UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For
the fiscal year ended December 31, 2003
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OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For
the transition period from _________________ to ________________
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Commission file number 1-15477
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MAXWELL
TECHNOLOGIES, INC.
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(Exact name of registrant as
specified in its charter)
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Delaware
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95-2390133
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(State or other jurisdiction of
incorporation or organization)
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(I.R.S. Employer
Identification No.)
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9244 Balboa Avenue
San Diego, California
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92123
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(Address of principal executive
offices)
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(
Zip Code)
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Registrant’s telephone number,
including area code: (858) 503-3300
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Securities registered pursuant to
Section 12(b) of the Act:
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None
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Securities registered pursuant to
Section 12(g) of the Act:
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Common Stock, par value $0.10 per
share
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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
o
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
Indicate
by check mark whether the registrant is an accelerated filer (as defined by
Rule 12b-2 of the Exchange Act).
YES
x
NO
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As
of June 30,
2003, the last business day of the registrant’s most recently completed
second fiscal quarter, the aggregate market value of Common Stock held by
non-affiliates of the registrant based on the closing price of the Common Stock
on the Nasdaq National Market was $42,341,760.
The
number of shares of the registrant’s Common Stock outstanding as of March 1,
2004 was 14,394,668 shares.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s definitive Proxy Statement for the 2004 Annual Meeting of
Stockholders to be held on May 6, 2004 are incorporated by reference into Part
III of this Annual Report on Form 10-K.
MAXWELL TECHNOLOGIES, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K
For the fiscal year ended December 31, 2003
FORWARD-LOOKING STATEMENTS
When
used in this Annual Report on Form 10-K (this “Annual Report”), the words
“believe,” “expect,” “anticipate” and similar expressions, together with other
discussion of future trends or results, are intended to identify
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”), and Section 21E of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). Such statements are subject to certain risks
and uncertainties, including those discussed below that could cause actual
results to differ materially from those projected. These forward-looking statements speak only as of the date of
this Annual Report. All of these
forward-looking statements are based on estimates and assumptions made by our
management which, although believed to be reasonable, are inherently uncertain
and difficult to predict; therefore, undue reliance should not be placed upon
such statements. Actual results may
differ materially and adversely from such statements due to known and unknown
factors. The following important
factors, among others, could cause our results of operations to be materially
and adversely affected in future periods:
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further decline in the domestic and global economy
that may delay the development and introduction by our customers of products
that incorporate our components and systems;
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success in the introduction and marketing of new
products into existing and new markets;
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ability to manufacture existing and new products in
volumes demanded by our customers and at competitive prices with adequate
gross margins;
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market success of the products into which our
products are integrated;
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ability in growing markets to increase our market
share relative to our competitors;
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success in meeting cost-reduction goals in the
restructuring and reorganizing of our businesses;
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ability to successfully integrate our businesses
with operations of acquired businesses; and
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ability to finance the growth of businesses with
internal resources or through outside financing at reasonable rates.
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Many
of these factors are beyond our control.
There can be no assurance that we will not incur new or additional
unforeseen costs in connection with the ongoing conduct of our business. Accordingly, any forward-looking statements
included herein do not purport to be predictions of future events or
circumstances and may not be realized.
Additional information regarding these factors and other risks is
included in Part I, Item 1. “Business - Risk Factors” and Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operations,” as well as elsewhere within this Annual
Report.
1
PART I
Unless
the context otherwise requires, all references in this Annual Report to
“Maxwell,” the “Company,” “we,” “us,” and “our” refer to Maxwell Technologies,
Inc. and its subsidiaries; all references to “Electronic Components Group”
refer to our former subsidiary, Maxwell Electronic Components Group, Inc.,
which has been merged into Maxwell; all references to “I-Bus/Phoenix” refer to
our former subsidiary, I-Bus/Phoenix, Inc., and its subsidiaries; and all
references to “PurePulse” refer to our non-operating subsidiary, PurePulse
Technologies, Inc.
Overview
Maxwell
Technologies, Inc. is a Delaware corporation originally incorporated in 1965
under the name “Maxwell Laboratories, Inc.”
In 1996, we changed our name to Maxwell Technologies, Inc. Presently headquartered in San Diego,
California, we are a developer and manufacturer of innovative,
cost-effective energy storage and power delivery solutions.
Maxwell’s
High Reliability business segment is comprised of three product lines:
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Ultracapacitors
: Our primary product, ultracapacitors,
includes our BOOSTCAP® ultracapacitor cells and multi-cell modules and
POWERCACHE® backup power systems, which provide highly reliable power
solutions for applications in consumer and industrial electronics,
transportation and telecommunications.
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High-Voltage
Capacitors
: Our
CONDIS® high-voltage grading and coupling capacitors are used in electric
utility infrastructure and other applications involving transport,
distribution and measurement of high-voltage electrical energy.
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Radiation-Mitigated
Microelectronic Products
:
Our radiation-mitigated microelectronic products include
power modules, memory modules and single-board computers for applications in
the space and satellite industries.
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We
aim to design and manufacture our products to perform reliably for the life of
the products and systems into which they are integrated. We seek to achieve high reliability through
the application of proprietary technologies and rigorously controlled design,
development, manufacturing and test processes.
This high reliability strategy emphasizes the development and marketing
of products that enable us to achieve higher profit margins than commodity
electronic components and systems.
During
the year ended December 31, 2003, we continued our efforts to focus our
business and to exit non-strategic businesses.
These efforts culminated in our exit from the low-margin power magnetics
business and commensurate consolidation of the remaining value-added business into
our ultracapacitor product line, and the sale of our Winding Equipment business
segment. As the result of these
actions, as well as other divestitures throughout 2002 and 2003, we have
consolidated our operations into our High Reliability business segment. (See Part I, Item 1. “Business-Strategic
Consolidation of Operations,” Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Acquisitions,
Restructuring, Divestitures, Discontinued Operations and Other Events,” and
Notes 2 and 3 to our Notes to Consolidated Financial Statements, for
information regarding our business combinations, divestitures and phased-out
operations.)
Products and Applications
Our
products apply our expertise and proprietary power and microelectronics
technology at both the component and system level for specialized, high-value
applications for which customers require high reliability. We are recognized as a leading supplier of high
reliability power and microelectronic components and systems for a wide variety
of high-value applications.
2
Ultracapacitors
An
ultracapacitor, also known as a supercapacitor, stores energy electrostatically
by polarizing an electrolytic solution. Although it is an electrochemical
device, there are no chemical reactions involved in its energy storage
mechanism. The mechanism is highly reversible, allowing the ultracapacitor to
be rapidly charged and discharged hundreds of thousands of times for various
peak power applications.
Unlike
conventional batteries, ultracapacitors can be recharged in as little as
fractions of a second from any electrical energy source, and they operate
reliably through hundreds of thousands to millions of discharge/recharge cycles
with minimal degradation of performance.
Traditional capacitors have very little energy storage capacity and
discharge power too rapidly to be suitable for many power delivery
applications. Ultracapacitors have much
greater energy storage capacity than traditional capacitors and can discharge
power over time periods ranging from fractions of a second to several
minutes. Used in tandem with batteries,
ultracapacitors can deliver bursts of energy to meet power demand peaks,
enhance system performance and, thus, significantly extend battery life. In applications where alternative sources of
recharge energy are available, ultracapacitors can replace batteries entirely.
Our
ultracapacitors can be linked together in modules to satisfy higher energy storage
and power delivery requirements, and can be charged from any primary energy
source, such as a battery, generator, fuel cell or electrical outlet. Virtually any device that has peak power
demands greater than its average power requirement is a candidate for our
ultracapacitors as part of its energy storage and power delivery system.
Our
ultracapacitor products have significant advantages over alternative choices,
including:
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delivery of up to 100
times more instantaneous power;
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significantly lower weight per unit of electrical energy stored;
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the ability to discharge deeper and recharge much faster and more
efficiently;
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the ability to operate reliably in extreme temperatures (–40
degrees C to +75 degrees C);
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minimal maintenance requirements;
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operational reliability for the life of the device or system; and
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minimal environmental
issues associated with disposal.
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Any
device or system that requires storage of electrical energy and repeated
discharges of variable amounts of power represents a potential application for
ultracapacitors. With no moving parts
and no chemical reactions, ultracapacitors provide a simple, solid state,
highly reliable solution to buffer short-term mismatches between power
available and power required.
Ultracapacitors’
high electrical energy storage capacity, their ability to deliver rapid bursts
of high power and their ability to recharge rapidly from any energy source over
hundreds of thousands to millions of cycles, make them a preferred solution for
a wide variety of applications ranging from handheld consumer electronic
devices, to all-electric automotive subsystems and hybrid-electric vehicle
drive trains.
New
power-hungry electronic products, such as digital cameras and wireless
communication devices, the increasing use of electric power in vehicles and the
growing demand for highly reliable, maintenance free, back-up power systems are
creating significant markets for new energy storage and power delivery
solutions. In many applications, power
demand varies widely from moment to moment, with peak power demand typically
much greater than the average power requirement. For example, automobiles require much more power to accelerate
from a stop than to maintain a constant speed, and digital cameras require more
power to display images on a screen than to store images in memory. (See Part I, Item 1. “Business-Risk
Factors,” for information regarding the risks associated with widespread
acceptance of large cell ultracapacitors and transportation applications, and
information regarding the commercial viability of large cell ultracapacitors.)
3
Engineers
historically have addressed power requirements by over-designing the engine,
battery or other primary energy source to satisfy all of the system’s power
demands, including demand peaks that occur infrequently and may last only a few
seconds. Sizing the primary power
source to meet such infrequent peak power requirements, rather than average
power requirements, is costly and inefficient.
Systems can be designed to be smaller, lighter and less costly by
coupling conventional power sources with specialized energy storage components
or modules that can deliver brief bursts of high power on demand for periods of
time ranging from fractions of a second to several minutes.
The
following diagram depicts the separation of a primary energy storage source
from a peak power delivery component.
