systems are
design-intensive applications. All of the I-Bus/Phoenix products are based on
Intel's x86 and Pentium architectures and are PC-compatible. The products are
utilized primarily in computer telephony equipment such as voice-mail servers,
interactive voice response servers, telephone switching servers and telephone
network transaction control servers. Business in the industrial automation
market increased significantly in fiscal year 1999 with participation in a major
program to support the installation of new mail sorting equipment by the United
States Postal Service. The Company's industrial computers are also used in a
number of other applications such as broadcasting, medical (CT Scan, MRI
equipment and drug dispensing equipment), test instrumentation (data acquisition
and test), imaging instrumentation (large-scale optical reading and sorting
equipment) and manufacturing automation (pick-and-place equipment).
The I-Bus/Phoenix products utilize passive backplane technology in which
CPU and input/output functionality is provided by add-in cards for flexibility
and ease of replacement. The Company provides fault resistant and fault tolerant
systems that include redundant components -- cooling fans, power supplies and
hard disks -- that can be "hot-swapped" without shutting down or otherwise
affecting the system. The Company also provides enclosures with segmented
backplanes that allow two or more independent computer systems to operate within
a single enclosure, an important feature in systems in which fault tolerance or
size requirements are critical. Enclosures are available to support from six to
twenty-five slots and can be configured in rack mount, table top or tower
models.
The products employ several industry standard buses, form factors and
interfaces, which enable OEMs to integrate the products with many widely
available and economical third party products. The products incorporate standard
bus architecture including ISA Bus, PCI Bus, CompactPCI, SCSI Bus and IDE and
microprocessors in the Intel family up to the Pentium III, and support operating
systems including Windows, Windows NT, Solaris and Linux.
During fiscal year 1999, the Company continued to expand its geographic
scope with the addition of full service industrial computer facilities in France
and Germany, which complement its operations in the United Kingdom. With
facilities capable of designing, developing, integrating and assembling products
in three countries, I-Bus/Phoenix is a major participant in the European market,
and reflecting this fact, approximately 35% of fiscal year 1999 sales of
industrial computers and subsystems were generated in Europe.
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POWER QUALITY. The I-Bus/Phoenix power quality products consist of power
distribution units, power conditioners and inverters, uninterruptible power
supplies ("UPS") and other power protection products. These products are
designed and engineered by the Company for customer applications primarily in
the medical and telecommunications markets. Medical applications include power
distribution units for medical imaging equipment and UPS products for hospital
equipment. An increasing portion of the sales in the medical market, including a
major program in fiscal year 1999 involving power distribution units for medical
imaging products, are to OEMs which incorporate the product into larger systems.
In the telecommunications market, I-Bus/Phoenix supplies power quality
protection and power conditioning systems, often through private label
arrangements, for broadcasting stations, remote transmitting sites, telecom base
stations and similar applications. Through private label arrangements and sales
to OEMs, I-Bus/Phoenix supplies power distribution units and UPS products for
industrial applications in the power and energy industries world-wide.
ELECTRONIC COMPONENTS
The Restructuring Plan organizes a high-reliability electronic components
group (the "Electronic Components Group") within the Company by combining its
POWERCACHE ultracapacitor business, its Sierra-KD EMI filter and ceramic
capacitor business and its Space Electronics, Inc. ("SEi") high-reliability and
radiation-hardened microelectronics business. These businesses involve
manufacturing high-reliability electronic components based on the Company's core
competencies in power and computing. During the Current Fiscal Year the Company
will integrate the POWERCACHE ultracapacitor business and SEi microelectronics
components business into one manufacturing site in San Diego, while the EMI
filters and ceramic capacitors will continue to be manufactured at the Company's
facility in Carson City, Nevada. Both facilities are being designed for
highly-efficient manufacturing, improved processes, improved personnel training
and more disciplined cost control practices.
ULTRACAPACITORS. The Electronic Components Group is developing the
POWERCACHE ultracapacitor to provide bursts of power for applications that
require a rapid injection of energy. The POWERCACHE ultracapacitor is scalable
in that it can be manufactured in a broad range of shapes and sizes. Currently,
the Company is developing ultracapacitors from sub-matchbook size to cells
measuring 2" x 2" x 6", while maintaining the same high energy storage per unit
volume. The POWERCACHE ultracapacitors can also be linked together in modules to
supply higher power for applications such as automotive and power quality
systems.
In fiscal year 1998, the Company entered into a collaborative agreement
with EPCOS AG, formerly Siemens Matsushita Components GmbH, which is a joint
venture of Siemens AG and Matsushita Electrical Industries in the field of
passive electrical components. The agreement provides for the sharing of
POWERCACHE ultracapacitor technology, sharing of ongoing product development by
both parties and the non-exclusive licensing right for EPCOS to manufacture
products based on POWERCACHE ultracapacitor technology and to sell such products
in all countries of the world except the United States, Canada and Mexico. EPCOS
will target the full range of applications for POWERCACHE ultracapacitors. The
Electronic Components Group received initial license fees and is entitled to
on-going royalties under the agreement.
The Company has identified consumer and industrial electronics markets as
the primary initial markets for its POWERCACHE ultracapacitors, which include
wireless communication devices such as two-way pagers, modems, global satellite
telephones and locator beacons, and other devices such as power tools, toys,
buoys, laptop and hand-held computers, emergency lights, and bar code scanners.
These devices require the small, sub-matchbook size POWERCACHE units. In
wireless communication devices, POWERCACHE ultracapacitors can increase signal
strength and significantly extend battery life for devices that transmit in
sequences of bursts. The Electronic Components Group is pursuing design-in wins
for its ultracapacitors into a variety of next generation portable devices
dependent on battery power, including two-way pagers and wireless modems, and
has targeted automatic meter reading devices and actuators as near-term
opportunities. During fiscal year 1999 and the Short Fiscal Year, the Electronic
Components Group installed and began the process of qualifying an automated
manufacturing line for small ultracapacitors, which will substantially increase
the production capacity for that device.
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The Company also has identified power quality and automotive as potential
markets for its ultracapacitor. In the power quality arena, the POWERCACHE
ultracapacitors can function as a standby reserve of power to be supplied in the
event of an electrical interruption or voltage fluctuation in an external power
source. For this purpose, ultracapacitors are now being integrated into a power
supply product sold by the Company's I-Bus/Phoenix subsidiary for sensitive
medical applications, such as MRI machines. In conventional combustion engine
vehicles, the POWERCACHE ultracapacitor has potential applications such as
catalytic converter pre-heating, air bag deployment, seat belt tightening and
engine starting. In electric and hybrid vehicles, the POWERCACHE ultracapacitors
have the potential to reduce the load on the battery pack by using its stored
energy for acceleration power and recapturing energy otherwise lost during
braking.
EMI FILTERS AND CERAMIC CAPACITORS. The Electronic Components Group
designs, manufactures and sells a line of ceramic capacitor filters to absorb
the electromagnetic fields and signals generated by electronic devices which
interfere with and disrupt the functioning of other electronic devices,
including implantable medical devices such as pacemakers and defibrillators,
and aerospace guidance and communications systems. These products block EMI
from entering an electronic device at the opening used by, for example, power
leads or sensors. The Company supplies these filters to major medical device
manufacturers, currently for use with implantable pacemakers and
defibrillators, but the devices could potentially also be used with other
cardiac devices, hearing aids and other implantable electronic devices.
Similar filters are supplied for military and commercial space programs
requiring high reliability broad-based EMI filters. The Electronic Components
Group also manufactures a line of high reliability ceramic capacitors capable
of operating at high voltages and high temperatures. These products are used
in applications ranging from aerospace and space to oil services and
exploration.
MICROELECTRONIC COMPONENTS. In fiscal year 1999, Maxwell acquired SEi, a
San Diego-based designer and manufacturer of high reliability, radiation
hardened microelectronic components and assemblies primarily for the space
market. Through this SEi unit, the Electronic Components Group provides
integrated circuits ("IC"s) and multi-chip modules designed and adapted for
space flight and other high reliability applications. In the space market,
SEi products are used in satellites which experience extreme environmental
conditions, often in radiation-intense orbits. The Electronic Components
Group uses proprietary technology, including its RAD-PAK-Registered
Trademark- packaging, to protect commercial, off-the-shelf integrated
circuits from radiation in space, and was recently selected by Sandia
National Laboratory to develop the first radiation-hardened single board
computer for the satellite market based on Intel's Pentium processor.
GOVERNMENT SYSTEMS
POWER SYSTEMS AND SIMULATORS. Through its Systems Division, Maxwell is
engaged in a variety of research and development programs in pulsed power,
pulsed power systems design and construction, and weapons effects simulation.
These services are primarily supplied to the United States government and its
agencies including the Air Force and the Defense Threat Reduction Agency. The
Systems Division also provides systems and services to national laboratories and
industrial and defense companies. The Systems Division typically performs
research and development under contracts that allow the Company to apply
developed technology in commercial markets.
The Systems Division performs above-ground simulation and testing of
weapons effects via the design and operation of large-scale X-ray and
electromagnetic pulse producing systems. The Systems Division operates and
maintains five simulation systems at its San Leandro facility and one such
system in San Diego. The San Diego system is scheduled for closure in calendar
year 2000. The Systems Division also has developed power quality systems and
power conditioning systems. In addition, the Company performs on-site technical,
operations and maintenance support at government facilities involving
applications such as electric and electrothermal gun research, advanced pulsed
power development, high-power microwave source development, energy storage and
system integration of advanced concept demonstration experiments. The System
Division's operation in Albuquerque, New Mexico, provides state-of-the-art
analysis in sensor design and development and signal processing for space
systems and testing support for techniques to harden electronic circuits and
systems from radiation in space and other hostile environments.
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COMPUTER-BASED ANALYTIC SERVICES AND SOFTWARE. Maxwell provides complex
computer-based analytic services, primarily to the U.S. Department of Defense
("DOD"), and sells various commercial software products. A primary focus is
computer modeling of physical phenomena and improvement of the architecture of
the computer-based systems and networks used for transmitting and applying data.
The Systems Division has developed highly advanced computer software for
modeling and predicting physical effects such as electromagnetic pulses,
electric currents, shock waves, ground shock and ground movement, as well as
modeling and predicting the interaction of chemical and biological agents with
buildings and other physical structures. The Company's space physics group has
begun working with commercial satellite developers to solve complex space
environment problems affecting existing and planned satellite constellations.
STERILIZATION AND PURIFICATION SYSTEMS
The Company's PurePulse Technologies, Inc. subsidiary ("PurePulse") applies
PUREBRIGHT intense broad spectrum pulsed light technology to kill viruses and
other microorganisms in water, blood plasma and other biopharmaceutical and
medical products, and on medical product packaging material.
Tests conducted during fiscal year 1999 confirmed that PUREBRIGHT
technology can be effective in deactivating microorganisms, including viruses
and other pathogens, in blood plasma products and other biopharmaceutical
products. The ability to destroy viruses without harming beneficial proteins
would open significant opportunities for PUREBRIGHT in the biotechnology
industry, ranging from treatment of biologically derived products to production
of vaccines.
PurePulse has strategic partnerships with medical and pharmaceutical
product companies, which are seeking FDA approval for PUREBRIGHT's integration
into blow-fill-seal plastic packaging equipment and certain disposable medical
product manufacturing equipment. In collaboration with la Calhene, the Company
has developed a barrier isolation system utilizing PUREBRIGHT for sterile
environments for use in the pharmaceutical industry. Such systems are planned by
la Calhene to be introduced to the market place in the Current Fiscal Year.
Systems based on PUREBRIGHT technology can also purify water, including
deactivating the cryptosporidium organism, which is not affected by many other
water treatment techniques, either at the point of entry into a facility, at the
point of use within a facility or as part of the in-flow process of production
and packaging. The technology is flexible enough to treat bottled water after it
has been packaged and sealed. PurePulse believes a significant market exists for
consumer water applications of PUREBRIGHT, and penetration of this market will
require development and marketing assistance from one or more strategic
partners.
As part of the Restructuring Plan, PurePulse will pursue PUREBRIGHT
applications in the medical, biopharmaceutical and consumer water markets.
Other PUREBRIGHT applications involving food and food packaging, industrial
water applications and niche markets in medical packaging, as well as
applications involving the COOLPURE-Registered Trademark- pulsed electric
field technology, will be de-emphasized and possibly sold or licensed.
Maxwell intends to seek equity financing directly into PurePulse to finance
its product development activities and operations.
DISCONTINUED OPERATIONS
As part of the Restructuring Plan, the Company decided to sell its high
voltage wound film capacitor business and its line of high voltage power
supplies. These capacitor and power supply products are predominantly used in
the military and medical industries. On February 29, 2000, the Company sold
these businesses for cash of $3.5 million.
The Company's Restructuring Plan also includes the sale of its Maxwell
Business Systems subsidiary, which markets time card and job cost accounting
software, as well as its glass-to-metal seal business located in Minnesota. The
Company is currently discussing potential terms of sale with parties who have
expressed interest in considering a purchase of these businesses.
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SALES AND MARKETING
The Company's commercial products sales teams consist of sales personnel
based in the Company's operating facilities and in geographically-dispersed
sales offices. These sales teams are supported by scientists, application
engineers and technical specialists. Sales and marketing for the Company's
products in the United States, and for industrial computer products in Europe,
are handled directly by the Company. Elsewhere, the Company utilizes sales
representatives and distributors to assist in the marketing of its products. The
Company conducts marketing programs intended to position and promote its
products and services, including trade shows, seminars, advertising, public
relations, distribution of product literature and web-sites on the Internet.
Emerging technologies require customer acceptance of new and different
technical approaches, and the sales effort for new products, particularly in the
Electronic Components and the Sterilization and Purification Systems business
segments, includes substantial involvement from engineers to demonstrate the
applications of the Company's products. Senior management is also significantly
involved in gaining access to customers or potential strategic partners to
discuss the Company's technology and emerging product lines. The time required
to demonstrate technical feasibility and cost effectiveness for new technologies
often requires an extended initial marketing effort by the Company. As a result,
an important part of the sales strategy for new products is to capitalize on
strategic partnerships formed to develop products and establish avenues to
obtain product validation.
In its Government Systems segment, the Company's sales and marketing are
primarily conducted by key scientists and other members of its technical staff.
A large portion of this business is obtained in response to requests for
proposals by the government, with the Company's bids and proposals focused on
providing the government with detailed technical information, as well as
competitive pricing. Successful performance of the Company's contracts is an
important factor in securing follow-on business.
COMPETITION
Each of Maxwell's business operations has competitors, many of whom have
longer operating histories, significantly greater financial, technical,
marketing and other resources, greater name recognition, and a larger installed
base of customers than the Company. In some of the target markets for the
Company's emerging technologies, the Company faces competition from products
utilizing alternative technologies.
The Company's primary competition in its passive backplane industrial
computer target markets include RadiSys Corporation, Diversified Technology,
Inc., American Advantech Corp., ICS Advent, Teknor Applicom, a Kontron company,
Trenton Technology, Inc., among others, resulting in a highly fragmented market
in which no one entrant is dominant. In addition, there are industrial computers
and subsystems divisions within several large OEM operations. Competitive
factors in this market include price, custom design expertise, functionality and
fault tolerance. The Company believes it competes favorably with respect to each
of these factors. CompactPCI is an emerging technology that is neither widely
marketed nor widely accepted; it will potentially compete with passive backplane
and much more widely installed VME-based systems for market share. The
competitive factors surrounding CompactPCI are very similar to passive backplane
systems; however, traditional VME manufacturers such as Motorola and Force have
entered the market.
The power quality market for I-Bus/Phoenix products is also highly
fragmented, with no single dominant participant. In the medical and
telecommunications industries in which I-Bus/Phoenix product offerings are
concentrated, the Company competes with several participants, including Liebert
Corporation, OnLine Power, Inc., Teal Electronics Corporation and the Square D
Corporation. The Company believes it competes favorably in these markets on
price, quality and functionality, and that it has competitive advantages in
those segments of the markets that emphasize custom design expertise, advanced
technology and rapid engineering turnaround.
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Although a number of companies are developing ultracapacitor technology,
the Company has three principal competitors in ultracapacitor products:
Panasonic, a division of Matsushita Electric Industries, Ltd.; Elna, a unit of
Asahi Glass; and Polystor, a manufacturer of batteries and ultracapacitors. The
key competitive factors are price, performance (energy stored and power
delivered per unit volume), form factor and breadth of product offerings.
Although its products are not yet sufficiently established to be fully
competitive on price, the Company believes it competes favorably with respect to
each of the other factors. In addition, the Company believes that with
increasing volume, it will achieve cost reductions sufficient to enable it to
compete aggressively on price. Ultracapacitors also compete with other
technologies, including high-power batteries in power quality and automobile
load leveling applications, flywheels in power quality and automotive
applications (including as a power source for electric vehicles), and
superconducting magnetic energy storage in power quality.
The Company's EMI filter business competes with AVX Filter, a subsidiary of
Kyocera, in the EMI feedthrough filter market. The competitive factors in this
market include price, breadth of electromagnetic spectrum filtered, small size
and reliability. The Company believes it competes favorably with respect to each
of these factors. The Company believes its patent for mounting of the filter at
the surface of the feedthrough for an implantable medical device provides a
competitive advantage by allowing the manufacture of a smaller sized device.
In radiation-hardened space products, the Company faces a variety of
competition in different product areas. The Company competes with traditional
radiation-hardened IC suppliers like Honeywell, Lockheed Martin, and Intersel
Devices for different monolithic ICs, processors and ASIC products. The Company
also has competition from commercial suppliers with lines that have favorable
radiation-hardened characteristics, like Temic in Europe and National
Semiconductor and Analog Devices. The Company competes with high reliability
packaging houses such as Austin, White Microelectronics, Teledyne and Sac Tec
for monolithic and multi-chip modules. Proprietary technology enables the
Company to compete using unique solutions on the most advanced commercial
electronic circuits.
The Company's competition in the government systems business ranges from
small competitors with expertise in specialized technology areas to large, high
technology government contractors such as SAIC, Titan and certain operations of
ITT. In addition, the Company faces growing competition in the x-ray simulation
and weapons effects business and various analytical and research and development
activities from U.S. National Laboratories. Much of this business is under cost
reimbursement-type contracts in which the cost structure of the enterprise is an
important competitive factor, as well as superior technology and a strong track
record of performance. The Company believes it competes favorably with respect
to these factors.
The Company does not believe that its PUREBRIGHT products have direct
competitors in the application of pulsed broad spectrum light to treat water or
sterilize medical or pharmaceutical products. Pulsed light does, however,
compete with many other established and developing technologies. Alternative
technologies for the sterilization, disinfection and purification of medical and
pharmaceutical products including technologies such as autoclave heat
sterilization, solvent detergents and other chemical and gamma radiation. For
water treatment, the Company faces competition from many alternative, and often
less expensive, technologies, including filtration systems, reverse osmosis,
chemicals, distillation technology and continuous wave ultraviolet light
systems.
MANUFACTURING AND SUPPLIERS
Maxwell currently performs design, assembly and systems integration for its
Power and Computing Systems and Sterilization and Purification Systems segments
and conducts material and component manufacturing in its Electronic Components
segment.
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The Company generally purchases components and materials, such as
electronic components, dielectric materials and enclosures of metal and plastic,
from a number of suppliers. In certain operations, the Company relies on a
limited number of suppliers or a single supplier. Although the Company believes
there are alternative sources for components and materials currently obtained
from a single source, there can be no assurance that the Company will be able to
identify and qualify alternative suppliers in a timely manner. Maxwell's
industrial computer business relies on single qualified suppliers for some of
its critical components, primarily CPU boards and some power supplies. The EMI
filters produced by the Company rely on a sole domestic source for one
component, and that supplier has indicated it plans to design, build and sell a
competing filter in the future. The Company believes this supplier will continue
to sell to the Company; but, if necessary, the Company could replace this
supplier or design and manufacture the component itself. Although the Company
seeks to reduce its dependence on sole and limited source suppliers, the partial
or complete loss of these sources could have at least a temporary material
adverse effect on the Company's results of operations, and damage customer
relationships due to the complexity of the products supplied and the significant
amount of time required to qualify new suppliers. See "Risk Factors".
The Company is currently laying out two new manufacturing facilities in San
Diego, one for I-Bus/Phoenix and the other for the Electronic Components Group.
The new facilities will improve the manufacturing capabilities and capacity for
the Company's commercial products.
RESEARCH AND DEVELOPMENT
The Company conducts internally-funded engineering, research and
development to refine and expand its products and services. For the Short Fiscal
Year and fiscal years 1999, 1998, and 1997 expenditures for internally-funded
research and development were approximately $3.5 million, $7.9 million, $7.4
million and $4.1 million, respectively. In addition, the Company performs
substantial research and development work funded by research grants and
customers, including agencies of the United States government and commercial
companies under strategic partnership arrangements.
PATENTS, LICENSES AND TRADEMARKS
An important element in the Company's success is the establishment and
maintenance of proprietary technologies. Although the Company attempts to
protect its intellectual property rights through patents, copyrights, trade
secrets and other measures, there can be no assurance that the steps taken by
the Company to protect its proprietary technologies will be adequate to prevent
misappropriation by third parties, or will be adequate under the laws of some
foreign countries, which may not protect the Company's proprietary rights to the
same extent as do the laws of the United States.
The Company uses employee and third-party confidentiality and
non-disclosure agreements to protect its trade secrets and unpatented know-how.
The Company requires each of its employees to enter into a proprietary rights
and non-disclosure agreement in which the employee agrees to maintain the
confidentiality of all proprietary information of the Company and, subject to
certain exceptions, to assign to the Company all rights in any proprietary
information or technology made or contributed by the employee during his or her
employment. In addition, the Company regularly enters into non-disclosure
agreements with third parties, such as potential joint venture partners and
customers.
The Company has historically relied primarily on its technological and
engineering abilities, and on its design and production capabilities to gain
competitive business advantages, rather than on patents or other intellectual
property rights. However, the Company does file patent applications on concepts
and processes developed by the Company's personnel, and, as its commercial
businesses expand, the Company has placed increased emphasis on patents to
provide protection for certain of its technologies and products. The Company's
success will depend in part on its ability to maintain its patents, add to them
where appropriate, and to develop new products and applications without
infringing the patent and other proprietary rights of third parties, and without
breaching or otherwise losing rights in technology licenses obtained by the
Company for other products.
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BACKLOG
The Company's funded backlog for continuing operations as of December 31,
1999, July 31, 1999 and July 31, 1998 amounted to approximately $55 million, $56
million and $38 million, respectively. The funded backlog consists of remaining
funding under cost-plus contracts for tasks not yet completed, remaining
revenues to be recognized on contracts accounted for on a
percentage-of-completion basis and firm orders for products not yet delivered.
The Company expects to complete or deliver substantially all of its currently
funded backlog within 12 months. Additional unfunded backlog related to
contracts awarded was approximately $57 million, $19 million and $34 million at
December 31, 1999, July 31, 1999 and July 31, 1998, respectively.
GOVERNMENT BUSINESS
A substantial portion of the Company's sales from continuing operations
(approximately 30% in the Short Fiscal Year and 31%, 32% and 33% in fiscal years
1999, 1998 and 1997, respectively) is derived from contracts with the United
States government, principally agencies of the DOD, and subcontracts with
government suppliers. The reductions in defense budgets in the 1990s adversely
affected the Company's activities, particularly in the area of system
survivability products and services, such as weapons effects simulation and
testing. The Company has also experienced increased competition in bidding for
new defense programs from contractors seeking to replace their lost business.
While the DOD has continued to fund, although at lower levels, research on
next-generation pulsed power concepts, the simulation machine in the Company's
San Diego facility will cease operations in the Current Fiscal Year, and the
operation of the Company's remaining simulation machines remains subject to
curtailment.
The Company's government contracts may be performed over a multi-year
period, with funding provided in increments of one year or less. Government
agencies may terminate their contracts, in whole or in part, at their
discretion. In such event, the government agency is generally obligated to pay
the costs incurred by the Company thereunder, plus a fee based upon work
completed. Contract costs for services or products supplied to government
agencies, including allocated indirect costs, are subject to audit and
adjustment. Contract costs have been reviewed and accepted by the government
through fiscal year 1995. Contract revenues for periods subsequent to fiscal
year 1995 have been recorded in amounts that are expected to be realized upon
final review and settlement. Contracts entered into by the Company with
government agencies are fixed-price contracts or cost-plus contracts. Under a
fixed-price contract, the customer agrees to pay a specific price for
performance. Under a cost-plus contract, the customer agrees to pay an amount
equal to the Company's allowable costs in performing the contract, plus a fixed
or incentive fee. Certain costs of doing business, such as interest expenses and
advertising expenses, are not allowable under cost-plus contracts. Greater risks
are involved under a fixed-price contract than under a cost-plus contract,
because in a fixed-price contract the Company assumes responsibility for
providing the specified product or services regardless of the actual costs
incurred. Failure to anticipate technical problems, estimate costs accurately or
control costs during contract performance reduces or eliminates the contemplated
profit and can result in a loss. On the other hand, the government generally
permits higher profit margins when establishing prices for fixed-price contracts
because of such risks. In the Government Systems business segment approximately
81%, 77%, 82% and 85% of sales were derived from cost-plus contracts in the
Short Fiscal Year and fiscal years 1999, 1998 and 1997, respectively, and the
balance of sales in such years were derived from fixed-price contracts.
GOVERNMENT REGULATION
The testing, manufacture and sale of certain of the Company's products are
subject to regulation by numerous governmental authorities. Pursuant to the
Federal Food, Drug, and Cosmetic Act, and the regulations promulgated
thereunder, the U.S. Food and Drug Administration ("FDA") regulates the
pre-clinical and clinical testing, manufacture, labeling, storage, distribution
and promotion of food and medical products and processes. The Company is
supporting customers in obtaining FDA clearance of PUREBRIGHT for medical
applications. The Company's EMI filter capacitor has been approved for use in
implantable defibrillators and implantable pacemakers of certain medical device
manufacturers.
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The testing, preparation of necessary marketing applications and processing
of those applications with the FDA is expensive and time consuming, can vary
based on the type of product and may take several years to complete. There is no
assurance that the FDA will act favorably or quickly in making such reviews, and
significant difficulties or costs may be encountered by the Company in its
efforts to obtain FDA approvals that could delay or preclude the Company from
marketing any products it may develop, or furnish an advantage to competitors.
The FDA may also require post-marketing testing and surveillance to monitor the
effects of approved products or place conditions on any approvals that could
restrict the commercial applications of such products. Product approvals may be
withdrawn if compliance with regulatory standards is not maintained or if
problems occur following initial marketing.
Because of the nature of its operations and the use of hazardous substances
in certain of its ongoing manufacturing and research and development activities,
the Company is subject to stringent federal, state and local laws, rules,
regulations and policies governing the use, generation, manufacturing, storage,
air emission, effluent discharge, handling and disposal of certain materials and
wastes. Although the Company believes it is in material compliance with all
applicable government and environmental laws, rules, regulations and policies,
there can be no assurance that the Company's business, financial condition or
results of operations will not be materially adversely affected by current or
future environmental laws, rules, regulations and policies or by liability
arising out of any past or future releases or discharges of materials that could
be hazardous. See "Risk Factors."
FOREIGN SALES
The Company's revenue from customers outside of the United States was $11.4
million in the Short Fiscal Year, and $31.0 million, $19.4 million, and $11.4
million in fiscal years 1999, 1998 and 1997, respectively. Of the total foreign
sales in the Short Fiscal Year and fiscal years 1999 and 1998, $5.9 million,
$13.1 million and $8.3 million, respectively, were attributable to sales to
customers located in the United Kingdom. In fiscal year 1997, $4.0 million of
sales were attributable to customers in Japan.
SEGMENTS
The Company's business segments are discussed in Note 12 of Notes to
Consolidated Financial Statements included as Item 8 herein. The Company
currently operates in four business segments: Power and Computing Systems
(includes design and manufacture of standard, custom and semi-custom industrial
computer modules, platforms and fully-integrated systems and power quality
systems); Electronic Components (includes design, development and manufacture of
high-reliability electronic components, including products such as
ultracapacitors, EMI filter capacitors and radiation-hardened microelectronics);
Government Systems (includes research and development and programs in pulsed
power, pulsed power systems design and construction, weapons effects simulation
and computer-based analytic services) and Sterilization and Purification Systems
(includes sterilization and purification systems to reduce or eliminate
microbial contamination). Also see "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included as Item 7 herein.
EMPLOYEES
At December 31, 1999, the Company's continuing operations had 896
employees, including 62 employees with Ph.D. degrees and 70 others with
post-graduate degrees. The Company had another 179 employees at operations to be
discontinued. None of the Company's employees is represented by a labor union.
Maxwell considers its relations with its employees to be good.
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RISK FACTORS
The Company's business, financial condition and results of operations could
be adversely impacted by any of the following risks. The risks set out below are
not exhaustive.
WE MAY NOT ACHIEVE THE GOALS OF OUR RESTRUCTURING PLAN
Our Restructuring Plan is designed to improve the manufacturing and other
operational capabilities of our commercial businesses. This involves combining
several separate businesses into two new commercial divisions and moving from
eight facilities in San Diego into four. To achieve our financial goals,
particularly in the next few quarters, these combinations must be done
successfully and on schedule, and we must achieve our operating goals of
reducing costs, increasing efficiency and improving quality. A number of factors
could affect our ability to reach these goals, including our ability to
accomplish the following:
- obtain and build out new facilities at the right time and at a
reasonable cost;
- sublease or terminate lease-hold obligations of excess facilities
on a timely basis;
- combine separate employee organizations into single
organizations;
- move manufacturing and assembly operations without seriously
delaying regular product shipments;
- combine manufacturing facilities to reduce costs and improve
efficiency; and
- redesign our manufacturing processes for improved quality and
productivity.
OUR SUCCESS DEPENDS ON OUR ABILITY TO DEVELOP AND MARKET OUR PRODUCTS AND
TECHNOLOGIES
Many of our products are in the development stage. Our products are also
alternatives to established products or are new technologies that provide
capabilities that do not presently exist in the marketplace. Our products are
sold in highly competitive and rapidly changing markets. The success of our
products is significantly affected by their cost, technology standards and end
user preferences. In addition, the success of our products depends on a number
of factors, including our ability to:
- overcome technical, financial and other risks involved in
introducing new products and technologies;
- identify and develop a market for our new products and
technologies;
- produce products that can be competitively priced;
- respond to technological changes by improving our existing
products and technologies;
- accurately anticipate market demand for our products and
technologies;
- demonstrate that our products have technological and/or economic
advantages over the products of our competitors; and
- respond to competitors that are more experienced, have
significantly greater resources, and a larger base of customers.
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OUR SUCCESS DEPENDS ON OUR ABILITY TO TRANSITION FROM RELYING ON THE GOVERNMENT
SECTOR TO PRIVATE-SECTOR SALES
Historically, we have relied upon various government agencies to fund our
research and development, and we have derived a significant portion of our
revenues from the government sector. Our business strategy is to now concentrate
on developing, manufacturing and marketing our products to the private sector,
while maintaining steady revenues from the government sector. Our success in
this transition will depend upon a number of objectives, including the
following:
- developing and manufacturing new products at competitive prices;
- gaining customer acceptance for our products and services;
- expanding our customer base through our sales and marketing
efforts;
- increasing and improving our manufacturing capabilities; and
- developing extensions of our existing products and services into
new applications.
WE DEPEND ON OEM CUSTOMERS AND AS A RESULT HAVE LONG SALES CYCLES
Sales to a few original equipment manufacturers, known as "OEMs," as
opposed to direct retail sales to customers, make up a significant part of our
revenues. The timing and volume of these sales depend upon the sales levels and
shipping schedules for the products of our OEM customers. Thus, even if we
develop a successful component, our sales will not increase unless the product
into which our component is incorporated is successful. If our OEM customers
fail to sell a sufficient quantity of products incorporating our components, or
if the OEMs' sales timing and volume fluctuates, it could have a material
adverse effect on our business, financial condition and results of operations.
Our OEM customers typically require a long development and engineering process
before incorporating our products and services into their devices. This period
of time is in addition to the time we spend on basic research and product
development. As a result, we are vulnerable to changes in technology or end user
preferences.
Our opportunity to sell our products to our OEM customers typically occurs
at infrequent intervals, depending on when the OEM customer designs a new
product or enhances an existing one. If we are not aware of an OEM's product
development schedule, or if we cannot provide components or technologies when
they develop their products, we will miss an opportunity that may not reappear
for some time.
WE RELY ON STRATEGIC RELATIONSHIPS THAT MAY NOT BE SUCCESSFUL
We have established and will continue to attempt to establish strategic
relationships with corporate partners and United States government agencies to
develop our products. These relationships allow us to understand and access new
markets, and provide us an opportunity to test our products. If these
relationships are not successful or not continued, it could have a material
adverse effect on our sales and growth. The success of these relationships
depends on a number of factors, including:
- the interest in our products which are still in the development
stage;
- our success in meeting the expectations of our strategic
partners; and
- our strategic partners' success in marketing or their willingness
to purchase any such products.
We may not be successful in continuing our relationships with our current
strategic partners. In addition, we may not be able to enter into new strategic
relationships on commercially reasonable terms, or if we do, these relationships
may not be successful.
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EVEN IF SUCCESSFUL, OUR STRATEGIC RELATIONSHIPS PRESENT SEVERAL RISKS
Although we rely extensively on our strategic relationships, these
relationships present several risks to our business, including the following:
- Our partners may require us to share control over our
development, manufacturing and marketing programs, and limit our
ability to license our technology to others. In addition, some of
our partners require that we share our proprietary technology
with them and restrict our ability to engage in some areas of
product development and marketing;
- Our strategic partners may use or disclose the technology which
we jointly develop without paying us any royalties;
- We often grant certain exclusive rights to our strategic partners
as an incentive for them to participate in the development of a
product. Any exclusive rights granted to strategic partners may
decrease our ability to find a broader market for some of our
products. This may have the effect of substantially decreasing
our revenues during the exclusivity period; and
- Our strategic partners may seek to manufacture jointly developed
products on their own or obtain these products from third party
sources that would have the effect of decreasing our revenues
from these products.
OUR ACQUISITION STRATEGY COULD ADVERSELY AFFECT OUR PERFORMANCE
As part of our business strategy, we regularly review possible acquisitions
of complementary companies, technologies or products, and periodically engage in
discussions regarding such possible acquisitions. During fiscal year 1999, we
acquired three businesses with strategic importance to different areas of our
operations. The businesses we acquired are geographically dispersed, with one
located in California, one in Nevada and the other in Germany. We completed four
acquisitions in fiscal year 1998. The success of our acquisition strategy
depends on a number of factors, including the following:
- correctly valuing the commercial potential of technologies owned
by the companies we acquire;
- successfully integrating the operations, products, personnel and
cultures of the companies we acquire;
- effectively managing our operations in a number of locations and
foreign countries;
- our ability to focus on our day-to-day business operations while
pursuing our acquisition strategy;
- our ability to enter markets in which we have limited or no
direct experience; and
- retaining the key employees of the companies we acquire.
In addition, similar to the acquisitions we completed in fiscal years 1999
and 1998, any future acquisition may result in:
- dilutive issuances of equity securities;
- the incurrence of debt;
- a decrease in our cash balances;
- amortization expenses related to goodwill and other intangible
assets; and
- other charges to operating results, including acquired in-process
research and development charges.
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Moreover, there can be no assurance that any equity or debt financing
proposed in connection with any acquisition will be available to us on
acceptable terms or at all, when, and if, we find a suitable company, technology
or product to acquire. We cannot assure that any acquisition we complete will
result in long-term benefits to us or to our stockholders or that we will be
able to effectively manage the resulting business.
WE HAVE INCURRED LOSSES HISTORICALLY AND IN THE EVENT OF FUTURE LOSSES, THE
PRICE OF OUR COMMON STOCK MAY FLUCTUATE
We have incurred net losses in two of our past five full fiscal years, and
during the five-month period August 1 through December 31, 1999. In the future,
we may experience significant fluctuations in our revenues and we may incur net
losses from period to period as a result of a number of factors, including the
following:
- our success in achieving the goals of our Restructuring Plan;
- the amounts invested in developing and marketing our products in
any period as compared to the volume of sales of those products
in the same period;
- fluctuations in the demand for our products by OEMs;
- the prices at which we sell our products and services as compared
to the prices of our competitors;
- the timing of our product introductions as compared to those of
our competitors;
- the profit margins on our mix of product sales;
- the structure and timing of new strategic relationships;
- the contraction, cancellation or suspension by the United States
government of its programs and contracts with us; and
- the dilution, debt, expenses, and/or charges we incur as part of
our acquisition strategy.
In addition, we incur significant costs developing and marketing products
based on new technologies. If in any period these costs are more than the
revenues we derive from the sales of these products, it could have the effect of
offsetting any income derived from our other products, and we could incur net
losses.
We anticipate that, in order to increase our market share, we may sell our
products and services at profit margins below those we ultimately expect to
achieve and/or significantly reduce the prices of our products and services in a
particular quarter or quarters. The impact of the foregoing may cause our
operating results to be below the expectations of public market analysts and
investors. In such event, the price of our common stock would likely fluctuate.