Highly reliable components that enable this separation permit new
designs to optimize the efficiency and cost effectiveness of the entire
electrical power system.
Peak Power
Application Model
Although
conventional batteries historically are the most widely used component for both
primary energy sourcing and peak power delivery, ultracapacitors, advanced
batteries and flywheels increasingly are being used to separate and optimize
these functions. Based, in part, on our
products’ rapidly declining cost, high performance and “life-of-the-application”
durability, we believe that our ultracapacitors are positioned to become a
preferred component for many energy storage and peak power delivery
applications.
We
offer our BOOSTCAP® ultracapacitors
in several form factors, ranging from postage stamp size 5-Farad small cells to
cylindrical 2,600-Farad large cells approximately two inches in diameter and
six inches long. We also offer our
POWERCACHE® modules, which are rack-mounted energy storage modules containing
multiple BOOSTCAP® large cell ultracapacitors.
We
are supplying our BOOSTCAP® ultracapacitors in volumes and at price points that
are opening numerous market opportunities for us. Our smaller sized ultracapacitors have been designed into digital
cameras and other consumer electronic devices, industrial electronics such as
actuators, remote transmitting devices, high-intensity scanners, computer
memory boards and transportation applications such as subway car alarm systems
and electric actuators that replace mechanical latches in aircraft and
automobile doors. Many products into
which our small cell ultracapacitors have been designed now are in commercial
production. Our large cell ultracapacitors
have been designed into industrial applications such as uninterruptible power
supply systems and transportation applications such as hybrid buses, trucks and
autos, electric rail systems and capacitive starting systems for diesel trucks
and locomotives. We received our first
commercial production order to supply ultracapacitors for hybrid
gasoline-electric transit buses in February 2004, and other large cell
design-ins are progressing through the field test and evaluation phase. (See Part I, Item 1. “Business-Risk
Factors,” for information regarding the risks associated with widespread
acceptance of large cell ultracapacitors and transportation applications, and
information regarding the commercial viability of large cell ultracapacitors.)
4
The
charts below describe a number of current applications for our BOOSTCAP®
ultracapacitors that are now in commercial production or are in the field
testing or prototyping and evaluation phase.
5-Farad
to 100-Farad Ultracapacitors
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Application
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Stage of Commercialization
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Consumer Electronics
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Digital cameras
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Battery enhancement and
peak power supply
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Commercial production
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Industrial Electronics
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Scanners
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Energy storage, back-up
power and
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Commercial production
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Utility meters
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peak power supply
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Actuators
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IV pumps
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Memory boards
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Energy Generation
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Windmill power
generators
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System control and
optimization as well as energy storage and peak power supply
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Commercial production
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Fuel Cell Augmentation
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Stationary fuel cell
systems
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Startup and
peak load buffering to optimize system size and cost
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Field testing and
evaluation
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Fuel cell drive trains
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Initial starting and
braking energy recapture and reuse in vehicles
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Field testing and
evaluation
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Transportation
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Helicopter airbags
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Energy storage, back up
power and
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Commercial preproduction
and
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Emergency lighting
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peak power supply
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production, except
automobile and
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Airplane door actuators
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airplane door actuators
which are in
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Pilot transponders
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the prototyping and
evaluation phase
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Automobile door actuators
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Our
smaller capacity 5- to 10-Farad ultracapacitors have entered commercial
production, meaning that some of our customers purchased production quantities
of ultracapacitors from us in 2003 and have begun commercial production of the
products into which our ultracapacitors are integrated. (See Part I, Item 1. “Business-Risk
Factors,” for information regarding the risks associated with widespread
acceptance of large cell ultracapacitors and transportation applications, and
information regarding the commercial viability of large cell ultracapacitors.)
5
300-Farad to 2,600-Farad Ultracapacitors
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Industrial &
Telecommunications
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Uninterruptible power
supply systems
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Short-term bridge power
for uninterruptible power supply systems that incorporate fuel cells or
generators as the long-term back up power source for telecommunication base
stations
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Field testing and
evaluation of Maxwell proprietary POWERCACHE® rack mount systems underway
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Energy storage and peak
power supply for automated industrial equipment
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Prototyping and evaluation
of integrated systems
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Transportation
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Rail systems
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Recapture of braking
energy and initial acceleration for electric trains
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Field testing and
evaluation of in-station as well as on-board modules developed by third party
system integrators
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Capacitive starting
systems for diesel locomotives
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Prototyping and evaluation
of capacitive starting subsystems developed by third party integrators
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Bus and truck systems
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Recapture of braking
energy and initial acceleration for internal combustion/hybrid-electric and
fuel cell drive trains
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Initial production for
gasoline-electric bus drive trains and field testing and evaluation of truck
diesel-electric hybrid drive trains developed by third party integrators
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Capacitive starting
systems for diesel engines
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Prototyping and evaluation
of capacitive starting subsystems developed by third party integrators
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All-electric short-haul
buses, fork lifts, vans and other high stop/start vehicles
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Prototyping and evaluation
of vehicles developed by third party integrators
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Automobile systems
(12 and 42 volts)
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Recapture of braking
energy
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Prototyping and evaluation
of modules developed by Maxwell and by third party integrators, and of
electrical subsystems developed by third party integrators
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Initial acceleration for
internal combustion/electric and fuel cell drive trains
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Distributed power for
all-electric power steering and braking and other subsystems
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Our
large cell ultracapacitors have been designed into large integrated systems
that are being evaluated by potential customers. We expect increased sampling and prototyping activity in 2004,
with certain applications moving into commercial production by the end of the
year. In preparation for this
commercial production, we are currently installing our first highly-automated,
large cell assembly line, which we expect to be completed by year end 2004.
6
Applications
such as bus, truck and auto drive trains, electric rail systems and
uninterruptible power supplies require integrated modules consisting of up to
hundreds of ultracapacitor cells. To
facilitate adoption of ultracapacitors for these larger systems, we are
complementing our internal capabilities with those of third parties who possess
the systems integration and power and thermal management capabilities to
provide fully-integrated systems and modules.
(See Part I, Item 1. “Business-Risk Factors,” for the risks associated
with widespread acceptance of large cell ultracapacitors and transportation
applications, and information regarding the commercial viability of large cell
ultracapacitors.)
We
have also developed integration technologies to accelerate the adoption by our
customers of multi-cell ultracapacitor modules and systems. These include proprietary electrical
balancing, thermal management systems and interconnect technologies.
High-Voltage
Capacitors
Electric
utility grids have switches, circuit breakers, step-down transformers and
measurement instruments responsible for the transport, distribution and measurement of high-voltage
electricity. High-voltage capacitors
are used to protect these systems from high-voltage arcing. In addition to performance, these
applications require extremely high reliability and durability, with failure
rates less than a few percent measured in decades.
Maxwell,
through its acquisition in 2002 of Montena Components Ltd., or Montena, and its
CONDIS® line of high-voltage capacitor products, is the world’s largest
producer of such products, with more than 20 years of experience in the
industry. Engineers who have specific
expertise in high-voltage systems develop and test our capacitors in our
high-voltage laboratory in Rossens, Switzerland. Our high-voltage capacitors are produced through a proprietary,
automated winding and assembly process to ensure consistent quality and
reliability. We intend to upgrade our
high-voltage capacitor production facility in 2004 to double its output
capacity and significantly shorten order delivery intervals.
Currently,
we sell our high-voltage capacitors to large systems integrators, such as ABB
Ltd., Alstrom Corporation and Siemens AG, who install and service electrical
utilities around the world.
Radiation-Mitigated
Microelectronic Products
Manufacturers
of commercial and military satellites and other spacecraft require on-board
microelectronic devices and systems that meet specific functional requirements
and can withstand exposure to solar radiation that is encountered in space. In the past, microelectronic components and
systems for these special applications have used only radiation-hardened
silicon. However, the process of designing and producing radiation-hardened
silicon is lengthy and expensive and there are fewer specialty fabricators, so
supply of radiation-hardened silicon is limited. As a result, demand for components made with the latest
commercial silicon, protected by shielding and other radiation mitigation
techniques, is growing. Commercial
silicon provides higher functionality and costs significantly less than
radiation-hardened silicon. The ability
to provide radiation-mitigated commercial silicon requires expertise in power
electronics, circuit design, silicon selection, radiation shielding and
extensive expertise in quality assurance testing.
We
design, manufacture and market radiation-mitigated microelectronic products,
including power modules, memory modules and single-board computers, for the
space and satellite markets. Using
highly adaptable, proprietary, packaging and shielding and other radiation
mitigation techniques, we custom design products that allow original equipment
manufacturers, or OEMs, to use powerful, low cost, commercial silicon protected
with the level of radiation shielding required for reliable performance in the
environment in which they are to be deployed.
7
Business Strategy
Our
primary objective is to make ultracapacitors an “accepted energy option” and
for Maxwell to become a leading ultracapacitor company. To accomplish this, we focus on:
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Becoming a standard energy option
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By facilitating the integration of ultracapacitors
into power hungry applications through: training engineers in the methodology
of integration of ultracapacitors; using educational techniques including
seminars, apprenticeships and white papers; participating in standards
committees; and integrating ultracapacitor mathematical models into broadly
accepted simulation software, among other efforts.
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By demonstrating the broad application universe of
ultracapacitors, including through government sponsored projects,
competitions and demonstrations.
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By partnering with key customers in strategic
application fields.
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Becoming a leading ultracapacitor company
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By focusing on cost enabled markets.
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By designing products for the
“life-of-the-application.”
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By being a highly reliable supplier through global
sourcing.
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By maintaining the highest level of technology and
performance while focusing on product cost.
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By developing and deploying enabling systems, cell
balancing systems, smart modules, charging systems and safety compliance
systems.
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By maintaining broad and deep protections of key
intellectual property.
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In
addition, we seek to expand revenue and market opportunities for our
high-voltage capacitors and radiation-mitigated microelectronic products. While these are niche business areas with
highly specialized applications, they also represent high-margin products for
which we are a leading technology provider.
Going forward, we plan to maintain and expand this competitive position
by leveraging our technological expertise to develop new products that not only
meet the demands of our current markets, but also address additional
applications as well. For example, we
recently introduced a new single-board computer for the space and satellite
market. This product, which leverages
our expertise in reliability and radiation-mitigated microelectronics, provides
access to a new market opportunity by addressing an application
that we did not already serve.
Manufacturing
We
have consolidated the manufacturing of our ultracapacitors, high-voltage
capacitors and radiation-mitigated microelectronic products into two production
facilities located in San Diego, California, and Rossens, Switzerland. Over
the past four years, we have made substantial capital investments to build and
outfit state-of-the-art production facilities, which include both mechanization
and full scale automation. We have also
added an advanced information technology infrastructure, and have implemented
new manufacturing and business processes and systems to increase our
manufacturing capacity and improve efficiency, planning and product
quality. Our production facilities have
been designed with flexible overhead power grids and modular manufacturing
cells and equipment that allow factory operations to be reconfigured rapidly at
minimal expense. We believe that our
manufacturing facilities and resources give us sufficient capacity to meet
near-term demand for all of our product lines and to expand capacity as required
without significant additional capital expenditure. (See Part I, Item 1. “Business – Risk Factors,” for information
regarding the risks associated with expansion of our manufacturing capacity.)
8
Acceptance
of our ultracapacitor products and high-voltage capacitor products depends in
part on compliance and certification with a number of U.S. and foreign
standards for electronic components and systems. Among the entities that promulgate such standards are
Underwriters Laboratories, Canadian Standards Association and Committee
European. We incorporate compliance
with such standards into our quality assurance protocols in building and
testing these products.
Ultracapacitors
In
2001, we installed an automated assembly line for our 5-Farad and 10-Farad
small cell ultracapacitors at our San Diego production facility. This line can produce approximately 40,000
to 50,000 small cells per 24-hour production day. Current production is approximately 20,000 to 25,000 small cells per
day based on a 12-hour production day.
We
produce our large cell ultracapacitors on a pilot production line in our
Rossens, Switzerland, production facility.
We are in the process of installing our first high-volume,
semi-automated manufacturing lines for our 300-Farad to 2,700-Farad
ultracapacitors in our Swiss facility.
We are also in the process of redesigning our larger form factor
products to facilitate this automation and to incorporate lower cost
materials. In addition to significantly
reducing material cost, the new designs reduced both the number of parts in a
finished cell and the number of manufacturing process steps to a fraction of
those required for previous designs.
In
February 2003, we formed an ultracapacitor manufacturing and marketing alliance
with Yeong-Long Technologies Co., Ltd., or YEC. YEC is a $200 million per annum manufacturer of electrolytic
capacitors headquartered in Taichung, Taiwan, with manufacturing and sales
operations in mainland China. We entered
into this alliance in order to commercialize our proprietary BOOSTCAP® ultracapacitors in China, and to help
position us as a global supplier of ultracapacitors with production facilities
in North America and Europe, and access to facilities in Asia. This alliance allows YEC to produce and sell
our ultracapacitor products on a non-exclusive basis in the Chinese market,
under a royalty-bearing agreement. It
also provides for YEC to develop products in new form factors, and it permits
us to utilize YEC’s manufacturing capacity for our distribution outside of
China.
High-Voltage
Capacitors
We
produce our high-voltage grading and coupling capacitors at our Rossens,
Switzerland, production facility. We
are the only high-voltage capacitor producer that manufactures its products
with automated winding and stacking, and assembly processes. This enables us to produce consistent, high
quality and highly reliable products, and gives us sufficient capacity to
satisfy global customer demand. We are
upgrading the assembly portion of the process to a “cell-based,” “just-in-time”
design this year, in order to double our current production capacity without
additional direct labor or capital, and shorten “order-to-delivery” times. We estimate that by mid-2004, using
state-of-the-art manufacturing techniques, the new production facility will be
capable of reducing lead times by 50% and doubling production output. We believe this upgrade will allow us to expand
our market penetration into capacitive voltage divider products, which we
estimate would double the size of the market we currently serve.
Radiation-Mitigated
Microelectronics Products
We
produce our radiation-mitigated microelectronics products at our San Diego production
facility. We have reengineered our production processes for
radiation-mitigated microelectronics, resulting in dramatic reductions in cycle
time and a significant increase in yield.
Customer audits confirm our belief that we have “top-tier” manufacturing
capabilities for highly reliable, radiation-mitigated power modules, memory
modules and single-board computers, and that we have ample capacity to meet the
demands of our customers in the space and satellite markets.
Our
radiation-mitigated microelectronics production operations include die
characterization, packaging, electrical, environmental and life testing. During 2002 and 2003, manufacturing cycle
times were reduced and operator productivity increased, such that the current
facility is capable of doubling production volumes without the need for
additional direct labor or capital.
Suppliers
We
generally purchase components and materials, such as electronic components,
dielectric materials and enclosures of metal and plastic, from a number of
suppliers. For certain products, such
as our radiation-mitigated microelectronic products or our high-voltage
capacitors, we rely on a limited number of suppliers or a single supplier. Although we believe there are alternative
sources for some of the components and materials that we currently obtain from
a single source, there can be no assurance that we will be able to identify and
qualify alternative suppliers in a timely manner. Therefore, in critical
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component
areas, we “bank,” or store, critical high value materials, especially silicon
die. We are working to reduce our
dependence on sole and limited source suppliers through an extensive global
sourcing effort. (See Part I, Item 1.
“Business-Risk Factors,” for information regarding risks associated with
securing sources for our materials.)
Marketing and Sales
We
market and sell all of our components and systems products through both direct
and indirect sales organizations in North America, Europe and Asia for
integration by OEM customers into larger systems and other products. Because the introduction of emerging
technologies requires customer acceptance of new and different technical
approaches, and because many of our OEM customers have rigorous vendor
qualification processes, the initial sale of our products can take months or
even years.
Our
principal marketing strategy is to cultivate long-term customer relationships
by becoming a preferred supplier with an opportunity to compete for multiple
supply agreements and follow-on contracts with our key OEM customers. As these design-in sales tend to be
technical and engineering-intensive, we organize customer-specific teams
composed of sales, engineering, research and development and other technical
personnel to work closely with our customers across multiple disciplines to
satisfy their requirements for form, fit, function, environment and
mechanics. As time-to-market often is
the primary consideration in our customers’ decisions to outsource components
or systems and in their selection of a vendor, the initial sale and design-in
process frequently evolves into ongoing account management to their outsource
sub-contractors to ensure on-time delivery and responsive technical support and
problem-solving.
Because
of the nature of each of our three product lines, we conduct discrete marketing
programs intended to position and promote our products. These include trade shows, seminars,
advertising, public relations, distribution of product literature and Internet
websites. We employ marketing
communications specialists to develop and implement our marketing programs,
design and develop marketing materials, negotiate advertising media purchases,
write and place product news releases and manage our marketing websites.
We
have an alliance with YEC to manufacture and market our proprietary BOOSTCAP®
ultracapacitor products in China.
Through this alliance, we seek to expand our ultracapacitor product line
into China. (See Part I, Item 1.
“Business-Manufacturing,” for information regarding our relationship with YEC.)
Competition
Each
of our product lines has competitors, many of whom have longer operating
histories, significantly greater financial, technical, marketing and other
resources, greater name recognition and larger installed customer bases. In some of the target markets for our
emerging technologies, we face competition both from products utilizing
well-established, existing technologies and alternative novel
technologies.
Ultracapacitors
Our
ultracapacitor products have two types of competitors: other ultracapacitor
suppliers and developers of alternative technologies. Although a number of
companies are developing ultracapacitor technology, we have two principal competitors
in ultracapacitor or supercapacitor products:
Panasonic, a division of Matsushita Electric Industrial Co., Ltd., and
EPCOS AG. The key competitive factors
in the ultracapacitor market are price, performance (energy stored and power
delivered per unit volume), durability and reliability, form factor,
operational lifetime and breadth of product offerings. We believe that we compete favorably with
respect to these competitive factors.
Ultracapacitors
also compete with other technologies, including advanced batteries in power
quality and peak power applications, and with flywheels and batteries in
back-up energy storage applications. We
believe that their high durability, long life, high performance and low cost
give ultracapacitors a competitive advantage over these alternative
choices. In addition, in many
applications, a coupling of ultracapacitors with some of these alternative
solutions provide an optimized solution for the customer.
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High-Voltage
Capacitors
Maxwell,
through its acquisition in 2002 of Montena and its CONDIS® line of high-voltage
capacitor products, is the world’s largest producer of such products. Our principal competitors in the
high-voltage capacitor markets are in-house production groups of certain of our
customers and other independent manufacturers, such as the Coil Product
Division of Trench Limited in Canada and Europe and Hochspannungsgeräte Porz GmbH in Germany. We believe that we compete favorably with
respect to being a consistent supplier of highly reliable high-voltage
capacitors, and with respect to our expertise in high-voltage systems. Over the last ten years, our largest
customer, ABB Ltd., has gone from predominantly in-house production of grading
and coupling capacitors to outsourcing 100% of their needs to us.
Radiation-Mitigated
Microelectronic Products
Our
radiation-mitigated power modules, memory modules and single-board computers
compete with the products of traditional radiation-hardened integrated circuit
suppliers such as Honeywell Corporation, Lockheed Martin Corporation and BAE
Systems. We also compete with
commercial suppliers with product lines that have favorable radiation tolerance
characteristics, such as National Semiconductor Corporation, Analog Devices
Inc. and Temic Instruments B.V. (in Europe).
Our proprietary radiation-mitigation technology enables us to provide
flexible, low-cost, radiation protection solutions utilizing the most advanced
commercial electronic circuits and processors.