WE MAY EXPERIENCE DIFFICULTIES MANUFACTURING OUR PRODUCTS
We may experience difficulties in manufacturing our products in increased
quantities, outsourcing the manufacturing of our products, and customizing our
manufacturing process. We have limited experience in manufacturing our products
in high volume. It may be difficult for us to:
- increase the quantity of the new products we manufacture,
especially those products that contain new technologies; and
- reduce our manufacturing costs to a level needed to produce
adequate profit margins.
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It may also be difficult for us to solve management, technological,
engineering and other problems related to our manufacturing processes. These
problems include production yields, quality control and assurance, component
supply, and shortages of qualified management and other personnel. In addition,
in order to manufacture our products in high volume, we will need to continue to
expand our current facilities and/or obtain additional facilities. We may not be
successful in expanding our facilities or in obtaining additional facilities.
We may elect to have some of our products manufactured by third parties.
Outsourcing involves risks with respect to quality assurance, cost and the
absence of close engineering support.
Part of our ultracapacitor manufacturing strategy is to implement a process
that will allow customization of our ultracapacitors 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
our needs.
WE HAVE LIMITED MARKETING AND SALES EXPERIENCE AND OUR STRATEGY DEPENDS ON THIRD
PARTIES
We have limited experience marketing and selling our products. To sell our
products, we will need to train our marketing and sales personnel to effectively
demonstrate the advantages of our products over the products offered by our
competitors. The highly technical nature of the products we offer may limit our
ability to retain and attract adequate marketing and sales personnel. Thus, as
part of our sales and marketing strategy, we enter into arrangements with
distributors and sales representatives and depend upon their efforts to sell our
products. These arrangements may not be successful.
OUR SUCCESS DEPENDS UPON PROTECTING OUR INTELLECTUAL PROPERTY RIGHTS
Our success depends on the establishment and maintenance of intellectual
property rights. Although we try to protect our intellectual property rights
through patents, copyrights, trade secrets and other measures, these steps may
not prevent misappropriation by third parties. Other issues include:
- adequately protecting our intellectual property rights under the
laws of some foreign countries, which may not be as protective as
United States laws; and
- the possibility that third parties could "reverse engineer" our
products in order to determine their method of operation and
introduce competing products or develop competing technology
independently.
As our business has expanded, we have emphasized protecting our
technologies and products through patents. Our success depends on maintaining
our patents, adding to them where appropriate, and developing products and
applications without infringing on third parties' patent and proprietary rights.
The risks involved in protecting our patents include:
- our patents may be circumvented or challenged and held
unenforceable or invalid;
- our pending or future patent applications, if any, may not be
issued with the protections we seek; and
- others may claim rights in the patented and other proprietary
technology owned or licensed by us.
If our patents are invalidated or if it is determined that we, or the
licensor of the patent, do not hold sole rights to the patent, it could have a
material adverse effect on our business, results of operations and financial
condition, particularly if we cannot design around others' proprietary rights.
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Competing research and patent activity in our product areas is substantial.
Conflicting patent and other proprietary rights claims may result in disputes or
litigation. Although we do not believe that our products or proprietary rights
infringe on third party rights, infringement claims could be asserted against us
in the future. The negative effects of such claims, with or without merit, are:
- time-consuming, costly litigation;
- product shipment delays;
- we could be required to enter into royalty or licensing
agreements; and
- possible damage payments or injunctions which prevent us from
making, using or selling the infringing product.
Also, we may not be able to stop a third party's product from infringing on
our proprietary rights, without litigation.
Some of our owned or licensed patents and patent applications have
"march-in" rights and non-exclusive, royalty-free, confirmatory licenses held by
various governmental agencies or other entities. "March-in" rights are the
United States government or agency's right to cancel agreements and require a
contractor to grant licenses to third parties if the contractor does not develop
the technology in the agreements. Confirmatory licenses permit the United States
government to select vendors other than us to make products for them which would
otherwise infringe our patent rights that are subject to the royalty-free
licenses.
In addition, the United States government can require us to grant licenses
(including exclusive licenses) of our patents and patent applications or other
inventions developed for the government to a third party if it finds that we did
not commercialize such inventions or if such action is necessary:
- to meet public health or safety needs;
- to meet requirements for public use under federal regulations; or
- because we have not made reasonable efforts to ensure products
are manufactured in the United States.
Because a number of our commercial products are derived from technology
originally developed in government funded programs, these risks may apply
outside of the work on government contracts.
THERE ARE RISKS ASSOCIATED WITH OUR INTERNATIONAL SALES AND OPERATIONS
We derive an increasing portion of our revenues from sales to customers
located outside of the United States. We expect our international sales to
continue to represent a significant and increasing portion of our future
revenues. As a result, our business will continue to be subject to certain
risks, such as foreign government regulations and export controls, as well as
changes in tax laws, tax treaties, tariffs and freight rates.
We have only recently established or acquired operations in foreign
countries. Since we are relatively inexperienced in managing our international
operations, we may be unable to focus on the operation and expansion of our
worldwide business and to manage cultural, language and legal differences
inherent in international operations. In addition, to the extent we are unable
to effectively respond to political, economic and other conditions in these
countries, our business, results of operations and financial condition could be
materially adversely affected. Moreover, changes in the mix of income from our
foreign subsidiaries, expiration of tax holidays and changes in tax laws and
regulations could result in increased tax rates for us.
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THERE ARE RISKS ASSOCIATED WITH OUR CONTINUING BUSINESS WITH THE UNITED STATES
GOVERNMENT
We derive a significant portion of our revenues, including revenues from
contracts with the United States government, principally agencies of the DOD,
and from subcontracts with government suppliers. The reductions in defense
budgets in the 1990s have adversely affected our traditional business,
particularly in the area of system survivability products and services, such as
weapons effects simulation and testing. We have also experienced increased
competition in bidding for new defense programs from contractors seeking to
replace their lost government business. In addition, defense spending in
general, and the number and size of contracts awarded to us, could be reduced in
the future. A significant loss of United States government funding would have a
material adverse effect on our business, results of operations and financial
condition.
Our business with the United States government 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 our confidential information to
third parties;
- the failure or inability of a subcontractor or contractor to
perform its obligations under a contract in circumstances where
we are the 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 our contracts with the DOD and other government
agencies will not be terminated, reduced or modified.
OUR SUCCESS DEPENDS ON OUR ABILITY TO OBTAIN A SUBSTANTIAL AMOUNT OF CAPITAL
We believe that in the future we will need a substantial amount of capital
for a number of purposes including the following:
- to achieve our long-term strategic objectives;
- to maintain and enhance our competitive position;
- to meet anticipated volume production requirements for several of
our product lines;
- to expand our manufacturing capabilities and facilities;
- to establish viable production alternatives;
- to fund our continuing expansion into commercial markets;
- to construct and equip additional or existing facilities; and
- to acquire new or complementary businesses, product lines and
technologies.
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There can be no assurance that the necessary additional financing will be
available to us on acceptable terms or at all. If adequate funds are not
available, we may be required to change, delay, reduce or eliminate our planned
product commercialization strategy or our anticipated facilities expansion plans
and expenditures. This could have a material adverse effect on our business,
results of operations and financial condition.
OUR SUCCESS DEPENDS ON OUR KEY PERSONNEL
Since we primarily focus on emerging technologies, our success depends upon
the continued service of our key technical and senior management personnel. Some
of our scientists and engineers are the key developers of our products and
technologies and are recognized as world-leaders in their area of expertise. The
loss of any of these scientists or engineers to our competitors could end our
technological and competitive advantage in some product areas and business
segments.
Our performance also depends on our 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
we compete are characterized by a high level of employee mobility and aggressive
recruiting of skilled personnel. Our employees may terminate their employment
with us at any time.
WE RELY ON A LIMITED NUMBER OF THIRD PARTY SUPPLIERS
Our ability to manufacture products depends, in part, on our ability to
secure qualified and adequate sources of materials, components and
sub-assemblies at prices which enable us to make our products at competitive
costs. Some of our suppliers are currently the sole source of one or more items
which we need to manufacture our products. On occasion, we have experienced
difficulty in obtaining timely delivery of supplies from outside suppliers. This
has adversely impacted our delivery time to our customers and, in one
circumstance, we believe 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.
Currently, a single domestic supplier provides one of the components for
our EMI filter product. This supplier has indicated that it plans to design,
build and sell a product which would compete with our EMI filter. If this
occurs, we believe that we could still obtain the component from this supplier
or, if necessary, we believe that we could replace this supplier with another
vendor, or that we could manufacture the component on our own. Although we seek
to reduce our 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 our business and results of operations, and damage customer
relationships.
WE ARE EXPOSED TO SIGNIFICANT PRODUCT LIABILITY RISKS
Our EMI filters are components of implantable medical devices and, due to
the litigious environment surrounding the medical device industry, may subject
us to an increased risk of product liability claims that may involve significant
defense costs. Our other products 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 us in the future. Although we
maintain product liability insurance with coverage limits that we believe to be
adequate, there can be no assurance that this coverage will, in fact, be
adequate to protect us 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 us in amounts or on
terms satisfactory to us, if at all. A successful product liability claim or
series of claims brought against us could have a material adverse effect on our
business, financial condition and results of operations.
WE ARE SUBJECT TO VARIOUS ENVIRONMENTAL REGULATIONS
We are subject to a variety of environmental regulations relating to the use,
storage, discharge, handling, emission, generation, manufacture and disposal of
toxic or other hazardous substances. If we fail to comply with current or future
regulations, substantial fines could be imposed against us, our production could
be suspended or stopped, or our manufacturing process could be altered. Such
regulations could require us to acquire expensive remediation or abatement
equipment or to incur substantial expenses to comply with environmental
regulations. If we fail to adequately control the use, discharge, disposal or
storage of hazardous or toxic substances, we could incur significant
liabilities.
18
<PAGE>
OUR FINANCIAL CONDITION COULD BE AFFECTED BY THE STOCK OPTION PLANS AT OUR
SUBSIDIARIES
Several of our principal operating subsidiaries have employee stock option
plans which provide for the issuance of options to purchase shares of the
subsidiary's common stock. In most cases, we can grant up to 12% or 15% of the
outstanding stock of a subsidiary under its stock option plan. Certain key
employees of one of our subsidiaries, Maxwell Business Systems, Inc., however,
own an aggregate of 20%, and have the right to purchase up to an additional 29%,
of that subsidiary's common stock. If the options granted under one of our
subsidiary's stock option plans are exercised, our ownership interest in that
subsidiary will be reduced. This will have the effect of reducing our portion of
the net income and dividends that we receive from that subsidiary, as well as
reducing the proceeds if we were to sell that subsidiary. Ultimately, we expect
that our reported earnings per share will be reduced in future quarters due to
the increasing fair value of certain subsidiaries and the dilution created by
options granted under our subsidiaries' stock option plans.
OUR FINANCIAL CONDITION COULD BE AFFECTED BY POTENTIAL PUBLIC OFFERINGS OF OUR
SUBSIDIARIES' STOCK
Due to our corporate structure of operating through separate subsidiaries,
we could engage in future public offerings or other sales of the common stock of
our subsidiaries, sales of subsidiaries or strategic acquisitions with
subsidiary stock if our board determined that it was in the best interests of
the stockholders to pursue that course of action. Some of these alternatives
could adversely effect our business, financial condition and results of
operations. For example, any public offering or other sale of a minority portion
of a subsidiary's stock would reduce that subsidiary's contribution to our net
income and earnings per share.
WE MAY FACE DIFFICULTIES IN OBTAINING FOOD AND DRUG ADMINISTRATION APPROVAL FOR
OUR PRODUCTS
Some of our products are subject to the approval process of the FDA because
they are used for food storage or in medical devices. These products include our
PUREBRIGHT technologies and the EMI filter. There are many aspects of the FDA
approval process that could have a material adverse effect on our business,
financial condition and results of operations, including the following:
- the FDA testing and application process is expensive and lengthy,
and varies based on the type of product;
- our products may not ultimately receive FDA approval or
clearance, which would prevent us from marketing such products;
- the FDA may restrict a product's intended use as a condition to
approving or clearing such product, or place conditions on any
approval that could restrict the commercial applications of such
products;
- the FDA may require post-marketing testing and surveillance to
monitor the effects of products it initially approves;
- 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.
19
<PAGE>
ANTI-TAKEOVER PROVISIONS IN OUR CERTIFICATE OF INCORPORATION AND BYLAWS COULD
PREVENT TRANSACTIONS WHICH ARE IN THE BEST INTEREST OF OUR STOCKHOLDERS
Some provisions in our 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 our stockholders. We have a staggered Board of
Directors, which means that our directors are divided into three classes. The
directors in each class are elected to serve three-year terms. 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, our certificate of incorporation contains a "fair price provision"
which may require a potential acquirer to obtain the consent of our board to any
business combination involving Maxwell. Our certificate of incorporation and
bylaws do not permit stockholder action by written consent or the calling by
stockholders of a special meeting.
We have adopted a program under which our stockholders have rights to
purchase our stock directly from Maxwell at a bargain price if a company or
person attempts to buy Maxwell without talking to the Board. This program is
intended to encourage a buyer to negotiate with us, but may have the effect of
discouraging offers from possible buyers.
The provisions of our certificate of incorporation and bylaws could delay,
deter or prevent a merger, tender offer, or other business combination or change
in control involving us that some, or a majority, of our stockholders might
consider to be in their best interests. This includes offers or attempted
takeovers that could result in our stockholders receiving a premium over the
market price for their shares of our common stock.
OUR COMMON STOCK EXPERIENCES LIMITED TRADING VOLUME AND OUR STOCK PRICE HAS BEEN
VOLATILE
Our common stock is traded on the Nasdaq National Market. The trading
volume of our 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 our stock is traded. We believe factors such as quarterly
fluctuations in financial results, announcements of new technologies impacting
our products, announcements by competitors or changes in securities analysts'
recommendations may cause the price of our stock 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 our common stock.
ITEM 2. PROPERTIES
The Company owns a 45,600 square foot engineering and administrative
support facility and a 22,000 square foot manufacturing facility, both located
in San Diego, California. In addition, the Company owns a 25,000 square foot
manufacturing facility on 2.6 acres of land located in Carson City, Nevada. The
Company leases seven other facilities in the San Diego area and a 240,000 square
foot facility in San Leandro, California, of which 45,000 square feet is
subleased to a third party. Under the Restructuring Plan, the Company intends to
continue to occupy the facilities it owns and reduce the number of leased
facilities in San Diego to three facilities with a total of 96,000 square feet
of office, engineering and manufacturing space. The Company also leases an 8,200
square foot facility in Minneapolis, Minnesota, three facilities totaling 30,000
square feet in the United Kingdom, a 9,000 square foot facility in Germany and
3,400 square foot facility in Nice, France. The Company leases office space in
Reston, Virginia, and Albuquerque, New Mexico. The Company's leased facilities
are leased for varying terms and some of them contain options permitting the
Company to extend the lease term. The Company utilizes its current facilities
(prior to completion of the Restructuring Plan) in the following manner:
corporate, sales and administrative (126,000 sq. ft.); manufacturing, assembly
and testing, research and development laboratories and engineering (515,000 sq.
ft.) The Company also utilizes on a rent-free basis 22,000 square feet at
Kirkland Air Force Base in Albuquerque, New Mexico.
20
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
In January 1991, the California Department of Toxic Substances Control, or
DTSC, notified the Company that it had been identified as one of a number of
"potentially responsible parties" with respect to alleged hazardous substances
released into the environment at a recycling facility in San Diego County. As
Maxwell is not in the business of transporting or disposing of waste materials,
the Company retained the services of the owners of the recycling facility to
transport certain waste material generated by Maxwell. After properly delivering
the materials to the transporter, Maxwell was not further involved in the
transportation, treatment or disposal of the materials. Under California and
Federal "Superfund" laws, Maxwell is a potentially responsible party even though
it was not involved in the transport or disposal of the substances. Moreover, it
is the Company's understanding that alleged hazardous substances from at least
approximately 160 other potentially responsible parties were released at the
facility.
In 1992, the Company and approximately 40 other potentially responsible
parties signed a consent order with the State of California with respect to
costs to be incurred at a recycling facility to characterize and remediate
hazardous substances. To date, the site has been characterized, and the Company
and the other potentially responsible parties have paid substantially all of
their respective shares of the costs of such characterization. The estimated
cost of monitoring and remediation activities, of which the Company's share is
currently estimated at approximately 3.3%, totals approximately $23 million.
Approximately $21 million of this amount will consist of maintenance, monitoring
and related costs to be incurred over a 25-30 year period. The Company has
accrued its share of such estimated costs; on the basis of amounts accrued by
the Company, it is management's opinion that any additional liability resulting
from this situation will not have a material effect on the Company's financial
statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
21
<PAGE>
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under
the symbol "MXWL." The following table sets forth, for the fiscal periods
indicated, the high and low closing sales prices for the Common Stock as
reported by the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
---- ---
<S> <C> <C>
SHORT FISCAL YEAR
November 1, 1999 to December 31, 1999 $11-1/2 $ 7-7/8
Quarter ended October 31, 1999 26-15/16 10-3/16
FISCAL YEAR 1999
Quarter ended July 31, 1999 $30-11/16 $18-5/8
Quarter ended April 30, 1999 34-1/2 18-3/16
Quarter ended January 31, 1999 40-1/4 23-3/8
Quarter ended October 31, 1998 26-3/8 19-1/4
FISCAL YEAR 1998
Quarter ended July 31, 1998 $28-7/8 $22
Quarter ended April 30, 1998 32-5/16 25
Quarter ended January 31, 1998 36-3/8 21
Quarter ended October 31, 1997 38-1/2 21-3/4
</TABLE>
The last reported sale price of the Common Stock on the Nasdaq National
Market on March 15, 2000, was $16.50 per share. As of December 31, 1999, there
were 507 holders of record of the Company's Common Stock.
The Company currently anticipates that any earnings will be retained for
the development and expansion of its business and, therefore, does not
anticipate paying dividends on its Common Stock in the foreseeable future. In
addition, under the Company's Line-of-Credit Agreement, neither the Company nor
any of its subsidiaries may, directly or indirectly, pay any cash dividends to
its stockholders.
22
<PAGE>
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
Short Fiscal Year and for the fiscal years ended July 31, 1999, 1998 and
1997, and consolidated balance sheet data as of December 31, 1999 and July
31, 1999 and 1998 are derived from the Consolidated Financial Statements of
the Company and Notes thereto included in this Form 10-K, which have been
audited by Ernst & Young LLP, independent auditors. The following selected
consolidated statement of operations data for the fiscal years ended July 31,
1996 and 1995 and consolidated balance sheet data as of July 31, 1997, 1996
and 1995 are derived from audited consolidated financial statements of the
Company not included in this Form 10-K. All selected consolidated financial
data presented has been restated to reflect certain businesses to be divested
by the Company as discontinued operations. The following selected data should
be read in conjunction with Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS and Item 8. CONSOLIDATED
FINANCIAL STATEMENTS appearing elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
FIVE-MONTH PERIOD
ENDED DECEMBER 31, YEARS ENDED JULY 31,
----------------- -------------------------------------------------------------
1999 1999 1998 1997 1996 1995
--------- --------- --------- --------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
<S> <C> <C> <C> <C> <C> <C>
Continuing Operations:
Sales......................... $ 52,170 $153,686 $123,358 $101,899 $ 76,534 $ 68,088
Cost of sales................. 41,382 105,039 81,554 65,669 56,548 49,098
-------- -------- -------- -------- -------- --------
Gross profit.................. 10,788 48,647 41,804 36,230 19,986 18,990
Operating expenses:
Selling, general and
administrative............ 16,436 34,398 26,677 20,694 17,378 13,702
Research and development.... 3,451 7,893 7,375 4,061 3,083 3,261
Restructuring, acquisition and
other charges............. 4,953 3,050 6,339 -- 5,703 --
-------- -------- -------- -------- -------- --------
Total operating expenses.. 24,840 45,341 40,391 24,755 26,164 16,963
-------- -------- -------- -------- -------- --------
Operating income (loss)....... (14,052) 3,306 1,413 11,475 (6,178) 2,027
Interest expense.............. (112) (404) (338) (220) (368) (361)
Interest income and other, net 17 647 1,471 238 395 871
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income
taxes, minority interest and
cumulative effect of change in
accounting principle........ (14,147) 3,549 2,546 11,493 (6,151) 2,537
Provision (credit) for income
taxes......................... (5,474) (5,582) 413 1,473 1,894 118
Minority interest in net income
(loss) of subsidiaries...... (548) 427 80 54 50 86
-------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations.................. (8,125) 8,704 2,053 9,966 (8,095) 2,333
Discontinued operations, net of tax:
Income (loss) from operations. (2,901) 2,364 (3,760) (3,459) (3,322) (1,880)
Provision for estimated loss on
disposal.................... (2,065) -- -- -- -- --
-------- -------- -------- -------- -------- --------
(4,966) 2,364 (3,760) (3,459) (3,322) (1,880)
Cumulative effect of change in
accounting principle.......... -- -- -- -- 2,569 --
-------- -------- -------- -------- -------- --------
Net income (loss)................ $(13,091) $ 11,068 $ (1,707) $ 6,507 $(13,986) $ 453
======== ======== ======== ======== ======== ========
Basic net income (loss) per share:
Income (loss) from continuing
operations.................. $ (0.85) $ 0.93 $ 0.24 $ 1.47 $ (1.28) $ 0.35
Income (loss) from discontinued
operations.................. (0.52) 0.25 (0.44) (0.51) (0.52) (0.28)
Cumulative effect of change in
accounting principle........ -- -- -- -- (0.41) --
-------- -------- -------- -------- -------- --------
Basic net income (loss) per share $ (1.37) $ 1.18 $ (0.20) $ 0.96 $ (2.21) $ 0.07
======== ======== ======== ======== ======== ========
Diluted income (loss) per share:
Income (loss) from continuing
operations.................. $ (0.85) $ 0.88 $ 0.22 $ 1.33 $ (1.28) $ 0.35
Income (loss) from discontinued
operations.................. (0.52) 0.24 (0.41) (0.46) (0.52) (0.28)
-------- -------- -------- -------- -------- --------
Cumulative effect of change in
accounting principle........ -- -- -- -- (0.41) --
-------- -------- -------- -------- -------- --------
Diluted net income (loss) per share $ (1.37) $ 1.12 $ (0.19) $ 0.87 $ (2.21) $ 0.07
======== ======== ======== ======== ======== ========
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, --------------------------------------------------------------------
1999 1999 1998 1997 1996 1995
----------- ---------- ---------- ---------- ---------- ----------
CONSOLIDATED BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Total assets......................... $ 105,781 $ 122,291 $ 105,702 $ 50,774 $ 44,177 $ 31,943
Cash and cash equivalents............ $ 4,065 $ 8,832 $ 21,629 $ 2,321 $ 2,446 $ 4,137
Long-term debt, including current
portion............................ $ 459 $ 3,668 $ 2,434 $ 1,762 $ 2,193 $ 3,250
Shareholders' equity at year-end..... $ 84,416 $ 97,168 $ 80,153 $ 32,617 $ 23,243 $ 36,666
Shares outstanding at year-end....... 9,564 9,557 9,210 6,969 6,513 6,204
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company applies industry-leading capabilities in power and computing to
develop and market products and services for customers in multiple industries,
including energy, satellite, defense, telecommunications, consumer electronics,
medical and bioprocessing markets.
In November 1999, the Company's Board of Directors adopted a resolution
to change the Company's fiscal year to a calendar year effective January 1,
2000. The Company previously reported results on a fiscal year of August 1
through July 31. The following discussion includes the five-month transition
period August 1 to December 31, 1999 (the "Short Fiscal Year") and the
previously reported fiscal years ended July 31, 1999, 1998 and 1997. See Note
1 of the Notes to Consolidated Financial Statements.
During the Short Fiscal Year, the Company adopted a plan to restructure
its operations (the "Restructuring Plan") and to change its fiscal year to a
calendar year effective January 1, 2000. This Restructuring Plan (i)
consolidates certain commercial business operations and improves their
manufacturing and other operational capabilities, (ii) focuses the defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories, (iii) focuses the application of
PUREBRIGHT technology on bioprocessing, medical and consumer water markets,
and (iv) provides for the sale of certain non-strategic business operations.
Beginning with the Current Fiscal Year, the Company has combined its
industrial computer business and its power quality business. The Company has
also combined three components businesses - POWERCACHE ultracapacitors, EMI
filters and other ceramic capacitor products and radiation-hardened
microelectronics - into a commercial, high-reliability electronic components
group. The Company has focused its defense contracting business on pulsed power
systems and computer-based analysis for government and national laboratories.
Maxwell's PurePulse Technologies subsidiary will concentrate on significant
opportunities in the application of PUREBRIGHT technology to pathogen
inactivation in medical and bioprocessing markets and to consumer water
applications. Finally, the Company has initiated the sale of its businesses
involving high voltage wound film capacitors, high voltage power supplies, time
card and job cost accounting software and glass-to-metal seals. Results of
operations for all prior fiscal years have been restated to report these
businesses as discontinued operations. On February 29, 2000, the Company sold
the high voltage wound film capacitors and high voltage power supplies
businesses for cash of $3.5 million.
The Company generates revenue from the sale of commercial products and from
performing contract research and other projects for the United States government
and other customers. From time to time, the Company also generates revenue from
licensing technology and other rights to strategic partners. Sales and marketing
for the Company's products in the United States, and for industrial computers in
Europe, are handled directly by the Company. Elsewhere, the Company utilizes
sales representatives and distributors to assist in the marketing of its
products. The Company conducts marketing programs intended to position and
promote its products and services, including trade shows, seminars, advertising,
public relations, distribution of product literature and web-sites on the
Internet.
24
<PAGE>
The Company's operating expenses are substantially impacted by selling,
general and administrative activities and by research and development
activities. Selling expenses are primarily driven by (1) sales volume, with
respect to sales force expenses and commission expenses; (2) the extent of
market research activities for new product design efforts; (3) advertising and
trade show activities and (4) the number of new products launched in the period.
General and administrative expenses primarily include costs associated with the
Company's administrative employees, facilities and functions. The Company incurs
expenses in foreign countries primarily in the functional currencies of such
locations. As a result of the Company's international operations, the United
States dollar amount of its revenue and expenses is impacted by changes in
foreign currency exchange rates. The Company's ability to maintain and grow its
sales depends on a variety of factors including its ability to maintain its
competitive position in areas such as technology, performance, price, brand
identity, quality, reliability, distribution and customer service and support.
The Company's sales growth also depends on its ability to continue to introduce
new products that respond to technological change and market demand in a timely
manner.
BUSINESS SEGMENTS
In accordance with the requirements and guidelines of Statement of
Financial Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("Statement No. 131"), Maxwell's operations
have been classified into business segments. In connection with the Company's
Restructuring Plan, the Company has integrated its businesses into new operating
divisions. Accordingly, the Company has defined four new reporting segments as
follows (prior year segment information has been restated to conform to the new
segmentation):
POWER AND COMPUTING SYSTEMS
As part of its Restructuring Plan, the Company is integrating its
I-Bus, Inc. and Phoenix Power Systems, Inc. subsidiaries
("I-Bus/Phoenix"). The new I-Bus/Phoenix operation will expand the
industrial computer product line of I-Bus, Inc. with complementary
power quality products and broaden the global reach of the power
quality products. As part of the Restructuring Plan, the Company is
combining the San Diego operations of these two subsidiaries into a
single facility in San Diego. The new San Diego facility is being
designed for highly-efficient manufacturing, with improved processes,
improved personnel training and more disciplined cost control
practices.
The Company designs, manufactures and supplies standard, custom and
semi-custom industrial computer modules, platforms and fully-integrated
systems to OEMs, on a worldwide basis. The Company's I-Bus/Phoenix
product line ranges from enclosures, CPU boards and backplanes to fully
integrated and highly customized computer systems. This product line
primarily employs passive backplane architecture, complemented by a
newly-introduced CompactPCI line of products.
The I-Bus/Phoenix power quality products consist of power distribution
units, power conditioners and inverters, uninterruptible power supplies
("UPS") and other power protection products. These products are
designed and engineered by the Company for customer applications
primarily in the medical and telecommunications markets.
ELECTRONIC COMPONENTS
The Restructuring Plan organizes a high-reliability electronic
components group (the "Electronic Components Group") within the Company
by combining its POWERCACHE ultracapacitor business, its Sierra-KD EMI
filter and ceramic capacitor business and its Space Electronics, Inc.
("SEi") high-reliability and radiation-hardened microelectronics
business. These businesses involve manufacturing high-reliability
electronic components based on the Company's core competencies in power
and computing. During the Current Fiscal Year the Company will
integrate the POWERCACHE ultracapacitor business and microelectronics
components business into one manufacturing site in San Diego, while the
EMI filters and ceramic capacitors will continue to be manufactured at
the Company's facility in Carson City, Nevada. Both facilities are
being designed for highly-efficient manufacturing, with improved
processes, improved personnel training and more disciplined cost
control practices.
25
<PAGE>
The Components Group is developing the POWERCACHE ultracapacitor to
provide bursts of power when a rapid injection of energy is required
for an application. The POWERCACHE ultracapacitor is scalable in that
it can be manufactured in a broad range of shapes and sizes. Currently,
the Company is developing ultracapacitors from sub-matchbook size to
cells measuring 2" x 2" x 6", while maintaining the same high energy
storage per unit volume. The POWERCACHE ultracapacitors can also be
linked together in modules to supply higher power for applications such
as automotive and power quality systems.
The Electronic Components Group designs, manufactures and sells a line
of ceramic capacitor filters to absorb the electromagnetic fields and
signals generated by electronic devices which interfere with and
disrupt the functioning of other electronic devices, including
implantable medical devices such as pacemakers and defibrillators, and
aerospace guidance and communications systems. These products block EMI
from entering an electronic device at the opening used by, for example,
power leads or sensors.
In fiscal year 1999, Maxwell acquired SEi, a San Diego-based designer
and manufacturer of high reliability, radiation hardened
microelectronic components and assemblies primarily for the space
market. Through this SEi unit, the Electronic Components Group provides
integrated circuits and multi-chip modules designed and adapted for
space flight and other high reliability applications. In the space
market, SEi products are used in satellites which experience extreme
environmental conditions, often in radiation-intense orbits.
GOVERNMENT SYSTEMS
Through its Systems Division, Maxwell is engaged in a variety of
research and development programs in pulsed power, pulsed power systems
design and construction, and weapons effects simulation. These services
are primarily supplied to the United States government and its agencies
including the Air Force and the Defense Threat Reduction Agency. The
Systems Division also provides systems and services to national
laboratories and industrial and defense companies. The Systems Division
typically performs research and development under contracts that allow
the Company to apply developed technology in commercial markets.
STERILIZATION AND PURIFICATION SYSTEMS
The Company's PurePulse Technologies, Inc. subsidiary ("PurePulse")
applies PUREBRIGHT intense broad spectrum pulsed light technology to
kill viruses and other microorganisms in water, blood plasma and other
biopharmaceutical and medical products, and on medical product
packaging material.
As part of the Restructuring Plan, PurePulse will pursue PUREBRIGHT
applications in the medical, biopharmaceutical and consumer water
markets. Other PUREBRIGHT applications involving food and food
packaging, industrial water applications and niche markets in medical
packaging, as well as applications involving the COOLPURE-Registered
Trademark- pulsed electric field technology, will be de-emphasized and
possibly sold or licensed. Maxwell intends to seek equity financing
directly into PurePulse to finance its product development activities
and operations.
26
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected
operating data for the Company, expressed as a percentage of sales.
<TABLE>
<CAPTION>
FIVE-MONTH PERIOD
ENDED DECEMBER 31, YEARS ENDED JULY 31,
-------------------------- --------------------------------------
1999 1998 1999 1998 1997
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Continuing Operations:
Sales.......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................. 79.3 70.0 68.3 66.1 64.4
----------- ---------- ---------- ---------- ----------
Gross profit................................... 20.7 30.0 31.7 33.9 35.6
Operating expenses:
Selling, general and administrative.......... 31.5 25.4 22.4 21.6 20.3
Research and development..................... 6.6 5.5 5.1 6.1 4.0
Restructuring, acquisition and other charges. 9.5 0.3 2.0 5.1 --
----------- ---------- ---------- ---------- ----------
Total operating expenses..................... 47.6 31.2 29.5 32.8 24.3
----------- ---------- ---------- ---------- ----------
Operating income (loss)........................ (26.9) (1.2) 2.2 1.1 11.3
Interest expense............................... (0.2) (0.3) (0.3) (0.2) (0.2)
Interest income and other, net................. -- 0.1 0.4 1.2 0.2
----------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations before
income taxes and minority interest........... (27.1) (1.4) 2.3 2.1 11.3
Provision (credit) for income taxes............ (10.5) 0.2 (3.6) 0.3 1.5
Minority interest in net income of subsidiaries (1.0) 0.2 0.2 0.2 --
----------- ---------- ---------- ---------- ----------
Income (loss) from continuing operations....... (15.6) (1.8) 5.7 1.6 9.8
Discontinued operations, net of tax:
Income (loss) from operations.................. (5.5) (1.4) 1.5 (3.0) (3.4)
Provision for estimated loss on disposal....... (4.0) -- -- -- --
------------ ---------- ---------- ---------- ----------
Net income (loss)................................. (25.1)% (3.2)% 7.2% (1.4)% 6.4%
=========== ========== ========== ========== ==========
</TABLE>
27
<PAGE>
The following table sets forth sales, gross profit and gross profit as a
percentage of sales for each of the Company's business segments.
<TABLE>
<CAPTION>
FIVE-MONTH PERIOD
ENDED DECEMBER 31, YEARS ENDED JULY 31,
------------------------- --------------------------------------
1999 1998 1999 1998 1997
---------- ----------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Power and Computing Systems:
Sales..................................... $ 27,720 $ 18,540 $ 65,095 $ 42,848 $ 34,259
Gross profit.............................. 7,998 5,569 20,419 14,560 11,537
Gross profit as a percentage of sales..... 28.9% 30.0% 31.4% 34.0% 33.7%
Electronic Components:
Sales..................................... $ 7,699 $ 16,310 $ 34,646 $ 32,755 $ 29,477
Gross profit.............................. 146 6,344 11,444 14,134 15,465
Gross profit as a percentage of sales..... 1.9% 38.9% 33.0% 43.2% 52.5%
Government Systems:
Sales..................................... $ 16,123 $ 17,685 $ 44,556 $ 40,981 $ 31,690
Gross profit.............................. 3,665 2,987 10,889 9,582 6,379
Gross profit as a percentage of sales..... 22.7% 16.9% 24.4% 23.4% 20.1%
Sterilization and Purification Systems:
Sales..................................... $ 628 $ 3,223 $ 9,389 $ 6,774 $ 6,473
Gross profit (loss)....................... (1,021) 1,838 5,895 3,528 2,849
Gross profit as a percentage of sales..... -- 57.0% 62.8% 52.1% 44.0%
Consolidated (from continuing operations):
Sales..................................... $ 52,170 $ 55,758 $ 153,686 $ 123,358 $ 101,899
Gross profit.............................. 10,788 16,738 48,647 41,804 36,230
Gross profit as a percentage of sales..... 20.7% 30.0% 31.7% 33.9% 35.6%
</TABLE>
SALES
In the Short Fiscal Year, sales from continuing operations ("sales") totaled
$52.2 million, a decrease of $3.6 million, or 6.4%, from total sales of $55.8
million for the comparable five-month period ended December 31, 1998. In fiscal
year 1999, total sales were $153.7 million, an increase of $30.3 million, or
24.5%, from $123.4 million in fiscal year 1998. In fiscal year 1998 sales
increased $21.5 million, or 21.1%, to $123.4 million from $101.9 million in
fiscal year 1997. International sales totaled $11.4 million, $31.0 million,
$19.4 million, and $11.4 million in the Short Fiscal Year and in fiscal years
1999, 1998 and 1997, respectively.
Sales in the Short Fiscal Year were lower than in the comparable five-month
period ended December 31, 1998 because the Short Fiscal Year included revenue
from sales of licenses and other collaborative agreements of only $0.6 million,
while the comparable prior period included $4.8 million of such revenue. Revenue
from sales of products increased approximately 2% to $51.6 million in the Short
Fiscal Year, from $50.7 million in the comparable prior period. Sales in the
Short Fiscal Year were negatively impacted by reduced revenues from the
wind-down of certain government programs and by economic issues facing certain
customers in the commercial satellite and oil markets. Expansion of the
Company's industrial computer business in Germany and France in fiscal year 1999
and a full year of sales in fiscal year 1999 from the Company's United Kingdom
industrial computer operation, which was acquired in fiscal year 1998, are the
primary drivers for the increased international sales in fiscal years 1999 and
1998. Sales in both fiscal years 1999 and 1998 increased over the prior fiscal
year in all of the Company's business segments. Sales within each of the
Company's business segments is discussed below.