In that market, we compete with high reliability packaging houses such
as Austin Semiconductor, Inc., White Microelectronics, Inc. and Teledyne
Microelectronics, a unit of Teledyne Technologies, Inc., for monolithic and
multichip modules.
Research and Development
We
maintain active research and development programs to improve existing products
and to develop new products. For the
year ended December 31, 2003, our research and development expenditures totaled
approximately $5.9 million, compared with $8.4 million and $11.5 million in the
years ended December 31, 2002 and December 31, 2001, respectively. The decrease reflects the divestiture of
several business lines and the elimination of associated research and
development expense.
In
general, we focus our research and product development activities on:
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designing
and producing products that perform reliably for the life of the end product
into which they are integrated;
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making our products less expensive to produce, to enable market growth
through competitive pricing;
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designing our products to
have state-of-the-art technical performance;
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designing new products
that provide novel solutions to expand our market opportunities; and
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designing our products to
have small size and weight.
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Most
of the current research, development and engineering activity for our products
is focused on material sciences, including electrically conducting and
dielectric materials, ceramics and radiation-tolerant silicon and ceramic
composites, to improve performance, reliability, ease of manufacture and
cost. Efforts also are focused on
product design for high-volume manufacturing, manufacturing engineering and
manufacturing processes.
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The principal focus of our
ultracapacitor development activities is to increase power density and power
delivery and to dramatically reduce the cost of using the technology. Our ultracapacitor designs focus on
low-cost, high-capacity devices in standard sizes ranging from 5-Farad to
2,600-Farad cells. We seek to
penetrate cost-sensitive applications at multi-million unit volumes.
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The principal focus of our
high-voltage capacitor development efforts is to enhance reliability and
reduce the weight and size of the capacitors while improving high-voltage
performance characteristics. We also
are directing our design efforts to develop high-voltage capacitors for
additional applications.
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The principal focus of our
microelectronics product development activities is on circuit design,
shielding and other radiation-mitigation techniques that allow the use of
powerful commercial silicon components in space and satellite applications
where ultra high reliability is an absolute requirement. We are also focused on the
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creation of system
solutions which overcome the basic failure rate of individual components
through architectural approaches, including redundancy, mitigation and
correction. This involves expertise
in system architecture, including algorithm and micro-code development,
circuit design and the physics of radiation effects on silicon electronic
components.
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Intellectual Property
We
are continuing to place increased emphasis on inventing proprietary
technologies that significantly increase the value and uniqueness of our
product portfolio, and on obtaining patents to provide the broadest possible
protection for those products and related technologies. Our ultimate success will depend in part on
our ability to protect existing patents, pursue patent protection and develop
new technologies not protected by the patents of third parties. As of December 31, 2003, we held 42 issued
patents and had more than 15 pending patent applications in the U.S. Of that total, 26 issued patents related to
our ultracapacitor and microelectronics technology and products. Of these 26 patents, one expires in August
2004, and the balance expire at various times ranging from 2014 to 2024. All of the remaining 16 patents relate to
purification and sterilization technology developed by PurePulse, which
suspended operations in 2002. Our
pending patent applications and any future patent applications may not be
allowed. We routinely seek to protect
our new developments and technologies through obtaining patents in the U.S. and
corresponding foreign patents in the principal countries of Europe and
Asia. At present, with the minor
exceptions of microcode architectures within our radiation-mitigated
microelectronics product line, we do not rely on licenses from any third
parties to produce or commercialize our products.
The
existing patent portfolios and pending patent applications covering the
technologies associated with our ultracapacitor and microelectronic products
relate primarily to:
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Ultracapacitors
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the electrode design and its fabrication;
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the physical cell package design and the process
used in its production;
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intracell interconnect technologies that increase
the power performance of the BOOSTCAP® product; and
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module and system designs that facilitate
applications of ultracapacitor technology.
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Microelectronics
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system architectures that enable commercial silicon
products to be used in harsh radiation environments;
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packaging technologies and designs that mitigate the
effect of radiation on commercial silicon; and
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radiation-mitigation techniques that improve
performance while protecting the silicon from harsh radiation environments.
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Historically,
our high-voltage capacitor products have been based on our know-how and trade
secrets rather than on patents. We
filed our first patent application covering our high-voltage capacitor
technology in the first quarter of 2003, and we will continue to pursue patent
protection in addition to trade secret protection of certain aspects of the
products and their production.
Establishing
and protecting proprietary products and technologies is a key element of our
strategy. Although we attempt to
protect our intellectual property rights through patents, trademarks,
copyrights, trade secrets and other measures, there can be no assurance that
these steps will be adequate to prevent infringement, misappropriation or other
misuse by third parties, or will be adequate under the laws of some foreign
countries, which may not protect our intellectual property rights to the same
extent as do the laws of the U.S. (See
Part I, Item 1. “Business—Risk Factors,” for information regarding the
risks associated with our failure to protect our intellectual property.)
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We
use employee and third party confidentiality and nondisclosure agreements to
protect our trade secrets and unpatented know-how. We require each of our employees to enter into a proprietary
rights and nondisclosure agreement in which the employee agrees to maintain the
confidentiality of all our proprietary information and, subject to certain
exceptions, to assign to us all rights in any proprietary information or
technology made or contributed by the employee during his or her employment
with us. In addition, we regularly
enter into nondisclosure agreements with third parties, such as potential
product development partners and customers.
Backlog
Backlog
for continuing operations for the years ended December 31, 2003, 2002 and 2001
was at approximately $10.2 million, $12.2 million and $14.6 million,
respectively. Year-to-year comparisons
are influenced by divestitures in 2003, 2002 and 2001 of significant business
activities. Backlog consists of firm orders
for products that will be delivered within 12 months. Because we have dramatically reduced production cycle times, our
customers are less likely to commit firm purchase orders as far in advance of
their production needs as they did in the past.
Government Regulation
Due
to the nature of our operations and the use of hazardous substances in some of
our ongoing manufacturing and research and development activities, we are
subject to stringent federal, state and local laws, rules, regulations and
policies governing workplace safety and protection of the environment,
including the use, generation, manufacturing, storage, air emission, effluent
discharge, handling and disposal of certain materials and wastes. In the course of our historical operations,
materials or wastes may have spilled or released from properties owned or
leased by us or on or under other locations where these materials and wastes
have been taken for disposal. These
properties and the materials and wastes spilled, released, or disposed thereon
are subject to environmental laws that may impose strict liability, without
regard to fault or the legality of the original conduct, for remediation of
contamination resulting from such releases.
Under such laws and regulations, we could be required to remediate
previously spilled, released, or disposed substances or wastes or to make
capital improvements to prevent future contamination. Failure to comply with such laws and regulations also could
result in the assessment of substantial administrative, civil and criminal
penalties and even the issuance of injunctions restricting or prohibiting our
activities. Moreover, it is possible
that implementation of stricter environmental laws and regulations in the
future could result in additional costs or liabilities to us as well as the
industry in general. While we believe
we are in substantial compliance with existing environmental laws and
regulations, we cannot assure you that we not will incur substantial costs in
the future.
In
addition, certain of our microelectronics products are subject to International
Traffic in Arms export regulations when shipping outside of the U.S.
Foreign Sales
Our
revenue from customers outside of the U.S. was $26.0 million, $25.1 million and $21.8 million for the years ended
December 31, 2003, 2002 and 2001, respectively, or 58%, 43% and 28% of our
total revenue for such years, respectively.
We expect foreign sales to continue to increase as a percentage of our
revenue, as most of our North American commercial customers are outsourcing
more of their production offshore. We
continue to develop international relationships and seek to broaden the use of
our products in international markets.
(See Part II, Item 7. “Management’s Discussion and Analysis of Financial
Condition and Results of Operation,” for information regarding our sales and
foreign currency risk.)
Significant Customers
Sales
to ABB Ltd. amounted to $5.8 million, or 13%, of our total revenue for the year
ended December 31, 2003. We have a long
term supply agreement with ABB Ltd. that was renewed in March 2004 and ends in
March 2006. Sales of magnetics-based
power systems products to General Electric Medical Systems amounted to
approximately $11.6 million, or 20%, of our total revenue for the year ended
December 31, 2002. Our
magnetics-based power systems operations were phased-out in 2003. (See Part I, Item 1. “Business-Strategic
Consolidation of Operations,” Part II, Item. 7. “Management’s Discussion and
Analysis of Results of Operations and Financial Condition – Acquisitions,
Restructuring, Divestitures, Discontinued Operations and Other Events”, and
Notes 2 and 3 to Notes to Consolidated Financial Statements” for information
regarding our consolidation activities.)
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Employees
At
March 1, 2004, we had 184 full-time employees, including 112 in the U.S. and 72
in Switzerland. None of our U.S.
employees are members of a labor union.
Nearly all of our employees in Switzerland are members of a labor union. We consider our relations with our employees
to be good.
Strategic Consolidation of
Operations
Commencing
in 1999, we adopted a plan to reorganize our operations and focus on two key
aspects of our business, our electronic components business and our industrial
computing systems business. As part of
this plan of restructuring, in 2000 we combined our POWERCACHE® ultracapacitor
business, our Sierra-KD EMI filter and ceramic capacitor business and our Space
Electronics, Inc. radiation-shielded microelectronics business into our
Electronic Components Group. We also
combined our applied computing systems business, in which we were engaged
through our subsidiary, I-Bus, Inc., or I-Bus, with our power quality systems
business, in which we were engaged through our subsidiary, San Diego based
Phoenix Power Systems, Inc., or Phoenix.
We refer to the combined operations of those two subsidiaries as
“I-Bus/Phoenix.” In addition, in 2000,
we disposed of certain non-core businesses.
In March 2001, we sold our Government Systems business and, in June
2001, we sold our Sierra-KD EMI filter and ceramic capacitor business. (See Part II, Item. 7. “Management’s
Discussion and Analysis of Results of Operations and Financial Condition –
Acquisitions, Restructuring, Divestitures, Discontinued Operations and Other
Events”, and Notes 2 and 3 to Notes to Consolidated Financial Statements” for
information regarding our consolidation activities.)