28
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POWER AND COMPUTING SYSTEMS. In the Short Fiscal Year, sales in this
segment totaled $27.7 million, an increase of $9.2 million, or 50.2%, from sales
of $18.5 million in the comparable five-month period ended December 31, 1998. In
fiscal year 1999, Power and Computing Systems sales increased $22.3 million, or
51.9%, to $65.1 million from $42.8 million in fiscal year 1998. Domestic sales
in this segment are made principally to OEM customers and are primarily derived
from the shipment of power and computing systems that are "designed-in" to the
OEMs' products. Over the last two fiscal years, the Company has strengthened its
international presence through the acquisition of industrial computer businesses
in the United Kingdom and Germany and through the inception of operations in
France. These European businesses focus on lower-priced standard products, with
an emphasis on catalog sales. The increase in sales in the Short Fiscal Year, as
well as in fiscal year 1999, is primarily attributable to the increase in
European sales and an increase in sales of power quality protection and delivery
systems, following the fiscal year 1998 acquisition of Phoenix Power Systems,
Inc., as well as new design-in wins for customized OEM products, including
supply contracts for industrial computers of approximately $27 million over two
years under two Siemens ElectroCom L.P. programs for the United States Postal
Service. Partially offsetting these increases was the completion in the second
quarter of fiscal year 1998 of sales to a single, long-standing OEM customer
under a multi-year program and the curtailment at the end of fiscal year 1998 of
the Company's program with Digital Equipment Corporation due to its acquisition
by Compaq Computers. While standard product sales have accelerated, and the
Company continues to expand its presence in Europe, sales under large OEM
programs remain a critical element of this business. As a current marketing
strategy, the Company has issued product catalogs featuring both the standard
and custom product lines with the dual aim of generating direct sales, as well
as leads for additional OEM design-in opportunities. In addition, the Company's
recent integration of the industrial computer and power quality businesses
should improve the international sales of the power quality products and
services. If sales of OEM products do not achieve the levels projected by the
OEM, or if OEM projects are curtailed due to consolidations or other market
conditions, the Company may be unable to offset such loss of sales.
In fiscal year 1998, Power and Computing Systems sales increased $8.5
million, or 25.0%, to $42.8 million from $34.3 million in fiscal year 1997.
Sales growth in this business segment was principally derived from the expansion
of its standard product offerings and marketing capabilities with acquisitions
of a United Kingdom-based industrial computer company, and San Diego-based
Phoenix Power, specializing in power quality conditioning and delivery systems.
Although the Company completed a major multi-year program with a long-standing
customer during the first half of fiscal year 1998, other new OEM design-in
projects, as well as the expansion into more standard products, more than offset
the impact of the major program completed, resulting in the sales growth for the
year.
ELECTRONIC COMPONENTS. In the Short Fiscal Year, Electronic Components
sales totaled $7.7 million, a decrease of $8.6 million, or 52.8%, from sales of
$16.3 million in the comparable five-month period ended December 31, 1998. The
decrease in sales in the Short Fiscal Year resulted partly from the fact that no
revenue was received in the Short Fiscal Year from technology licenses and other
collaborative agreements, while $3.0 million of such revenue was received in the
prior year comparable period in the POWERCACHE ultracapacitor business area. In
addition, revenues from customers of the Company's microelectronic components
business area in the commercial satellite market decreased in the Short Fiscal
Year due to recent economic issues affecting such customers. Also, over-stock
issues at its primary medical filter customer and weakness in oil and space
markets resulted in a decrease in sales in the Company's EMI filters and ceramic
capacitors business area. In the Current Fiscal Year, the Company expects to see
improved trends in each of these customer and market areas.
In fiscal year 1999, Electronic Components sales increased $1.8 million, or
5.7%, to $34.6 million from $32.8 million in fiscal year 1998. Sales in the EMI
filter capacitor businesses contributed to the sales increase in this business
segment. In fiscal year 1999, the Company acquired a small manufacturer of
ceramic capacitors used in a variety of high voltage applications, including
commercial space, defense and medical equipment. This business was combined with
another business of the Company, which makes similar ceramic products for
different markets, and which has a growing business in filters for implantable
medical devices. The combination of these complementary product lines provided
improved efficiencies and economies of scale in the Company's Carson City,
Nevada facility. Partially offsetting the increased product sales, revenue from
licenses and collaborative agreements decreased to $3.7 million in fiscal year
1999 from $7.3 million in fiscal year 1998.
29
<PAGE>
In fiscal year 1998, Electronic Components sales increased $3.3 million, or
11.1%, to $32.8 million from $29.5 million in fiscal year 1997. Nearly all
product areas contributed to the sales growth. Specifically, the ultracapacitor
business area entered into new strategic partnering arrangements, including
marketing and technology access rights with EPCOS AG (formerly Siemens
Matshusita Components) and PacifiCorp. The Company also experienced sales growth
in EMI filters for implantable medical products and aerospace applications.
GOVERNMENT SYSTEMS. Sales for this segment in the Short Fiscal Year were
$16.1 million as compared to $17.7 million for the comparable five-month period
ended December 31, 1998. In fiscal year 1999, sales in this segment increased
$3.6 million, or 8.7%, to $44.6 million from $41.0 million in fiscal year 1998.
In April 1998, the Company acquired Physics International ("PI"), a primarily
government-funded pulsed power research and simulation business of Primex
Technologies. PI was the Company's principal competitor in the simulation area,
and the combined businesses consolidate scientific and technical research
capabilities for the benefit of both the government and the Company's technology
base. The inclusion of revenues from PI accounted for substantially all of the
increase in revenue in this segment in fiscal year 1999 as compared to fiscal
year 1998. However, these increases were offset in both fiscal year 1999, and
the Short Fiscal Year by the wind-down and completion of several government
programs. The Company has won certain follow-on contracts, but the levels of
work under such new programs were less than in prior periods.
In fiscal year 1998, Government Systems sales increased $9.3 million, or
29.3%, to $41.0 million from $31.7 million in fiscal year 1997. This increase
was in the Company's core, government-funded pulsed power research and
development activities, including revenue from PI following the acquisition.
A substantial portion of the revenues in this business segment comes from
contracts with the DOD and other agencies of the U.S. government. These
contracts are subject to increases and decreases as well as to periodic changes
in government funding provisions. Additional replacement or follow-on contracts
may not be available or awarded to the Company. The level of future government
expenditures in the Company's research and development areas and the related
impact on funding for the Company's contracts are therefore not predictable, and
previously reported results are not necessarily indicative of those to be
expected in the future.
STERILIZATION AND PURIFICATION SYSTEMS. In the Short Fiscal Year, sales
totaled $0.6 million, a substantial decrease from prior periods. Prior year
revenues consisted primarily of fees under license agreements with key partners
in several strategic business areas. No such agreements occurred in the Short
Fiscal Year. The Company is redefining its product strategy and market focus in
this segment and, as a result, does not expect significant revenue contribution
from either license fees or product sales in the Current Fiscal Year.
In fiscal year 1999, Sterilization and Purification Systems sales increased
$2.6 million, or 38.6%, to $9.4 million from $6.8 million in fiscal year 1998.
Revenues in fiscal year 1999 consisted primarily of fees under license
agreements with key partners in several strategic business areas. The license
agreements included a grant to two Sanyo entities of certain non-exclusive
rights for manufacturing and distribution of this segment's products; an
exclusive license agreement with Johnson & Johnson Vision Products, Inc. for the
integration of PUREBRIGHT pulsed light sterilization systems into the
manufacturing process for contact lenses, including a one-time license fee,
on-going royalties and an equipment supply arrangement; and an amendment of an
existing license with a long-standing partner which narrowed the field of
exclusivity and eliminated certain minimum purchase requirements, in exchange
for a one-time payment.
In fiscal year 1998, Sterilization and Purification Systems sales increased
$0.3 million, or 4.7%, to $6.8 million from $6.5 million in fiscal year 1997.
GROSS PROFIT
In the Short Fiscal Year, the Company's gross profit was $10.8 million, or
20.7% of sales, a substantial decrease from prior years. Reduced sales volumes,
specifically, decreases in high margin revenues from licenses and other
collaborative agreements, and certain write-offs of inventories determined to be
excess or obsolete are the primary reasons for the reduced gross margins.
30
<PAGE>
In fiscal year 1999, the Company's gross profit increased $6.8 million, or
16.4%, to $48.6 million as compared to $41.8 million in fiscal year 1998. In
fiscal year 1998, gross profit increased $5.6 million, or 15.4%, to $41.8
million from $36.2 million in fiscal year 1997. As a percentage of sales, gross
profit was 31.7% in fiscal year 1999 compared to 33.9% in fiscal year 1998 and
35.6% in fiscal year 1997. Reductions in gross margins as a percentage of sales
from fiscal year 1997 to fiscal years 1998 and 1999 result from a combination of
factors, including: an increase in revenues from sales of full systems with
significant third party content, upon which lower overall gross profit margins
are realized; a decrease in high margin development funding and technology
license fees; and changes in the mix of products and services sold. The Company
believes that its Restructuring Plan, which consolidates certain commercial
business operations and improves their manufacturing and other operational
capabilities, will result in an improvement in the gross profit margins achieved
by the Company. Gross profit by segment is discussed below.
POWER AND COMPUTING SYSTEMS. In the Short Fiscal Year, Power and Computing
Systems gross profit totaled $8.0 million, or 28.9% of sales, compared to $5.6
million, or 30% of sales for the five-month period ended December 31, 1998. This
decrease in gross margin as a percentage of sales is primarily attributable to a
lower margin mix of product sales in the Short Fiscal Year and certain
write-offs of excess and obsolete inventories.
In fiscal year 1999, Power and Computing Systems gross profit increased
$5.8 million, or 40.2%, to $20.4 million from $14.6 million in fiscal year 1998.
As a percentage of sales, gross profit decreased to 31.4% in fiscal year 1999
from 34.0% in fiscal year 1998. This decrease was primarily due to a change in
sales mix which, in fiscal year 1998, included certain higher margin products
for an OEM that were near the end of their life cycle, with no such sales in
fiscal year 1999. In addition, more of the Company's revenues are derived from
contracts which include full systems with greater third party content, upon
which lower overall gross profit margins are realized.
In fiscal year 1998, Power and Computing Systems gross profit increased
$3.1 million, or 26.2%, to $14.6 million from $11.5 million in fiscal year 1997.
As a percentage of sales, gross profit increased to 34.0% in fiscal year 1998
from 33.7% in fiscal year 1997. This increase in gross profit as a percentage of
sales was primarily the result of increased sales during the first half of
fiscal year 1998 of certain higher-margin customized OEM products to a
long-standing customer under a program that was completed during the second
quarter of that year. As a result of the completion of this program, as well as
the Company's entry into the lower-price standard product arena, gross profit
margins were higher in the first half of fiscal year 1998 than in the second
half in this business area.
ELECTRONIC COMPONENTS. Gross profit for the Electronic Components segment
was $0.1 million in the Short Fiscal Year, or 1.9% of sales. Gross profit in
this segment was significantly impacted in the Short Fiscal Year by unabsorbed
overhead and other production costs in the POWERCACHE ultracapacitors business
area, which is currently in the start-up phase of volume production, resulting
in negative gross margins. In addition, this business area received no
contribution in the Short Fiscal Year from high margin revenue from licenses and
other collaborative agreements. The Company expects POWERCACHE gross margins to
turn positive and improve as sales volumes increase in this business. As
ultracapacitor product sales ramp-up, gross margins will continue to be impacted
until the Company reaches full production volumes. The Company is currently
working on programs to reduce the cost of materials and automate manufacturing
in an effort to reduce its production costs. However, required infrastructure
and other investments are continuing to be made which will impact gross profit
at current sales volumes. Low sales volumes in the other electronic components
business areas also contributed to reduced gross margins in the Short Fiscal
Year. In addition, the EMI filter, ceramic capacitors and the SEi
microelectronics business areas recorded charges in the Short Fiscal Year to
write-off certain slow moving or excess inventories, also impacting gross
margins.
In fiscal year 1999, Electronic Components gross profit decreased $2.7
million to $11.4 million from $14.1 million in fiscal year 1998. As a percentage
of sales, gross profit decreased to 33.0% in fiscal year 1999 from 43.2% in
fiscal year 1998. The decrease in gross profit primarily reflects a decrease in
high margin development funding and technology license fees of $3.7 million, and
also reflects a lower margin mix of products and services. This decrease also
reflects changes in the Company's pricing strategies in response to competitive
pressures, as it continues to improve penetration in its various markets.
In fiscal year 1998, gross profit decreased $1.4 million to $14.1 million
from $15.5 million in fiscal year 1997. Gross margin as a percentage of sales
decreased to 43.2% in 1998 from 52.5% in fiscal year 1997. This decrease in
gross profit primarily reflects lower margins received on a large program at
SEi.
31
<PAGE>
GOVERNMENT SYSTEMS. In the Short Fiscal Year, gross profit was $3.7
million, or 22.7% of revenues, compared to $3.0 million or 16.9% of sales for
the five-month period ended December 31, 1998. Gross profit as a percentage of
sales for the five-month period ended December 31, 1998 was negatively impacted
by poor absorption of fixed overhead costs prior to an adjustment later in
fiscal year 1999 to the rates billable to the government by this segment.
In fiscal year 1999, Government Systems gross profit increased $1.3
million, or 13.6%, to $10.9 million from $9.6 million in fiscal year 1998. As a
percentage of sales, gross profit increased to 24.4% in fiscal year 1999 from
23.4% in fiscal year 1998. The primary factors in the increase in gross profit
in fiscal year 1999 as compared to fiscal year 1998 is the full year
contribution of revenues and gross margins from PI, following its acquisition in
April 1998.
In fiscal year 1998, Government Systems gross profit was $9.6 million, up
from $6.4 million in fiscal year 1997. As a percentage of sales, gross profit
increased to 23.4% in fiscal year 1998 from 20.1% in fiscal year 1997. The
increase in gross profit, both as a dollar amount and as a percentage of sales,
in fiscal year 1998 as compared to fiscal year 1997, relates to the acquisition
of PI, as well as a commercial contract for pulsed power systems won during
fiscal year 1998. This contract was substantially complete as of the end of
fiscal year 1998.
STERILIZATION AND PURIFICATION SYSTEMS. With very low sales volume in the
Short Fiscal Year, gross profit in the Sterilization and Purification Systems
segment was a loss of $1.0 million, reflecting unabsorbed fixed costs.
In fiscal year 1999, Sterilization and Purification Systems gross profit
increased $2.4 million to $5.9 million from $3.5 million fiscal year 1998. As a
percentage of sales, gross profit increased to 62.8% in fiscal year 1999 from
52.1% in fiscal year 1998. In fiscal year 1998, gross profit increased to $3.5
million and 52.1% from $2.8 million and 44.0% in sales in fiscal year 1997. The
increase in gross profit, both in dollars and as a percentage of sales, reflects
a substantial portion of high margin revenues from license activities in fiscal
year 1999 compared to fiscal year 1998 and in fiscal year 1998 compared to
fiscal year 1997. In fiscal year 1998, the Company substantially completed a
multi-year, low-margin research program with the US Army. The revenues from this
program were replaced in fiscal year 1999 and fiscal year 1998 with higher
margin commercial licensing and developmental programs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
In the Short Fiscal Year, selling, general and administrative expenses were
approximately $16.4 million, or 31.5% of sales compared to $14.1 million, or
25.4% of sales for the five-month period ended December 31, 1998. The increase
in these expenses is primarily in support of the Company's growth in fiscal year
1999 and the continuing expansion into Europe by the Power and Computing Systems
business segment. The Short Fiscal Year also includes $750,000 of severance
costs related to the Company's former CEO. As further discussed below, the
Company adopted a Restructuring Plan in the Short Fiscal Year which includes
certain facility consolidations and other cost-saving programs which will be
implemented in the Current Fiscal Year.
In fiscal year 1999, the Company's selling, general and administrative
expenses increased $7.7 million, or 28.9%, to $34.4 million from $26.7 million
in fiscal year 1998 and $20.7 million in fiscal year 1997. As a percentage of
total sales, selling, general and administrative expenses increased to 22.4% in
fiscal year 1999 from 21.6% in fiscal year 1998 and 20.3% in fiscal year 1997.
The increase in these expenses was primarily in support of the Company's sales
growth, including the businesses acquired in fiscal years 1999 and 1998. In
addition, the Company made certain investments related to administrative
infrastructure and in administrative and sales support which has increased the
expenses as a percentage of sales.
32
<PAGE>
RESEARCH AND DEVELOPMENT EXPENSES
The Company's research and development expenses reflect only internally
funded research and development programs. Costs associated with research and
development contracts funded by the United States government and other customers
are included in cost of sales. Research and development expenses were $3.5
million, $7.9 million, $7.4 million and $4.1 million for the Short Fiscal Year
and fiscal years 1999, 1998 and 1997, respectively. As a percentage of sales,
research and development expenses were 6.6% in the five-month period ended
December 1999, 5.1% in fiscal year 1999, 6.1% in fiscal year 1998, and 4.0% in
fiscal year 1997. The level of research and development expenses reflects, in
part, the Company's ability to obtain customer funding to support a portion of
its research and product development activities. The increase in the amount of
internally funded research and development as a percentage of sales in the Short
Fiscal Year reflects an increased emphasis on development of new commercial
product areas.
RESTRUCTURING, ACQUISITION AND OTHER CHARGES
In connection with the Restructuring Plan, the Company has undertaken
various actions to improve the cost structure of the Company. As a result, the
Company recorded restructuring and other related charges in the Short Fiscal
Year totaling approximately $5.0 million. These charges primarily include
severance costs related to a reduction in work force, the closure and
combination of certain facilities and the write-off of non-performing operating
assets. The Company expects to record additional restructuring-related charges
over the next three fiscal quarters as the Company completes its Restructuring
Plan and finalizes the consolidation and integration of its operations and
related facilities.
During fiscal year 1999, the Company recorded restructuring, acquisition
and other charges of approximately $3.1 million. Of these charges, approximately
$1.6 million consisted of direct acquisition costs for business combinations
accounted for using the pooling-of-interests method. The remaining $1.5 million
charge consists primarily of amounts provided for revised estimates of costs to
resolve certain environmental and legal contingencies which occurred in prior
years, as well as other restructuring provisions, including employee and
facility expenses, related to decisions made in July 1999 to reduce certain
administrative infrastructure of the Company in Europe and the United States.
The Company recorded a $6.3 million charge in fiscal year 1998 related to
the acquisition of three businesses, including transaction costs for a business
combination accounted for as a pooling-of-interest, and the appraised amount of
acquired in-process research and development for the two business combinations
accounted for as purchases.
INTEREST EXPENSE
Interest expense was $112,000, $404,000, $338,000 and $220,000 in the Short
Fiscal Year and in fiscal years 1999, 1998, and 1997, respectively. The increase
in interest expense in each of last two fiscal years is the result of higher
average borrowing over the preceding year, due primarily to an increase in debt
assumed by the Company from the various businesses acquired in 1999 and 1998. At
December 31, 1999, the Company had no amounts outstanding under its bank
line-of-credit.
INTEREST INCOME AND OTHER, NET
Interest income and other, net, consisting primarily of interest income,
was $17,000, $647,000, $1,471,000 and $238,000 in the Short Fiscal Year and in
fiscal years 1999, 1998 and 1997, respectively. The decrease in interest income
reflects lower average cash balances in both the Short Fiscal Year and in fiscal
year 1999. During fiscal year 1998, the Company received proceeds of
approximately $47 million from a follow-on offering of its common stock. Such
cash proceeds have been substantially used by the Company to fund growth in
operations and acquisitions during fiscal years 1999 and 1998.
33
<PAGE>
PROVISION (CREDIT) FOR INCOME TAXES
The credit for income taxes in the Short Fiscal Year includes a credit of
$5.5 million, primarily representing the deferred income tax benefits of
temporary differences and tax loss carryforwards. The deferred income tax credit
was partially offset by approximately $600,000 of certain foreign and state
income tax expense. In future years, the Company will provide income taxes
approximating applicable statutory rates, although cash payments for taxes will
be substantially lower in the near term as remaining tax loss carryforwards are
utilized.
The fiscal year 1999 credit for income taxes includes a credit of $5.9
million, representing the reversal of a valuation allowance provided in previous
years against certain deferred tax benefits. The valuation allowance was
reversed based on the Company's determination that it has become more likely
than not that such deferred tax benefits will be realized in the future. The
deferred income tax credit was partially offset by approximately $500,000 of
certain foreign and state income tax expense.
The Company's fiscal year 1998 and 1997 provisions for income taxes relate
primarily to taxes of the businesses acquired in fiscal year 1999 using the
pooling-of-interests method.
MINORITY INTEREST IN NET INCOME (LOSS) OF SUBSIDIARIES
Minority interest in net income (loss) of subsidiaries was $(548,000) in
the Short Fiscal Year and $427,000, $80,000 and $54,000 in fiscal years 1999,
1998 and 1997, respectively. The current period loss results from a loss in the
Short Fiscal Year incurred by the Company's minority owned subsidiaries,
primarily in the Sterilization and Purification Systems segment.
INCOME (LOSS) FROM CONTINUING OPERATIONS
As a result of the factors mentioned above, the income (loss) from
continuing operations was $(8.1) million for the Short Fiscal Year, compared to
$8.7 million in fiscal year 1999, $(2.1) million for fiscal year 1998, and $10.0
for fiscal year 1997.
DISCONTINUED OPERATIONS
As previously discussed, the Company has adopted a plan to divest its high
voltage wound film capacitors, high voltage power supplies, time card and job
cost accounting software and glass-to-metal seals businesses. In connection with
its decision to sell these businesses, the Company recorded pre-tax charges of
$4.7 million, including provisions of $3.8 million for estimated losses on the
sale of the businesses and $0.9 million for severance costs for involuntary
employee terminations and provisions for contractual employment obligations that
will have no continuing benefit. On February 29, 2000, the Company sold the high
voltage wound capacitors and high voltage power supplies businesses for cash of
$3.5 million, approximately the net book value of the net assets sold as of that
date. The anticipated disposal of the remaining businesses is expected to occur
by the end of the second quarter of calendar year 2000.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically relied on a combination of internally
generated funds and bank borrowings to finance its working capital requirements
and capital expenditures. In addition, in each of the two most recent full
fiscal years, the Company received approximately $2.3 million from the exercise
of stock options and purchases under employee stock purchase plans. In fiscal
year 1998, the Company completed a follow-on public offering of 1.5 million
shares of its Common Stock, generating net proceeds of approximately $47
million. A portion of the proceeds was used to repay outstanding bank loans and
approximately $12 million of cash was used in fiscal year 1998 for acquisitions.
The remaining proceeds were used in fiscal years 1998 and 1999 to fund growth,
including additional working capital requirements.
34
<PAGE>
Cash provided by continuing operations in the Short Fiscal Year was
approximately $400,000, as compared to uses of cash by operations of $7.8
million and $6.0 million in fiscal years 1999 and 1998, respectively. In fiscal
year 1997, cash of $4.1 million was provided by continuing operations. In the
Short Fiscal Year, the operating losses were more than offset by decreases in
operating assets, primarily accounts receivable. In fiscal years 1999 and 1998,
the use of cash was primarily attributable to increases in accounts receivable,
due both to acquired businesses and in support of increased sales in fiscal year
1999. The Company's capital expenditures in the Short Fiscal Year and in fiscal
years 1999, 1998 and 1997 were $2.0 million, $7.4 million, $6.1 million and $4.4
million, respectively, and related primarily to production and other capital
assets needed to support growth in all of the Company's business units. The
Company has ordered additional equipment for volume manufacturing of
ultracapacitors in an existing facility, and for manufacture of EMI filter
capacitors at the newly expanded Carson City, Nevada manufacturing site. In
addition, the Company will incur expenditures in connection with the design and
construction of the new facilities for its newly-integrated commercial
divisions. The Company may also consider leasing facilities or manufacturing
equipment or both or may satisfy high-volume manufacturing requirements through
outsourcing or under licensing arrangements with third parties. If the Company
decides to internally finance construction of additional facilities, a
significant amount of capital may be required. The Company will also incur cash
expenditures in the Current Fiscal Year in connection with completing its
Restructuring Plan.
The Company believes that funds on-hand, together with cash generated
from operations, cash expected to be received from the divestiture of certain
businesses and funds available under its bank line-of-credit, will be
sufficient to finance its Restructuring Plan, its operations and its capital
expenditures through the Current Fiscal Year. In addition to addressing
manufacturing requirements, the Company may also from time-to-time consider
acquisitions of complementary businesses, products or technologies, which may
require additional funding. Sources of additional funding for these purposes
could include one or more of the following: cash, cash equivalents and
short-term investments on hand; cash flow from operations; borrowings under
the existing bank line-of-credit; investments by strategic partners and
additional debt or equity financings. There can be no assurance that the
Company will be able to obtain additional sources of financing on favorable
terms, if at all, at such time or times as the Company may require such
capital.
Maxwell has an unsecured bank line-of-credit of $20.0 million, under which
the Company had no borrowings outstanding as of December 31, 1999.
INFLATION AND CHANGES IN PRICES
Generally, the Company has been able to increase prices to offset its
inflation-related increased costs in its commercial businesses. A substantial
portion of the Company's business with agencies of the United States government
consists of cost-reimbursement contracts, which permit recovery of inflation
costs. Fixed-price contracts with government and other customers typically
include estimated costs for inflation in the contract price.
SOFTWARE COMPATIBILITY WITH YEAR 2000 DATE PROCESSING
In prior years, the Company discussed the nature and progress of its plans
to become Year 2000 ready. In late 1999, the Company completed its Year 2000
Information Systems Compliance Program, including the remediation and testing of
its systems and the development of a contingency plan. As a result of those
planning and implementation efforts, the Company experienced no significant
disruptions in mission critical information technology and non-information
technology systems and believes that those systems successfully responded to the
Year 2000 date change. The Company incurred costs of approximately $1.5 million
in connection with its Year 2000 Information Systems Compliance Program,
including $0.1 million incurred in the Short Fiscal Year. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the year 2000 to ensure that
any latent Year 2000 matters that may arise are promptly addressed.
35
<PAGE>
FORWARD-LOOKING STATEMENTS
To the extent that the above discussion goes beyond historical information
and indicates results or developments which the Company plans or expects to
achieve, these forward-looking statements are identified by the use of terms
such as "expected," "anticipates," "believes," "plans" and the like. Readers are
cautioned that such future results are uncertain and could be affected by a
variety of factors that could cause actual results to differ from those
expected, and such differences could be material. The Company undertakes no
obligation to revise these forward-looking statements to reflect future events
or circumstances. Readers are referred to the Company's Risk Factor section of
the 10-K for a further and more detailed discussion of certain of those factors.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES, which is
required to be adopted in years beginning after June 15, 2000. Because of the
Company's minimal use of derivatives, management does not anticipate that the
adoption of the new Statement will have a significant effect on earnings or the
financial position of the Company.
In December 1999, the SEC issued Staff Accounting Bulletin No. 101, REVENUE
RECOGNITION IN FINANCIAL STATEMENTS ("SAB 101"), which among other guidance,
clarifies certain conditions to be met in order to recognize revenue. SAB 101
requires companies, if necessary, to restate previously reported financial
statements to comply with the new guidance. The Company is currently evaluating
the impact that the adoption of SAB 101 will have on its results of operations
and its financial position.
ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company has not entered into or invested in any instruments that are
subject to market risk.
The Company's bank line-of-credit agreement bears interest at a rate
that varies based on LIBOR or the bank's prime rate.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF MAXWELL TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Ernst & Young LLP, Independent Auditors........................................................37
Consolidated Balance Sheets as of December 31, 1999, July 31, 1999 and July 31, 1998.....................38
Consolidated Statements of Operations for the Five-Months ended December 31, 1999, and for the
Years Ended July 31, 1999, 1998 and 1997.................................................................39
Consolidated Statements of Stockholders' Equity for the Five-Months ended December 31, 1999,
and for the Years Ended July 31, 1999, 1998 and 1997.....................................................40
Consolidated Statements of Cash Flows for the Five-Months ended December 31, 1999, and for the
Years Ended July 31, 1999, 1998 and 1997.................................................................41
Notes to Consolidated Financial Statements...............................................................42
</TABLE>
36
<PAGE>
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Stockholders
Maxwell Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Maxwell
Technologies, Inc., and subsidiaries, as of December 31, 1999, July 31, 1999 and
July 31, 1998, and the related consolidated statements of operations,
stockholders' equity and cash flows for the five months ended December 31, 1999
and for each of the three years in the period ended July 31, 1999. 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 auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Maxwell
Technologies, Inc. and subsidiaries at December 31, 1999, July 31, 1999 and July
31, 1998, and the consolidated results of their operations and their cash flows
for the five months ended December 31, 1999 and for each of the three years in
the period ended July 31, 1999, in conformity with accounting principles
generally accepted in the United States.
/s/ ERNST & YOUNG LLP
San Diego, California
February 19, 2000,
except for the first
paragraph of Note 10,
as to which the date
is February 29, 2000
37
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ---------------------------------
1999 1999 1998
---------------- ---------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,065 $ 8,832 $ 21,629
Trade and other accounts receivable, less allowance
for doubtful accounts of $1,519 at December 31, 1999
and $1,033 and $1,513 at July 31, 1999 and 1998,
respectively........................................... 30,381 43,066 34,162
Inventories................................................ 22,015 19,869 16,538
Prepaid expenses........................................... 691 1,710 2,072
Deferred income taxes...................................... 14,740 8,647 457
Net assets of discontinued operations...................... 3,564 4,995 2,800
---------------- ---------------- -------------
Total current assets..................................... 75,456 87,119 77,658
Property, plant and equipment, net............................ 18,340 24,684 21,881
Goodwill and other non-current assets......................... 11,985 10,488 6,163
---------------- ---------------- -------------
$ 105,781 $ 122,291 $ 105,702
================ ================ =============
LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities:
Accounts payable and accrued liabilities................... $ 13,639 $ 12,586 $ 15,581
Accrued employee compensation.............................. 5,382 6,471 5,822
Current portion of long-term debt.......................... 278 3,251 1,241
---------------- ---------------- -------------
Total current liabilities................................ 19,299 22,308 22,644
Long-term debt, excluding current portion..................... 181 417 1,193
Minority interest............................................. 1,885 2,398 1,712
Commitments and contingencies
Stockholders' equity:
Common stock, $0.10 par value per share, 40,000 shares
authorized; 9,564, 9,557 and 9,210 shares issued and
outstanding at December 31, 1999, July 31, 1999 and
July 31, 1998, respectively.............................. 957 956 920
Additional paid-in capital................................. 78,378 78,082 72,245
Deferred compensation...................................... (117) (204) (413)
Retained earnings.......................................... 5,375 18,466 7,401
Accumulated other comprehensive income (loss) - foreign
currency translation adjustments......................... (177) (132) --
---------------- ---------------- -------------
Total stockholders' equity............................... 84,416 97,168 80,153
---------------- ---------------- -------------
$ 105,781 $ 122,291 $ 105,702
================ ================ =============
</TABLE>
See accompanying notes.
38
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, --------------------------------------------
1999 1999 1998 1997
-------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Continuing Operations:
Sales............................................ $ 52,170 $ 153,686 $ 123,358 $ 101,899
Cost of sales.................................... 41,382 105,039 81,554 65,669
-------------- ------------- ------------ ------------
Gross profit..................................... 10,788 48,647 41,804 36,230
Operating expenses:
Selling, general and administrative............ 16,436 34,398 26,677 20,694
Research and development....................... 3,451 7,893 7,375 4,061
Restructuring, acquisition and other charges... 4,953 3,050 6,339 --
-------------- ------------- ------------ ------------
Total operating expenses..................... 24,840 45,341 40,391 24,755
-------------- ------------- ------------ ------------
Operating income (loss).......................... (14,052) 3,306 1,413 11,475
Interest expense................................. (112) (404) (338) (220)
Interest income and other, net................... 17 647 1,471 238
-------------- ------------- ------------ ------------
Income (loss) from continuing operations before
income taxes and minority interest............. (14,147) 3,549 2,546 11,493
Provision (credit) for income taxes.............. (5,474) (5,582) 413 1,473
Minority interest in net income (loss) of
subsidiaries................................... (548) 427 80 54
-------------- ------------- ------------ ------------
Income (loss) from continuing operations......... (8,125) 8,704 2,053 9,966
Discontinued operations, net of tax:
Income (loss) from operations.................... (2,901) 2,364 (3,760) (3,459)
Provision for estimated loss on disposal......... (2,065) -- -- --
-------------- ------------- ------------ ------------
(4,966) 2,364 (3,760) (3,459)
-------------- ------------- ------------ ------------
Net income (loss)................................... $ (13,091) $ 11,068 $ (1,707) $ 6,507
============== ============= ============ ============
Basic net income (loss) per share:
Income (loss) from continuing operations......... $ (0.85) $ 0.93 $ 0.24 $ 1.47
Income (loss) from discontinued operations....... (0.52) 0.25 (0.44) (0.51)
-------------- ------------- ------------ ------------
$ (1.37) $ 1.18 $ (0.20) $ 0.96
============== ============= ============ ============
Diluted net income (loss) per share:
Income (loss) from continuing operations......... $ (0.85) $ 0.88 $ 0.22 $ 1.33
Income (loss) from discontinued operations....... (0.52) 0.24 (0.41) (0.46)
============== ============= ============ ============
$ (1.37) $ 1.12 $ (0.19) $ 0.87
============== ============= ============ ============
Shares used in computing:
Basic net income (loss) per share................ 9,562 9,414 8,503 6,775
============== ============= ============ ============
Diluted net income (loss) per share.............. 9,562 9,801 9,111 7,470
============== ============= ============ ============
</TABLE>
See accompanying notes.
39
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FIVE-MONTH PERIOD ENDED DECEMBER 31, 1999 AND
THREE YEARS ENDED JULY 31, 1999
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER TOTAL
COMMON PAID-IN DEFERRED RETAINED COMPREHENSIVE STOCKHOLDERS'
STOCK CAPITAL COMPENSATION EARNINGS INCOME (LOSS) EQUITY
--------- ---------- ------------- -------- -------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at August 1, 1996.......... $650 $20,243 $(605) $2,955 $ -- $23,243
Issuance of 445,785 shares under
stock purchase and option
plans, net of repurchases..... 45 2,814 -- (165) -- 2,694
Deferred compensation related to
issuance of 10,000 shares..... 1 189 (190) -- -- --
Amortization of deferred
compensation.................. -- -- 173 -- -- 173
Comprehensive income - net income -- -- -- 6,507 -- 6,507
--------- ---------- ------------- -------- -------------- ------------
Balance at July 31, 1997........... 696 23,246 (622) 9,297 -- 32,617
Issuance of 1,500,000 shares in a
public stock offering, net of
offering costs of $3.9 million 150 46,967 -- -- -- 47,117
Issuance of 356,240 shares under
stock purchase and option plans 36 2,348 -- -- -- 2,384
Issuance of 544,785 shares in
connection with acquisitions.. 54 3,270 -- 609 -- 3,933
Repurchase of 162,073 shares for
cash under repurchase program. (16) (3,586) -- (391) -- (3,993)
Amortization of deferred
compensation.................. -- -- 209 -- -- 209
Dividends paid to shareholders of
subchapter S corporation prior
to acquisition................ -- -- -- (407) -- (407)
Comprehensive income (loss) - net
loss.......................... -- -- -- (1,707) -- (1,707)
--------- ---------- ------------- -------- -------------- ------------
Balance at July 31, 1998........... 920 72,245 (413) 7,401 -- 80,153
Issuance of 296,451 shares under
stock purchase and option
plans, including related income
tax benefit of $4,623......... 30 7,498 -- -- -- 7,528
Repurchase of 62,316 shares for
cash under repurchase program. (6) (1,679) -- (41) -- (1,726)
Issuance of 113,514 shares in
connection with acquisition... 12 18 -- 184 -- 214
Amortization of deferred
compensation.................. -- -- 209 -- -- 209
Dividends paid to shareholder of
acquired company prior to
acquisition................... -- -- -- (146) -- (146)
Comprehensive income (loss):
Net income.................... -- -- -- 11,068 -- 11,068
Other comprehensive income (loss) -
Foreign currency translation
adjustments................. -- -- -- -- (132) (132)
--------- ---------- ------------- -------- -------------- ------------
Total comprehensive income...... -- -- -- 11,068 (132) 10,936
--------- ---------- ------------- -------- -------------- ------------
Balance at July 31, 1999........... 956 78,082 (204) 18,466 (132) 97,168
Issuance of 6,680 shares under
stock option plans, including
related income tax benefit of
$220.......................... 1 296 -- -- -- 297
Amortization of deferred
compensation.................. -- -- 87 -- -- 87
Comprehensive income (loss):
Net loss...................... -- -- -- (13,091) -- (13,091)
Other comprehensive income (loss) -
foreign currency translation
adjustments................. -- -- -- -- (45) (45)
--------- ---------- ------------- -------- -------------- ------------
Total comprehensive income (loss) -- -- -- (13,091) (45) (13,136)
--------- ---------- ------------- -------- -------------- ------------
Balance at December 31, 1999....... $957 $78,378 $(117) $5,375 $(177) $84,416
========= ========== ============= ======== ============== ============
</TABLE>
See accompanying notes.
40
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, --------------------------------------
1999 1999 1998 1997
---------- --------- ----------- -----------
<S> <C> <C> <C> <C>
Operating activities:
Income (loss) from continuing operations..................... $ (8,125) $ 8,704 $ 2,053 $ 9,966
Adjustments to reconcile income (loss) from continuing
operations to net cash provided by (used in) operating
activities:
Depreciation and amortization............................ 2,309 5,077 3,596 2,525
Restructure, acquisition and other charges............... 4,953 1,405 7,450 --
Provision for losses on accounts receivable.............. 585 435 734 184
Loss on sales of property and equipment.................. 308 116 50 10
Deferred income taxes.................................... (6,193) (4,730) 37 (345)
Minority interest in net income (loss) of subsidiaries... (548) 427 80 54
Deferred compensation.................................... 87 209 209 173
Changes in operating assets and liabilities:
Accounts receivable.................................... 11,781 (8,172) (11,299) (2,221)
Inventories............................................ (3,213) (2,981) (4,114) (3,542)
Prepaid expenses and other............................. (364) (4,326) (1,414) (700)
Accounts payable....................................... 9 (3,047) (4,255) (4,106)
Accrued employee compensation.......................... (1,089) 470 932 1,280
Income taxes payable and refundable, net............... (105) (1,431) (45) 832
---------- --------- ----------- -----------
Net cash provided by (used in) operating activities.... 395 (7,844) (5,986) 4,110
Investing activities:
Purchases of property and equipment.......................... (1,959) (7,394) (6,078) (4,353)
Purchases of businesses, net of cash acquired................ -- -- (11,481) --
Proceeds from sales of property and equipment................ 3,254 60 149 8
---------- --------- ----------- -----------
Net cash provided by (used in) investing activities.... 1,295 (7,334) (17,410) (4,345)
Financing activities:
Principal payments on long-term debt and short-term borrowings (3,209) (2,523) (2,339) (993)
Proceeds from long-term debt and short-term borrowings....... -- 3,575 1,197 562
Proceeds from issuance of Company and subsidiary stock....... 332 3,164 50,560 2,893
Repurchase of Company and subsidiary stock................... -- (1,726) (4,000) (578)
Dividends paid to shareholders of acquired companies prior to
acquisition................................................ -- (146) -- --
---------- --------- ----------- -----------
Net cash provided by (used in) financing activities.... (2,877) 2,344 45,418 1,884
Net cash provided by (used in) discontinued operations.......... (3,535) 169 (2,714) (1,774)
Effect of exchange rate changes on cash and cash equivalents.... (45) (132) -- --
---------- --------- ----------- -----------
Increase (decrease) in cash and cash equivalents................ (4,767) (12,797) 19,308 (125)
Cash and cash equivalents at beginning of period................ 8,832 21,629 2,321 2,446
---------- --------- ----------- -----------
Cash and cash equivalents at end of period...................... $ 4,065 $ 8,832 $21,629 $ 2,321
========== ========= =========== ===========
Cash (paid) received for:
Interest...................................................... $ 86 $ 379 $ 1,287 $ (47)
========== ========= =========== ===========
Income taxes.................................................. $ (168) $ (633) $ (577) $ (121)
========== ========= =========== ===========
See accompanying notes.
</TABLE>
41
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies
industry-leading capabilities in power and computing to develop and market
products and services for customers in multiple industries, including energy,
satellite, defense, telecommunications, consumer electronics, medical and
bioprocessing markets.
In November 1999, the Company's Board of Directors adopted a resolution to
change the Company's fiscal year to a calendar year effective January 1, 2000.
The Company previously reported results on a fiscal year of August 1 through
July 31.
During the five-month transition period August 1 to December 31, 1999
(the "Short Fiscal Year"), the Company adopted a plan to restructure its
operations (the "Restructuring Plan"). This Restructuring Plan (i)
consolidates certain commercial business operations and improves their
manufacturing and other operational capabilities, (ii) focuses the defense
contracting business on pulsed power systems and computer-based analysis for
government and national laboratories, (iii) focuses the application of
PUREBRIGHT(R) technology on bioprocessing, medical and consumer water
markets, and (iv) provides for the sale of certain non-strategic business
operations. The accompanying consolidated financial statements have been
reclassified to present the financial position and results of operations of
the continuing businesses of the Company. Businesses which the Company
intends to sell or discontinue, and certain businesses sold or discontinued
by the Company in prior periods, have been classified as discontinued
operations in the accompanying consolidated financial statements. See Notes 9
and 10.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Maxwell
Technologies, Inc. and its subsidiaries. All significant intercompany
transactions and account balances are eliminated in consolidation.
CASH EQUIVALENTS
The Company classifies all highly liquid investments with a maturity of
three months or less when purchased as cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (principally average cost
method) or market.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are carried at cost and are generally
depreciated using the straight-line method. Depreciation and amortization are
provided over the estimated useful lives of the related assets (three to thirty
years). Depreciation and amortization of property, plant and equipment amounted
to $2,148,000, $4,723,000, $3,559,000 and $2,525,000 in the Short Fiscal Year
and fiscal years 1999, 1998 and 1997, respectively.
42
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
CONCENTRATION OF CREDIT RISK
Financial instruments which subject the Company to potential concentrations
of credit risk consist principally of investments in cash equivalents and the
Company's accounts receivable. The Company invests its excess cash with major
corporate and financial institutions and in United States government backed
securities. The Company has established guidelines relative to diversification
and maturities to maintain safety and liquidity, and has not experienced any
losses on these investments. The Company's accounts receivable result from
contracts with the United States government, as well as contract and product
sales to non-government customers in various industries. The Company performs
ongoing credit evaluations of selected non-government customers and generally
requires no collateral.
The balances billed but not paid by customers pursuant to retainage
provisions under long-term contracts will be due upon completion of the
contracts and acceptance by the customers. Substantially all unbilled
receivables at December 31, 1999 are expected to become due and payable within
the next year.
REVENUE RECOGNITION
The Company recognizes substantially all revenue from the sale of
manufactured products and short-term fixed price contracts upon shipment of
products or completion of services. Revenues, including estimated profits, on
long-term fixed price contracts are recognized as costs are incurred. Revenues,
including fees earned, on cost plus contracts are also recognized as costs are
incurred. Contract and license revenue is reflected in the Company's sales and
includes amounts received from the United States government and commercial
customers for the funded research and development efforts of the Company.
Provisions are made on a current basis to fully recognize any anticipated losses
on contracts.
FOREIGN CURRENCIES
The Company has foreign subsidiaries which conduct manufacturing and sales
activities in foreign countries, specifically the United Kingdom, France and
Germany. As a result, the Company's financial results could be significantly
affected by factors such as changes in foreign currency exchange rates or weak
economic conditions in the European markets that the Company serves. The
operating results of the Company are exposed to changes in exchange rates
between the United States dollar and the British pound, French franc, and the
German mark. The Company does not currently hedge its foreign exchange risk,
which is not significant at this time. The assets and liabilities of the
Company's foreign subsidiaries are translated from their functional currencies
into United States dollars at exchange rates in effect on the balance sheet
date, and revenues and expenses are translated at weighted-average rates
prevailing during the period.
INCOME (LOSS) PER SHARE
The Company reports basic and diluted earnings per share in accordance with
Financial Accounting Standards Board Statement No. 128, EARNINGS PER SHARE
("Statement No. 128"). Basic earnings per share is calculated using the weighted
average number of common shares outstanding. Diluted earnings per share is
calculated on the basis of the weighted average number of common shares
outstanding plus the dilutive effect of outstanding stock options, assuming
their exercise using the "treasury stock" method, and convertible preferred
shares outstanding at certain subsidiaries of the Company, assuming their
conversion. For the Short Fiscal Year, all potentially dilutive securities were
excluded from the calculation of diluted loss per share as their inclusion would
have been antidilutive.
43
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
The following table sets forth the computation of basic and diluted income
per share:
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, --------------------------------
1999 1999 1998 1997
-------------- -------- -------- --------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
Basic:
Income (loss) from continuing operations .................... $ (8,125) $ 8,704 $ 2,053 $ 9,966
Income (loss) from discontinued operations .................. (4,966) 2,364 (3,760) (3,459)
-------------- -------- -------- --------
Net income (loss) ........................................... $ (13,091) $ 11,068 $ (1,707) $ 6,507
============== ======== ======== ========
Weighted average shares ........................................ 9,562 9,414 8,503 6,775
============== ======== ======== ========
Basic income (loss) per share:
Income (loss) from continuing operations .................... $ (0.85) $ 0.93 $ 0.24 $ 1.47
Income (loss) from discontinued operations .................. (0.52) 0.25 (0.44) (0.51)
-------------- -------- -------- --------
Basic net income (loss) per share ........................... $ (1.37) $ 1.18 $ (0.20) $ 0.96
============== ======== ======== ========
Diluted:
Income (loss) from continuing operations .................... $ (8,125) $ 8,704 $ 2,053 $ 9,966
Effect of majority-owned subsidiaries' dilutive
securities ................................................ -- (78) (24) (12)
-------------- -------- -------- --------
Income (loss) from continuing operations available to
common stockholders, as adjusted .......................... (8,125) 8,626 2,029 9,954
Income (loss) from discontinued operations .................. (4,966) 2,364 (3,790) (3,459)
-------------- -------- -------- --------
Net income (loss), as adjusted .............................. $ (13,091) $ 10,990 $ (1,731) $ 6,495
============== ======== ======== ========
Weighted average shares ........................................ 9,562 9,414 8,503 6,775
Effect of dilutive stock options and other securities ....... -- 387 608 695
-------------- -------- -------- --------
Weighted average shares, as adjusted ........................ 9,562 9,801 9,111 7,470
============== ======== ======== ========
Diluted income (loss) per share:
Income (loss) from continuing operations .................... $ (0.85) $ 0.88 $ 0.22 $ 1.33
Income (loss) from discontinued operations .................. (0.52) 0.24 (0.41) (0.46)
-------------- -------- --------- --------
Diluted net income (loss) per share ......................... $ (1.37) $ 1.12 $ (0.19) $ 0.87
=============== ======== ======== ========
</TABLE>
COMPREHENSIVE INCOME (LOSS)
The Company reports and displays comprehensive income (loss) and its
components in accordance with Statement of Financial Accounting Standards No.
130, REPORTING COMPREHENSIVE INCOME ("Statement No. 130"). Foreign currency
translation adjustments are the Company's only component of other
comprehensive income (loss).
44
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1 -- DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
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, the
disclosure of contingent assets and liabilities at the dates of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Several of the industries in which the Company operates are
characterized by rapid technological change and short product life cycles. As a
result, estimates are required to provide for product returns and product
obsolescence as well as other matters. Historically, actual amounts recorded
have not varied significantly from estimated amounts.
SELECTED FINANCIAL DATA FOR FIVE-MONTH PERIODS ENDED DECEMBER 31, 1999 AND
1998
The following is selected financial data for the Short Fiscal Year, and the
comparable prior year period:
<TABLE>
<CAPTION>
FIVE-MONTH PERIOD ENDED DECEMBER 31,
1999 1998
--------------------- ---------------------
(unaudited)
<S> <C> <C>
Sales from continuing operations................................. $ 52,170 $55,758
Gross profit..................................................... 10,788 16,738
Operating loss................................................... (14,052) (640)
Provision (credit) for income taxes.............................. (5,474) 100
Loss from continuing operations.................................. (8,125) (1,000)
Loss from discontinued operations, net of tax.................... (4,966) (770)
Net loss......................................................... (13,091) (1,770)
Diluted loss per share from continuing operations................ (0.85) (0.11)
Diluted net loss per share....................................... (1.37) (0.19)
</TABLE>
NOTE 2 -- BUSINESS COMBINATIONS
In January 1999, the Company acquired Space Electronics, Inc. ("SEi"), a
closely held company that specializes in the manufacture of radiation-hardened
microelectronics for the commercial space market. Under the terms of this
agreement, which was accounted for as a pooling-of-interests, Maxwell purchased
all of the outstanding stock of SEi in exchange for approximately 681,000 shares
of Maxwell common stock valued at approximately $25 million on the closing date.
The Company incurred direct acquisition costs of approximately $1.1 million,
which were charged to operations in fiscal year 1999.
Also in January 1999, the Company purchased a German company, which was
formerly a distributor for the Company's industrial computer business. The
acquisition was accounted for as a pooling-of-interests and consisted of the
purchase of all the outstanding stock of the German company in exchange for
approximately 114,000 shares of Maxwell common stock valued at approximately $5
million on the closing date. The Company incurred direct acquisition costs of
approximately $75,000, which were charged to operations in fiscal year 1999. The
historical results of operations of the acquired company were not material in
relation to those of Maxwell and financial information for prior periods was not
restated to reflect the merger. Retained earnings as of the beginning of the
Company's fiscal year 1999 second quarter were restated to reflect the retained
earnings of the acquired company of approximately $184,000 as of such date.
In December 1998, the Company acquired KD Components, Inc. ("KD"), a
privately held company that develops and manufactures high voltage multilayer
ceramic capacitors and switch mode power supply capacitors for military,
aerospace, medical and other applications. Under the terms of the agreement,
which was accounted for as a pooling-of-interests, Maxwell purchased all of the
outstanding stock of KD in exchange for approximately 145,000 shares of Maxwell
common stock valued at approximately $5.5 million on the closing date. The
Company incurred direct acquisition costs of approximately $120,000, which were
charged to operations in fiscal year 1999.
45
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2 -- BUSINESS COMBINATIONS (CONTINUED)
In April 1998, the Company acquired the majority of the assets of the
Electromagnetic Systems Group of Primex Physics International Company ("PI"),
for cash of $10 million, assumption of certain liabilities and direct
acquisition costs of $175,000. PI specializes in high-energy pulsed power
technology, primarily performing research and development for the U.S.
government. The acquisition was accounted for as a purchase. The purchase
price was allocated to the estimated fair values of the new assets acquired,
of which approximately $2.5 million was charged to acquired in-process R&D
during fiscal year 1998. The value assigned to the other intangible assets
was $3.7 million, and is being amortized on a straight-line basis over the
estimated economic lives.
In March 1998, the Company acquired Tri-MAP International, Ltd.
("Tri-MAP"), a privately-held, United Kingdom-based manufacturer of
industrial-grade PC-compatible computer systems. Tri-MAP was acquired in a
stock-for-stock exchange accounted for as a pooling-of-interests for an
aggregate of 290,000 shares of Maxwell common stock valued at approximately $7.0
million. The Company incurred direct transaction costs of approximately $0.6
million, which were charged to operations during fiscal year 1998.
Also in March 1998, the Company acquired Phoenix Power Systems, Inc.
("Phoenix Power"), a privately-held manufacturer of power quality protection
products. Under the terms of this agreement, Maxwell purchased all of the
outstanding stock of Phoenix Power for approximately $4 million ($1.3 million
in cash and 100,679 shares of Maxwell common stock valued at approximately
$2.7 million). The acquisition was accounted for as a purchase. Direct
acquisition costs were approximately $95,000. The purchase price was
allocated to the estimated fair values of the net tangible and intangible
assets acquired, approximately $3 million of which was charged to acquired
in-process R&D in fiscal year 1998. The value assigned to other intangible
assets was $1.6 million, and is being amortized on a straight-line basis over
the estimated economic lives. The terms of the agreement provided for
additional contingent purchase price based upon the financial performance of
Phoenix Power following the acquisition. In January 2000, the Company agreed
to pay $5 million of such additional purchase price of which $4.5 million
will be paid in cash on June 30, 2000. The Company issued 45,506 shares of
its common stock in January 2000 representing the remaining $500,000 in
additional purchase price. The additional purchase price will be assigned to
intangible assets.
NOTE 3 -- BALANCE SHEET DETAILS
Trade and other accounts receivable consists of the following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Amounts billed...................................... $19,848 $35,811 $27,409
Amounts unbilled under long-term contracts.......... 5,793 4,490 4,570
Intercompany receivable from subsidiary classified as
discontinued operations.......................... 4,740 2,765 2,183
------------- ------------- -------------
$30,381 $43,066 $34,162
============= ============= =============
</TABLE>
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Finished goods...................................... $ 2,030 $ 3,758 $ 1,359
Work-in-process..................................... 4,469 3,081 3,183
Raw materials and purchased parts................... 15,516 13,030 11,996
------------- ------------- -------------
$ 22,015 $ 19,869 $ 16,538
============= ============= =============
</TABLE>
46
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3 -- BALANCE SHEET DETAILS (CONTINUED)
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and land improvements.......................... $ 2,738 $ 3,470 $ 3,470
Buildings and building improvements................. 6,537 9,250 8,435
Machinery, furniture and office equipment........... 37,699 37,988 34,420
Leasehold improvements.............................. 4,370 4,340 3,793
------------- ------------- -------------
51,344 55,048 50,118
Less accumulated depreciation and amortization...... (33,495) (31,646) (29,016)
------------- ------------- -------------
17,849 23,402 21,102
Construction-in-progress............................ 491 1,282 779
------------- ------------- -------------
$ 18,340 $ 24,684 $ 21,881
============= ============= =============
</TABLE>
Goodwill and other non-current assets consist of the following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill and other intangible assets, net of
accumulated amortization of $582 at
December 31, 1999 and $422 and $37 at
July 31, 1999 and 1998, respectively............. $ 5,299 $ 5,427 $ 5,282
Note receivable from related party, including accrued
interest......................................... 2,092 2,000 --
Equity investments in unconsolidated companies...... 566 550 40
Deposits and other.................................. 2,683 1,266 841
Long-term deferred income taxes..................... 1,345 1,245 --
------------- ------------- -------------
$ 11,985 $ 10,488 $ 6,163
============= ============= =============
</TABLE>
Accounts payable and accrued liabilities consists of the following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts payable and accrued liabilities............ $ 11,095 $ 11,072 $ 13,136
Accrued restructuring costs......................... 948 -- --
Customer advances................................... 736 472 1,293
Environmental reserves.............................. 860 1,042 1,152
------------- ------------- -------------
$ 13,639 $ 12,586 $ 15,581
============= ============= =============
</TABLE>
47
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4 -- CREDIT AGREEMENT
The Company has an unsecured bank line-of-credit agreement, as amended,
which expires in January 2001, under which the Company may borrow up to $20
million at the bank's prime rate, or at LIBOR plus 1.75% (7.76% at December 31,
1999). At December 31, 1999, the Company had no amounts outstanding under the
line. The line-of-credit agreement provides that neither the Company nor any of
its subsidiaries may, directly or indirectly, make any distributions of cash
dividends. The line-of-credit agreement also requires the Company to comply with
various financial covenants. The Company was in compliance with all such
covenants at December 31, 1999. At December 31, 1999, the Company was
contingently liable for outstanding letters of credit aggregating approximately
$1.3 million, which expire through April 2000.
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS
STOCK OPTION PLANS
In December 1995, the Company adopted the 1995 Stock Option Plan under
which 500,000 shares of Common Stock were reserved for future grant. At
subsequent dates, aggregate additional shares of 1,890,000, including 400,000
shares in January 2000, were reserved for future issuance under the plan. This
plan and the Company's 1999 Director Stock Option Plan (which was adopted in
1999 and approved by the shareholders in January 2000) provide for granting
either Incentive Stock Options or Non-Qualified Stock Options to employees and
non-employee members of the Company's Board of Directors, respectively. In
December 1999, the Company adopted an Executive Stock Option Plan under which
294,030 options were granted to the Company's new President and CEO. Options are
also outstanding under expired stock option plans which were superceded by the
current plans. Options granted under all stock option plans are for the purchase
of Common Stock of the Company at not less than the stock's fair market value at
the date of grant. Employee options are generally exercisable in cumulative
annual installments of 20 - 30 percent, while options in the Director Option
Plan are exercisable in full one year after date of grant. The options have
terms of five to ten years. As of December 31, 1999, prior to the additional
reservation of shares in January 2000, the Company had no options available for
future grant under its stock option plans.
48
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The following table summarizes Company stock option activity for the period
August 1, 1996 through December 31, 1999:
<TABLE>
<CAPTION>
NUMBER WEIGHTED AVERAGE
OF SHARES EXERCISE PRICE
------------- --------------------
<S> <C> <C>
Balance at August 1, 1996......................................... 1,196,026 $ 4.57
Granted......................................................... 373,700 $15.95
Exercised....................................................... (406,656) $ 4.61
Expired or forfeited............................................ (108,390) $ 4.42
-------------
Balance at July 31, 1997.......................................... 1,054,680 $ 8.60
Granted......................................................... 591,500 $25.23
Exercised....................................................... (324,825) $ 5.49
Expired or forfeited............................................ (56,200) $18.57
-------------
Balance at July 31, 1998.......................................... 1,265,155 $16.73
Granted......................................................... 684,140 $23.87
Exercised....................................................... (285,400) $ 9.65
Expired or forfeited............................................ (41,340) $19.96
-------------
Balance at July 31, 1999.......................................... 1,622,555 $20.90
Granted......................................................... 647,602 $10.42
Exercised....................................................... (6,680) $ 3.63
Expired or forfeited............................................ (221,325) $23.25
-------------
Outstanding at December 31, 1999.................................. 2,042,152 $17.38
=============
</TABLE>
The following table summarizes information concerning outstanding and
exercisable Company stock options at December 31, 1999:
<TABLE>
<CAPTION>
WEIGHTED
WEIGHTED AVERAGE WEIGHTED
AVERAGE REMAINING AVERAGE
RANGE OF EXERCISE OPTIONS EXERCISE CONTRACTUAL OPTIONS EXERCISE
PRICES OUTSTANDING PRICE LIFE EXERCISABLE PRICE
--------------------- ---------------- --------------- ---------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
$ 3.27- 6.55 172,778 $ 4.30 3.4 years 147,113 $ 4.29
$ 6.56- 9.82 554,838 $ 8.72 6.7 years 36,247 $ 7.25
$ 9.83 - 13.10 46,500 $ 10.45 6.2 years 11,000 $ 11.00
$ 13.11 - 16.38 58,000 $ 13.13 9.6 years -- $ --
$ 16.39 - 19.65 150,441 $ 18.88 3.5 years 83,489 $ 18.86
$ 19.66 - 22.93 321,250 $ 21.22 8.2 years 17,465 $ 20.80
$ 22.94 - 26.20 548,345 $ 24.55 5.9 years 191,881 $ 24.76
$ 26.21 - 29.48 120,500 $ 27.92 7.7 years 46,575 $ 28.16
$ 29.49 - 32.75 69,500 $ 31.44 7.7 years -- $ --
------------- -------------
2,042,152 533,770
================ =============
</TABLE>
In addition, the Company has established separate stock option plans for
five of its principal operating subsidiaries. Options to purchase shares of
subsidiary stock were granted primarily during fiscal year 1997. Options
outstanding at December 31, 1999 total from 9% to 14% of such various
subsidiaries' outstanding common stock.
49
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
The Company has adopted the disclosure-only provisions of FASB Statement
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("Statement No. 123"). In
accordance with the provisions of Statement No. 123, the Company applies
Accounting Principles Board Opinion No. 25 and related interpretations in
accounting for its stock option plans, and accordingly, no compensation expense
has been recognized for stock options granted in the Short Fiscal Year or the
fiscal years ended July 31, 1999, 1998 or 1997 as the stock options have been
granted at their current fair market value. If the Company had elected to
recognize compensation cost based on the fair value method prescribed by
Statement No. 123, the Company's net income (loss) from continuing operations
and diluted income (loss) from continuing operations per share would have been
adjusted to the pro-forma amounts indicated below:
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED
DECEMBER 31, YEARS ENDED JULY 31,
1999 1999 1998 1997
------------ ------------ ----------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Income (loss) from continuing operations, as
reported....................................... $ (8,125) $8,704 $ 2,053 $9,966
Pro forma income (loss) from continuing
operations..................................... $ (10,600) $3,122 $(1,453) $8,607
Diluted income (loss) from continuing operations
per share, as reported......................... $ (0.85) $ 0.88 $ 0.22 $ 1.33
Pro forma diluted income (loss) from continuing
operations per share........................... $ (1.11) $ 0.32 $ (0.17) $ 1.15
</TABLE>
The impact of outstanding non-vested stock options granted prior to 1997
has been excluded from the pro forma calculations; accordingly, the pro forma
adjustments shown above are not indicative of future period pro forma
adjustments when the calculation will reflect all applicable stock options. The
fair value of Company options at the date of grant was estimated using the
Black-Scholes option-pricing model with assumptions as follows: Short Fiscal
Year - risk-free interest rate 5.0%; dividend yield of 0%; volatility factor of
106%; and a weighted average expected term of five years; July 31, 1999 -
risk-free interest rate of 5.0%; dividend yield of 0%; volatility factor of 66%;
and a weighted average expected term of five years; 1998 - risk-free interest
rate of 5.5%; dividend yield of 0%; volatility factor of 54%; and a
weighted-average expected term of four years; 1997 - risk-free interest rate of
6.0%; dividend yield of 0%; volatility factor of 52%; and a weighted-average
expected term of three years. The fair value of subsidiary options at the date
of grant was estimated using the Black-Scholes model with assumptions as above.
Based on these assumptions, the estimated weighted average fair value at grant
date for Company options granted during the Short Fiscal Year and fiscal years
1999, 1998 and 1997 was $9.13, $12.53, $12.00 and $7.37 per option,
respectively.
STOCK PURCHASE PLANS
In December 1994, the Company established the 1994 Employee Stock Purchase
Plan and a Director Stock Purchase Plan. The employee plan permits substantially
all employees to purchase Common Stock through payroll deductions at 85% of the
lower of the trading price of the stock at the beginning or at the end of each
six-month offering period. The director plan permits non-employee directors to
purchase common stock at 100% of the trading price of the stock on the date a
request for purchase is received. In fiscal years ended July 31, 1999, 1998 and
1997, 48,388, 40,795 and 39,129 shares, respectively, were issued under the two
plans for aggregate proceeds to the Company of $970,000, $759,000 and $442,000,
respectively. No shares were issued under the plans in the Short Fiscal Year. At
December 31, 1999, 250,152 shares are reserved for future issuance under these
plans.
50
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5 -- STOCK ACTIVITY AND STOCK PLANS (CONTINUED)
DEFERRED COMPENSATION
In 1997 and 1996, an executive officer of the Company was granted shares of
the Company's Common Stock subject to certain restrictions. The shares granted
vest ratably over a four-year period, and at the grant dates the shares had a
fair value of approximately $190,000 and $645,000, respectively. Those values,
net of accumulated amortization, are shown as deferred compensation in the
accompanying consolidated balance sheets and consolidated statements of
stockholders' equity. The deferred compensation is being amortized to expense
over the four-year vesting periods, and such amortization totaled $87,000,
$209,000, $209,000 and $173,000 in the Short Fiscal Year and fiscal years 1999,
1998 and 1997, respectively.
STOCKHOLDER RIGHTS PLAN
In October 1999, the Company adopted a new Stockholder Rights Plan as a
successor to its previous plan, which expired in June 1999. In accordance with
the new plan, the Company distributed one non-voting Common Stock purchase right
("Right") for each outstanding share of Common Stock. The Rights are not
exercisable and will not trade separately from the Common Stock unless a person
or group acquires, or makes a tender offer for, 15% or more of the Company's
Common Stock. Initially, each Right entitles the registered holder to purchase
one share of Company Common Stock at a price of $75 per share, subject to
certain anti-dilution adjustments. If the Rights become exercisable and certain
conditions are met, then each Right not owned by the acquiring person or group
will entitle its holder to receive, upon exercise, Company Common Stock having a
market value of twice the exercise price of the Right. In addition, the Company
may redeem the Rights at a price of $0.01 per Right, subject to certain
restrictions. The new Stockholder Rights Plan expires on October 21, 2009.
In January 2000, the Board adopted, and the Company's shareholders
subsequently approved, the Company's Management Equity Ownership Program (the
"Program"). Under the Program, executive officers of the Company and other
members of senior management selected by the Committee are offered loans from
the Company to be used to purchase stock of the Company. The loans bear interest
and must be repaid in annual installments of principal and interest over a
four-year period. Repayment of the loans is secured by the shares purchased with
the loan proceeds. On February 1, 2000, loans in the aggregate amount of
$900,000, bearing interest at 6.56%, were made in connection with the aggregate
purchase of 74,995 newly issued shares of the Company's common stock at $12.00
per share, the closing market price on the date of purchase.
51
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES
The provision (credit) for income taxes for continuing operations is as
follows:
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, ------------------------------------------
1999 1999 1998 1997
------------ ------------ ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Federal:
Current................................... $ -- $ (1,020) $ 127 $ 1,431
Deferred.................................. (4,969) (3,189) 16 (293)
------------ ------------ ------------ -----------
(4,969) (4,209) 143 1,138
State:
Current................................... 399 (118) 25 387
Deferred.................................. (1,224) (1,623) 19 (52)
------------ ------------ ------------ -----------
(825) (1,741) 44 335
Foreign:
Current................................... 320 394 200 --
Deferred.................................. -- (26) 26 --
------------ ------------ ------------ -----------
320 368 226 --
------------ ------------ ------------ -----------
$ (5,474) $ (5,582) $ 413 $ 1,473
============ ============ ============ ===========
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. The primary components of
the Company's deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, ------------------------------
1999 1999 1998
-------------- -------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Environmental and restructuring provisions............ $ 3,038 $ 1,342 $ 1,430
Uniform capitalization, contract and inventory-related
reserves......................................... 2,921 2,089 2,732
Asset write-downs under FASB Statement No. 121........ 952 1,031 1,112
Acquired in-process research and development.......... 866 893 959
Accrued vacation...................................... 785 764 819
Allowance for doubtful accounts....................... 611 306 451
Tax loss carryforwards................................ 4,000 900 1,300
Research and development and other tax credit
carryforwards.................................... 2,874 2,921 --
Other................................................. 748 269 483
Valuation allowance................................... -- -- (8,124)
-------------- -------------- -------------
Total deferred tax assets..................... 16,795 10,515 1,162
-------------- -------------- -------------
Deferred tax liabilities:
Tax basis depreciation in excess of book depreciation. (710) (605) (686)
Tax basis research and development expense in excess of
book expense..................................... -- (18) (19)
-------------- -------------- -------------
Total deferred tax liabilities................ (710) (623) (705)
-------------- -------------- -------------
Net deferred tax assets................................. $ 16,085 $ 9,892 $ 457
============== ============== =============
</TABLE>
52
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6 -- INCOME TAXES (CONTINUED)
The Company cannot carry losses back to prior years. Through fiscal year
1998, the Company had provided a valuation allowance against the future tax
benefits of its net operating loss carryforwards and net deferred income tax
assets as realization of such future benefits was deemed to be uncertain. Based
on the Company's earnings from continuing operations in fiscal years 1999, 1998
and 1997, management has determined that it is more likely than not that the
Company will receive the future benefits from its net deferred income tax
assets, including tax credits and remaining net operating loss carryforwards. In
fiscal year 1999, the Company reversed the valuation allowance and recorded net
deferred income tax assets of approximately $10.7 million, of which $4.6 million
was recorded as a credit to additional paid-in capital for tax benefits relating
to employee stock option and stock purchase plan activity in the current and
prior years.
The current income tax expense in the Short Fiscal Year and the fiscal year
ended July 31, 1999 was primarily due to foreign taxes on the profits of the
Company's United Kingdom subsidiary, and certain minimum state income and
franchise taxes. The Company's fiscal year 1998 and 1997 provisions for income
taxes relate primarily to taxes of the businesses acquired in fiscal year 1999
using the pooling-of-interests method.
As of December 31, 1999, the Company had net operating loss carryforwards
for federal and state income tax of approximately $7.2 million and $10.2
million, respectively. The federal loss carryforward begins to expire in
calendar year 2011, while the state loss carryforwards expire in calendar years
2000 through 2006. In addition, the Company has research and development and
other tax credit carryforwards for federal and state income tax purposes of $6.3
million and $9.6 million, which begin to expire in 2004.
The provision (credit) for income taxes in the accompanying consolidated
statements of operations differs from the amount calculated by applying the
statutory income tax rate of 35% to income (loss) from continuing operations
before income taxes and minority interest. The primary components of such
difference are as follows:
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, -------------------------------------------
1999 1999 1998 1997
---------- ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Tax at federal statutory rate............................. $ (4,983) $ 1,242 $ (425) $ 2,811
State taxes, net of federal benefit....................... (862) 182 102 633
Effect of tax rate differential for foreign subsidiary.... 283 76 (47) --
Impact of asset basis difference in acquisitions.......... -- 496 1,237 --
Utilization of net operating loss carryforwards........... -- (400) (500) (700)
Valuation allowance, including tax benefits of stock -- (7,530) (127) (1,340)
activity...............................................
Other items not reflected in consolidated statement
of operations.......................................... 88 352 173 69
----------- ------------ ------------ ------------
$ (5,474) $ (5,582) $ 413 $ 1,473
=========== ============ ============ ============
</TABLE>
53
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 7 -- LEASES
Rental expense amounted to $2,064,000, $5,459,000, $3,676,000 and
$2,101,000 in the Short Fiscal Year and in fiscal years 1999, 1998 and 1997,
respectively, and was incurred primarily for facility rental. Future annual
minimum rental commitments as of December 31, 1999, are as follows (in
thousands):
<TABLE>
<CAPTION>
FISCAL YEARS
- ------------
<S> <C>
2000...................................................... $ 4,626
2001...................................................... 4,028
2002...................................................... 2,640
2003...................................................... 1,717
2004...................................................... 9
--------------
$13,020
===============
</TABLE>
Certain leases include renewal options for periods ranging from one to
twenty-five years and are subject to rental adjustment based on consumer price
indices. Substantially all leases provide that the Company pay for property
taxes, insurance, and repairs and maintenance. The Company also subleases
certain of its leased facilities under non-cancellable subleases through 2001.
Future annual amounts due to the Company under such subleases are as follows:
calendar year 2000 - $143,000 and calendar year 2001 - $98,000.
In connection with its Restructuring Plan, the Company intends to lease two
new facilities in San Diego and consolidate and reduce the total number of
leased facilities it maintains in the San Diego area through a combination of
sublease activities and negotiating early lease terminations.
NOTE 8 -- EMPLOYEE BENEFIT PLANS
Substantially all United States employees are eligible to elect coverage
under contributory employee savings plans which provide for Company matching
contributions based on one-half of employee contributions up to certain plan
limits. The Company's matching contributions under these plans totaled $464,000,
$927,000, $705,000 and $497,000 in the Short Fiscal Year and in fiscal years
1999, 1998 and 1997, respectively.
NOTE 9 -- RESTRUCTURING, ACQUISITION AND OTHER CHARGES
In connection with the Restructuring Plan, the Company has undertaken
various actions to reduce the cost structure of the Company. As a result, the
Company recorded restructuring and other related charges in the Short Fiscal
Year, totaling approximately $5.0 million. Such charges were determined in
accordance with Staff Accounting Bulletin No. 100, RESTRUCTURING AND IMPAIRMENT
CHARGES, and Emerging Issues Task Force No. 94-3, LIABILITY RECOGNITION FOR
CERTAIN EMPLOYEE TERMINATION BENEFITS AND OTHER COSTS TO EXIT AN ACTIVITY
(INCLUDING CERTAIN COSTS INCURRED IN A RESTRUCTURING). These charges include
severance costs related to a reduction in work force, the closure and
combination of certain facilities, and the write-off of certain non-performing
operating assets. The Company expects to record additional restructuring-related
charges over the next three fiscal quarters as the Company completes its
Restructuring Plan and finalizes the consolidation and integration of its
operations and related facilities.
54
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9 -- RESTRUCTURING, ACQUISITION AND OTHER CHARGES (CONTINUED)
The following table summarizes the restructuring and other related charges
recorded in December 1999, of which approximately $0.9 million are included in
accrued liabilities at December 31, 1999 (in thousands):
<TABLE>
<S> <C>
Write-down of abandoned fixed assets, inventory and other operating assets associated with the
discontinuation of certain products.............................................................. $1,895
Write-down of long-lived assets under FASB Statement No. 121....................................... 1,662
Severance costs for involuntary employee terminations.............................................. 756
Costs to exit certain contractual obligations related to discontinued products..................... 374
Remaining lease obligations and write-off of related leasehold improvements associated with
abandoned facilities, net of anticipated sublease income......................................... 216
Anticipated moving costs related to consolidation of facilities.................................... 50
------------
$4,953
============
</TABLE>
During fiscal year 1999, the Company recorded restructuring, acquisition
and other charges of approximately $3.1 million. Of these charges, approximately
$1.6 million consisted of direct acquisition costs for business combinations
accounted for using the pooling-of-interests method. The remaining $1.5 million
charge consists primarily of amounts provided for revised estimates of costs to
resolve certain environmental and legal contingencies which occurred in prior
years, as well as other restructuring provisions, including employee and
facility expenses, related to decisions made in July 1999 to reduce certain
administrative infrastructure of the Company in Europe and the United States.
The Company recorded a $6.3 million charge in fiscal year 1998 related to
the acquisition of three businesses, including transaction costs for a business
combination accounted for as a pooling-of-interest, and the appraised amount of
acquired in-process research and development for the two business combinations
accounted for as purchases.