At
the end of 2001 and continuing into 2002, our target telecommunications markets
for our I-Bus/Phoenix computing systems business deteriorated. During this same time period, our customers’
cycle time of designing products using our ultracapacitors and having such
products enter commercial production was longer than we had expected. The negative effects of such factors on our
business resulted in our cost structure and production capacity exceeding our
immediate revenue opportunities.
We
determined that the most viable portion of our business on which we should
concentrate was our high reliability business operated by our Electronic
Components Group and, as a result, we focused our strategy and product lines
around our core high reliability products.
In July 2002, we acquired Montena, a Swiss manufacturer and marketer of
ultracapacitors, high-voltage capacitors and battery and capacitor winding
equipment. This acquisition brought us an additional power business
focused on one of our key product lines, high reliability electronic
components, and provided us with additional design and production capabilities
that enhanced our profile as a reliable, global supplier of
ultracapacitors.
In
the second half of 2002, we took a series of additional steps to intensify our
focusing efforts and to exit certain non-strategic businesses, as follows:
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In September 2002, we suspended the operations of
PurePulse, which had been developing pulsed-light purification systems.
We continue to preserve PurePulse’s intellectual property for a possible
future sale.
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In September 2002, we sold the computing systems
business of I-Bus/Phoenix. Although that business had a strategic focus on
high reliability/high-availability computer servers, the markets for such
systems, particularly telecommunications, had deteriorated so dramatically
that we concluded that near-term growth prospects for our computing systems
business were limited.
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In September 2002, we sold our TeknaSeal
glass-to-metal seals business and in December 2002, we sold a small power
factor correction product line that did not fit our high reliability
strategy.
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During the third quarter of 2002, we began
integrating the power systems business of I-Bus/Phoenix into our high
reliability electronics business.
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During
2003, we determined that our long-term profitability goals could best be
achieved by further focusing on our high-margin strategy and core high
reliability electronic components business, and by eliminating non-core and
low-margin products, including our winding equipment business. In furtherance of these goals, during 2003
we took the following steps:
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In 2003, we completed the integration and relocation
of our power systems business into our principal manufacturing facility in
San Diego, California, and vacated and sold the Company-owned facility that
formerly housed the North American operations of I-Bus/Phoenix. This
consolidation allowed more efficient use of our remaining facilities and
personnel, and the sale of the vacated facility provided us with additional
cash resources.
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Also in 2003, we formed an ultracapacitor
manufacturing and marketing alliance with YEC. YEC is a $200 million per annum manufacturer of electrolytic
capacitors headquartered in Taichung, Taiwan, with manufacturing and sales
operations in mainland China. We
entered into this alliance in order to commercialize our proprietary
BOOSTCAP® ultracapacitors in China, and to help position us as a global
supplier of ultracapacitors with production facilities in North America and
Europe, and access to facilities in Asia.
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In July 2003, we announced the phase-out of our
electronic components tester business, which was completed as of December 31,
2003 and which had been part of our High Reliability business segment.
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In August 2003, we announced the phase-out of our
magnetics-based power systems products, which also had been part of our High
Reliability business segment, to focus our power systems expertise on
development and marketing of proprietary, ultracapacitor-based, multicell
modules and backup power solutions.
As part of the phase-out of our magnetics-based power systems
products, our power distribution and conditioning modules were integrated
into our BOOSTCAP® ultracapacitors product line.
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In December 2003, we sold our Winding Equipment
business segment, which we had acquired through our acquisition of Montena in
2002.
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With
the completion of these actions, our remaining operations have been
consolidated into our High Reliability business segment, comprised of three
current product lines: ultracapacitors, high-voltage capacitors and
radiation-mitigated microelectronics. (See Part II, Item 7. “Management’s Discussion and Analysis of Results
of Operations and Financial Condition – Acquisitions, Restructuring,
Divestitures, Discontinued Operations and Other Events,” and Notes 2 and 3 to
Notes to Consolidated Financial Statements for additional information regarding
our consolidation activities.)
RISK FACTORS
An
investment in our common stock involves a high degree of risk. Our business, financial condition and
results of operations could be seriously harmed if potentially adverse
developments, described below as “risks and uncertainties,” materialize and
cannot be resolved successfully. In any
such case, the market price of our common stock could decline and you may lose
all or part of your investment in our common stock.
The
risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties,
including those not presently known to us
or that we currently deem immaterial, may also result
in decreased revenues, increased expenses or other adverse impacts that could
result in a decline in the price of our common stock.
We have a history of losses and we may not achieve or
maintain profitability in the future, which may decrease the market value of
our common stock.
We
have incurred net losses in our last four fiscal years. We cannot assure you that we will become
profitable in the foreseeable future, if ever.
Even if we do achieve profitability, 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 but not limited to the following:
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the amounts invested in developing, manufacturing
and marketing our products in any period as compared to the volume of sales
of those products in the same period;
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fluctuations in demand for our products by our OEM
customers;
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the prices at which we sell our products and
services as compared to the prices of our competitors;
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the timing of our product introductions may lag
behind those of our competitors;
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our profit margins may decrease; and
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any negative impacts resulting from acquisitions we
have made or may make.
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addition, we incur significant costs developing and marketing products based on
new technologies and, in order to increase our market share, we may sell our products 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, which may result in a decrease in the market value of our common
stock.
We may not be able to continue development of or market our
products successfully, and thus may not be able to achieve or maintain
profitability in the future.
Historically,
we relied in part upon government contracts relating to our defense contracting
business to fund our research and development, and we have derived a
significant portion of our revenues from the government sector. In March 2001, we sold our defense
contracting business and we now generate revenue solely from developing,
manufacturing and marketing commercial products, many of which have been
developed since 2000. If we are unable
to continue to develop or to market our products successfully, we may not
achieve or maintain profitability in the future.
We
have recently introduced many of our products into commercial markets and, upon
such introductions, we also must demonstrate our capabilities as a reliable supplier of these products. Some of our products are alternatives to
established products or 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:
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hire and maintain an engineering and marketing staff
sufficiently skilled to identify and design new products;
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overcome technical, financial and other risks
involved in introducing new products and technologies;
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identify and develop attractive markets for our new
products and technologies and accurately anticipate demand;
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develop appropriate commercial sales and
distribution channels;
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develop and manufacture new products that we can
sell at competitive prices;
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deliver products that meet our customers’
requirements for quality and reliability;
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increase our manufacturing capacity and improve
manufacturing efficiency to meet our customer demands;
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successfully respond to technological changes by
improving our existing products and technologies;
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demonstrate that our products have technological
and/or economic advantages over the products of our competitors;
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successfully respond to competitors that are more
experienced, have significantly greater resources and have a larger base of
customers; and
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secure the raw materials required at the prices
necessary to manufacture and deliver competitive products. If the supply of a commodity raw material
changes or is interrupted, we may not be able to build our products or if we
can build our products, we may be unable to sell our products profitably at
competitive prices.
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We may not be able to obtain sufficient capital to meet
potential customer demand, which could require us to change our business
strategy and result in decreased profitability and a loss of customers.
We
believe that in the future we will need a substantial amount of additional
capital for a number of purposes, including the following:
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to meet potential volume production requirements for
several of our product lines, in particular our ultracapacitors, which
require high-speed automated production lines to achieve targeted customer
volume and price requirements;
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to expand our manufacturing capabilities and develop
viable out-source partners and other production alternatives;
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to fund our continuing expansion into commercial
markets and compete effectively in those markets;
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to achieve our long-term strategic objectives;
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to maintain and enhance our competitive position;
and
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to acquire new or complementary businesses, product
lines and technologies.
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can be no assurance that any 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 or delay our
planned growth which could result in decreased revenues, profits and a loss of
customers.
Our credit agreements contain various restrictions
and covenants that limit management’s discretion in the operation of our
business and could limit our ability to grow and compete.
The
credit agreements governing our bank credit facilities contain various
provisions that limit our ability to:
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incur additional debt;
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make loans, pay dividends and make other
distributions;
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create certain liens on, or sell, our assets;
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merge or consolidate with another corporation or
entity, or enter into other transactions outside the ordinary course of
business; and
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make certain changes in our capital structure.
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provisions restrict management’s ability to operate our business in accordance
with management’s discretion and could limit our ability to grow and
compete. Our credit agreements also
require us to maintain our compliance with certain financial covenants and
ratios. If we fail to comply with any
of such financial covenants or ratios, or otherwise default under our credit
agreements, the lenders under such agreements could:
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accelerate and declare all amounts borrowed to be
immediately due and payable, together with accrued and unpaid interest;
and/or
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terminate their commitments, if any, to make further
extensions of credit to us.
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the event that amounts due under our credit agreements are declared immediately
payable, we may not have, or be able to obtain, sufficient funds to make such
accelerated payments.
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We may
experience difficulty manufacturing our products, which would prevent us from
achieving increased sales and market share.
We
may experience difficulty in manufacturing our products in increased
quantities, outsourcing the manufacturing of our products and improving our
manufacturing processes. If we are
unable to manufacture our products in increased quantities, or if we are unable
to outsource the manufacturing
of our products or improve our manufacturing processes, we may be unable to
increase sales and market share for our products and could also lose existing
customers. We have limited experience
in manufacturing our products in high volume and, therefore, it may be
difficult for us to achieve the following results:
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increase the quantity of the new products we
manufacture, especially those products that contain new technologies;
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reduce our manufacturing costs to a level needed to
produce adequate profit margins; and
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design and procure additional automated
manufacturing equipment.
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may also be difficult for us to solve management, technological, engineering
and other problems which may arise in connection with our manufacturing processes. These problems may include production volumes and yields,
quality assurance, adequate and timely supply of materials and shortages of
qualified management and other personnel.
In addition, we may elect to have some of our products manufactured by
third parties. If we outsource the
manufacture of our products, we will face risks with respect to quality
assurance, cost and the absence of close engineering support.