NOTE 10 -- DISCONTINUED OPERATIONS
As discussed in Note 9, the Company has adopted a plan to divest its high
voltage wound film capacitors, high voltage power supplies, time card and job
cost accounting software and glass-to-metal seals businesses. In connection with
its decision to sell these businesses, the Company recorded pre-tax charges of
$4.7 million, including provisions of $3.8 million for estimated losses on the
sale of the businesses and $0.9 million for severance costs for involuntary
employee terminations and provisions for contractual employment obligations that
will have no continuing benefit. On February 29, 2000, the Company sold the high
voltage wound film capacitors and high voltage power supplies businesses for
cash of $3.5 million, approximately the net book value of the net assets sold as
of that date. The anticipated disposal of the remaining businesses is expected
to occur by the end of the second quarter of calendar year 2000.
Operating results of the discontinued operations are shown, net of tax,
separately in the accompanying consolidated statements of operations. The
provision (credit) for income taxes related to the discontinued operations was
$(2.1) million and $(0.2) million in the Short Fiscal Year and fiscal year 1999,
respectively. No provision for income taxes was provided for fiscal years 1998
and 1997. The businesses included in discontinued operations had sales
aggregating $9.4 million, $26.0 million, $17.2 million and $15.9 million for the
Short Fiscal Year, and in fiscal years 1999, 1998 and 1997, respectively. These
amounts are not included in net sales in the accompanying consolidated
statements of operations.
55
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 10 -- DISCONTINUED OPERATIONS (CONTINUED)
In fiscal year 1999, the Company recorded a pre-tax charge of $2.8 million
related to revised estimates of final costs necessary to complete certain
criminal justice information system contracts and complete the discontinuation
of a business segment that was discontinued in fiscal year 1998. The revision
affected costs to complete and terminate such contracts, as well as other
business shutdown costs, including employee-related costs. During fiscal year
1998, the Company reorganized the operations within its former Information
Products and Services business segment, including a refocusing of certain
operations along the lines of other business segments and the discontinuation of
certain businesses. Related pre-tax charges, including discontinued operations,
amounted to $2.6 million.
Assets and liabilities of the discontinued operations consisted of the
following:
<TABLE>
<CAPTION>
JULY 31,
DECEMBER 31, -----------------------------
1999 1999 1998
------------- ------------- ------------
<S> <C> <C> <C>
Assets: (IN THOUSANDS)
Cash..................................................... $ (18) $ 7 $ (232)
Accounts receivable...................................... 9,192 9,677 7,774
Inventories.............................................. 3,069 3,758 2,840
Prepaid expenses and other assets........................ 4,025 3,265 623
Property and equipment................................... 3,089 3,196 3,661
------------- ------------- ------------
19,357 19,903 14,666
Liabilities:
Accounts payable and other current liabilities, including
provisions for estimated losses upon disposal.......... 15,793 14,908 11,866
------------- ------------- ------------
Net assets of discontinued operations....................... $ 3,564 $ 4,995 $ 2,800
============= ============= ============
</TABLE>
Net assets of the discontinued operations have been separately classified
in the accompanying consolidated balance sheet at December 31, 1999. Prior year
consolidated financial statements have been restated to conform to the current
year presentation.
NOTE 11 -- ENVIRONMENTAL MATTER
In 1992, the Company and approximately 40 other potentially responsible
parties signed a consent order with the State of California with respect to
costs to be incurred at a recycling facility to characterize and remediate
hazardous substances. To date, the site has been characterized, and the Company
and the other potentially responsible parties have paid substantially all of
their respective shares of the costs of such characterization. The estimated
cost of monitoring and remediation activities, of which the Company's share is
currently estimated at approximately 3.3%, totals approximately $23 million.
Approximately $21 million of this amount will consist of maintenance, monitoring
and related costs to be incurred over a 25-30 year period. The Company has
accrued its share of such estimated costs. On the basis of such amounts accrued
by the Company, it is management's opinion that any additional liability
resulting from this situation will not have a material effect on the Company's
consolidated financial statements.
56
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- BUSINESS SEGMENTS
In accordance with the requirements and guidelines of Statement of
Financial Accounting Standards No. 131, DISCLOSURE ABOUT SEGMENTS OF AN
ENTERPRISE AND RELATED INFORMATION ("Statement No. 131"), Maxwell's operations
have been classified into business segments. In connection with the Company's
Restructuring Plan, the Company has integrated its businesses into new operating
divisions. Accordingly, the Company has defined four new reporting segments as
follows (prior year segment information has been restated to conform to the new
segmentation):
POWER AND COMPUTING SYSTEMS
As part of its Restructuring Plan, the Company is integrating its
I-Bus, Inc. and Phoenix Power Systems, Inc. subsidiaries
("I-Bus/Phoenix"). The new I-Bus/Phoenix operation will expand the
industrial computer product line of I-Bus, Inc. with complementary
power quality products and broaden the global reach of the power
quality products. As part of the Restructuring Plan, the Company is
combining the San Diego operations of these two subsidiaries into a
single facility in San Diego. The new San Diego facility is being
designed for highly-efficient manufacturing, with improved processes,
improved personnel training and more disciplined cost control
practices.
The Company designs, manufactures and supplies standard, custom and
semi-custom industrial computer modules, platforms and fully-integrated
systems to OEMs, on a worldwide basis. The Company's I-Bus/Phoenix
product line ranges from enclosures, CPU boards and backplanes to fully
integrated and highly customized computer systems. This product line
primarily employs passive backplane architecture, complemented by a
newly-introduced CompactPCI line of products.
The I-Bus/Phoenix power quality products consist of power distribution
units, power conditioners and inverters, uninterruptible power supplies
("UPS") and other power protection products. These products are
designed and engineered by the Company for customer applications
primarily in the medical and telecommunications markets.
ELECTRONIC COMPONENTS
The Restructuring Plan organizes a high-reliability electronic
components group (the "Electronic Components Group") within the Company
by combining its POWERCACHE ultracapacitor business, its Sierra-KD EMI
filter and ceramic capacitor business and its Space Electronics, Inc.
("SEi") high-reliability and radiation-hardened microelectronics
business. These businesses involve manufacturing high-reliability
electronic components based on the Company's core competencies in power
and computing. During the Current Fiscal Year the Company will
integrate the POWERCACHE ultracapacitor business and microelectronics
components business into one manufacturing site in San Diego, while the
EMI filters and ceramic capacitors will continue to be manufactured at
the Company's facility in Carson City, Nevada. Both facilities are
being designed for highly-efficient manufacturing, with improved
process, improved personnel training and more disciplined cost control
practices.
The Components Group is developing the POWERCACHE ultracapacitor to
provide bursts of power when a rapid injection of energy is required
for an application. The POWERCACHE ultracapacitor is scalable in that
it can be manufactured in a broad range of shapes and sizes. Currently,
the Company is developing ultracapacitors from sub-matchbook size to
cells measuring 2" x 2" x 6", while maintaining the same high energy
storage per unit volume. The POWERCACHE ultracapacitors can also be
linked together in modules to supply higher power for applications such
as automotive and power quality systems.
57
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- BUSINESS SEGMENTS (CONTINUED)
The Electronic Components Group designs, manufactures and sells a
line of ceramic capacitor filters to absorb the electromagnetic
fields and signals generated by electronic devices which interfere
with and disrupt the functioning of other electronic devices,
including implantable medical devices such as pacemakers and
defibrillators, and aerospace guidance and communications systems.
These products block EMI from entering an electronic device at the
opening used by, for example, power leads or sensors.
In fiscal year 1999, Maxwell acquired SEi, a San Diego-based designer
and manufacturer of high reliability, radiation hardened
microelectronic components and assemblies primarily for the space
market. Through this SEi unit, the Electronic Components Group provides
integrated circuits and multi-chip modules designed and adapted for
space flight and other high reliability applications. In the space
market, SEi products are used in satellites which experience extreme
environmental conditions, often in radiation-intense orbits.
GOVERNMENT SYSTEMS
Through its Systems Division, Maxwell is engaged in a variety of
research and development programs in pulsed power, pulsed power systems
design and construction, and weapons effects simulation. These services
are primarily supplied to the United States government and its agencies
including the Air Force and the Defense Threat Reduction Agency. The
Systems Division also provides systems and services to national
laboratories and industrial and defense companies. The Systems Division
typically performs research and development under contracts that allow
the Company to apply developed technology in commercial markets.
STERILIZATION AND PURIFICATION SYSTEMS
The Company's PurePulse Technologies, Inc. subsidiary applies
PUREBRIGHT intense broad spectrum pulsed light technology to kill
viruses and other microorganisms in water, blood plasma and other
biopharmaceutical and medical products, and on medical product
packaging material.
As part of the Restructuring Plan PurePulse will pursue PUREBRIGHT
applications in the medical, biopharmaceutical and consumer water
markets. Other PUREBRIGHT applications involving food and food
packaging, industrial water applications and niche markets in medical
packaging, as well as applications involving the COOLPURE-Registered
Trademark- pulsed electric field technology, will be de-emphasized
and possibly sold or licensed. Maxwell intends to seek equity financing
directly into PurePulse to finance its product development activities
and operations.
Maxwell's management evaluates performance and allocates resources based on
a measure of segment operating profit (loss), excluding restructuring,
acquisition and other charges. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies. Maxwell does not evaluate segment performance on amounts
provided for restructuring, acquisition and other charges, or on items of income
or expense below operating profit (loss). Accordingly, such items are not
segregated by operating segment.
58
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- BUSINESS SEGMENTS (CONTINUED)
Business segment financial data for the Short Fiscal Year and the three
fiscal years ended July 31 is as follows:
<TABLE>
<CAPTION>
FIVE-MONTH
PERIOD ENDED YEARS ENDED JULY 31,
DECEMBER 31, --------------------------------------------
1999 1999 1998 1997
------------- ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales:
Power and Computing Systems....................... $ 27,720 $ 65,095 $ 42,848 $ 34,259
Electronic Components............................. 7,699 34,646 32,755 29,477
Government Systems................................ 16,123 44,556 40,981 31,690
Sterilization and Purification Systems............ 628 9,389 6,774 6,473
------------- ------------- ------------ ------------
Consolidated total.............................. $ 52,170 $ 153,686 $ 123,358 $ 101,899
============= ============= ============ ============
Operating profit (loss):
Power and Computing Systems....................... $ 128 $ 3,444 $ 3,297 $ 2,417
Electronic Components............................. (5,068) (2,120) 2,954 6,679
Government Systems................................ 98 3,704 2,655 1,779
Sterilization and Purification Systems............ (2,987) 2,512 466 316
------------- ------------- ------------ ------------
Total segment operating profit (loss)........... (7,829) 7,540 9,372 11,191
Corporate expenses, including total
restructuring, acquisition and other charges.. (6,223) (4,234) (7,959) 284
Interest and other, net........................... (95) 243 1,133 18
------------- ------------- ------------ ------------
Income (loss) from continuing operations before
income taxes, and minority interest........... $ (14,147) $ 3,549 $ 2,546 $ 11,493
============= ============= ============ ============
Identifiable assets:
Power and Computing Systems....................... $ 29,517 $ 33,163 $ 23,700 $ 12,167
Electronic Components............................. 25,108 26,266 22,689 14,014
Government Systems................................ 23,296 23,658 24,686 8,392
Sterilization and Purification Systems............ 7,053 9,169 6,217 5,194
Corporate......................................... 17,243 25,040 25,610 7,161
Net assets of discontinued operations............. 3,564 4,995 2,800 3,846
------------- ------------- ------------ ------------
Consolidated total.............................. $ 105,781 $ 122,291 $ 105,702 $ 50,774
============= ============= ============ ============
Depreciation and amortization:
Power and Computing Systems....................... $ 612 $ 1,357 $ 754 $ 469
Electronic Components............................. 655 1,331 938 734
Government Systems................................ 619 1,490 1,116 647
Sterilization and Purification Systems............ 189 504 462 349
Corporate......................................... 234 395 326 326
------------- ------------- ------------ ------------
Consolidated total.............................. $ 2,309 $ 5,077 $ 3,596 $ 2,525
============= ============= ============ ============
Capital expenditures:
Power and Computing Systems....................... $ 587 $ 1,223 $ 861 $ 992
Electronic Components............................. 762 3,320 2,738 1,790
Government Systems................................ 205 2,005 1,072 389
Sterilization and Purification Systems............ 200 283 458 872
Corporate......................................... 205 563 949 310
------------- ------------- ------------ ------------
Consolidated total.............................. $ 1,959 $ 7,394 $ 6,078 $ 4,353
============= ============= ============ ============
</TABLE>
59
<PAGE>
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 12 -- BUSINESS SEGMENTS (CONTINUED)
Intersegment sales are insignificant. Corporate expenses include total
restructuring, acquisition and other charges. Identifiable assets by segment
include the assets directly identified with those segments. Corporate assets
consist primarily of cash and cash equivalents, deferred tax assets and credits,
and the centralized telecommunications, networking and other information
technology equipment of the Company.
Sales under United States government contracts and subcontracts are
primarily in the Government Systems business segment, and aggregated $15.5
million, $47.0 million, $39.8 million and $33.7 million in the Short Fiscal Year
and in fiscal years 1999, 1998, and 1997, respectively.
Sales to customers in excess of 10% of total Company sales included sales
to the United States Air Force amounting to 11% and 14% of Company sales in
fiscal years 1998 and 1997, respectively. Additionally, a customer of the Power
and Computing Systems business segment represented 11% of the Company's sales in
fiscal year 1997.
International sales amounted to $11.4 million, $31.0 million, $19.4 million
and $11.4 million in the Short Fiscal Year and in fiscal years 1999, 1998, and
1997 respectively, principally to customers in the United Kingdom and countries
in Europe and the Pacific Rim. Company assets located outside the United States
totaled approximately $8.9 million, $9.1 million and $4.2 million at December
31, 1999 and at July 31, 1999 and 1998, respectively. The Company had no foreign
operations in 1997.
NOTE 13 - RELATED PARTY TRANSACTION
In February 1999, the Company loaned $2.0 million to its Chairman and
former CEO under a full recourse promissory note agreement. The note bears
interest at 5% per year. Principal and accumulated interest is due and payable
in February 2001, and is secured in part by a pledge of Company stock owned by
the Chairman.
60
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Board of Directors of the Company is divided into three classes, with
the terms of office of each class ending in successive years. The term of the
director currently serving in Class I expires with the 2002 Annual Meeting of
Shareholders. The directors in Class II and Class III will continue in office
until their terms expire at the 2000 and 2001 Annual Meetings of Shareholders,
respectively. The directors and executive officers of the Company are set forth
below.
<TABLE>
<CAPTION>
Name and Age Position and Other Relationships with the Company; Business Experience
- ------------ ----------------------------------------------------------------------
<S> <C>
Carlton J. Eibl, 39 DIRECTOR (CLASS III), PRESIDENT AND CHIEF
EXECUTIVE OFFICER. Mr. Eibl was appointed a
director in July, 1998 and named Chief
Executive Officer and President of the
Company in November, 1999. From February
1999 until he formally joined the Company on
December 1, 1999, Mr. Eibl served as
President and Chief Operating Officer of
Stratagene Corporation, a privately-held
biotechnology company. Prior thereto, Mr.
Eibl held various executive positions with
Mycogen Corporation, a diversified
agribusiness and biotechnology company. Mr.
Eibl joined Mycogen in 1993 as Executive
Vice President and General Counsel. In 1995,
he was appointed President and Chief
Operating Officer and in 1997 he became
Chief Executive Officer. The Dow Chemical
Company acquired Mycogen at the end of 1998.
Robert L. Guyett, 63 DIRECTOR (CLASS III). Mr. Guyett was
appointed a director in January 2000. He is
a director and Treasurer of the Christopher
Reeve Paralysis Foundation. Since 1995, he
has been President and Chief Executive
Officer of Crescent Management Enterprises,
and for five years prior thereto, he was a
director and Chief Financial Officer of
Engelhard Corp. From 1987-1991, Mr. Guyett
was a director and Chief Financial Officer
of Fluor Corporation. Mr. Guyett is a
director of Newport Corp. and several
privately-held companies.
Jean Lavigne, 61 DIRECTOR (CLASS II). Mr. Lavigne was
appointed a director of the Company in
August, 1999. Mr. Lavigne is Vice President
and Country President in France for
Motorola, Inc., and he is President and
Chief Executive Officer of Motorola, S.A.
Prior to joining Motorola, Mr. Lavigne was
with Digital Equipment Corporation ("DEC")
in Europe where he was responsible for
interconnect technology and served as a
member of DEC's European Government Affairs
Team.
Kenneth F. Potashner, 42 DIRECTOR (CLASS I), CHAIRMAN OF THE BOARD.
Mr. Potashner has served as a director since
April, 1996 and as Chairman since April,
1997. From the time he joined the Company in
April, 1996 until November, 1998, he served
Maxwell as President, Chief Executive
Officer and Chief Operating Officer. In
November, 1998, Mr. Potashner was named
Chief Executive Officer of S3 Incorporated,
a manufacturer of embedded graphics
accelerator chips. From 1991 through 1994,
he was Vice President, Product Engineering,
for Quantum Corporation. From 1994 to April,
1996, he served as Executive Vice President,
Operations, of Conner Peripherals. Mr.
Potashner is a director of S3 Incorporated
and Newport Corp.
</TABLE>
61
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position and Other Relationships with the Company; Business Experience
- ------------ ----------------------------------------------------------------------
<S> <C>
Mark Rossi, 43 DIRECTOR (CLASS II). Mr. Rossi was appointed
a director of the Company in November, 1997
and elected to a full term at the Company's
Annual Shareholder's Meeting in January,
1998. Mr. Rossi is a Senior Managing
Director of Cornerstone Equity Investors,
L.L.C., a New York-based private equity firm
with assets under management in excess of $1
billion. Prior to the formation of
Cornerstone Equity Investors in 1996, Mr.
Rossi was President of Prudential Equity
Investors, Inc. Mr. Rossi's industry focus
is on technology-related and
telecommunications companies. He is a member
of the Board of Directors of True Temper,
Inc. and MCMS, Inc. as well as several
privately-held companies.
Richard D. Balanson, 50 VICE PRESIDENT. Mr. Balanson is Corporate
Vice President and President of the
Electronic Components Group of Maxwell. From
1996 until joining Maxwell in August 1999,
Mr. Balanson was the President and Chief
Operating Officer for 3D Systems, a
California-based manufacturer of rapid
prototyping equipment. From 1994 to 1996,
Mr. Balanson was the General Manager and
Executive Vice President of Maxtor
Corporation, and before that was President
and Chief Operating Officer of Applied
Magnetics Corporation.
Vickie L. Capps, 38 VICE PRESIDENT-FINANCE AND ADMINISTRATION,
TREASURER AND CHIEF FINANCIAL OFFICER. Prior
to joining Maxwell in July 1999, Ms. Capps
served Wavetek Wandel Golterman, Inc. as
Group Controller from 1992 through 1994,
Vice President - Corporate Finance from 1994
through 1996 and then Chief Financial
Officer from 1996 through 1999. Previously
she spent 10 years with the firm of Ernst &
Young LLP.
Donald M. Roberts, 51 VICE PRESIDENT, GENERAL COUNSEL AND
SECRETARY. Mr. Roberts has served as General
Counsel since joining the Company in April
1994, and was appointed Secretary in June
1996 and Vice President in January 1999. For
more than five years prior thereto, Mr.
Roberts was a shareholder of the law firm of
Parker, Milliken, Clark, O'Hara & Samuelian,
a Professional Corporation, and a partner of
the predecessor law partnership, and in that
capacity had served the Company as outside
legal advisor for more than ten years.
Walter P. Robertson, 57 VICE PRESIDENT. Mr. Robertson was named
Corporate Vice President and President of
Maxwell Technologies Systems Division, Inc.
in August of 1996. Prior to that he served
General Dynamics as Vice President, Aircraft
Production from 1991 through 1992 and as
Vice President and General Manager, Space
Magnetics from 1992 through 1994. From May
1994 through November 1994, Mr. Robertson
was Transition Director for Martin Marietta.
In April 1995 and until joining Maxwell, he
served BioSolutions Technologies, a start-up
company, as President and Chief Executive
Officer.
</TABLE>
62
<PAGE>
<TABLE>
<CAPTION>
Name and Age Position and Other Relationships with the Company; Business Experience
- ------------ ----------------------------------------------------------------------
<S> <C>
Ted Toch, 51 VICE PRESIDENT. Mr. Toch joined the Company
in June 1998, as Corporate Vice President
and President of PurePulse Technologies,
Inc. Prior to joining PurePulse Technologies
he was Vice President of Marketing and Sales
for Johnson & Johnson's Advanced
Sterilization Products Division from 1993 to
1998 with earlier experience as
Vice-President and General Manager of the
Instruments Division of Nellcor, Inc.
John D. Werderman, 53 VICE PRESIDENT. Mr. Werderman was named
Corporate Vice President and President of
I-Bus, Inc. in July 1997. Previously, Mr.
Werderman served as Chief Operating Officer
of Maxwell Technologies Systems Division,
Inc. Prior to joining Maxwell in October
1996, Mr. Werderman worked for M/A.COM, Inc.
for over 15 years, most recently as
President and General Manager of their
Baltimore, Maryland operation, M/A.COM
Government Products, Inc.
</TABLE>
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS
Each director of the Company (other than Mr. Eibl who receives no
compensation other than that received as an officer of the Company) receives
compensation of $6,250 per quarter and $1,000 per Board and Committee meeting
attended ($500 per Board or Committee telephonic meeting in which such director
participates).
The Company maintains the Maxwell Technologies, Inc. 1999 Director Stock
Option Plan (the "Director Option Plan") which authorizes the granting of
ten-year options to purchase an aggregate of 75,000 shares of the Company's
Common Stock to non-employee directors of the Company during the ten-year term
of the Director Option Plan which expires in 2009. This plan succeeds a similar
director stock option plan that expired in 1999. Under the Director Option Plan,
each eligible director automatically receives options to purchase 10,000 shares
of Company Common Stock on the first business day following such director's
initial Annual Shareholders' Meeting of the Company, and options to purchase
3,000 shares following subsequent Annual Shareholders' Meetings. The option
price per share is the fair market value based on the public trading price of
such shares on the date of grant. Options granted to directors vest in full on
the first anniversary of the date of grant.
The Company maintains the Maxwell Technologies, Inc. 1994 Director Stock
Purchase Plan (the "Director Purchase Plan"), under which directors, other than
those who are full-time employees of the Company, have the opportunity to
purchase directly from the Company shares of Common Stock at 100% of the public
trading price of the shares. An aggregate of 100,000 shares have been authorized
for purchase by directors under the plan. The Director Purchase Plan authorizes
purchases by eligible directors from and after January 1, 1995, the effective
date of the plan, until the earlier of ten years thereafter or the issuance of
all shares authorized for purchase. As of December 31, 1999, 47,826 shares
remain available for purchase under the Director Purchase Plan.
EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning the
compensation earned by the two individuals who served as the Company's Chief
Executive Officer during the Short Fiscal Year and its six other most highly
compensated executive officers (the "Named Executive Officers") during such year
for services rendered to the Company and its subsidiaries in all capacities.
63
<PAGE>
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION (2) STOCK OPTION
------------------------------- RESTRICTED GRANTS (5) ALL OTHER
NAME AND POSITION YEAR (1) SALARY BONUS OTHER (3) STOCK AWARDS (4) (NO. OF SHARES) COMPENSATION (6)
- ---------------------------- ---------- ---------- ---------- ---------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl (7) 1999(s) $ 29,423 $ -- $ -- $ -- 294,030 $ 8,750
CHIEF EXECUTIVE OFFICER, 1999 -- -- -- -- 10,000 31,810
PRESIDENT, DIRECTOR
Thomas L. Horgan (7) 1999(s) 139,589 -- -- -- -- --
CHIEF EXECUTIVE OFFICER, 1999 260,841 156,416 6,600 -- 227,890 --
PRESIDENT, DIRECTOR 1998 192,123 86,051 3,000 -- 2,000 50,000
1997 179,516 81,630 -- -- 9,000 19,254
Kenneth F. Potashner (7) 1999(s) 110,577 -- 419 -- -- --
CHAIRMAN OF THE BOARD, 1999 339,062 181,875 5,142 -- -- 50,000
DIRECTOR 1998 469,877 495,009 4,038 -- 200,000 170,000
1997 400,004 400,000 2,850 190,000 50,000 361,031
Gregg L. McKee (8) 1999(s) 114,869 5,000 2,268 -- -- --
VICE PRESIDENT 1999 207,795 85,664 4,486 -- 24,000 --
1998 197,242 108,724 3,486 -- 2,000 35,439
1997 166,622 82,617 -- -- 10,000 49,863
Vickie L. Capps (9) 1999(s) 84,615 -- -- -- 56,520 --
VICE PRESIDENT, FINANCE 1999 3,846 1,865 -- -- 90,000 --
& ADMINISTRATION AND
CHIEF FINANCIAL OFFICER
John D. Werderman 1999(s) 84,612 -- 2,008 -- 34,982 --
VICE PRESIDENT 1999 185,782 94,610 4,625 -- 24,000 50,000
1998 170,160 68,065 4,350 -- 12,000 17,598
1997 121,162 38,166 -- -- 50,000 37,475
Ted Toch (9) 1999(s) 82,227 -- 808 -- -- 12,343
VICE PRESIDENT 1999 182,211 101,628 430 -- 24,000 10,286
1998 10,096 8,413 -- -- 80,000 --
Walter P. Robertson 1999(s) 81,022 -- 1,478 -- 27,304 --
VICE PRESIDENT 1999 177,085 94,475 3,217 -- 24,000 --
1998 175,349 83,400 3,121 -- 2,000 --
1997 163,713 69,228 -- -- 69,000 --
- --------
</TABLE>
(1) The year designated "1999(s)" is the five-month period, August 1 - December
31, 1999, referred to in this Form 10-K as the Short Fiscal Year.
(2) Amounts shown include cash compensation earned and received by executive
officers as well as amounts earned but deferred at the election of those
officers under the Company's 401(k) Savings Plan and Deferred Compensation
Plan.
(3) Amounts in this column consist of matching contributions made by the
Company under its Savings Plan. They do not include the dollar value of
certain perquisites the recipient received as personal benefits. Although
such amounts cannot be determined precisely, the Company has concluded that
the aggregate amount thereof does not exceed as to any of the named
individuals the lesser of $50,000 and 10% of the total salary and bonus
paid to such individual for the Short Fiscal Year.
(4) Mr. Potashner was awarded 10,000 shares of restricted stock in fiscal year
1997, which restricted shares vest 25% one year after grant and each month
thereafter an additional 1/48 of the total number of shares granted become
vested. Mr. Potashner has full voting power and dividend rights with
respect to all of the restricted stock. At December 31, 1999, Mr. Potashner
held a total of 98,437 shares of restricted stock having a value based on
the closing price of the Company's Common Stock on that date of $984,370.
64
<PAGE>
(5) Options shown in this column are options to purchase shares of Common Stock
of Maxwell Technologies, Inc. granted under the Company's 1995 Stock Option
Plan. Several individuals in the table also received options in fiscal year
1997 to purchase common stock in the Company's operating subsidiaries as
follows: Mr. Potashner - 100,000 shares in each of Maxwell Energy Products,
Inc. ("Energy Products"), I-Bus, Inc. ("I-Bus") and Maxwell Technologies
Systems Division, Inc. ("Systems"); Mr. Horgan - 33,750 shares in Pure
Pulse Technologies, Inc. ("PurePulse"), 37,500 shares in each of I-Bus, and
Systems; Mr. McKee - 125,000 shares in Energy Products, 22,500 shares in
PurePulse, 25,000 shares in each of I-Bus and Systems; Mr. Werderman -
25,000 shares in Energy Products, 100,000 shares in I-Bus, 22,500 shares in
PurePulse and 50,000 shares in Systems; Mr. Robertson - 100,000 shares in
Systems, 22,500 shares in PurePulse, 25,000 shares in each of Energy
Products and I-Bus. In fiscal year 1998, Mr. Toch was granted options to
purchase 100,000 shares of common stock in PurePulse. Mr. Potashner
received options in fiscal 1996 to purchase 150,000 shares of PurePulse
common stock. In the Short Fiscal Year, Mr. Horgan was granted options to
purchase 23,000 shares in Space Electronics, Inc. ("SEi"), Ms. Capps was
granted options to purchase 8,000 shares of common stock in SEi, and
Messrs. McKee, Werderman, Toch and Robertson were each granted options to
purchase 7,000 shares of common stock of SEi.
(6) For Mr. Eibl, the amounts in 1999 and the Short Fiscal Year represent
compensation received as a director of the Company prior to being named
as President and CEO in November 1999. For Mr. Potashner, represents
amounts paid or accrued in fiscal year 1997 for relocation expenses,
including certain carrying and sale-related costs for his former
residence, and related tax offset payments; and in fiscal year 1998 and
fiscal year 1999 for certain non-qualified retirement benefits. For Mr.
Horgan, the fiscal year 1998 amount is a loan from the Company made at
point of hire, which was forgivable two years after Mr. Horgan's fiscal
year 1996 hire date. For Mr. Werderman, the fiscal year 1999 amount is a
loan from the Company made at point of hire, which was forgivable two
years after Mr. Werderman's fiscal year 1997 hire date. For Mr. Horgan
for fiscal 1996, Mr. McKee for fiscal years 1998 and 1997, Mr. Werderman
for fiscal years 1998 and 1997 and Mr. Toch for fiscal year 1999 and the
Short Fiscal Year, the amounts are reimbursements of relocation expenses
(including reimbursement of brokerage commissions on the sale of a
residence). During fiscal year 1998, Mr. Toch received a loan of $50,000
from the Company which is forgivable if Mr. Toch remains employed with
the Company through June 2000. During fiscal year 1999, Mr. Werderman
received a loan of $50,000 from the Company which is forgivable if Mr.
Werderman remains employed with the Company through August 31, 2000.
Also, during fiscal year 1999, Ms. Capps received a loan of $50,000 from
the Company which is forgivable if she remains employed until July 2001.
(7) In November 1998, Mr. Potashner stepped down from his positions of Chief
Executive Officer and President and continued as Chairman, with an on-going
executive role with the Company, through December 31, 1999. In April 1999,
Mr. Horgan was appointed Chief Executive Officer and President. Mr. Horgan
resigned from these positions in November 1999. Mr. Eibl was named Chief
Executive Officer and President in November 1999.
(8) Mr. McKee's employment with the Company terminated on December 31, 1999.
Mr. McKee is receiving salary continuation payments through June 2000.
(9) Mr. Toch was hired as a Vice President in fiscal year 1998. Under the
terms of his employment, the Company agreed to retain Mr. Toch as an
employee or consultant on a full-time basis, at no less than his inital
compensation, for a period of two years, which under certain
circumstances can be extended to three years, from his hire date. Ms.
Capps was hired as Chief Financial Officer and Vice President, Finance
and Administration in July 1999.
65
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows information on grants of options to purchase stock
of the Company and its SEi subsidiary to those Named Executive Officers who
received such grants during the Short Fiscal Year. Pursuant to Securities and
Exchange Commission rules, the table also shows the value of the options at the
end of the ten year option terms if the stock price were to appreciate annually
by 5% and 10%, respectively. These assumed values may not reflect actual value
at the times indicated.
<TABLE>
<CAPTION>
PERCENTAGE OF POTENTIAL REALIZABLE
TOTAL OPTIONS VALUE AT ASSUMED
TO EMPLOYEES ANNUAL RATES OF
IN FIVE-MONTH STOCK PRICE
PERIOD ENDED EXERCISE APPRECIATION FOR
OPTIONS DECEMBER 31, PRICE EXPIRATION OPTION TERM
NAME ENTITY GRANTED (1) 1999 (PER SHARE) DATE 5% 10%
- ---------------------- ---------- ------------ ---------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl Maxwell 294,030 45.40% $8.75 11/09/2009 $1,618,000 $4,100,320
Thomas L. Horgan SEi 23,000 4.60% $5.00 08/18/2009 72,320 183,280
Gregg L. McKee SEi 7,000 1.40% $5.00 08/18/2009 22,010 55,780
Vickie L. Capps Maxwell 56,250 8.69% $9.00 12/27/2009 318,380 806,830
SEi 8,000 1.60% $5.00 08/18/2009 25,160 63,750
John D. Werderman Maxwell 34,982 5.40% $9.00 12/27/2009 198,000 501,770
SEi 7,000 1.40% $5.00 08/18/2009 22,010 55,780
Ted Toch SEi 7,000 1.40% $5.00 08/18/2009 22,010 55,780
Walter P. Robertson Maxwell 27,304 4.22% $9.00 12/27/2009 154,540 391,640
SEi 7,000 1.40% $5.00 08/18/2009 22,010 55,780
</TABLE>
- ----------
(1) Mr. Eibl's options represent a one-time grant of non-qualified stock
options in connection with his commitment to join the Company as President
and Chief Executive Officer. These options are not under the Company's 1995
Stock Option Plan, and they vest at the rate of 1/48th of the total shares
each month, commencing December 1999. The balance of the Maxwell options
shown in the table are under the 1995 Stock Option Plan and are either
incentive stock options or non-qualified stock options, granted at a
purchase price no less than the fair market value of the underlying Company
Common Stock based on the closing trading price of such stock on the date
of grant. The increments in which the options are exercisable are
determined by the committee that administers the plan. The SEi options are
granted under that company's employee stock option plan at an exercise
price equal to the fair market value of the underlying shares as determined
by the SEi board of directors.
66
<PAGE>
FISCAL YEAR END OPTION VALUES
Shown below is information on each Named Executive Officer with respect to
(i) the value of stock options exercised by such person in the Short Fiscal
Year, measured in terms of the closing price of the Company's Common Stock on
the date of exercise, and (ii) the value of unexercised options to purchase the
Company's Common Stock held by such person, measured in terms of the closing
price of the Company's Common Stock on December 31, 1999.
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES ACQUIRED OPTIONS HELD AT IN-THE-MONEY OPTIONS AT
ON EXERCISE VALUE DECEMBER 31, 1999 (1) DECEMBER 31, 1999 (1)
--------------------------- ---------------------------
NAME (NO. OF SHARES) REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ----------------------- ---------------- ------------ ------------ -------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Carlton J. Eibl -- $ -- 6,125 297,905 $ 7,656 $359,881
Kenneth F. Potashner -- -- 112,242 140,915 262,235 333,756
Thomas L. Horgan -- -- 80,581 90,164 180,000 60,000
Gregg L. McKee -- -- 15,924 15,924 23,991 23,991
Vickie L. Capps -- -- -- 146,250 -- 56,250
John D. Werderman -- -- 23,600 77,382 -- 34,982
Ted Toch -- -- 24,000 80,000 -- --
Walter P. Robertson -- -- 24,906 64,998 52,996 60,420
</TABLE>
- ----------
(1) Does not include options held by the Named Executive Officers to purchase
shares of common stock in five of the Company's operating subsidiaries
under the stock option plans of such subsidiaries. All options held by
these individuals under such subsidiary stock option plans were granted in
fiscal year 1997, except for options to purchase 150,000 shares of common
stock of the Company's PurePulse Technologies, Inc. subsidiary granted to
Mr. Potashner in fiscal 1996, 100,000 shares of common of the Company's
PurePulse Technologies, Inc. subsidiary granted to Mr. Toch in fiscal year
1998, and options to purchase shares of common stock in the Company's Space
Electronics, Inc. subsidiary granted to Named Executive Officers during the
Short Fiscal Year as shown in the Option Grants Table. With the exception
of SEi options for which no shares are exercisable, and Mr. Potashner's and
Mr. Toch's PurePulse options, of which 120,000 and 25,000 shares,
respectively, were exercisable, 75% of such subsidiary options described in
footnote (4) to the Summary Compensation Table were exercisable within 60
days of December 31, 1999. No public market exists for the common stock of
any of the Company's subsidiaries. For purposes of the above table, no
value has been attributed to the subsidiary stock options.
67
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
Set forth below is a line graph comparing the cumulative total return to
shareholders on the Company's Common Stock with the cumulative total return on
the NASDAQ and a peer group of comparable companies identified therein for the
five-year and five-month period August 1, 1994 - December 31, 1999.
COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURN
AMONG MAXWELL TECHNOLOGIES, INC., NASDAQ, AND INDUSTRY PEER GROUP
AUGUST 1, 1994 - DECEMBER 31, 1999
<TABLE>
<CAPTION>
7/1994 7/1995 7/1996 7/1997 7/1998 7/1999 12/1999
------ ------ ------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
Maxwell Technologies 100.0 93.9 157.6 563.6 609.1 630.3 242.4
Nasdaq Stock Market 100.0 138.8 150.3 221.7 258.7 366.6 568.4
Self-determined Peer Group 100.0 166.9 120.9 165.6 127.8 174.3 392.6
</TABLE>
68
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE AND STOCK OPTION COMMITTEE ON EXECUTIVE
COMPENSATION
As described in more detail below, the Company's executive compensation
consists of three principal components--base salary and annual incentive
compensation, as determined by the Compensation Committee of the Board of
Directors; and stock option awards, as determined by the Stock Option Committee
of the Board of Directors. During fiscal year 1999 and through December 31,
1999, the Compensation Committee also acted as the Stock Option Committee.
The compensation policies of the Company are designed to set its executive
compensation, including salary and short-term and long-term incentive programs,
at a level consistent with amounts paid to executive officers of companies of
similar size and business orientation and consistent with marketplace
requirements to attract and retain management personnel with the experience and
background to drive the commercialization of the Company's technologies. In this
regard, the compensation policies of the Company are particularly designed to
link executive officer bonus compensation to the Company's performance in the
short-term and to emphasize compensation from equity, primarily employee stock
options, for long-term incentives.
The three principal components of the Company's executive compensation are
as follows:
(1) BASE SALARY. Base salary is intended to be set at a level consistent with
amounts paid to executive officers of companies of comparable size and
business areas and generally reflective of the performance of the Company
and the individual. Salaries for executive officers are reviewed on an
annual basis. Base salary (and annual incentive bonus compensation) during
the period for Mr. Horgan, who was Chief Executive Officer for part of the
year, was set forth in the employment agreement discussed below. Mr. Eibl's
base salary and annual bonus incentive for the period after he joined the
Company as President and Chief Executive Officer on December 1, 1999 is set
forth in his employment agreement described below.
(2) ANNUAL INCENTIVE COMPENSATION. The Company fell slightly short of the
revenue and earnings per share target in the fiscal year ended July 31,
1999 for target bonus payout to executive officers, and other than for the
CEO, bonuses of just under 50% of base compensation were paid. The
determination of the exact percentage was at the discretion of the CEO.
Pursuant to their respective employment contracts described below and based
on the percentage of the revenue and earnings targets achieved, for the
fiscal year ended July 31, 1999, Mr. Potashner received a bonus of
$181,875, or just under 100% of his base compensation, prorated for the
time he served in the Chief Executive Officer capacity, and Mr. Horgan
received $156,416, or just under 100% of his base compensation, prorated
for the time he served in the Chief Executive Officer capacity. No bonuses
were paid for the Short Fiscal Year. For the Current Fiscal Year (January 1
- December 31, 2000), the Committee adopted a bonus plan for executive
officers under which bonuses ranging from 50% to 100% of base salary can be
earned if certain revenue and operating income targets are met.
(3) LONG TERM INCENTIVE COMPENSATION/STOCK OPTIONS. The Company's long-term
incentive program consists of a stock option program pursuant to which the
Chief Executive Officer and other executive officers (as well as other key
employees) are periodically granted stock options at the then fair market
value of the Company's Common Stock. In addition, the Company began a
program in fiscal year 1997 for the award to executives of stock options in
the Company's operating subsidiaries. These option programs are designed to
reward and retain executive officers over the long-term and to link the
value of the incentive to increases in the value of the subsidiaries and in
the Company's stock price over time, benefiting shareholders as a whole.
Dated: February 29, 2000
COMPENSATION AND STOCK OPTION
COMMITTEE
Karl M. Samuelian
Mark Rossi
69
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the Short Fiscal Year until Mr. Eibl's selection as President and
Chief Executive Officer, the Compensation Committee consisted of Messrs.
Samuelian, Rossi and Eibl, and thereafter the members of such committee were
Messrs. Samuelian and Rossi. Mr. Samuelian stepped down from the Board of
Directors on January 31, 2000. The compensation committee now consists of
Messrs. Guyett, Lavigne and Rossi.
EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
MR. EIBL. In November 1999, the Company entered into an Employment
Agreement ("Agreement") with Carlton J. Eibl pursuant to which Mr. Eibl is to
become the President and Chief Executive Officer of the Company effective
December 1, 1999. The Agreement requires Mr. Eibl to perform duties associated
with the office of chief executive of the Company plus other duties or positions
as the Board of Directors may require. The Agreement provides for a base salary
of $425,000 per year, reviewed annually, with an annual bonus opportunity
targeted at 100% of base salary, to be determined by the Board of Directors.
Such bonus will be based on financial and non-financial performance targets set
by the Board of Directors. The Agreement provides for the grant of special,
non-qualified options to purchase 294,030 shares of the Company's common stock
at an exercise price of $8.75 per share, with four year vesting at the rate of
1/48 of the total number of shares per month commencing with December, 1999, as
long as Mr. Eibl is with the Company.
Under the Agreement, Mr. Eibl will become immediately vested in all the
options, and receive payments equal to twice his annual salary then in effect,
in the event a "change of control" occurs and either his compensation or
responsibilities are reduced or the Company's principal place of business is
moved outside of San Diego County. A "change of control" is defined as the
acquisition by a person or group of a majority of the Company's stock by direct
purchase or through merger, the liquidation or sale of substantially all of the
assets of the Company or a change in the majority of the members of the Board of
Directors other than through membership changes determined by the Board itself.
If Mr. Eibl is terminated without cause prior to the second anniversary date of
the Agreement, he will be paid two times his annual base salary in effect on the
date of termination and his stock options will continue to vest until the second
anniversary date of his Agreement. If the termination occurs after the second
anniversary date of the Agreement, he will receive the average of the total
annual compensation (annual base salary plus bonuses earned) for the preceding
two years. If Mr. Eibl voluntarily resigns or is terminated for cause, he will
be paid only such salary and accrued vacation pay as is then due him.
MR. HORGAN. The Company entered into an Employment Agreement with Mr.
Horgan upon his appointment as President and Chief Executive Officer in April,
1999. Mr. Horgan resigned from his positions with the Company in November, 1999,
and under the Employment Agreement, he received a total of $700,000,
representing an amount equal to twice his annual salary then in effect. In
addition, Mr. Horgan will continue to vest in a portion of the stock options
covering 227,890 shares granted to him pursuant to the Employment Agreement.
Such options vest at the rate of 1/48 of the total shares each month commencing
with April, 1999, and will continue to vest at that rate through April, 2001,
after which the vested options must be exercised within 60 days or they will
expire.
MR. POTASHNER. In March, 1996, the Company entered into an Employment
Contract ("Contract") with Kenneth F. Potashner pursuant to which Mr. Potashner
became the President and Chief Executive Officer of the Company effective April
26, 1996. In November, 1998, Mr. Potashner stepped down from his position as
Chief Executive Officer and agreed with the Board to continue as Chairman, as
well as, for a period of time, in an active, although less than full time,
executive role with the Company. Mr. Potashner received an annual base salary of
$250,000 for the period in which he has continued in such executive role.
Effective January 1, 2000, Mr. Potashner ceased serving in such executive role.
Mr. Potashner's salary for such role ceased January 31, 2000 and Mr. Potashner
received an $85,000 separation payment. Mr. Potashner currently holds a total of
98,437 shares of restricted stock granted under the Contract and options under
the Company's 1995 Stock Option Plan for a total of 351,594 shares. Both the
restricted shares and the options are subject to four-year vesting schedules.
Vesting will continue during the period in which Mr. Potashner is active with
the Company in an executive, consulting or other role. In addition, Mr.
Potashner is entitled to non-qualified retirement benefits payable in
installments following the termination of his employment equal, in the
aggregate, to 10% of the total of his annual salary and target bonus each year
under the Contract. A total of $263,079 has been earned under this provision
through the end of the Short Fiscal Year, and no further amounts will accrue
thereafter.
70
<PAGE>
Mr. Potashner will be immediately fully vested in the restricted shares and
stock options in the event that a "change of control" occurs and certain other
conditions are met. A "change of control" is defined as the acquisition by a
person or group of a majority of the Company's stock by direct purchase or
through a merger, the liquidation or sale of substantially all of the assets of
the Company or a change in a majority of the members of the Board of Directors
other than through membership changes determined by the Board itself.
OTHER CHANGE-IN-CONTROL ARRANGEMENTS. In connection with the employment of
Ms. Capps, the Company agreed that Ms. Capps will receive payment of base salary
for one year in the event a "change of control" occurs and either her
compensation or responsibilities are reduced or the Company's principal place of
business is moved outside of San Diego County. A "change of control" is defined
as the acquisition by a person or group of a majority of the Company's stock by
direct purchase or through merger, the liquidation or sale of substantially all
of the assets of the Company or a change in the majority of the members of the
Board of Directors other than through membership changes determined by the Board
itself.
OTHER PROGRAMS
In January 2000, the Board adopted, and the Company's shareholders
subsequently approved, the Company's Management Equity Ownership Program (the
"Program"). Under the Program, executive officers of the Company and other
members of senior management selected by the Committee are offered full
recourse loans from the Company to be used to purchase stock of the Company.
The loans bear interest and must be repaid in annual installments of
principal and interest over a four-year period. Repayment of the loan is
secured by the shares purchased with the loan proceeds. The Committee may
decide to permit purchases directly from the Company, in which case the
purchase price is set at the closing price that day in the public trading
market, or to require the purchases to be made in the public trading market.
On February 1, 2000, loans in the total amount of $900,000, bearing interest
at 6.56%, were made in connection with the purchase of shares directly from
the Company by Carlton J. Eibl - 20,833 shares; Vickie L. Capps, Richard D.
Balanson, Donald M. Roberts, and John D. Werderman (each a Vice President of
the Company) - 8,333 shares each; and nine other members of management - a
total of 20,830 shares. All of these purchases were made at the $12.00 per
share closing price on the date of purchase.
71
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (i) each person (or group
of affiliated persons) known by the Company to beneficially own more than five
percent of the outstanding shares of common stock; and (ii) each director of the
Company, (iii) each of the Named Executive Officers, and (iv) all directors and
executive officers of the Company as a group. Information for the officers and
directors is as of February 29, 2000. The address for each individual is 9275
Sky Park Court, San Diego, CA 92123.
<TABLE>
<CAPTION>
TOTAL
NAME AND ADDRESS OF BENEFICIAL %
BENEFICIAL OWNER OWNERSHIP (1) OWNERSHIP (2)
- ----------------------------------------------------------------------------- ---------------- -----------------
<S> <C> <C>
Security Management Company, LLC.......................................... 821,900 8.4%
700 S.W. HARRISON STREET, TOPEKA, KS 66636-0001
Carlton J. Eibl........................................................... 57,335 (3) *
Kenneth F. Potashner...................................................... 284,835 (3) 2.9%
Vickie L. Capps........................................................... 15,833 *
John Werderman............................................................ 38,387 (3) *
Ted Toch.................................................................. 24,300 (3) *
Walter P. Robertson....................................................... 40,107 (3) *
Thomas L. Horgan.......................................................... 99,637 (3) 1.0%
Gregg L. McKee............................................................ 18,000 (3) *
Mark Rossi................................................................ 13,000 (3) *
Robert Guyett............................................................. 4,000 *
Jean Lavigne.............................................................. -- *
All directors and executive officers as a group (13 persons).............. 634,329 (3) 6.3%
</TABLE>
- ----------------
*Less than one percent.
(1) Information with respect to beneficial ownership is based on information
furnished to the Company by each shareholder included in the table or
included in filings with the Securities and Exchange Commission. The
Company understands that each person in the table has sole voting and
investment power for shares beneficially owned by such person, subject to
community property laws where applicable.
(2) Shares of Common Stock subject to options which are currently exercisable
or exercisable within 60 days of February 29, 2000, are deemed outstanding
for computing the percentage of the person holding such options but are not
deemed outstanding for computing the percentage of any other person.
Percentage of ownership is based on 9,753,420 shares of Common Stock
outstanding on February 29, 2000.
(3) Shares of Common Stock beneficially owned include options exercisable
within 60 days of February 29, 2000 to purchase 34,502 shares granted to
Mr. Eibl, 127,531 shares granted to Mr. Potashner, 23,600 shares granted to
Mr. Werderman, 24,000 shares granted to Mr. Toch, 24,906 shares granted to
Mr. Robertson, 94,824 shares granted to Mr. Horgan, 14,724 shares granted
to Mr. McKee and 13,000 shares granted to Mr. Rossi and options to purchase
261,539 shares granted to all directors and officers as a group.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In January 1999, the Company loaned Kenneth F. Potashner, its Chairman and
former Chief Executive Officer, a total of $2,000,000 to assist in the payment
of income taxes accruing on restricted stock previously granted to Mr.
Potashner. The loan is evidenced by a full recourse promissory note and secured
by the pledge of 50,000 shares of common stock of the Company. The promissory
note is payable in full on or before the second anniversary of the date of such
note and accrues interest on the outstanding balance at the rate of 5% per
annum.
In August 1999, the Company loaned Richard Balanson, a Vice President, a
total of $120,000. As long as he remains employed by the Company, 50% of the
loan is forgivable 18 months after Mr. Balanson's August 1999 hire date and the
balance is forgivable 36 months after such date.
72
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) FINANCIAL STATEMENTS
See Item 6, Item 7 and Item 8.
(a)(2) FINANCIAL STATEMENT SCHEDULES
Schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are omitted because they
are inapplicable or not required under the related instructions.
(a)(3) LIST OF EXHIBITS.
3.1 Restated Certificate of Incorporation of the Registrant --
Exhibit 3.1 to the Registrant's Form 10-K Annual Report for
the year ended July 31, 1987 ("1987 Form 10-K") is
incorporated by reference.
3.2 Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant increasing the number of
authorized shares to 20 million, dated November 22, 1996 --
Exhibit 3.2 to the Registrant's 1997 Form 10-K Annual Report
for the year ended July 31, 1997 ("1997 Form 10-K") is
incorporated by reference.
3.3 Certificate of Amendment of Restated Certificate of
Incorporation of the Registrant increasing the number of
authorized shares to 40 million, dated February 9, 1998 --
Exhibit 3.3 to the Registrant's Form 10-K Annual Report for
the year ended July 31, 1999 ("1999 Form 10-K") is
incorporated by reference.
3.4 Bylaws of the Registrant as amended to date-- Exhibit 3.2
to the 1987 Form 10-K is incorporated by reference.
3.5 Revised Article IV of the Bylaws of the Registrant--
Exhibit 3.4 to the 1997 Form 10-K is incorporated by
reference.
4.1 Rights Agreement dated November 5, 1999 between Registrant
and ChaseMellon Shareholders Services, LLC, as Rights Agent
- Exhibit 1 to the Registrant's Form 8-A filed November 18,
1999 is hereby incorporated by reference.
10.1 Maxwell Laboratories, Inc. Director Stock Option Plan --
Exhibit 10.23 to the Registrant's Form 10-K Annual Report
for the year ended July 31, 1989 ("1989 Form 10-K") is
incorporated by reference.
10.2 Amendment Number One to Maxwell Laboratories, Inc. Director
Stock Option Plan, dated February 7, 1997 -- Exhibit 10.2 to
the 1997 Form 10-K is incorporated by reference.
10.3 Amendment Number Two to Maxwell Laboratories, Inc. Director
Stock Option Plan, dated January 28, 1999 -- Exhibit 10.3 to
the 1999 Form 10-K is incorporated by reference.
10.4 Maxwell Laboratories, Inc. 1985 Stock Option Plan as amended
to date -- Exhibit 10.3 to the Registrant's Form 10-K Annual
Report for the year ended July 31, 1991 ("1991 Form 10-K")
is incorporated by reference.
10.5 Maxwell Laboratories, Inc. 1995 Stock Option Plan -- Exhibit
10.3 to the Registrant's Form 10-K Annual Report for the
year ended July 31, 1995 ("1995 Form 10-K") is incorporated
by reference.
10.6 Amendment Number One to Maxwell Laboratories, Inc. 1995
Stock Option Plan, dated March 19, 1997-- Exhibit 10.6 to
the 1997 Form 10-K is incorporated by reference.
10.7 Amendment Number Two to Maxwell Technologies, Inc. 1995
Stock Option Plan, dated January 28, 1998-- Exhibit 10.6 to
the 1998 Form 10-K is incorporated by reference.
73
<PAGE>
10.8 Amendment Number Three to Maxwell Technologies, Inc. 1995
Stock Option Plan, dated January 28, 1999 -- Exhibit 10.8 to
the 1999 Form 10-K is incorporated by reference.
10.9+ Amendment Number Four to Maxwell Technologies, Inc. 1995
Stock Option Plan, dated January 28, 2000.
10.10 Maxwell Laboratories, Inc. 1994 Employee Stock Purchase
Plan-- Exhibit 10.4 to the 1995 Form 10-K is incorporated by
reference.
10.11 Maxwell Laboratories, Inc. 1994 Director Stock Purchase
Plan-- Exhibit 10.5 to the 1995 Form 10-K is incorporated by
reference.
10.12+ Maxwell Technologies, Inc. 1999 Director Stock Option Plan,
dated January 28, 2000.
10.13 Lease dated February 28, 1986 between the Registrant, as
Lessee, and Elkhorn Ranch, Inc., as Lessor -- Exhibit 10.11
to the Registrant's Form 10-K Annual Report for the year
ended July 31, 1986 ("1986 Form 10-K") is incorporated by
reference.
10.14 First Amendment to Industrial Real Estate Lease between the
Registrant, as Lessee, and Elkhorn Ranch, Inc., as Lessor,
dated June 30, 1995 -- Exhibit 10.11 to the 1997 Form 10-K
is incorporated by reference.
10.15 Maxwell Technologies, Inc. Officer and Director Stock
Repurchase Policy-- Exhibit 10.12 to the 1998 Form 10-K is
incorporated by reference.
10.16 Lease dated April 17, 1995, by and between Cody Three, Inc.,
as Lessor, and the Registrant, as Lessee -- Exhibit 10.12 to
the Registrant's Form 10-K Annual Report for the year ended
July 31, 1996 ("1996 Form 10-K") is incorporated by
reference.
10.17 Amended and Restated Industrial Real Estate Lease dated
January 1, 1997 by and between Equus 9177, LLC, as Lessor,
and I-Bus, Inc., as Lessee. -- Exhibit 10.16 to the 1997
Form 10-K is incorporated by reference.
10.18 Maxwell Laboratories, Inc. Executive Deferred Compensation
Plan, dated September 1, 1998. -- Exhibit 10.17 to the 1998
Form 10-K is incorporated by reference.
10.19+ Maxwell Technologies, Inc. Employment Agreement dated
November 9, 1999 between the Registrant and Carlton J. Eibl.
10.20 Chief Executive Officer Maxwell Technologies, Inc.
Employment Agreement dated April 30, 1999 between the
Registrant and Thomas L. Horgan -- Exhibit 10.9 to the 1999
Form 10-K is incorporated by reference.
10.21 Chief Executive Officer Employment Contract dated March 25,
1996 and Amendment dated April 16, 1996 between the
Registrant and Kenneth F. Potashner-- Exhibit 10.16 to the
1996 Form 10-K is incorporated by reference.
10.22 Second Amendment to the Chief Executive Officer Employment
Contract dated June 23, 1997 between the Registrant and
Kenneth F. Potashner -- Exhibit 10.21 to the 1997 Form 10-K
is incorporated by reference.
10.23 Restricted Stock Agreement dated July 25, 1996, between the
Registrant and Kenneth F. Potashner -- Exhibit 10.17 to the
1996 Form 10-K is incorporated by reference.
10.24 Amendment Number One to Restricted Stock Agreement, dated
June 24, 1997, between the Registrant and Kenneth F.
Potashner -- Exhibit 10.23 to the 1997 Form 10-K is
incorporated by reference.
10.25 Secured Promissory Note dated February 2, 1999 and Stock
Pledge Agreement dated February 2, 1999 between Registrant
and Kenneth F. Potashner -- Exhibit 10.24 to the 1999 Form
10-K is incorporated by reference.
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<PAGE>
10.26 Stock Pledge Agreement dated February 2, 1999 between
Registrant and Kenneth F. Potashner -- Exhibit 10.25 to the
1999 Form 10-K is incorporated by reference.
10.27 Lease dated October 12, 1994 by and between Madison Square
Partnership, as Lessor, and PurePulse Technologies, Inc.
(formerly Foodco Corporation), as Lessee -- Exhibit 10.18 to
the 1995 Form 10-K is incorporated by reference.
10.28 Lease dated November 1, 1996, by and between Ponderosa Pines
Partnership, as Lessor, and PurePulse Technologies, Inc., as
Lessee -- Exhibit 10.25 to the 1997 Form 10-K is
incorporated by reference.
10.29 Lease dated February 13, 1994 by and between Terilee
Enterprises, Inc., as Lessor, and the Registrant, as Lessee
-- Exhibit 10.23 to the 1994 Form 10-K is incorporated by
reference.
10.30+ Executive Bonus Plan for Calendar Year 2000.
10.31 PurePulse Technologies, Inc. 1994 Stock Option Plan--
Exhibit 10.26 to the 1996 Form 10-K is incorporated by
reference.
10.32 Maxwell Federal Division, Inc. 1996 Stock Option Plan--
Exhibit 10.34 to the 1997 Form 10-K is incorporated by
reference.
10.33 Maxwell Energy Products, Inc. 1996 Stock Option Plan--
Exhibit 10.35 to the 1997 Form 10-K is incorporated by
reference.
10.34 I-Bus, Inc. 1996 Stock Option Plan-- Exhibit 10.36 to the
1997 Form 10-K is incorporated by reference.
10.35 Amendment Number One to the Maxwell Laboratories, Inc. 1994
Employee Stock Purchase Plan, effective as of April 30, 1997
-- Exhibit 10.38 to the 1997 Form 10-K is incorporated by
reference.
10.36+ Space Electronics, Inc. 1999 Stock Option Plan.
10.37 Stock Purchase Agreement among Maxwell Technologies, Inc.,
Maxwell Energy Products, Inc., and PacifiCorp Energy
Ventures, Inc., dated October 30, 1997 -- Exhibit 10 to the
Registrant's October 31, 1997 Form 10-Q is incorporated by
reference.
10.38 Amended and Restated Agreement of Purchase and Sale of
Assets, dated as of March 29, 1998, among the Company,
Maxwell Technologies Systems Division, Inc., Primex
Technologies, Inc. and Primex Physics International Company
-- Exhibit 2.1 to the Registrant's Form 8-K filed April 29,
1998 is hereby incorporated by reference.
10.39 Assignment and Assumption Agreement (Facility Lease) dated
April 15, 1998, by and between Primex Physics International
Company, as assignor and Maxwell Technologies Systems
Division, Inc., as assignee -- Exhibit 10.40 to the 1998
Form 10-K is incorporated by reference.
10.40 Assignment and Assumption Agreement (Ground Lease) dated
April 15, 1998, by and between Primex Physics International
Company, as assignor and Maxwell Technologies Systems
Division, Inc., as assignee -- Exhibit 10.41 to the 1998
Form 10-K is incorporated by reference.
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<PAGE>
10.41 Underlease dated March 6, 1997 by and between Pegasus
Airwave Limited, as Lessor and I-Bus UK, Limited (formerly
Tri-MAP International, Limited), as Lessee -- Exhibit 10.42
to the 1998 Form 10-K is incorporated by reference.
10.42 Shareholder Agreement among Maxwell Technologies, Inc.,
PurePulse Technologies, Inc., Sanyo E&E Corporation and
Three Oceans Inc., dated January 28, 1999 -- Exhibit 10.44
to the 1999 Form 10-K is incorporated by reference.
10.43 Lease dated May 9, 1995, Modification and Amendment
Agreement dated September 24, 1997 and Modification and
Amendment Agreement dated June 20, 1996 between Arvco
Realty, agent for Sorrento Park Investments, as Lessor and
Space Electronics, Inc., as Lessee -- Exhibit 10.45 to the
1999 Form 10-K is incorporated by reference.
10.44 Acquisition of Space Electronics Inc., by Maxwell
Technologies, Inc., dated January 29, 1999 Exhibit 2.1 to
the Registrant's Form 8-K filed February 12, 1999 is hereby
incorporated by reference.
10.45+ Maxwell Technologies, Inc. 1999 Management Equity Ownership
Program dated January 28, 2000.
10.46 Line of Credit Agreement dated March 4, 1998, between the
Registrant and Sanwa Bank California and First Amendment
dated May 29, 1998 between the Registrant and Sanwa Bank
California -- Exhibit 10.26 to the 1998 Form 10-K is
incorporated by reference.
21.1+ List of subsidiaries of the Registrant.
23.1+ Consent of Ernst & Young, LLP, Independent Auditors.
27.1+ Financial Data Schedule.
(b) REPORTS ON FORM 8-K
On November 9, 1999, the Registrant filed a report on Form 8-K which
included a press release announcing the modification and renewal of the
Registrant's Shareholder Rights Plan which had expired in June 1999.
On December 7, 1999, the Registrant filed a report on Form 8-K reporting
that its Board of Directors adopted a resolution on November 22, 1999 to change
the fiscal year of the Registrant to calendar year effective January 1, 2000.
- ----------
+ Filed herewith.
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<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of San
Diego, State of California, on this 24th day of March, 2000.
MAXWELL TECHNOLOGIES, INC.
By: /s/ CARLTON J. EIBL
-------------------------------------
Carlton J. Eibl
Chief Executive Officer and President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ CARLTON J. EIBL Chief Executive Officer, President and March 24, 2000
- -------------------------------------------- Director
Carlton J. Eibl
/s/ KENNETH F. POTASHNER Chairman of the Board, Director March 24, 2000
- --------------------------------------------
Kenneth F. Potashner
/s/ VICKIE L. CAPPS Vice President-Finance and March 24, 2000
- -------------------------------------------- Administration, Treasurer
Vickie L. Capps and Chief Financial Officer
(Principal Financial and Accounting
Officer)
/s/ MARK ROSSI Director March 24, 2000
- --------------------------------------------
Mark Rossi
/s/ JEAN LAVIGNE Director March 24, 2000
- --------------------------------------------
Jean Lavigne
/s/ ROBERT GUYETT Director March 24, 2000
- --------------------------------------------
Robert Guyett
</TABLE>
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<PAGE>
Exhibit 10.9
AMENDMENT NUMBER FOUR TO
MAXWELL TECHNOLOGIES, INC.
1995 STOCK OPTION PLAN
The Maxwell Technologies, Inc. 1995 Stock Option Plan (the "Plan") is
hereby amended in the following respects:
1. COMMON STOCK SUBJECT TO OPTIONS.
The maximum number of shares authorized under the Plan for grant of
options as set forth in paragraph 4 of the Plan entitled "Common Stock
Subject to Options", consisting of 1,990,000 shares of the Company's
Common Stock as previously amended, is hereby adjusted to a maximum of
2,440,000 shares of the Company's Common Stock.
2. EFFECT OF AMENDMENTS.
This amendment to the Plan shall be effective as of August 31, 1999,
subject to the approval of the shareholders of Maxwell Technologies,
Inc., at the Annual Shareholder's Meeting on December 10, 1999. Except
to the extent specifically modified herein, the Plan shall remain in
full force and effect.
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
--------------------------------
Donald M. Roberts, Secretary
Date: November 22, 2000
<PAGE>
Exhibit 10.12
MAXWELL TECHNOLOGIES, INC.
1999 DIRECTOR STOCK OPTION PLAN
1. PURPOSE
The purpose of this Director Stock Option Plan (the "Plan") of Maxwell
Technologies, Inc. (the "Company"), is to encourage ownership in the Company by
its outside directors whose services are considered essential to the Company's
continued progress and thus to provide them with a further incentive to continue
to serve as directors of the Company. The Plan is also intended to assist the
Company through utilization of the incentives provided by the Plan to attract
and retain experienced and qualified candidates to fill vacancies in the Board
which may occur in the future. The Plan is intended to be a "formula plan" for
purposes of ("Rule 16b-3") promulgated under the Securities Exchange Act of 1934
(the "1934 Act") and the interpretations thereof by the Staff or the Securities
and Exchange Commission.
2. ADMINISTRATION
The Plan will be administered by the Board of Directors (the "Board")
of the Company.
Subject to the express provisions of the Plan, the Board will have
authority to amend, suspend or terminate the Plan; to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to it; to determine
the terms and provisions of the respective option agreements (which need not be
identical); and to make all other determinations necessary or advisable for the
administration of the plan. The interpretation and construction of the Plan, and
any determination made by the Board in administering and interpreting the
provisions of the Plan, and of any option granted hereunder, shall be conclusive
and binding.
3. PARTICIPATION IN THE PLAN
Persons who are now or shall become incumbent directors of the Company
who are not at the time employees of the Company or any subsidiary of the
Company shall be eligible to participate in the Plan (hereinafter "eligible
directors"). A director of the Company shall not be deemed to be an employee of
the Company solely by reason of the existence of a consulting contract between
such director and the Company or any subsidiary thereof pursuant to which the
director agrees to provide consulting services as an independent consultant to
the Company or its subsidiaries on a regular or occasional basis for a stated
consideration. The term "director" as used in this Plan shall include a
"director emeritus".
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<PAGE>
4. STOCK SUBJECT TO THE PLAN
The stock subject to the Plan shall consist of 75,000 shares of the
$.10 par value Common Stock of the Company ("Common Stock"). Such shares may, as
the Board shall from time to time determine, be either authorized and unissued
shares of Common Stock or issued shares of Common Stock which have been
reacquired by the Company.
5. STOCK OPTIONS
Each option granted under this Plan shall be evidenced by a written
agreement in such form as the Board shall from time to time approve, which
agreement shall comply with and be subject to the following terms and
conditions:
A. AUTOMATIC GRANT DATES. Options shall be granted to each
eligible director automatically on the first business day after the
organizational meeting of the Board in each year, which is the first meeting of
the Board following the Company's Annual Meeting of Shareholders (hereinafter a
"Grant Date").
B. NUMBER OF SHARES. The initial grant of options under this
Plan for each eligible director on the first Grant Date on which such individual
is an eligible director shall constitute a grant of options to purchase 10,000
shares of Common Stock. Thereafter each annual grant to each such eligible
director on succeeding Grant Dates shall constitute a grant of options to
purchase 3,000 shares of Common Stock.
C. DISCRETIONARY GRANTS. In addition to automatic grants under
Section 5(A) above, the Board may, from time to time, grant options to one or
more eligible directors to purchase such number of shares as the Board shall
determine, subject to all of the terms and conditions of the Plan (other than
Section 5(A) and Section 5(B) above). The Grant Date for such discretionary
options shall be the date on which the Board approves the grant.
D. OPTION PRICE PER SHARE. All options granted hereunder shall
be exercisable at a price per share equal to the Fair Market Value of the Common
Stock on the date of the grant of the option. "Fair Market Value" for purposes
of this Plan shall be defined as the mean between the closing bid and asked
quotations for such stock (or the closing selling price for such stock, if
applicable) on the Grant Date (as reported by a newspaper of general circulation
or a recognized stock quotation service) or, in the event that there shall be no
bid or asked quotations (or reported closing selling price) on the Grant Date,
then upon the basis of the mean between the closing bid and asked quotations (or
the closing selling price, as the case may be,) on the date nearest preceding
the Grant Date. In the event that the Company's Common Stock shall become listed
and traded upon a recognized securities exchange, then the Fair Market Value
shall be determined upon the basis of the closing
2
<PAGE>
selling price at which shares of the Common Stock were traded on such
recognized securities exchange on the date of grant or, if the Common Stock
was not traded on said date, upon the basis of the closing selling price on
the date nearest preceding the date of grant.
E. TRANSFERABILITY. Except as provided below, each option
granted under the Plan by its terms shall be exercisable during the lifetime of
the optionee only by him and shall not be transferable by the optionee in whole
or in part, by sale, assignment, pledge or otherwise, except by will, or by the
laws of descent and distribution, nor be made subject to execution, attachment,
or similar process. Notwithstanding the foregoing, the Board may, in its
discretion, limit or eliminate these restrictions on transferability to the
extent such restrictions are not at the time required for the Plan to continue
to meet the requirements of Rule 16b-3 or otherwise result in adverse
consequences to the Company.
F. PERIOD OF OPTION. Each option granted under this Plan shall
become exercisable on the first anniversary of the date upon which it was
granted. Except for earlier termination as provided below, no option shall be
exercisable after the expiration of ten years from the date upon which such
option was granted. In the event of the death of an optionee, the option
privileges of said optionee shall be limited to the shares which were
immediately purchasable by such optionee at the date of death and such option
shall terminate unless exercised by said optionee's successor within one (1)
year after the date of death. In the event that an optionee ceases to serve as a
director of the Company other than by reason of death, the option privileges of
such optionee shall be limited to the shares which were immediately purchasable
by him at the date of such termination. If any option granted under the Plan is
canceled by mutual consent or terminates or expires for any reason without
having been exercised in full, the number of shares subject thereto shall again
be available for purposes of the Plan.
G. EXERCISE OF OPTIONS. Options may be exercised only by
written notice delivered to the Company at its corporate office and the exercise
price of each option being exercised shall be paid in full upon exercise,
including any federal, state, and/or local income tax withholding amount due and
shall be payable in cash in United States dollars (including check, bank draft
or money order); provided, however, that in lieu of such cash the person
exercising the option may pay the option price in whole or in part by delivering
to the Company shares of the Common Stock. For this purpose, the Common Stock
shall be treated as having a Fair Market Value on the date of exercise of the
stock option, determined as provided in Section 5(D), except that no shares of
the Common Stock which have been held for less than six months may be delivered
in payment of the option price of an option, if that would result in adverse
accounting or tax consequences to the Company as determined by the Board, in its
sole discretion. Delivery of shares may also be accomplished through the
effective transfer
3
<PAGE>
to the Company of shares held by a broker or other agent. The Company will also
cooperate with any person exercising an option who participates in a cashless
exercise program of a broker or other agent under which all or part of the
shares received upon exercise of the option are sold through the broker or other
agent or under which the broker or other agent makes a loan to such person.
Notwithstanding the foregoing, the exercise of the option shall not be deemed to
occur and no shares of the Common Stock will be issued by the Company upon
exercise of the option until the Company has received payment of the option
price in full. The number of shares of the Common Stock deemed issued upon an
exercise paid for with shares shall be the number of shares issued upon exercise
less the number of shares delivered in satisfaction of the exercise price. No
options may be exercised as a fraction of a share.
H. NONSTATUTORY OPTIONS. No option granted hereunder shall
constitute an incentive stock option" as that term is defined in the Internal
Revenue Code of 1986, as amended.
6. MODIFICATION, EXTENSION, AND RENEWAL OF OPTIONS
The Board shall have the power to modify, extend, or renew outstanding
options and authorize the grant of new options in substitution therefor,
provided that such power may not be exercised in a manner which would (i) alter
or impair any rights or obligations of any option previously granted without the
written consent of the optionee or (ii) adversely affect the qualification of
the Plan or any other stock-related plan of the Company under Rule 16b-3 or any
successor provision.
7. LIMITATION OF RIGHTS
A. NO RIGHT TO CONTINUE AS A DIRECTOR. Neither the existence of
the Plan nor the granting of an option nor any other action taken pursuant to
the Plan, shall constitute or be evidence of any agreement or understanding,
express or implied, that the Company will retain a director for any period of
time, or at any particular rate of compensation.
B. NO STOCKHOLDERS' RIGHTS FOR OPTIONEES. Neither an optionee
nor his representative shall have rights as a stockholder with respect to the
shares covered by his options until the date of the issuance to him or his
representative of a stock certificate therefor, and except as provided in
Paragraph 8 below, no adjustment will be made for dividends or other rights for
which the record date is prior to the date such certificate is issued.
8. ADJUSTMENTS
4
<PAGE>
(i) In the event that the outstanding shares of Common Stock are
hereafter increased or decreased or changed into or exchanged for a different
number or kind of shares or other securities of the Company or of another
corporation, by reason of a recapitalization, reclassification, stock split-up,
combination of shares, dividend or other distribution payable in capital stock,
an appropriate adjustment shall be made by the Board in the number, kind and
exercise price of shares for the purchase of which options have theretofore been
or may thereafter be granted under the Plan.
(ii) In the event that the Company shall determine to merge,
consolidate or enter into any other reorganization with or into any other
corporation, or in the event of any dissolution or liquidation of the Company,
and in the further event that neither (i) appropriate adjustment is made in the
number, kind and exercise price of shares for the purchase of which options have
theretofore been granted under the Plan, nor (ii) does the surviving entity
(which may be the Company) tender to any holder of options, substitute options
to purchase shares or equity interests of the surviving entity which substituted
options shall contain terms substantially preserving the rights and benefits
(including economic value) of the options outstanding hereunder, plus any
reasonable changes to reflect the circumstances of the surviving entity, then
the Plan and any options theretofore granted under the Plan shall terminate as
of the date of such merger, consolidation, reorganization, dissolution or
liquidation, provided that written notice of such event shall have been given to
each optionee not less than five (5) days prior to the date of such event. If
the Plan will be terminated as contemplated in the preceding sentence, each
optionee shall have the right during the period commencing on the date the
notice referred to above is given and concluding on the date of such merger,
consolidation, reorganization, dissolution or liquidation, as the case may be,
to exercise such optionee's outstanding and unexercised options, including for
any shares as to which such options would not otherwise have been exercisable on
such date.
(iii) All adjustments and determinations under this Paragraph 8
shall be made by the Board, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be final, binding
and conclusive.
9. EFFECTIVE DATE AND DURATION OF THE PLAN
The effective date of the Plan shall be the date of its adoption by the
Board of Directors of the Company; provided, however, that in the event that
shareholder approval of the Plan is not secured on or before the first
anniversary of such adoption, the Plan shall thereupon terminate. Any options
granted prior to the aforesaid shareholder approval being secured shall be
subject to such approval being secured. The Plan shall terminate ten (10) years
after the effective date of the Plan (the "Automatic Termination Date") unless
earlier terminated due to a lack of shareholder approval or discontinuance by
the Board.
5
<PAGE>
No option may be granted during any suspension or termination of the Plan. The
rights of the holders of any options outstanding on the date of termination of
the Plan shall not be affected thereby.