Our large cell ultracapacitors designed for transportation
and industrial applications may not gain widespread commercial acceptance,
which will adversely impact our revenues and growth opportunities, and our
overall business prospects.
We
have designed our large cell ultracapacitor products primarily for use in
transportation and industrial applications.
Currently, most of the major automotive companies are pursuing
initiatives to develop alternative power sources for cars and trucks and
eventually to replace the current 12-volt electrical system with a 42-volt
electrical system. We believe our
ultracapacitors provide an innovative alternative power solution for both of
these applications, and we are currently in preliminary discussions with
several major automotive companies and their suppliers with regard to designing
our ultracapacitor into their future products.
However, the current per unit cost of ultracapacitors has prevented
ultracapacitors from gaining widespread commercial acceptance. In addition, there are other competing
technologies such as nickel metal hydride batteries, engines using alternative
fuels and competing ultracapacitors. We
believe that the long-term success of our ultracapacitors will be determined by
our ability to reduce the cost of production, outperform the competing
technologies and to have our ultracapacitors widely designed into the next
generation of the power drive trains in hybrid powered cars and trucks and the
first generation of 42-volt electrical systems. If our ultracapacitors fail to achieve widespread commercial
acceptance in this next generation of automotive products, our revenues and
growth opportunities will be adversely impacted in future periods and our
overall business prospects will be significantly impaired.
We may be unable to produce our large cell ultracapacitors in
commercial quantities or reduce the cost of production enough to be
commercially viable for widespread application which will adversely impact our
revenues and growth opportunities, and our overall business prospects.
If
we are not able to produce large quantities of our large cell ultracapacitors in the near future at a
dramatically reduced per unit cost, our large
cell ultracapacitors may not be a commercially viable alternative
to traditional or other alternative energy storage and power delivery devices. Although we have already begun selling a new
type of BOOSTCAP® large cell ultracapacitor
designed for transportation and industrial applications, we have only produced
this ultracapacitor in limited quantities and at a relatively high cost as
compared with traditional energy storage and power delivery devices. We are currently investing significant
resources in improving the cell design for higher performance at lower cost and in automating and
scaling up our manufacturing capacity to permit us to produce this product in
commercial quantities sufficient to meet the needs of our potential
customers. Furthermore, we believe,
based on discussions with potential customers in the automotive and
transportation industry, that our ultracapacitors will not provide a
commercially viable solution for our
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customers’ needs unless
we are able to reduce the per unit cost dramatically below our current per unit
cost. If we are not successful in the
near future in reducing our cost of production and establishing the capability
to produce large quantities of ultracapacitors, we may not be able to generate
commercial acceptance of, and sufficient revenue from, this product to recover
our significant investment in the development and manufacturing scale-up of
this product and our overall business prospects will be significantly impaired.
Our product lines may be subject to increased or
intense competition, and this may adversely affect our ability to maintain our
gross margins. If our competitors
develop and commercialize products faster than we do, or commercialize products
that are superior to our products, our commercial opportunities will be reduced
or eliminated.
The
extent to which any of our products achieve market acceptance will depend on
competitive factors, many of which are beyond our control. Competition in our
markets is intense and has been accentuated by the rapid pace of technological
development. Our competitors include large fully-integrated electronics
companies. We may not be able to develop,
fund or invest in one or more of our product lines to the same degree as our
competitors do, or we may not be able to do so in a timely manner or at
all. Many of these entities have
substantially greater research and development capabilities and financial,
manufacturing, technological, marketing and sales resources than we do, as well
as more experience in research and development, product testing, manufacturing,
marketing and sales. These
organizations also compete with us to:
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attract parties for collaborations or joint
ventures;
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license the proprietary technology that is
competitive with our technology; and
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attract and hire scientific talent.
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Our
competitors may succeed in developing and commercializing products earlier than
we do. Our competitors may also develop products or technologies that are
superior to those we are developing, and render our product candidates or
technology obsolete or non-competitive.
If we cannot successfully compete with new or existing products, our sales
and revenue would suffer and we may not ever become profitable.
If our OEM customers fail to purchase our components or to
sell sufficient quantities of their products incorporating our components, or
if our OEM customers’ sales timing and volume fluctuates, it could prevent
us from achieving our sales and market share goals.
Sales
to a relatively small number
of OEM customers, as opposed to direct retail sales to customers, make up
virtually all of our revenues. Our
ability to make sales to OEM
customers depends on our ability to compete effectively, primarily on price,
delivery and quality. 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 OEM customers’ sales timing and volume
fluctuate, it could prevent us from achieving our sales targets and negatively
impact our market share. Our OEM
customers typically require a long development and engineering process before
incorporating our products and services into their systems and products. 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 may miss a sales opportunity that may not reappear for some
time.
We might be faced with products liability or
warranty claims, either directly or indirectly through our customers, and we
have no historical experience as to our potential liability.
We
offer our customers a warranty for our products. Any defects that may occur in our products could, in turn, lead
to defects in our customers’ products that incorporate our products. The occurrence of defects in our products
could give rise to warranty claims against us or to liability for damages
caused by such defects to our customers or to the customers of our
customers. Such defects could also lead
to liability for consequential damages, or product liability claims. Defects in our products could, moreover,
impair the market’s acceptance of our products. Any of these events could have a material adverse
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effect on our business
and financial condition. We have no
historical experience in evaluating the potential liability that could be
created by claims under our warranty.
If the claims made under such warranty exceed expected levels against
which we have reserved, our results of operations and financial condition could
be materially adversely affected.
Unfavorable economic conditions in the U.S. and abroad may
adversely affect our OEM customers and prevent us from achieving sales and
profit growth.
Many
of our new products
are components designed to be integrated into new products and systems to be
introduced to the marketplace by our OEM customers. Unfavorable economic conditions in 2003 slowed capital spending
on U.S. electric utility infrastructure and delayed the introduction of certain
new products by our OEM customers. Continued unfavorable economic conditions
may adversely affect our ability to market and sell our new products.
If we are unable to protect our intellectual property
adequately, we could lose our competitive advantage in the industry segments in
which we do business.
Our
success depends on establishing and protecting our intellectual property
rights. If we are unable to protect our
intellectual property adequately, we could lose our competitive advantage in
the industry segments in which we do business.
Although we try to protect our intellectual property rights through
patents, trademarks, copyrights, trade secrets and other measures, these steps
may not prevent infringement, misappropriation or other misuse by third
parties. We have taken steps to protect
our intellectual property rights under the laws of certain foreign countries, but our efforts may not be
effective to the extent that foreign laws are not as protective as the laws of
the U.S. In addition, we face the
possibility that third parties might “reverse engineer” our products to discover
how they work and introduce competing products, or that third parties might
independently develop products and intellectual property similar to ours.
We
have increased our emphasis on 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 the patent and proprietary rights
of others. The following risks are
involved in protecting our patents:
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our patents may be circumvented or challenged and
held unenforceable or invalid;
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our pending or future patent applications, if any,
may not be issued in a timely manner and may not provide the protections we
seek; and
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others may claim rights in the patented and other
proprietary technology that we own or license.
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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, we could lose our competitive advantage in the industry
segments in which we do business.
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. Also, we may not be able to stop a third
party product from infringing on our proprietary rights without litigation. If we are subject to such claims, or if we
are forced to bring such claims, we could face time-consuming, costly
litigation that may result in product shipment delays and possible damage
payments or injunctions that could prevent us from making, using or selling
infringing products. We may also be
required to enter into royalty or licensing agreements on unfavorable terms as
part of a judgment or settlement which could have a negative impact on the
amount of revenue derived from our products or proprietary rights.
Our ability to adequately license our technology
may affect our success.
Our
growth and success will be dependent to a substantial extent on our reputation.
Since we anticipate licensing our technology to others, our reputation may be
affected by the performance of the companies to which we license our technology.
Our licenses may grant exclusivity with respect to certain uses or geographic
areas. As a result, we will be wholly dependent on the success of the licensee
for success with respect to any exclusive use or geographical area. We cannot
assure you that we will be successful in granting our licenses to those who are
likely to succeed. In addition, license agreements with foreign companies may
be subject to additional risks, such as exchange rate fluctuations, political
instability
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or weaknesses in the
local economy. Certain provisions of the license agreements that benefit us may
be subject to restrictions in foreign laws that limit our ability to enforce
those contractual provisions. In addition, it may be more difficult to register
and protect our proprietary rights in certain foreign countries. Our failure to
obtain suitable licensees of our technology or the failure of our licensees to
achieve our manufacturing or quality control standards or otherwise meet our
expectations could have a material adverse effect on our business, financial
condition and results of operations.
Our ability to enter into successful alliances or
other strategic arrangements may affect our success.
We
intend to enter into additional alliances in the future to sell or license our
technology. Our alliance with YEC is with a foreign partner and we anticipate
that future alliances may be with foreign partners or entities. As a result,
such future alliances may be subject to the political climate and economies of
the foreign countries where such partners reside. We cannot assure you that our
alliance partners or other partners will provide us with the support we
anticipate, that any of the alliances or other relationships will be successful
in developing our technology for use with their intended products, or that any
of the alliances or other relationships will be successful in manufacturing and
marketing their technologies for such products once developed. Any of our international operations will
also be subject to certain external business risks such as exchange rate
fluctuations, political instability and a significant weakening of a local
economy in which a foreign entity with which we have an affiliation operates or
is located. Certain provisions of the alliance agreements that are for our
benefit may be subject to restrictions in foreign laws that limit our ability
to enforce those contractual provisions. Failure of these alliances to be
successful could have a material adverse effect on our business and prospects.
We face risks associated with the marketing, distribution and
sale of our products internationally and, if we are unable to manage these
risks
effectively, it could impair our ability to increase
sales.
We
derive a significant portion of our revenues from sales to customers located
outside the U.S. 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, export controls, changes in tax laws, tax
treaties, tariffs and freight rates. If
we are unable to manage these risks effectively, it could impair our ability to
increase international sales.