10. USE OF PROCEEDS
The proceeds received by the Company from the sale of the Common Stock
pursuant to the exercise of options granted under the Plan shall be added to the
Company's general funds and used for general corporate purposes.
11. COMPLIANCE WITH LAW, ETC.
Notwithstanding any other provision of this Plan or agreements made
pursuant hereto, the Company shall not be required to issue or deliver any
certificate or certificates for shares of Common Stock under this Plan prior to
fulfillment of the following conditions:
(i) The satisfaction of withholding tax or other withholding
liabilities;
(ii) Any registration or other qualification of such shares of
the Company under any state or federal law or regulation, or the maintaining in
effect of any such registration or other qualification which the Board shall, in
its absolute discretion upon the advice of counsel, deem necessary or advisable;
and
(iii) The satisfaction of any conditions imposed by any stock
exchange on which the Common Stock is listed or any quotation system which
quotes the price of the Common Stock;
(iv) The obtaining of any other consent, approval, or permit
from any state or federal governmental agency which the Board shall, in its
absolute discretion after receiving the advice of counsel, determine to be
necessary or advisable.
12. NOTICE
Any written notice to the Company required by any of the provisions of
this Plan shall be addressed to the Secretary of the Company and shall become
effective when it is received.
13. GOVERNING LAW
This Plan and all determinations made and actions taken pursuant hereto
shall be governed by the law of the State of Delaware and construed accordingly.
6
<PAGE>
Exhibit 10.19
MAXWELL TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is made as of this 9th day
of November, 1999, by and between MAXWELL TECHNOLOGIES, INC. a Delaware
corporation, ("Company") and CARLTON J. EIBL ("Executive"). The parties agree
with each other as follows:
1. TERM OF EMPLOYMENT. Subject to the terms and conditions set
forth in this Agreement, the Company hereby agrees to employ Executive, and
Executive agrees to be employed by the Company, for the period commencing on
December 1, 1999 and ending on the first to occur of (i) the date on which
Executive first qualifies for or elects to receive retirement benefits in
accordance with the Company's normal retirement policies and (ii) the date on
which this Agreement is terminated by either the Company or Executive pursuant
to any subsection of Section 4 hereof.
2. DUTIES OF EXECUTIVE.
(a) Executive shall serve as the President and Chief Executive
Officer of the Company. In such capacities, Executive shall report to
the Board of Directors of the Company (the "Board") and Executive shall
perform the duties and render the services for and on behalf of the
Company associated with the positions he shall hold and as may be set
forth from time to time in resolutions of, or other directives issued
by, the Board.
(b) Executive agrees to perform such duties and render such
services to the best of his ability, devoting thereto his entire
professional time, attention and energy exclusively to the business and
affairs of the Company and its affiliates, as its business and affairs
now exist and as they hereafter may be changed, and shall not during
the term of his employment hereunder be engaged in any other business
activity, whether or not such business activity is pursued for gain or
profit; provided, however, that Executive may serve (i) in a transition
capacity with Stratagene Holding Corporation and its affiliates
(collectively, "Stratagene"), for a period not to exceed six months, as
Executive deems necessary in connection with the transition in an
orderly manner of Executive's roles and responsibilities in Stratagene
to other executives within Stratagene, (ii) on civic or charitable
boards or committees and (iii) on the Board of Directors of Stratagene
and, with the prior approval of the Board, boards of corporations or
business enterprises, in each case so long as such activities do not
interfere with the performance of Executive's obligations under this
Agreement.
(c) The Company agrees that Executive shall be included in the
slate of nominees proposed by the Board in the Company's proxy
statements delivered to its shareholders for election to the Board for
as long as this Agreement is in effect.
<PAGE>
3. COMPENSATION OF EXECUTIVE. As compensation for the services to
be performed under this Agreement:
(a) BASE SALARY. Effective December 1, 1999, Executive shall
be paid a base salary at the initial annual rate of $425,000, payable
in installments consistent with the Company's payroll practices, and
subject to normal withholding. Executive's base salary shall be
reviewed annually prior to each anniversary of this Agreement by the
Board or its Compensation Committee and if the Board or Committee
determines, in its discretion, that Executive's base salary is to be
increased, such increase shall be effective as of such anniversary
date;
(b) ANNUAL BONUS. Executive shall be entitled to an annual
bonus which shall be determined as provided in this subsection (b):
(i) Commencing with the Company's anticipated new
fiscal year beginning January 1, 2000 and ending December 31,
2000 and for each subsequent fiscal year of the Company, the
Board will set specific financial and non-financial
performance targets and the amount of Executive's bonus will
range $0 to a maximum amount equal to Executive's annual base
salary as in effect for such fiscal year (with a target bonus
of 100% of the then effective base salary) depending on the
Board's determination of Executive's success in achieving the
specified targets.
(ii) The bonus payable to Executive for each fiscal
year, if any is due, shall be paid to Executive, subject to
normal withholding, promptly after the completion of the audit
of the Company's financial statements for such fiscal year.
(c) OPTIONS. Upon execution of this Agreement, Executive will
be granted special options to purchase 294,030 shares of the Company's
common stock at an exercise price of $8.75 per share (the "Options").
The Options shall be "non-qualified" stock options, shall be subject to
the other terms and conditions specified in the stock option agreement
evidencing the same, shall have a term of four years from the date of
grant, and shall vest at the rate of 1/48 of the total number thereof
on the last day of each month commencing with the month of December,
1999 so long as Executive remains employed with the Company. The
options will provide that if, during their term, the Company pays any
extraordinary dividend or otherwise distributes assets to the Company's
stockholders, the exercise price of the Options will be adjusted to
preserve the economic benefit the Executive would have realized had
Executive owned, on the record date for such extraordinary dividend or
distribution, a number of shares of the Company's common stock equal to
the total Options (vested and unvested) then held by Executive. The
Company will register the shares of common stock acquirable upon
exercise of the Options under the Securities Act of 1933. The Board or
its Stock Option Committee will from time to time consider making
additional grants to Executive, but the Company shall not be obligated
to make any particular grant or grants thereof.
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<PAGE>
(d) BENEFITS. Executive shall be entitled to participate in
the Company's insurance, health, life insurance, long term disability,
dental and medical, and automobile programs as the same may exist from
time to time on the terms and conditions applicable to other senior
officers of the Company. Nothing in this Agreement shall preclude the
Company from terminating or amending any employee benefit plan or
program from time to time. The Company will reimburse Executive for the
reasonable cost of an annual physical examination, if Executive elects
to have the same.
(e) VACATION. Executive shall be entitled to four weeks
vacation per year. Such vacation shall be taken at such times as the
Company and Executive shall mutually agree, acting reasonably, having
regard to the performance of Executive's essential duties to the
Company pursuant to the terms of this Agreement. Executive may
accumulate unused vacation time from year to year to the extent
permitted under the Company's vacation policy for executives as in
effect from time to time.
(f) EXPENSES. Executive shall be reimbursed for all travel and
other reasonable out-of-pocket expenses actually incurred by him in
connection with the performance of his duties hereunder, subject the
Company's expense reimbursement policies as in effect from time to time
and to the receipt by the Company of receipts and statements in a form
reasonably satisfactory to it.
4. TERMINATION.
(a) TERMINATION BY THE COMPANY FOR CAUSE. Notwithstanding
anything to the contrary herein contained, the Company may terminate
immediately the employment of Executive without notice and without pay
in lieu of notice:
(i) if Executive commits an act of theft, fraud or
material dishonesty or misconduct involving the property or affairs of
the Company or the carrying out of Executive's duties; or
(ii) if Executive commits a material breach or
material non-observance of any of the terms or conditions of this
Agreement provided that Executive is given written notice of any such
breach or non-observance and fails to remedy the same within 15 days of
receipt of such notice; or
(iii) if Executive is convicted of a felony; or
(iv) if Executive refuses or fails to implement any
reasonable directive issued by the Company's Board of Directors and
Executive fails to remedy the refusal or failure within 15 days of
receipt of written notice thereof; or
(v) if Executive or any member of his family makes
any personal profit arising out of or in connection with a transaction
to which the Company or any of
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its subsidiaries is a party or with which it is associated without
making disclosure to and obtaining prior written consent of the
Company.
Upon the termination of Executive's employment pursuant to this
Subsection (a), this Agreement and the employment of Executive
hereunder shall be wholly terminated. Upon any such termination,
Executive shall have no claim against the Company in respect of his
employment for damages or otherwise except in respect of payment of
base salary earned, due and owing and unused vacation time to the date
of termination.
(b) TERMINATION BY THE COMPANY WITHOUT CAUSE. Notwithstanding
anything herein to the contrary, the Company may terminate Executive's
employment hereunder at any time, for any reason or no reason, on not
less than 15 days' prior written notice. In the event of termination
pursuant to this Subsection (b), Executive will be paid:
(i) if the termination occurs prior to the second
anniversary of the date of this Agreement, an amount equal to two times
his annual base salary at the rate in effect on the date of his
termination; and
(ii) if the termination occurs thereafter, an amount
equal to the average of the total annual compensation (annual base
salary plus bonuses earned, if any, for such years) earned by Executive
for the preceding two full fiscal years of the Company prior to the
date of termination.
In addition, if Executive is terminated under this subsection
(b) prior to the second anniversary of the date of this Agreement,
notwithstanding anything to the contrary contained herein or in the
applicable stock option agreements, all of the stock options then held
by Executive (including the Options) shall continue to vest in
accordance with their terms through the second anniversary of the date
of this Agreement and shall be exercisable to the extent so vested by
Executive on or prior to the 60th day following the second anniversary
date of this Agreement.
(c) TERMINATION BY EXECUTIVE. Executive may terminate his
employment hereunder at any time, for any reason, upon the giving of
not less than 15 days' prior written notice to the Board. In the event
of termination by Executive under this clause (c), Executive shall be
entitled to receive only his base salary and unused vacation time due
him through the effective date of termination. Upon the termination of
Executive's employment pursuant to this Subsection (a), this Agreement
and the employment of Executive hereunder shall be wholly terminated.
Upon any such termination, Executive shall have no claim against the
Company in respect of his employment for damages or otherwise except in
respect of payment of base salary earned, due and owing and unused
vacation time to the date of termination.
(d) TERMINATION BY THE COMPANY DUE TO DEATH OR DISABILITY. The
employment of Executive shall, at the option of the Company, terminate
immediately in the event of his death or permanent disability, in which
case notice in writing from the
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Company shall be sent to Executive or his legal representative. In the
event of termination under this clause (d), in addition to any
disability benefit coverage to which he may be entitled under any
disability insurance programs maintained by the Company in which he is
a participant, Executive will be paid an amount equal to the difference
between (i) six months salary at Executive's annual base salary rate as
in effect on the date of the termination under this clause (d) and (ii)
the amount of disability benefits for a six-month period payable to
Executive under the Company's long-term disability program in which he
is a participant. Except as provided in the preceding sentence,
Executive shall be entitled to no additional compensation under this
Agreement following the date of termination under this clause (d),
other than base salary earned but not paid, and unused vacation time
accrued, through the date of termination. For purposes of this
Agreement "permanent disability" shall mean an illness, disease, mental
or physical disability or other causes beyond Executive's control which
makes Executive incapable of discharging his duties or obligations
hereunder, or causes Executive to fail in the performance of his duties
hereunder, for six consecutive months, as determined in good faith by
the Board based on a report of a physician selected in good faith by
the Board.
(e) TERMINATION BY EXECUTIVE UPON A CHANGE OF CONTROL. In the
event that (x) a Change of Control (as hereinafter defined) occurs and
(y) at any time prior to the third anniversary of such Change of
Control a Triggering Event (as hereinafter defined) shall occur, then
unless the Executive shall have given his express written consent to
the contrary, Executive may, upon 30 days written notice to the
Company, terminate his employment hereunder. In such event Executive
shall be entitled to the following:
(i) Following the date of the Triggering Event,
Executive shall be paid two cash payments each to be equal to
Executive's annual base salary in effect on the date of the Triggering
Event, the first of such payments to be paid within 30 days of the
Triggering Event and the second of such payments to be paid on the
first anniversary of the date of the Triggering Event, in each case
subject to normal withholding.
(ii) As of the date of the Triggering Event,
notwithstanding the vesting schedule set out in Subsection 3(c) above,
all of the Options shall thereupon become fully vested; and
(iii) For a one year period following the date of the
Triggering Event, Executive shall be provided with employee benefits
substantially identical to those to which Executive was entitled
immediately prior to the Triggering Event, subject to any changes or
modifications (including reductions or terminations) to the Company's
employee benefit and welfare plans that are made generally for all of
the Company's senior executives.
In the event that the benefits provided for in this
Subsection 4(e) to be paid Executive constitute "parachute payments"
within the meaning of section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), and will be subject to the excise tax
imposed by Section 4999 of the Code, then Executive shall receive (a) a
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<PAGE>
payment from the Company sufficient to pay such excise tax and (b) an
additional payment from the Company sufficient to pay the Federal and
California income tax arising from the payment made under clause (a) of
this sentence. Unless the Company and Executive otherwise agree, the
determination of Executive's excise tax liability and the Federal and
California income tax resulting from the payment under clause (a) above
shall be made by the Company's independent accountants (the
"Accountants"), whose determination shall be conclusive and binding
upon the Company and Executive for all purposes. For purposes of making
the calculations required by this Subsection 4(e), the Accountants may
make reasonable assumptions and approximations concerning applicable
taxes and may rely on interpretations of the Code for which there is a
"substantial authority" tax reporting position. The Company and
Executive shall furnish to the Accountants such information and
documents as the Accountants may reasonably request in order to make
the determinations required by this Subsection 4(e). The Company shall
bear the expenses of the Accountants under this Subsection 4(e).
For purposes of this Subsection 4(e):
(a) Change of Control" means the occurrence
of any one of the following: (i) any transaction or series of
transactions (as a result of a tender offer, merger, consolidation or
otherwise) that results in any person, entity or group acting in
concert, acquiring "beneficial ownership" (as defined in rule 13d-3
under the Securities Exchange Act of 1934), directly or indirectly, of
such percentage of the aggregate voting power of all classes of common
equity stock of the Company as shall exceed 50% of such aggregate
voting power; or (ii) a merger or consolidation of the Company, other
than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto
continuing to represent (either by remaining outstanding or by being
converted into voting securities of the surviving entity) at least 50%
of the voting power represented by the voting securities of the Company
or such entity outstanding immediately after such merger or
consolidation; or (iii) the shareholders approve a plan of complete
liquidation of the Company or an agreement for the sale or disposition
by the Company of all, or substantially all, of the Company's assets
(other than in connection with a sale or disposition to subsidiaries of
the Company or in connection with a reorganization or restructuring of
the Company); or (iv) there occurs a change in the composition of the
Board as a result of which fewer than a majority of the directors are
Incumbent Directors (as hereinafter defined). "Incumbent Directors"
shall mean directors who either (A) are directors of the Company as of
the Commencement Date or (B) are elected, or nominated for election, to
the Board with the affirmative votes of at least a majority of the
Incumbent Directors casting votes at the time of such election or
nomination.
(b) "Triggering Event" means any of the
following: (i) the termination by the Company without Cause of
Executive's employment pursuant to Subsection 4(a) hereof; (2) the
reduction of Executive's annual base salary or annual incentive bonus
formula from that in effect on the date of the Change of Control; (3)
the removal of Executive as the Company's President and Chief Executive
Officer or a
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<PAGE>
reduction in his duties and responsibilities; or (4) the relocation of
Executive's principal place of employment to a location outside San
Diego County, California.
(f) PAYMENTS. Any amounts payable to Executive under this
Section 4 shall be paid, unless otherwise specified hereunder, within
30 days of the date the payment obligation accrues and shall be subject
to normal withholding.
(g) EXCLUSIVE RIGHTS. In connection with any termination under
Subsection 4(b) or 4(e), Executive shall have no claim against the
Company in respect of his employment for damages or otherwise except in
respect of the payments and other provisions specified in such
Subsections.
(h) COOPERATION. Upon any termination of employment by the
Company or by Executive hereunder, Executive shall cooperate with the
Company, as reasonably requested by the Company, to effect a transition
of Executive's responsibilities and to ensure that the Company is aware
of all matters being handled by Executive.
5. RESOLUTION OF DISPUTES. The parties recognize that claims,
controversies and disputes may arise out of this Agreement with respect to
Executive's employment, termination of employment, or other terms of this
Agreement or based on common law or statute, either during the existence of the
employment relationship or afterwards. The parties agree that should any such
claim, controversy or dispute arise, the parties will use their best efforts to
resolve such dispute informally, between them. In the event that any such claim,
controversy or dispute between Company and Executive cannot be resolved within
thirty (30) days after either party first gives notice in writing that any such
claim, controversy or dispute exists, either party may then refer the matter to
arbitration before JAMS/ENDISPUTE pursuant to its rules for resolution of
employment disputes.
The parties hereby agree that referral to arbitration shall be the sole
recourse of either party under this Agreement with respect to any such claim,
controversy or dispute and that the decision of the arbitrator shall be binding
on the parties in accordance with applicable law; provided, however, that
nothing in this Section 5 shall be construed as precluding either party from
bringing an action for injunctive relief or other equitable relief. The parties
shall keep confidential the existence of each such the claim, controversy or
dispute from third parties (other than arbitrator), and the determination
thereof, unless otherwise required by law. Except as provided in the following
sentence, such decision rendered by the arbitrator shall be final and conclusive
and may be entered in any court having jurisdiction thereof as a basis of
judgment and of the issuance of execution for its collection. In rendering his
or her decision, the arbitrator shall be bound to follow California or Federal
law, as applicable, in the same manner as would a court of law. Any claim that
the arbitrator made a mistake or error in determining or applying the
appropriate law shall be subject to judicial review.
The parties further agree that the party prevailing in the arbitration
shall be entitled to its reasonable attorney's fees and that the arbitration
itself shall take place within the County of San Diego, California, and that the
internal laws of the State of California shall apply.
7
<PAGE>
6. GENERAL OBLIGATIONS OF EXECUTIVE.
(a) Executive agrees and acknowledges that he owes a duty of
loyalty, fidelity and allegiance to act at all times in the best
interests of the Company, to not knowingly become involved in a
conflict of interest and to not knowingly do any act or knowingly make
any statement, oral or written, which would injure the Company's
business, its interest or its reputation unless required to do so in
any legal proceeding by a competent court with proper jurisdiction.
(b) Executive agrees to comply at all times with all
applicable policies, rules and regulations of the Company, including,
without limitation, the Company's policy regarding trading in the
Common Stock, as is in effect from time to time.
7. NO SOLICITATION. Executive agrees that in the event he is no
longer employed by the Company, for any reason, he shall not hire, solicit or
otherwise cause to be solicited for employment elsewhere, either directly or
indirectly, for a period of one year from his termination of employment, any
employee, officer or director of the Company or any individual who chooses not
to join the Company, provided that Executive participated actively in the
recruiting of such individual.
8. NONCOMPETITION. Executive agrees that for a period of one year
following termination of his employment with the Company for any reason, he will
not, nor will he permit any entity or other person under his control to,
directly or indirectly, own, manage, operate or control, or participate in the
ownership, management, operation or control of, or be connected with or have any
interest in, as a shareholder, director, officer, employee, agent, consultant,
partner, creditor or otherwise, any business or activity which is competitive
with any business or activity engaged in by the Company or any of its
subsidiaries or affiliates anywhere within (i) the State of California, or (ii)
any other state of the United States and the District of Columbia in which the
Company engages in or has engaged in business during the past five years.
9. ENTIRE AGREEMENT. This Agreement constitutes the entire
Agreement between the parties and contains all agreements between them with the
exception of the 1995 Stock Option Plan (and any stock option agreements issued
thereunder) the other employee benefit and welfare programs maintained by the
Company, and the Invention and Secrecy Agreement dated the date of this
Agreement signed by Executive, which are supplementary to this Agreement and are
each deemed to be incorporated herein by reference. Each party to this Agreement
acknowledges that no representations, inducements, promises or agreements,
orally or otherwise, have been made by any party, or anyone acting on behalf of
any party, which are not embodied in this Agreement, and that no agreement,
statement or promise not contained in this Agreement shall be valid or binding.
Except for the other agreements, plans and programs referred to in this Section
9, this Agreement also supersedes any and all other agreements and contracts
whether verbal or in writing relating to the subject matter hereof.
8
<PAGE>
10. AMENDMENT. Except as otherwise specifically provided herein,
the terms and conditions of this Agreement may be amended at any time by mutual
agreement of the parties; provided that before any amendment shall be valid or
effective, it shall have been reduced to writing and signed by the Chairman of
the Board on behalf of the Company and by Executive.
11. INVALIDITY. The invalidity or unenforceability of any
particular provision of this Agreement shall not affect its other provisions,
and this contract shall be construed in all respects as if such invalid or
unenforceable provision has been omitted.
12. BINDING NATURE. Executive's rights and obligations under this
Agreement shall not be assignable, transferable or delegable by assignment or
otherwise, and any purported assignment, transfer or delegation thereof shall be
void. This Agreement shall inure to the benefit of, and be enforceable by, any
purchaser of substantially all of the Company's assets, any corporate successor
to the Company or any assignee thereof.
13. ASSISTANCE IN LITIGATION. Executive shall, during and after
termination of employment, upon reasonable notice, furnish such information and
proper assistance to the Company as may reasonably be required by the Company in
connection with any litigation in which it or any of its subsidiaries or
affiliates is, or may become a party. Except where Executive is a named
defendant, Executive shall be paid a reasonable hourly fee to be mutually agreed
upon.
14. INDEMNIFICATION. The Company shall indemnify Executive in
accordance with its standard indemnification policy for offices and directors of
the Company and as required by applicable law.
15. NO DUTY TO MITIGATE. Executive shall not be required to
mitigate the amount of any payment contemplated by this Agreement (whether by
seeking new employment or in any other manner), nor shall any such payment be
reduced by any earnings that Executive may receive from any other source not
paid for by the Company.
16. CHOICE OF LAW. The validity, interpretation, construction and
performance of this Agreement shall be governed by the laws of the State of
California except for Sections 7 and 8 hereof which shall be governed by, and
interpreted and construed in accordance with, the internal laws (without giving
effect to choice of law principles) of the jurisdiction in which either of said
Sections is being sought to be enforced.
17. NOTICES. All notices and other communications required or
permitted hereunder or necessary or convenient in connection herewith shall be
in writing and, if given by telegram, telecopy or telex, shall be deemed to have
been validly served, given or delivered when sent, if given by personal
delivery, shall be deemed to have been validly served, given or delivered upon
actual delivery and, if mailed, shall be deemed to have been validly served,
given or delivered three business days after deposit in the United States mail,
as registered or certified mail, with
9
<PAGE>
proper postage prepaid and addressed to the party or parties to be notified, at
the following addresses:
If to Executive to:
Carlton J. Eibl
1903 El Camino del Teatro
La Jolla, California 92037
Telephone: (858) 551-8237
Fax: (858) 551-8254
If to the Company to:
Maxwell Technologies Inc.
9275 Sky Park Court
San Diego, California 92123
Attn: General Counsel
Telephone: (619) 576-7502
Fax: (619) 277-6754
18. INJUNCTIVE RELIEF. The Company and Executive agree that a
breach of any term of this Agreement by Executive would cause irreparable damage
to the Company and that, in the event of such breach, the Company shall have, in
addition to any and all remedies of law, the right to any injunction, specific
performance and other equitable relief to prevent or to redress the violation of
Executive's duties or responsibilities hereunder.
19. RELEASE. If Executive's employment hereunder shall terminate
under Subsection 4 (b) or 4(e), Executive agrees, as a condition to his
entitlement to receive the amounts specified in such Subsections to be due to
him, to execute and deliver to the Company a release in the form attached hereto
as EXHIBIT A. Such release shall be delivered by Executive at the time of
termination, but shall become effective only after Executive has received all
payments specified in this Agreement to be due to him from the Company in
respect of his termination.
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20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument and either of the parties to this Agreement may execute this
Agreement by signing any such counterpart.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the 9th day of November, 1999.
"Company"
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
---------------------
"Executive"
/s/ Carlton J. Eibl
--------------------------
Carlton J. Eibl
<PAGE>
EXHIBIT A
WAIVER AND RELEASE AGREEMENT
This Release is given
By the Releasor(s): Carlton J. Eibl
Address:
hereinafter referred to as "I" or "me",
To the Releasee(s): MAXWELL TECHNOLOGIES, INC. and its parent,
division, subsidiary and affiliated
corporations (including predecessors and
successors) and their Officers, Directors,
Shareholders, Partners, Employees and
Representatives and their successors and
assigns
sometimes hereinafter referred to as "you."
1. RELEASE. Subject to Paragraph 3 hereof, I hereby release and give up any and
all actions, causes of actions, claims and rights (hereinafter "Claims") which I
may have against you. This releases all claims, including those of which I am
not aware and those not mentioned herein. This Waiver and Release Agreement
("Agreement") applies to Claims resulting from anything that has happened up to
now. I specifically release any and all Claims relating in any way to my
employment relationship, or the termination of my Employment Agreement dated as
of April 30, 1999, with you, including but not limited to any Claims arising
under the Age Discrimination in Employment Act, the Older Workers Benefit
Protection Act of 1990, Title VII of the Civil Rights Act of 1964, the Equal Pay
Act, the Employee Retirement Income Security Act, the Fair Labor Standards Act,
the Consolidated Omnibus Budget Reconciliation Act of 1986, the California Fair
Employment and Housing Act or any other federal, state or local laws or
ordinances and any common law claims under tort, contract, or any other theories
now or hereafter recognized. This Agreement specifically includes, but without
limitation, all Claims arising out of my employment relationship with you.
2. WAIVER. Subject to Paragraph 3 hereof, I hereby acknowledge and assume all
risks or chances that the injuries claimed to have resulted from the above
stated matter may become greater or more extensive than now known, anticipated
or expected. I understand that this instrument shall be effective as a full and
final release of all Claims. I acknowledge that I am familiar with and have been
provided with separate consideration for that portion of Section 1542 of the
Civil Code of the State of California which provides 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
<PAGE>
known by him must have materially affected his
settlement with debtor."
I waive any right that I have under the above-mentioned Section 1542 to the
fullest extent that I may lawfully waive all such rights pertaining to the
subject matter of this Agreement. In connection with the above waiver, I am
aware that I may hereafter discover Claims or facts in addition to or different
from those I now know or believe to exist with respect to the subject matter of
this instrument or you. However, I and my successors and assigns hereby settle
and release all of the Claims which I may have against you. I acknowledge that
you have specifically bargained for this Agreement.
3. EFFECTIVENESS. This Agreement, and the release and waivers contained herein,
is subject to and shall become effective only after, you have paid in full the
amounts due to me under the Employment Agreement dated as of November 9, 1999
between you and me.
4. NO ADMISSIONS. I agree and acknowledge that this Agreement is not to be
construed as an admission of any violation of any federal, state or local
statutes, ordinance or regulation or any duty allegedly owed by you to me. You
specifically disclaim any liability to me on any basis.
5. TIME PERIODS. I have been given the opportunity to take a period of at least
twenty-one (21) days within which to consider this Agreement. If I choose to
sign this Agreement before that time period expires, I do so knowingly and
voluntarily. I also understand that I have the right to change my mind and
cancel this Agreement within seven (7) days following the date that I have
signed it by doing so in writing. This Agreement will not be effective until the
end of this seven (7) day period.
6. CONSIDERATION. In exchange for, consideration of and reliance on my execution
of this Agreement, you have agreed, upon the expiration of the seven (7) day
time period referred to in Paragraph 4 above, to commence making the payments
pursuant to Subsection 4(b) or 4(e), as applicable of that certain Employment
Agreement dated as of November 9, 1999. I agree that I will not seek anything
further, including any other payment from you. I further agree, in return for
receipt of the foregoing payments, to abide by all of your rules, policies and
procedures applicable to current and former employees.
7. CONFIDENTIALITY. I agree that the terms and conditions of this Agreement
shall remain confidential and shall not be disclosed to any other person (other
than my family members, attorneys, and accountants who shall be informed of and
bound by the confidentiality provisions of this Agreement) other than as
required by court order, legal process or applicable law or as otherwise agreed
to by you and me. I understand that this provision regarding confidentiality
constitutes a substantial inducement for you to enter into this Agreement.
8. WHO IS BOUND. I am bound by this Agreement. Anyone who succeeds to my rights
and responsibilities, such as my heirs or the executor of my estate, is also
bound by this Agreement. This Agreement is made for your benefit and that of
anyone who succeeds to your rights and responsibilities.
<PAGE>
9. NO INDUCEMENTS. I further warrant that no promise or inducement for this
Agreement has been made except as set forth herein, that this Agreement is
executed without reliance upon any statement or representation by any person or
parties released, their officers, directors, employees, agents or
representatives, concerning any fact material to my act in releasing them, and
that I am legally competent to execute this Agreement and accept full
responsibility therefor.
10. REPRESENTATIONS. I understand and agree that I understand the contents,
implications, and consequences of this Agreement, and that I agree to the terms
of this Agreement and have executed it voluntarily. I have had an opportunity to
discuss the terms of this Agreement with individuals of my own choosing who are
not associated with you. I have been advised by you to consult with an attorney
of my own choosing.
11. ENTIRE AGREEMENT. This Agreement and the Employment Agreement dated as of
November 9, 1999 constitute the entire agreements between you and me concerning
the subject matter hereof and supersede all prior agreements between you and
me.. This Agreement may not be modified orally. I understand and agree to the
terms of this Agreement.
12. GOVERNING LAW. This Agreement is made and entered into in the State of
California and shall in all respects be interpreted, enforced and governed under
the laws of said State. The language of all parts of this Agreement shall cases
to be construed as a whole, according to its fair meaning, and not strictly for
or against you or me.
13. INVALIDITY. Should any provisions of this Agreement be determined by any
court to be illegal or invalid, the validity of the remaining parts, terms or
provisions shall not be affected thereby and said illegal or invalid part, term
or provision shall be deemed not to be a part of this Agreement.
Intending to be legally bound hereby, the undersigned has
executed this Agreement as of the date written freely and voluntarily.
Dated:
---------------- -----------------------------------
Carlton J. Eibl
MAXWELL TECHNOLOGIES, INC.
Dated: By:
---------------- --------------------------------
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MAXWELL TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
(Non-Qualified Stock Option)
THIS AGREEMENT, made and entered into as of November 9, 1999 by and
between MAXWELL TECHNOLOGIES, INC., a Delaware corporation (the "Company"), and
Carlton J. Eibl ("Optionee").
WITNESSETH:
WHEREAS, the Company and Optionee are parties to that certain Maxwell
Technologies Inc. Employment Agreement, dated November 9, 1999 ("Employment
Agreement");
WHEREAS, the Employment Agreement provides for the award to Optionee of
options to purchase shares of the Company's Common Stock which are not from any
pool of options covered by the Company's 1995 Stock Option Plan but a special
one time grant; and
WHEREAS, pursuant to the Employment Agreement, the Board of Directors
of the Company, has authorized the granting of a special stock option (the
"Option"), as an inducement for Optionee to accept employment as the president
and chief executive officer of the Company and in the conviction that the
interests of the Company will be advanced by encouraging and enabling Optionee
to acquire a proprietary interest in the Company;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, and other good and valuable consideration, the
receipt of which is hereby acknowledged, the parties hereto agree as follows:
1. OPTION GRANT AND ACCRUAL OF RIGHT TO PURCHASE. As a matter of
separate inducement and agreement in connection with his employment with the
Company and/or any of its subsidiaries, and not in lieu of any salary or other
compensation for Optionee's services, the Company hereby grants to Optionee, at
the times, on the terms and subject to conditions set forth herein, the right
and "non-qualified stock option" to purchase an aggregate of 294,030 shares of
the Company's Common Stock, par value $.10, at the purchase price of $8.75 per
share (the "Option"). The Option shall continue for, and is limited to, the
period of 120 months from and after the Grant Date (which 120 month period is
hereinafter referred to as the "Option Period"), except as and to the extent
that (a) the term of the Option may be reduced as provided in Paragraphs 4 and 5
hereof, or (b) the Option may be terminated as provided in Paragraph 13 hereof.
In no event may the Option or any portion thereof be exercised after the end of
the Option Period.
The Option shall become exercisable and shall vest at the rate of 1/48
of the total number of shares covered hereby on the last day of each month
commencing with the month of December, 1999, so long as Optionee remains
employed with the Company. On and after the fourth anniversary of Grant Date the
Option shall be 100% exercisable as to all shares covered hereby.
Notwithstanding the preceding paragraph, in the event that Optionee's
employment with the Company is terminated under circumstances specified in
Section 4(b) or 4(e) of the Employment Agreement, the Option shall become
exercisable in the manner and at the time set forth in such section.
Prior to the expiration of the Option Period as specified above, and
subject to the provisions hereof, all or any portion of the shares of Common
Stock available for exercise may be purchased at any time and from time to time
after they become exercisable; provided that in no case may Optionee exercise
the Option for a fraction of a share.
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<PAGE>
2. METHOD OF EXERCISE. The Option shall be exercisable by the giving of
written notice of exercise to the Company, in either of the manners set forth
below in this Paragraph 2, specifying the number of shares to be purchased and
accompanying such notice with (i) payment by cash and/or check payable to the
Company of the full purchase price therefor or (ii) in the discretion of the
Committee at the time of the exercise of the Option regarding whether to permit
payment in either of the following manners 1) payment by a stock certificate or
certificates, duly endorsed for transfer to the Company, representing shares of
Common Stock of the Company owned by the Optionee which have a fair market value
on the date of exercise equal to the purchase price or 2) cash and/or a check
payable to the Company and a stock certificate or certificates, duly endorsed
for transfer to the Company, representing shares of the Common Stock of the
Company owned by the Optionee, which, when added to the amount of the cash
and/or check, have a fair market value on the date of exercise equal to the
purchase price and (iii) if required by the Company, the written representations
and agreements referred to in Paragraph 7 hereof. If sent by mail such written
notice shall be deemed for all purposes to be given and the Option exercised on
the second business day following the date the same is deposited in the United
States mail, properly addressed to the Secretary of the Company, with postage
thereon prepaid. If personally delivered, such written notice shall be deemed
for all purposes to be given and the Option exercised on the date the same is
personally delivered to the Secretary of the Company (or such other officer as
may be designated by the Company in writing).
3. WHO MAY EXERCISE. The Option shall be exercisable during the
lifetime of Optionee only by the Optionee. In the event that the notice
specified in Paragraph 2 hereof shall, pursuant to the provisions of Paragraph 5
hereof, be given by any person other than Optionee, such notice shall be
accompanied by appropriate evidence satisfactory to the Company to establish
such person's right to exercise the Option.
4. EXERCISE UPON TERMINATION OF EMPLOYMENT. Subject to the other
provisions hereof, if Optionee shall cease to be employed by the Company or any
subsidiary of the Company for any reason other than the death of Optionee, the
Optionee may, during the sixty (60) day period following his termination of
employment with the Company or subsidiary (or following such later date as
provided in Section 4(b) of the Employment Agreement), exercise the Option to
the extent that the Option was exercisable on the date of termination of
Optionee's employment (or on such later date); provided, however, that in no
event shall the Option or any portion thereof be exercisable except during the
Option Period. The Optionee's right to exercise the Option, to the extent
permitted under this Paragraph 4, shall terminate at the end of said sixty (60)
day period.
5. EXERCISE IN THE EVENT OF DEATH. Subject to the other provisions
hereof, in the event of the death of Optionee while in the employ of the Company
or a subsidiary of the Company, the Option may be exercised by the person or
persons to whom Optionee's rights under the Option shall pass by Optionee's will
or by the laws of descent and distribution. In such event, the Option may be
exercised during the one year period following the Optionee's date of death, but
only to the extent that Optionee was entitled to exercise the Option at the date
of death; provided, however, that in no event shall the Option or any portion
thereof be exercisable except during the Option Period. The right to exercise
the Option provided under this Paragraph 5, to the extent permitted hereunder,
shall terminate on the first anniversary of the date of the Optionee's death.
6. STOCK TO BE ISSUED. Shares to be issued on the exercise of the
Option may, at the election of the Company, be either authorized and unissued
shares or shares previously issued and re-acquired by the Company.
7. INVESTMENT REPRESENTATION AND RESTRICTIONS ON DISPOSITION. By
accepting the Option, Optionee
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agrees for himself or herself and any other person or persons entitled to
exercise the Option pursuant to the provisions of Paragraph 5 hereof, that any
and all shares purchased upon the exercise of the Option shall be acquired for
investment and not with a view to distribution, and that if required by the
Company: 1) each notice of the exercise of all or any portion of the Option
shall be accompanied by such representations and agreements in writing, signed
by the Optionee or such other person or persons entitled to exercise the Option,
as the case may be, and in form and substance satisfactory to the Company, to
such effect as the Company may deem necessary in order to insure compliance with
all laws, orders, rules, regulations, conditions and undertakings of any kind
which may be in effect at any time with respect to the purchase or disposition
of any shares purchased upon exercise of the Option, including, but not limited
to, a representation to the effect that the shares covered by such notice are
being acquired in good faith for investment and not for distribution; 2) the
certificate or certificates evidencing the shares may be legended with language
appropriate to give notice of the restrictions referred to in this Paragraph 7;
and 3) the Company may place "stop orders" or other impediments to the transfer
of the shares until it is satisfied that the transfer can be made in conformity
with the representations and agreements of Optionee made pursuant to this
Paragraph 7. Optionee understands that the effect of this Paragraph 7 is to
restrict the right to sell, transfer or otherwise distribute such shares except
in accordance with the Securities Act of 1933 ("the Act") and all other laws,
orders, rules, regulations, conditions and undertakings of any kind which may be
in effect at any time with respect to the purchase or disposition of such
shares. In the event such shares are or shall at any time hereafter become duly
registered under the Act, then those provisions of this Paragraph 7 which the
Company determines are rendered unnecessary by reason of such registration shall
not be operative during such time as said registration remains effective.