We
have substantial operations in Switzerland.
Since we are relatively inexperienced in managing our international
operations, we may be unable to effectively operate and expand 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 respond to political, economic and other
conditions in these countries
effectively, 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
increase our tax rates.
As
a result of our international operations and related revenue generated outside
of the U.S., the dollar amount of our revenue and expenses may be materially
affected by fluctuations in foreign currency exchange rates.
If we are unable to retain key personnel, we could lose our
technological and competitive advantage in some product areas and business
segments.
Since
many of our products employ emerging technologies, our success depends upon the
continued service of our key technical and senior management personnel. Some of our engineers are the key developers
of our products and technologies and are recognized as leaders in their area of
expertise. The loss of such engineers
to our competitors could threaten 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
qualified personnel, especially key operations executives and highly skilled
engineers. 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.
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Our ability to increase market share and sales depends on our
ability to hire, train and retain qualified marketing and sales personnel.
Because
many of our products are new, we have limited experience marketing and selling
them. To sell our products, our
marketing and sales personnel
must demonstrate the advantages of our products over the products offered by
our competitors, and we must be able to demonstrate the value of new technology
in order to sell new products to existing and new customers. The highly technical nature of the products
we offer requires that we attract and retain qualified marketing and sales
personnel, and we may have difficulty doing that in a highly competitive
employment market. Also, 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. Our arrangements with outside distributors
and sales representatives may not be successful.
If we are unable to secure qualified and adequate sources for
our materials, components and sub-assemblies, we may not be able to make
our products at competitive costs and we may have difficulty meeting
customer demand, which could damage our relationships with our customers.
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 that enable us to make our products at competitive costs. Some of our suppliers are currently the sole
source of one or more items that we need to manufacture our products. 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 adverse effect on our business and results of operations, and damage
customer relationships. Upon occasion,
we have experienced difficulty in obtaining timely delivery of supplies from
outside suppliers, which has adversely affected our delivery time to our
customers. There can be no assurance
that such supply problems will not recur.
Anti-takeover provisions in our certificate of incorporation
and bylaws could prevent certain transactions and could make a takeover more
difficult.
Some
provisions in our
certificate of incorporation and bylaws 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.
We
have adopted a program under which our stockholders have rights to purchase our
stock directly from us at a below-market price if a company or person attempts to buy us without
negotiating with 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
low. 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 that factors such as quarterly fluctuations in financial results,
announcements of new technologies impacting our products, announcements by competitors
or changes in securities analysts’ recommendations could cause the price of our
stock to fluctuate substantially. These
fluctuations, as well as general economic conditions such as recessions or
higher interest rates, may adversely affect the market price of our common
stock.
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AVAILABLE INFORMATION
We file or
furnish annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission, or SEC. Our SEC filings are available free of charge
to the public over the Internet at the SEC’s website at
http://www.sec.gov
. Our SEC filings are also available free of
charge on our website at
http://www.maxwell.com
as soon as reasonably practicable following the time that they are filed with
or furnished to the SEC. You may also
read and copy any document we file with or furnish to the SEC at the SEC’s
Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. You may obtain information on the operation
of the Public Reference Room by calling the SEC at 1-800-SEC-0330.
We have
ongoing operations in San Diego, California and Rossens, Switzerland. In San Diego, we currently lease
approximately 45,000 square feet of administrative, research and development,
manufacturing and sales space. The San
Diego lease expires in July 2007. In
Rossens, we currently lease approximately 68,620 square feet of manufacturing,
sales and administrative space. The
Rossens lease expires in June 2009.
From time
to time we are involved in litigation arising out of our operations. We maintain liability insurance, including
product liability coverage, in amounts we believe to be adequate. We are not currently engaged in any legal
proceedings that we expect would materially harm our business or financial
condition.
No matter
was submitted to stockholders during the fourth quarter of 2003.
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PART II
Our
common stock has been quoted on the Nasdaq National Market under the symbol
“MXWL” since 1983. The following table
sets forth the high and low sale prices per share of our common stock as
reported on the Nasdaq National Market for the periods indicated.
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002
|
|
|
First
Quarter
|
|
$
|
11.48
|
|
$
|
8.75
|
|
|
|
|
|
Second
Quarter
|
|
|
14.50
|
|
|
7.42
|
|
|
|
|
|
Third
Quarter
|
|
|
8.50
|
|
|
4.05
|
|
|
|
|
|
Fourth
Quarter
|
|
|
7.80
|
|
|
5.20
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
First
Quarter
|
|
|
7.00
|
|
|
5.76
|
|
|
|
|
|
Second
Quarter
|
|
|
6.90
|
|
|
5.30
|
|
|
|
|
|
Third
Quarter
|
|
|
9.56
|
|
|
5.93
|
|
|
|
|
|
Fourth
Quarter
|
|
|
9.40
|
|
|
6.70
|
|
As
of March 1, 2004, there were 418 holders of record of our common stock. We believe that the number of
beneficial owners of our common stock substantially exceeds this number.
Dividend Policy
We
have never declared or paid cash dividends on our capital stock. We currently anticipate that any earnings
will be retained for the development and expansion of our business and,
therefore, we do not anticipate paying cash dividends on our capital stock in
the foreseeable future. In addition,
under our bank credit agreements, neither we nor any of our subsidiaries may,
directly or indirectly, pay any cash dividends to our stockholders.
Recent Sales of Unregistered
Securities
On
September 1, 2003, we issued a total of 464,927 shares of common stock to
Montena SA, a Swiss corporation, as part of the consideration for all of the
outstanding shares of Montena SA’s subsidiary corporation, Montena Components
Ltd. The shares were issued pursuant to the exemption from
registration provided by Regulation S promulgated under the Securities Act. Previously, on July 5, 2002, we had issued a
total of 2,250,000 shares of common stock to Montena SA as part of the
consideration for all of the outstanding shares of Montena Components Ltd. These shares were also issued pursuant to the exemption from registration
provided by Regulation S promulgated under the Securities Act. The shares issued to Montena SA were
restricted securities that could not be resold except under an effective
registration statement or pursuant to an exemption from the registration
requirements.
In January
2002, we adopted a plan to complete merger transactions between Maxwell and our
Electronic Components Group subsidiary and our I-Bus/Phoenix subsidiary whereby all of the
minority shareholdings and options in such subsidiaries would be converted to
shares and options of Maxwell. On April
15, 2002, these merger transactions resulted in the issuance of 565,000 shares
of common stock to the former minority shareholders of Electronic Components
Group and I-Bus/Phoenix. In February 2002,
PacifiCorp Energy Ventures, Inc., or PacifiCorp, the largest minority
shareholder in the Electronic Components Group, exchanged its preferred shares
of the Electronic Components Group for 518,000 common shares of our common
stock, pursuant to its right under the original investment agreement. The shares were issued pursuant to the
exemption from registration provided by Section 4(2) of the Securities
Act. Subsequently, we registered the
shares issued in the merger transactions and the shares issued to PacifiCorp by
filing registration statements on Form S-3 with the SEC.
24
The
selected consolidated financial data presented below are for each fiscal year
in the five-year period ended December 31, 2003. This is derived from and qualified by reference to the Company’s
audited consolidated financial statements and notes thereto included elsewhere
in this Annual Report.
(In thousands, except per share data)
|
|
|
Years
Ended December 31,
|
|
Period Ended
December 31,
|
|
Year Ended
July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999*
|
|
1999
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of
Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Continuing Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
revenue
|
|
$
|
45,024
|
|
$
|
57,965
|
|
$
|
77,856
|
|
$
|
102,347
|
|
$
|
103,611
|
|
|
$
|
36,863
|
|
|
|
$
|
102,878
|
|
|
|
Income
(loss) from continuing operations
|
|
|
(7,167
|
)
|
|
(35,324
|
)
|
|
(8,221
|
)
|
|
(16,291
|
)
|
|
46
|
|
|
|
(5,815
|
)
|
|
|
|
3,939
|
|
|
|
Income (loss) from
discontinued operations,
net of tax
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(4,696
|
)
|
|
(26
|
)
|
|
(299
|
)
|
|
|
(7,276
|
)
|
|
|
|
7,129
|
|
|
|
Cumulative effect of
accounting change, net
of tax
|
|
|
878
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(12,917
|
)
|
$
|
(16,317
|
)
|
$
|
(253
|
)
|
|
$
|
(13,091
|
)
|
|
|
$
|
11,068
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Net Income (Loss) Per
Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.51
|
)
|
$
|
(2.88
|
)
|
$
|
(0.82
|
)
|
$
|
(1.66
|
)
|
$
|
—
|
|
|
$
|
(0.61
|
)
|
|
|
$
|
0.42
|
|
|
|
Income
(loss) from discontinued
operations, net of tax
|
|
|
—
|
|
|
(0.39
|
)
|
|
(0.47
|
)
|
|
—
|
|
|
(0.03
|
)
|
|
|
(0.76
|
)
|
|
|
|
0.76
|
|
|
|
Income
from cumulative effect of
accounting change, net of tax
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
$
|
(1.66
|
)
|
$
|
(0.03
|
)
|
|
$
|
(1.37
|
)
|
|
|
$
|
1.18
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Net Income (Loss)
Per Share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income
(loss) from continuing operations
|
|
$
|
(0.51
|
)
|
$
|
(2.88
|
)
|
$
|
(0.82
|
)
|
$
|
(1.66
|
)
|
$
|
—
|
|
|
$
|
(0.61
|
)
|
|
|
$
|
0.40
|
|
|
|
Income
(loss) from discontinued
operations, net of tax
|
|
|
—
|
|
|
(0.39
|
)
|
|
(0.47
|
)
|
|
(0.01
|
)
|
|
(0.03
|
)
|
|
|
(0.76
|
)
|
|
|
|
0.72
|
|
|
|
Income
from cumulative effect of
accounting change, net of tax
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
$
|
(1.67
|
)
|
$
|
(0.03
|
)
|
|
$
|
(1.37
|
)
|
|
|
$
|
1.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
Period Ended
July 31,
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
2000
|
|
1999*
|
|
1999
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
63,013
|
|
$
|
71,380
|
|
$
|
85,704
|
|
$
|
122,109
|
|
$
|
98,151
|
|
|
$
|
113,486
|
|
|
|
|
|
|
|
|
Cash,
cash equivalents and short-term
investments
|
|
$
|
12,239
|
|
$
|
11,091
|
|
$
|
25,559
|
|
$
|
2,686
|
|
$
|
2,885
|
|
|
$
|
7,948
|
|
|
|
|
|
|
|
|
Short-term
borrowings and current
portion of long-term debt
|
|
$
|
1,851
|
|
$
|
570
|
|
$
|
—
|
|
$
|
22,754
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Long-term
debt excluding current portion
|
|
$
|
—
|
|
$
|
2,675
|
|
$
|
6,000
|
|
$
|
—
|
|
$
|
474
|
|
|
$
|
3,688
|
|
|
|
|
|
|
|
|
Stockholders’
equity
|
|
$
|
47,692
|
|
$
|
49,951
|
|
$
|
59,731
|
|
$
|
69,754
|
|
$
|
84,416
|
|
|
$
|
97,168
|
|
|
|
|
|
|
|
|
Shares
outstanding
|
|
|
14,339
|
|
|
13,726
|
|
|
10,168
|
|
|
9,877
|
|
|
9,664
|
|
|
|
9,557
|
|
|
|
|
|
|
|
25
The
following discussion of our financial condition and results of operations for
the years ended December 31, 2003, 2002 and 2001 should be read in conjunction
with our consolidated financial statements and the related notes included
elsewhere in this Annual Report. In
addition, the discussion and the historical information contain forward-looking
statements that are subject to risks and uncertainties, including estimates
based on our judgment in determining allowance for inventory reserves, bad debt
allowance, allowance for deferred tax assets and tax expenses in the
future. Our estimation of liquidity for
fiscal year 2004 may be significantly different than our actual results. Negative changes in revenues will affect our
estimation in cost of sales, research and development, selling, general and
administrative and other aspects of our business.