8. RESTRICTIONS ON EXERCISE. Each exercise of the Option shall be
subject to the condition that if at any time the Company shall determine in its
discretion that 1) the satisfaction of withholding tax or other withholding
liabilities, or 2) the listing, registration or qualification of any shares
otherwise deliverable upon such exercise upon any securities exchange or under
any state or federal law, or 3) the consent or approval of any regulatory body,
or 4) the perfection of any exemption from any such withholding, listing,
registration, qualification, consent or approval is necessary or desirable as a
condition of, or in connection with, such exercise or the issuance, delivery or
purchase of shares hereunder, then in any such event, such exercise shall not be
effective, and the Company shall not be required to accept a notice of exercise
delivered by Optionee pursuant to Paragraph 2 hereof or the tender of any
portion of the purchase price for the shares covered by such exercise or to
issue or deliver any certificate or certificates for shares intended to be
purchased by such exercise, unless such withholding, listing, registration,
qualification, consent, approval or exemption shall have been effected, obtained
or perfected free of any conditions not acceptable to the Company.
9. ADJUSTMENTS. In the event that prior to the delivery by the Company
of all the shares covered by the Option, the outstanding shares of Common Stock
of the Company are hereafter increased or decreased or changed into or exchanged
for a different number or kind of shares or other securities of the Company or
of another corporation, by reason of a recapitalization, reclassification, stock
split-up, combination of shares, dividend or other distribution payable in
capital stock, appropriate adjustment shall be made by the Board in the number,
kind and exercise price of shares for the purchase of which Options have
theretofore been or may thereafter be granted to the Optionee. In the event that
the Company shall determine to merge, consolidate or enter into any other
reorganization with or into any other corporation, or in the event of any
dissolution or liquidation of the Company, and in the further event that neither
(i) appropriate adjustment is made in the number, kind and exercise price of
shares under the Option, nor (ii) does the surviving entity (which may be the
Company) tender to the Optionee, substitute options to purchase shares or equity
interests of the surviving entity which substituted options shall contain terms
substantially, preserving the rights and benefits (including economic value) of
the
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options outstanding hereunder, plus any reasonable changes to reflect the
circumstances of the surviving entity, then the Option granted shall terminate
as of the date of such merger, consolidation, reorganization, dissolution or
liquidation, provided that written notice of such event shall have been given to
the Optionee not less than five (5) days prior to the date of such event. If the
Option will terminate as contemplated in the preceding sentence, the Optionee
shall have the right during the period commencing on the date the notice
referred to above is given and concluding on the date of such merger,
consolidation, reorganization, dissolution or liquidation, as the case may be,
to exercise the Optionee's unexercised Option, including for any shares as to
which such Option would not otherwise have been exercisable on such date. All
adjustments and determinations hereunder shall be made by the Board, whose
decisions as to what adjustments or determinations shall be made, and the extent
thereof, shall be final, binding and conclusive.
In the event the Company, at any time or from time to time after the
date hereof, makes, or fixes a record date for the determination of holders of
Common Stock entitled to receive, without payment therefor, (i) a dividend
payable in cash or property (including securities of subsidiaries) attributable
to the sale by the Company of assets (including subsidiaries) other than in the
ordinary course of business or (ii) a distribution of assets (including
securities of subsidiaries), then, and in each such case, the Exercise Price in
effect immediately prior to the close of business on the record date fixed for
the determination of the Persons entitled to receive such dividend or
distribution shall be adjusted, effective as of the close of business on such
record date, to a price equal to such Exercise Price in effect less (x) the
amount of such dividend per Common Share (if in cash), or (y) the value per
share of Common Stock of such dividend or distribution (if in property), with
such value to be determined in good faith by the Board of Directors of the
Company.
10. ISSUANCE OF CERTIFICATES AND RIGHTS AS SHAREHOLDERS OF THE COMPANY.
As soon as practicable after the exercise of the Option as provided in Paragraph
2 hereof, but subject to the provisions of Paragraphs 7 and 8 hereof, the
Company shall issue and deliver to Optionee or any other person who has
exercised the Option pursuant to the provisions of Paragraph 5 hereof a
certificate evidencing the shares purchased thereby. Neither Optionee nor any
other person entitled to exercise the Option pursuant to the provisions of
Paragraph 5 hereof shall be or have any of the rights or privileges of a
shareholder of the Company in respect of any of the shares issuable upon the
exercise of the Option unless and until a certificate representing such shares
shall have been issued and delivered.
11. TRANSFERABILITY OF OPTION. Except as otherwise herein provided, the
Option and the rights and privileges conferred hereby may not be transferred,
assigned, pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Upon any attempt to transfer, assign, pledge, hypothecate or otherwise dispose
of the Option or any right or privilege conferred hereby contrary to the
provisions hereof, or upon the levy of any attachment or similar process on the
rights and privileges conferred hereby, contrary to the provisions hereof, the
Option and the rights and privileges conferred hereby shall immediately become
null and void.
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12. INTERPRETATION OF AGREEMENT. The Committee shall have the full and
final authority in its discretion to construe, interpret and define all terms
and provisions of this Agreement and to correct any defect or supply any
omission or reconcile any inconsistency herein and to prescribe rules and
regulations relating to the administration of the Option.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
/s/ Carlton J. Eibl
------------------------------------------
Carlton J. Eibl, "Optionee"
MAXWELL TECHNOLOGIES, INC.
By: /s/ Donald M. Roberts
------------------------------------------------
Donald M. Roberts, Vice President, Secretary &
General Counsel
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EXHIBIT 10.30
[MAXWELL TECHNOLOGIES LETTERHEAD]
MEMO
TO: Corporate Bonus Plan Participants
FROM: Don Roberts
Vickie Capps
DATE: February 8, 2000
RE: 2000 BONUS PLAN
The Board of Directors has approved a new bonus plan for fiscal year 2000
containing the following terms and conditions. It is important to note that
this plan is for this calendar year only.
1. The threshold for earning any bonus is the "base case" budget for the
consolidated, continuing operations of the Company for the year 2000:
revenue of $156.569 million and operating profit of $1.170 million.
If the results for the year exceed both of these figures, bonuses
will be paid.
2. 100% of target bonuses will be earned if the Company achieves its
"target case" or target plan for fiscal year 2000 consolidated,
continuing operations revenue of $165.553 million and operating
profit of $3.915 million.
3. For results up to the midpoint between the base case and the target
plan, one-third of target bonus can be earned. Results at the
midpoint will result in a full one-third earned. Between the base
case and the midpoint, some portion of the full one-third will be
earned, with revenue and profit each contributing 50% to the
calculation, which will be done on a linear basis.
4. Above the midpoint and up to the target plan, the other two-thirds of
target bonus is earned, again with 50% determined by revenue and 50%
by operating profit and calculated on a linear basis.
5. Revenue and operating profit attributable to businesses acquired
during the year are excluded from this calculation, and nonrecurring
licensing, funded R&D or other "deal" money not otherwise in the
target plan will be considered only at the discretion of the CEO and
the Board of Directors. For purposes of this Plan, operating profit
will be calculated after giving effect to bonus payments and before
any restructuring charge.
6. Additional bonuses will be available for performance in excess of the
target plan. Additional bonuses will be based on incremental net
income to Maxwell from continuing operations from above-target
achievement. Because of the complexity of the current fiscal year,
there will be a discretionary element to the calculation of any
additional bonuses. However, the intent would be to make additional
bonuses significant for above-target performance.
7. Each individual's bonus will also be subject to a performance factor
based on that individual's job performance during the year. Bonus
participants must be employed on the last day of the calendar year
(December 31, 2000) to be eligible for any bonus payout.
<PAGE>
Exhibit 10.36
SPACE ELECTRONICS INC.
1999 STOCK OPTION PLAN
1. PURPOSE. The 1999 Stock Option Plan (the "Plan") is intended
to advance the interests of Space Electronics Inc. (the "Company"), and its
stockholders by encouraging and enabling selected "key employees" (as defined
below) to acquire and retain a proprietary interest in the Company by ownership
of its stock. For purposes of this Plan, the term "key employee" shall include
employees of the Company, its parent corporation, Maxwell Technologies, Inc.,
and any majority-owned subsidiaries of Maxwell Technologies, Inc., upon whose
judgment, initiative and effort the Company is dependent for success in the
conduct of its business. Selected employees of the Company's parent corporation
and subsidiaries of the parent corporation are included within the definition of
"key employee" in recognition that the Company's success depends in part on the
success of the combined corporate enterprise which includes the Company. It is
intended that the Plan provide the flexibility for the issuance of options which
qualify as incentive stock options ("incentive stock options") within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and options which do not so qualify ("non-qualified stock options").
2. DEFINITIONS.
(a) "Affiliate" means Maxwell Technologies, Inc. and each
corporation in which such entity owns, directly or indirectly, more than 50% of
the voting equity interests.
(b) "Agreement" means the agreement between the Company and
the Optionee under which an option is granted, and setting forth the terms and
conditions of the option and the Optionee's rights thereunder.
(c) "Board" means the Board of Directors of the Company.
(d) "Committee" means the Stock Option Committee (the members
of which shall be appointed by the Board from among the directors of the
Company) of the Board. If no such committee has been appointed by the Board,
then the term "Committee" shall refer to the entire Board.
(e) "Common Stock" means the Company's common stock.
(f) "Date of Grant" means the date on which an option under
the Plan is approved by the Committee.
(g) "Option" means an option granted under the Plan.
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(h) "Optionee" means a person to whom an option, which has not
expired, has been granted under the Plan.
(i) "Successor" means the legal representative of the estate
of the deceased Optionee or the person or persons who acquire the right to
exercise an option by bequest or inheritance or by reason of the death of any
Optionee.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by
the Committee which shall report all action taken by it to the Board. The
Committee shall have full and final authority in its discretion, subject to the
provisions of the Plan, to determine the number of shares and purchase price of
Common Stock covered by each option, the individuals to whom and the time or
times at which options shall be granted and the nature of each option granted
under the Plan, i.e., whether the option will be an incentive stock option or a
non-qualified stock option; to construe and interpret the Plan; to determine the
terms and provisions of the respective Agreements, which need not be identical,
including, but without limitation, terms covering the payment of the option
price, and to make all other determinations and take all other actions deemed
necessary or advisable for the proper administration of the Plan. All such
actions and determinations of the Committee shall be conclusively binding for
all purposes and upon all persons.
4. COMMON STOCK SUBJECT TO OPTIONS. Unless amended in accordance
with the provisions of Paragraph 11, and subject to adjustment under the
provisions of Paragraph 7, the aggregate number of shares of the Company's
Common Stock which may be issued upon the exercise of options granted under the
Plan shall not exceed 750,000. The shares of Common Stock to be issued upon the
exercise of options may be authorized but unissued shares, shares issued and
reacquired by the Company or shares bought on the market for the purposes of the
Plan. In the event any option shall, for any reason, terminate or expire or be
surrendered without having been exercised in full, the shares subject to such
option but not purchased thereunder shall again be available for options to be
granted under the Plan.
5. PARTICIPANTS. Options may be granted under the Plan to any
person who, in the opinion of the Committee, is a key employee of the Company or
any Affiliate.
6. TERMS AND CONDITIONS OF OPTIONS. Any option granted under the
Plan shall be evidenced by an Agreement executed by the Company and the Optionee
and shall contain such terms and be in such form as the Committee may from time
to time approve, subject to the following limitations and conditions:
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(a) OPTION PRICE. The option price per share with respect to
each option shall be determined by the Committee but shall in no
instance be less than 100% of the fair market value of a share of the
Common Stock on the Date of Grant; provided that with respect to an
option granted to an individual who, on the grant date, is the holder
of stock representing more than 10% of the voting equity of the Company
or any Affiliate (hereinafter a "10% Holder"), the option price for
such option shall be no less than 110% of such fair market value. For
the purposes hereof, fair market value shall be as determined by the
Committee and such determination shall be binding upon the Company and
upon the Optionee. The Committee may make such determination upon any
factors which the Committee shall deem appropriate.
(b) PERIOD OF OPTION. Except for earlier termination as
provided in Subparagraphs (g) and (h) of this Paragraph 6, and in
Subparagraph (b) of Paragraph 7, the expiration date of each option
shall be fixed by the Committee, but, notwithstanding any provision of
the Plan to the contrary, such expiration date shall not be more than
ten years from the Date of Grant or, with respect to a 10% Holder, five
years from the Date of Grant.
(c) VESTING OF STOCKHOLDER RIGHTS. Neither an Optionee nor any
Successor shall have any of the rights of a stockholder of the Company
until the option with respect to the applicable shares shall have been
duly exercised and the certificate evidencing such shares delivered to
such Optionee or any Successor.
(d) EXERCISE OF OPTION. Each option shall be exercisable in
such amounts and at such respective dates prior to the expiration of
the option as provided in the Agreement.
(e) PAYMENT OF OPTION PRICE. Upon exercise of an option, the
Optionee or Successor shall pay the option price by delivering to the
Company:
(i) cash or a check payable to the Company in an
amount equal to the option price;
(ii) a stock certificate or certificates, duly
endorsed for transfer to the Company, representing shares of
Common Stock of the Company owned by the Optionee or Successor
which have a fair market value on the date of exercise equal
to the option price; or
(iii) cash or a check payable to the Company and a
stock certificate or certificates, duly endorsed for transfer
to the Company, representing shares of Common Stock owned by
the Optionee or Successor, which, when added to the amount of
the cash or check, have a fair market value on the date of
exercise equal to the option price.
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For the purposes hereof, fair market value shall be determined
by the Committee and such determination shall be binding upon the Company and
upon the Optionee or Successor. The Committee may make such determination in
accordance, with Paragraph 6(a) hereof by substituting "date of exercise" for
"Date of Grant" each time the latter appears therein and upon any other factors
which the Committee shall deem appropriate.
(f) NON-TRANSFERABILITY OF OPTION. No option shall be
transferable or assignable by an Optionee, otherwise than by will or
the laws of descent and distribution and each option shall be
exercisable during the Optionee's lifetime only by the Optionee. No
option shall be pledged or hypothecated in any way and no option shall
be subject to execution, attachment or similar process.
(g) TERMINATION OF EMPLOYMENT. Upon termination of an
Optionee's employment with the Company and all Affiliates other than by
reason of the death of the Optionee, the option privileges of such
Optionee shall be limited to the shares which were immediately
purchasable by Optionee at the date of such termination and such option
privilege shall expire unless exercised by Optionee within sixty (60)
days after the date of such termination. The granting of an option to
any person shall not alter in any way the Company's right to terminate
such person's employment at any time for any reason, nor shall it
confer upon the Optionee any rights or privileges except as
specifically provided for in the Plan.
(h) DEATH OF OPTIONEE. If an Optionee dies while in the employ
of the Company or any Affiliate, the option privileges of said Optionee
shall be limited to the shares which were immediately purchasable by
such Optionee at the date of death and such option privileges shall
expire unless exercised by said Optionee's Successor within one (1)
year after the date of death.
7. ADJUSTMENTS.
(a) In the event that the outstanding shares of Common Stock
of the Company are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities
of the Company or of another corporation, by reason of a
recapitalization, reclassification, stock split-up, combination of
shares, dividend or other distribution payable in capital stock,
appropriate adjustment shall be made by the Board in the number, kind
and exercise price of shares for the purchase of which options have
theretofore been or may thereafter be granted under the Plan.
4
<PAGE>
(b) In the event that the Company shall determine to merge,
consolidate or enter into any other reorganization with or into any
other corporation, or in the event of any dissolution or liquidation of
the Company, then in any such event, at the election of the Board, (i)
appropriate adjustment shall be made by the Board in the number, kind
and exercise price of shares for the purchase of which options have
theretofore been and/or may thereafter be granted under the Plan, and
if such event results in Maxwell Technologies, Inc. ceasing to own,
directly or indirectly, more than 50% of the voting equity of the
Company, each such adjusted option shall be fully vested and
exercisable as to all shares thereunder regardless of an otherwise
insufficient passage of time; or (ii) the Plan and any options
theretofore granted under the Plan shall terminate as of the date of
such merger, consolidation, reorganization, dissolution or liquidation,
provided that written notice of such event shall have been given to
each Optionee not less than 30 days prior to the date of such event.
Upon any election by the Board pursuant to the provisions of clause
(ii) of this Subparagraph (b), each Optionee shall have the right
during the period commencing on the date the notice referred to in said
clause (ii) is given and concluding on the date of such merger,
consolidation, reorganization, dissolution or liquidation, as the case
may be, to exercise such Optionee's outstanding and unexercised stock
options, including shares as to which such options would not otherwise
have been exercisable by reason of an insufficient lapse of time.
(c) All adjustments and determinations under this Paragraph 7
shall be made by the Board, whose decisions as to what adjustments or
determinations shall be made, and the extent thereof, shall be final,
binding and conclusive.
8. DOLLAR LIMITATION ON INCENTIVE STOCK OPTIONS. The aggregate
fair market value (determined as of the Date of Grant) of the Common Stock with
respect to which incentive stock options are exercisable for the first time by
any individual during any calendar year (under the Plan and all other stock
option plans of the Company or any Affiliate) shall not exceed $100,000.
9. RESTRICTIONS ON ISSUING SHARES. The exercise of each option
shall be subject to the condition that if at any time the Company shall
determine in its discretion that (i) the satisfaction of withholding tax or
other withholding liabilities, or (ii) the listing, registration or
qualification of any shares otherwise deliverable upon such exercise upon any
securities exchange or under any state or federal law, or (iii) the consent or
approval of any regulatory body, or (iv) the perfection of any exemption from
any such withholding, listing, registration, qualification, consent or approval
is necessary or desirable as a condition of, or in connection with, such
exercise or the issuance, delivery or purchase of shares thereunder, then in any
such event, such exercise shall not be effective unless such withholding,
listing registration, qualification, consent, approval or exemption shall have
been effected, obtained or perfected free of any conditions not acceptable to
the Company.
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10. USE OF PROCEEDS. The proceeds received by the Company from the
sale of its Common Stock pursuant to the exercise of options granted under the
Plan shall be added to the Company's general funds and used for general
corporate purposes.
11. AMENDMENT, SUSPENSION AND TERMINATION OF THE PLAN. The Board
may at any time suspend or terminate the Plan or may amend it from time to time
in such respects as the Board may deem advisable in order that the options
granted thereunder may conform to any changes in the law or in any other respect
which the Board may deem to be in the best interests of the Company; PROVIDED,
HOWEVER, that without approval by the stockholders of the Company representing a
majority of the voting power, no such amendment shall (a) except pursuant to
Paragraph 7, increase the maximum number of shares for which options may be
granted under the Plan, (b) change the provisions of Subparagraph (a) of
Paragraph 6 relating to the establishment of the option price, (c) change the
provisions of Subparagraph (b) of Paragraph 6 relating to the expiration date of
each option or (d) change the provisions of the second sentence of this
Paragraph 11 relating to the term of this Plan. Unless the Plan shall
theretofore have been terminated by the Board or as provided in Paragraph 12,
the Plan shall terminate ten (10) years after the effective date of the Plan. No
option may be granted during any suspension or after the termination of the
Plan. Except as otherwise provided in the Plan, no amendment, suspension or
termination of the Plan shall, without an Optionee's consent, alter or impair
any of the right or obligations under any option theretofore granted to such
Optionee under the Plan.
12. EFFECTIVE DATE OF THE PLAN AND STOCKHOLDER APPROVAL. The
effective date of the Plan shall be the date of its approval by the Board;
provided, however, that in the event that stockholder approval of the Plan is
not secured on or before the date which is twelve (12) months from the date of
approval by the Board, the Plan shall thereupon terminate. Any options granted
prior to the aforesaid stockholder approval being secured shall be subject to
such approval being secured.
SPACE ELECTRONICS INC.
By: /s/ Donald M. Roberts
----------------------------
Donald M. Roberts, Secretary
Date: March 1, 1999
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<PAGE>
Exhibit 10.45
MAXWELL TECHNOLOGIES, INC.
1999 MANAGEMENT EQUITY OWNERSHIP PROGRAM
(AS AMENDED THROUGH JANUARY 28, 2000)
1. PURPOSE
The Maxwell Technologies, Inc. 1999 Management Equity Ownership Program
(the "Program") is intended to promote the long-term growth and financial
success of Maxwell Technologies, Inc. (the "Company") and to strengthen the link
between the interests of management and the Company and its stockholders by:
- providing senior management of the Company and its
Subsidiaries with an opportunity to increase their ownership
of the Company's Common Stock; and
- providing this opportunity in a manner that is designed to
align senior management's investment risk with the Company's
financial performance.
2. DEFINITIONS
Except where the context otherwise indicates, the following definitions
apply:
"Board" means Board of Directors of the Company or, for purposes of
administering the Program after delegation by the Board, the Compensation
Committee of the Board.
"Cause" means termination for any of the following reasons:
(i) commission of an act of theft, fraud or material
dishonesty or misconduct involving the property or affairs of the
Company or the carrying out of Participant's duties; or
(ii) conviction of a felony; or
(iii) refusal or failure to implement any reasonable
directive issued by the Board and failure to remedy the refusal or
failure within 15 days of receipt of written notice thereof; or
(iv) obtaining of any personal profit by Participant or his
family arising out of or in connection with a transaction to which the
Company or any of its Subsidiaries is a party or with which it is
associated without making disclosure to and obtaining prior written
consent of the Company.
<PAGE>
"Common Stock" means the Common Stock, $0.10 par value per share, of
the Company.
"Disability" means the inability of the Participant to perform his or
her normal duties of employment as a result of incapacity as determined by the
Board.
"Effective Date" means the date the Program is approved by the
stockholders of the Company.
"Interest Rate" means the "applicable federal rate" in effect on the
date of a Purchase Loan for loans with a maturity of four years with interest
compounded annually, as determined by Section 1274(d) of the Internal Revenue
Code of 1986, as amended.
"Market Price" with respect to a given security shall mean, for any
given date (or in the event such date is not a Trading Day, the last Trading Day
prior to such date), the closing sale price of such security on such date, as
reported in The Wall Street Journal, as reported on the principal national
securities exchange or national automated stock quotation system on which such
security is traded or quoted.
"1934 Act" means the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder.
"Participant" means each eligible employee of the Company or any of its
Subsidiaries who is designated by the Board to receive a Purchase Loan.
"Purchase Loan" means an extension of credit to the Participant by the
Company evidenced by the Purchase Note and secured by a pledge of the Common
Stock purchased by the Participant in accordance with the Program's terms and
conditions. Purchase Loans need not be identical and shall be in the form
approved by the Board.
"Purchase Note" means a full recourse promissory note including the
terms set forth in Section 6(a).
"Retirement" shall be as defined by the Board.
"Service" means employment with the Company or its Subsidiaries.
"Subsidiary" means a corporation (or partnership, joint venture, or
other enterprise) of which the Company owns or controls, directly or indirectly,
50% or more of the outstanding shares of stock normally entitled to vote for the
election of directors (or comparable equity participation and voting power).
<PAGE>
"Tax Rate" means, at the time of determination, the maximum marginal
effective combined federal and state tax rates on ordinary income or capital
gains, as the case may be, to which such individual is subject.
"Termination of Service" means a Participant's termination of Service
such that he or she is no longer an employee of either the Company or any of its
Subsidiaries for any reason whatsoever.
3. THE PROGRAM
(a) GENERAL. The aggregate principal amount of Purchase Loans
outstanding at any time under the program shall not exceed $900,000. All
repayments of principal (of any type and for whatever reason) of outstanding
Purchase Loans extended under the Program shall again become available for
further Purchase Loans. As further provided in Section 6, Purchase Loans may be
extended in connection with open market purchases or acquisitions directly from
the Company.
(b) DIRECT ACQUISITIONS. The Board shall have complete discretion as to
whether to offer to any Participant the opportunity to acquire Common stock
directly from the Company. If the Board determines to offer such opportunity to
a Participant, the Board shall specify a date to establish a price at which such
Common Stock shall be offered (the "Offer Price"). The Offer Price shall be the
closing sale price on the date on which such price was established. Each
Participant to whom the Board elects to extend the offer to purchase shall have
the right to accept the offer for all or any portion (subject to a minimum
established by the Board) of the shares offered. Upon receipt of each
Participant's election, the Company shall proceed to issue the shares in
accordance with the provisions of Section 6.
4. TERM OF THE PROGRAM
The Program shall become effective upon the approval by the
stockholders of the Company. The Program shall terminate on the tenth
anniversary of such approval date; provided that Purchase Loans outstanding as
of such date shall not be affected or impaired by the termination of the
Program.
5. ELIGIBLE EMPLOYEES
The chief executive officer of the Company and other executive officers
and senior management personnel of the Company and its Subsidiaries who, in the
opinion of the Board, can materially influence the long-term performance of the
Company and/or its Subsidiaries are eligible to receive a Purchase Loan. The
Board shall have the power and complete discretion to select those eligible
employees who are to receive Purchase Loans.
6. LOAN TERMS
3
<PAGE>
(a) GENERAL. The Company shall extend a Purchase Loan, subject to the
terms and conditions set forth in this Section 6, to Participants either (i) to
purchase Common Stock in the public trading market or (ii) to acquire Common
Stock directly from the Company. The original principal amount of the Purchase
Loan shall be equal to the purchase price of such Common Stock. For Common Stock
acquired in the public trading market, the purchase price shall be the price
actually paid, including commissions, by the Participant. For Common Stock
acquired directly from the Company, the purchase price shall be the Offer Price,
and the Purchaser shall execute a Purchase Note in such amount against delivery
by the Company of a certificate evidencing the stock acquired. Each Purchase
Loan shall be evidenced by a Purchase Note with full recourse against the maker.
The obligations of each Participant under a Purchase Note shall be unconditional
and absolute and, without limiting the generality of the foregoing, shall not be
released, discharged or otherwise affected by any change in the existence,
structure or ownership of the Company, or any insolvency, bankruptcy,
reorganization or other similar proceeding affecting the Company or its assets
or the market value of the Common Stock or any resulting release or discharge of
any obligation of the Company or the existence of any claim, set-off or other
rights which any Participant may have at any time against the Company or any
other person, whether in connection with the Program or with any unrelated
transactions, provided that nothing herein shall prevent the assertion of any
such claim by separate suit or counterclaim.
Notwithstanding anything to the contrary in this Section 6, the Company
shall not be required to make any Purchase Loan to a Participant if the making
of such Purchase Loan would (i) cause the Company to violate any covenant or
similar provision in any indenture, loan agreement or other agreement, or (ii)
violate any applicable federal, state or local law or regulation.
(b) AMOUNTS. Purchase Loans shall be limited in principal amounts
outstanding at any point in time to $300,000 for the chief executive officer,
$100,000 each for other corporate executive officers and $50,000 each for other
management personnel.
(c) SECURITY. Payment of each Purchase Note shall be secured by a
pledge of all of the Common Stock acquired by the Participant to which the
Purchase Loan relates or by some other form of collateral approved by the Board.
If the Purchase Loan is secured by a pledge of Common Stock, the Participant
shall effect such pledge by delivering to the Company (i) the certificate or
certificates for the applicable shares of Common Stock, accompanied by a duly
executed stock power in blank, (ii) a properly executed stock pledge agreement,
and (iii) such other documents as may be required by the Board. If the Purchase
Loan is secured by some other form of collateral than Common Stock, then the
Company's security interest in such collateral shall be effected as determined
by the Board.
A Participant shall always have the right to sell the Common Stock
securing a Purchase Loan provided that (i) such sales are in accordance with the
Company's trading policies and applicable securities laws, (ii) the Company
shall have a security interest in the proceeds of such sale to the extent of any
outstanding Purchase Loan, and (iii) the proceeds of any such
4
<PAGE>
sale are utilized in the manner provided in Section 6(f)(ii). Prior to payment
in full of the outstanding balance on the Purchase Note (including accrued and
unpaid interest), no Common Stock or other collateral pledged to the Company
under the stock pledge agreement shall be released except pursuant to Section
6(f)(ii).
(d) INTEREST. Interest on the principal balance of each Purchase Loan
will accrue annually, in arrears, at the Interest Rate. Except as provided in
subsections (f) and (g) of this Section 6, accrued interest shall be payable
with each installment of principal and at maturity.
(e) TERM. The term of each Purchase Loan shall begin on the date
specified in subsection (a) of this Section 6 and, subject to prepayment as
provided in subsections (f), (g) and (h) of this Section 6, mature no later than
the fifth anniversary of such date. The principal balance of the Purchase Loan
shall be payable in installments as provided in the Purchase Note, with interest
on the unpaid balance payable as provided in Section 6(d). The Board shall have
the discretion to grant Purchase Loans with payments of principal and accrued
but unpaid interest due in a lump sum at the end of the loan term.
(f) PREPAYMENT OBLIGATIONS OTHER THAN ON TERMINATION OF SERVICE.
(i) DIVIDENDS AND DISTRIBUTIONS. To the extent the Participant
receives cash dividends or other distributions (other than liquidating
distributions) paid in cash on the Common Stock securing a Purchase Loan, the
Participant shall be entitled to retain such dividend or distribution with no
prepayment of the related Purchase Loan.
(ii) SALE OF COMMON STOCK. In the event a Participant sells
some or all of the Common Stock securing a Purchase Loan, the full pre-tax
amount of the proceeds of such sale shall be applied to prepay the Purchase Loan
to the extent of the outstanding balance of principal and accrued interest
thereon. In the event that the Participant sells all the Common Stock securing a
Purchase Loan and the proceeds of any such sale are inadequate to fully pay the
principal and accrued interest thereon, such loan will become due and payable in
full 30 days after such sale unless the Participant provides substitute
collateral satisfactory to the Board. A transfer of a Participant's Common Stock
to a revocable trust as to which the Participant retains voting and investment
power (which powers of revocation, voting and investment may be shared with the
Participant's spouse) or a transfer to joint ownership with such Participant's
spouse shall not be deemed a sale for purposes of this Section 6(f)(ii),
although such Common Stock shall remain pledged to secure the Purchase Loan.
(iii) OPTIONAL PREPAYMENTS. The Participant may prepay all or
any portion of a Purchase Loan at any time.
(iv) APPLICATION OF PREPAYMENTS. All prepayments made to the
Company pursuant to this Section 6(f) shall first be applied to pay accrued
interest on the Purchase Loan and then to reduce the principal balance due on
the Purchase Loan. Any prepayment of a
5
<PAGE>
remaining balance shall be applied to the principal payments due thereon in
chronological order of maturity.
(g) PREPAYMENT OBLIGATIONS ON TERMINATION OF SERVICE. In the event of
Participant's Termination of Service for any reason except (1) Retirement, (2)
Disability, or (3) termination by the Company without Cause, any outstanding
balance (including accrued and unpaid interest) of the Purchase Loan to such
Participant shall be due and payable 30 days following the later of (i) the day
following the date of Termination or (ii) the day following the first date on
which the Participant may sell the Common Stock securing the Purchase Loan in
the public trading market under Rule 144 of the Securities and Exchange
Commission, if such stock was not registered under the Securities Act of 1933 at
the time of issuance, and without otherwise incurring liability under the
federal securities laws, including Section 16 of the 1934 Act, (limited, in the
case of Section 16, to liability relating to purchases or sales of Common Stock
or any derivative security occurring prior to the Termination of Service). There
shall be no prepayment obligation incurred solely as a result of a Participant's
Termination of Service for any of the reasons mentioned in the first sentence of
this Section 6(g) prior to maturity of a Purchase Loan. All prepayments under
this Section 6(g) shall be applied as provided in Section 6(f)(iv).
(h) COMPLIANCE WITH SECURITIES LAWS. With respect to purchases of
Common Stock directly from the Company hereunder, the Board shall have the
discretion, but shall be under no obligation, to register the issuance of such
shares under the Securities Act of 1933. In the event that the Board elects not
to register such issuances, the Board may require of Participants such
investment representations and other documents as the Board deems necessary to
enable the Common Stock to be issued under available exemptions from federal and
state securities laws, and the Board may cause the certificates representing
such Common Stock to bear appropriate legends restricting transfer as required
to qualify for such exemptions.
7. PROGRAM ADMINISTRATION.
6
<PAGE>
The Program shall be administered by the Board. Subject to the
provisions of the Program, the Board shall interpret the Program and make such
rules as it deems necessary for the proper administration of the Program, shall
make all other determinations necessary or advisable for the administration of
the Program and shall correct any defect or supply any omission or reconcile any
inconsistency in the Program in the manner and to the extent that the Board
deems desirable to carry the Program into effect. Among other things, the Board
shall have the authority, subject to the terms of the Program, to determine (i)
the individuals to whom the Purchase Loans are offered, (ii) the basis for any
Termination of Service, and (iii) the forms, terms and provisions of any
documents utilized under the Program. Any action taken or determination made by
the Board pursuant to this paragraph and the other paragraphs of the Program in
which the Board is given discretion shall be final and conclusive on all
parties. The Board may consult with counsel, who may be counsel to the Company,
and such other advisors as the Board may deem necessary and/or desirable, and
the members of the Board shall not incur any liability for any action taken in
good faith in reliance upon the advice of counsel or any other advisor.
8. AMENDMENT AND DISCONTINUANCE OF THE PROGRAM.
The Board may amend, suspend or terminate the Program at any time,
subject to the provisions of this Section 8. No amendment, suspension or
termination of the Program may, without the consent of the Participant,
adversely affect such Participant's rights under any outstanding Purchase Loans
in any material respect.
9. MISCELLANEOUS PROVISIONS.
(a) EMPLOYMENT NOT GUARANTEED. Nothing contained in the Program nor any
related agreement nor any action taken in the administration of the Program
shall be construed as a contract of employment or as giving a Participant any
right to be retained in the Service of the Company.
(b) NONASSIGNABILITY. No person shall have any right to commute, sell,
assign, transfer, pledge, anticipate, mortgage or otherwise encumber,
hypothecate or convey any interest in the Program.
(c) SEPARABILITY, VALIDITY. In the event that any provision of the
Program or any related document is held to be invalid, void or unenforceable,
the same shall not affect, in any respect whatsoever, the validity of any other
provision of the Program or any related document.
(d) APPLICABLE LAW. The Program, any Purchase Loans extended pursuant
thereto and any related documents shall be governed in accordance with the laws
of the State of Delaware without regard to the application of the conflicts of
law provisions thereof. The obligation of the Company with respect to the grant
of Purchase Loans shall be subject to all applicable laws, rules and regulations
and such approvals by any governmental agencies as
7
<PAGE>
may be required, including, without the rules and regulations of any securities
exchange on which the Common Stock may be listed.
(e) INUREMENT OF RIGHTS AND OBLIGATIONS. The rights and obligations
under the Program, any Purchase Loans extended pursuant thereto and any related
documents shall inure to the benefit of, and shall be binding upon, the Company,
its successors and assigns, and the Participants and their beneficiaries.
(f) NOTICES. All notices and other communications required or permitted
to be given under this Program shall be in writing and shall be deemed to have
been duly given if delivered personally or mailed first class, postage prepaid,
as follows: (A) if to the Company--at its principal business address to the
attention of the General Counsel; (B) if to any Participant--at the last address
of the Participant known to the sender at the time the notice or other
communication is sent.
8
<PAGE>
Exhibit 21.1
List of Subsidiaries
ENTITY STATE OF INCORPORATION
Maxwell Technologies, Inc. Delaware
PurePulse Technologies, Inc. Delaware
I-Bus, Inc. California
Maxwell Business Systems, Inc. California
Maxwell Technologies Systems Division, Inc. California
Maxwell Energy Products, Inc. California
Phoenix Power Systems, Inc. California
I-Bus UK, Ltd. United Kingdom
I-Bus Manufacturing, Ltd. United Kingdom
Space Electronics, Inc. Delaware
KD Components, Inc. Nevada
<PAGE>
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the incorporation by reference in the Registration Statements on
Form S-8 (Nos. 2-91483, 33-88634, 33-88636, 33-88638, 333-07835, 333-07831,
333-63815 and 333-63813) and Form S-3 (Nos. 333-36853, 333-49941, 333-57947,
333-75227 and 333-81965) of Maxwell Technologies, Inc. of our report dated
February 19, 2000, with respect to the consolidated financial statements of
Maxwell Technologies, Inc. included in the Annual Report (Form 10-K) for the
five-month period ended December 31, 1999.
/s/ Ernst & Young LLP
ERNST & YOUNG LLP
San Diego, California
March 24, 2000
<TABLE> <S> <C>
<PAGE>
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<CIK> 0000319815
<NAME> MAXWELL TECHNOLOGIES, INC.
<S> <C>
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<FISCAL-YEAR-END> DEC-31-1999
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