Executive Summary
We begin
Management’s Discussion and Analysis of Financial Condition and Results of
Operations with an overview of our business and strategic plan. Subsequently, we provide a summary of some
of the highlights from the recently completed fiscal year, followed by a
discussion of the different aspects of our business. We then proceed, on page 28, to discuss our results of operations
for the year ended December 31, 2003 compared to the year ended December 31,
2002, and for the year ended December 31, 2002 compared to the year ended
December 31, 2001. Thereafter,
beginning on page 34, we provide an analysis of changes in our balance sheet
and cash flows, and discuss our capital requirements and financing activities
in the section entitled “Liquidity and Capital Resources.” Beginning on page 36, we discuss our
critical accounting policies, the impact of inflation on our business and new
accounting pronouncements.
Overview
Maxwell
Technologies, Inc. is a Delaware corporation originally incorporated in 1965
under the name “Maxwell Laboratories, Inc.”
In 1996, we changed our name to Maxwell Technologies, Inc. Presently headquartered in San Diego,
California, we are a developer and manufacturer of innovative, cost-effective
energy storage and power delivery solutions.
Maxwell’s
High Reliability business segment is comprised of three product lines:
|
|
•
|
Ultracapacitors
: Our primary product, ultracapacitors,
includes our BOOSTCAP® ultracapacitor cells and multi-cell modules and
POWERCACHE® backup power systems, which provide highly reliable power
solutions for applications in consumer and industrial electronics,
transportation and telecommunications.
|
|
|
|
|
|
|
•
|
High-Voltage Capacitors
: Our CONDIS® high-voltage grading and
coupling capacitors are used in electric utility infrastructure and other
applications involving transport, distribution and measurement of
high-voltage electrical energy.
|
|
|
|
|
|
|
•
|
Radiation-Mitigated Microelectronic
Products
:
Our
radiation-mitigated microelectronic products include power modules, memory
modules and single-board computers for applications in the space and
satellite industries.
|
We aim to
design and manufacture our products to perform reliably for the life of the
products and systems into which they are integrated. We seek to achieve high reliability through the application of
proprietary technologies and rigorously controlled design, development,
manufacturing and test processes. This
high reliability strategy emphasizes the development and marketing of products
that enable us to achieve higher profit margins than commodity electronic
components and systems.
During the
year ended December 31, 2003, we continued our efforts to focus our business
and to exit non-strategic businesses.
These efforts culminated in our exit from the low-margin power magnetics
business and commensurate consolidation of the remaining value-added business
into our ultracapacitor product line, and the sale of our Winding Equipment
business segment. As the result of
these actions, as well as other divestitures throughout 2002 and 2003, we have
consolidated our operations into our High Reliability business segment. (See Part I, Item 1. “Business-Strategic
Consolidation of Operations,” Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Acquisitions,
Restructuring, Divestitures, Discontinued Operations and Other Events” and
Notes 2 and 3 to our Notes to Consolidated Financial Statements, for
information regarding our business combinations, divestitures and phased-out
operations.)
26
2003 Highlights
Partially
as a result of the efforts we began in 1999 to re-focus on our core product
lines and to exit non-strategic businesses, we reduced our loss from continuing
operations for the year ended December 31, 2003 to $7.2 million, or $0.51 per
diluted share, from a loss of $35.3 million, or $2.88 per diluted share, for
the year ended December 31, 2002.
During
2003, we took several steps to intensify our focus on our high reliability,
high-margin strategy and to eliminate non-core and low-margin products,
including:
|
|
•
|
In 2003, we
completed the integration and relocation of our power systems business into
our principal manufacturing facility in San Diego, California, and vacated
and later sold the company-owned facility that formerly housed the North
American operations of I-Bus/Phoenix. This consolidation allowed more
efficient use of our remaining facilities and personnel, and the sale of the
vacated facility provided us with additional cash resources.
|
|
|
|
|
|
|
•
|
Also in
2003, we formed an ultracapacitor manufacturing and marketing alliance with
YEC. YEC is a $200 million per annum
manufacturer of electrolytic capacitors headquartered in Taichung, Taiwan,
with manufacturing and sales operations in mainland China. We entered into this alliance in order to
commercialize our proprietary BOOSTCAP® ultracapacitors in China and to help
position us as a global supplier of ultracapacitors with production
facilities in North America and Europe, and access to facilities in Asia.
|
|
|
|
|
|
|
•
|
In July
2003, we announced the phase-out of our electronic components tester
business, which was completed as of December 31, 2003 and which business had
been part of our High Reliability business segment.
|
|
|
|
|
|
|
•
|
In August
2003, we announced the phase-out of our magnetics-based power systems products,
which also had been part of our High Reliability segment, to focus our power
systems expertise on development and marketing of proprietary,
ultracapacitor-based, multicell modules and backup power solutions. As part of the phase-out of our
magnetics-based power systems products, our power distribution and
conditioning modules were integrated into our BOOSTCAP® ultracapacitors
product line.
|
|
|
|
|
|
|
•
|
In December
2003, we sold our Winding Equipment business segment, which we had acquired
via our acquisition of Montena in 2002.
|
With the
completion of these actions, our remaining operations have been consolidated
into our High Reliability business segment, which is now comprised of three
current product lines: ultracapacitors,
high-voltage capacitors and radiation-mitigated microelectronics. (See Part I, Item 1. “Business—Strategic
Consolidation of Operations,” Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations – Acquisitions,
Restructuring, Divestitures, Discontinued Operations and Other Events” and
Notes 2 and 3 to Notes to Consolidated Financial Statements for information
regarding our consolidation activities.)
2004 Outlook
We
completed the restructuring and re-focusing of our business as of December
2003, a process we began in late 1999.
As the result of our efforts, we have reduced our quarterly break-even
revenue threshold from more than $15 million at the beginning of 2003, to less
than $12 million anticipated for the first quarter of 2004. This was done through a combination of
downsizing and cost reduction, increases in productivity and the reduction of
low margin products. We entered fiscal
year 2004 with cash reserves of more than $10 million. With the continuing growth of our
ultracapacitor business and focus on high-margin products, we expect to become profitable by the end of the second half of
2004. By maintaining our capital
expenditures to depreciation ratio, we expect to also become cash flow
neutral.
Although we
believe that the expectations reflected in our 2004 outlook are reasonable,
actual results could differ materially from those projected or assumed in any
of our forward-looking statements. Our
future financial condition and results of operations, as well as any
forward-looking statements, are subject to change and inherent risks and
uncertainties. Some, but not necessarily all, of the factors impacting these
risks and uncertainties are set forth in Part I, Item 1. “Business-Risk
Factors.”
27
Business Segments
Consistent
with our commitment to maintain Maxwell as a leading developer and manufacturer
of highly-reliable, innovative and cost-effective energy storage and power
delivery solutions, during 2003 we completed the divestiture and phase-out of
our electronic components tester business, magnetic-based power systems
products and Winding Equipment business segment. We are currently focused on our remaining High Reliability
business segment, which is comprised of three product lines:
|
|
•
|
Ultracapacitors
: Our primary product, ultracapacitors,
includes our BOOSTCAP® ultracapacitor cells and multi-cell modules and
POWERCACHE® backup power systems, which provide highly reliable power
solutions for applications in consumer and industrial electronics,
transportation and telecommunications.
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High-Voltage Capacitors
: Our CONDIS® high-voltage grading and
coupling capacitors are used in electric utility infrastructure and other
applications involving transport, distribution and measurement of
high-voltage electrical energy.
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Radiation-Mitigated Microelectronic
Products
:
Our
radiation-mitigated microelectronic products include power modules, memory
modules and single-board computers for applications in the space and
satellite industries.
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RESULTS OF OPERATIONS
Year Ended December 31, 2003 Compared to Year
Ended December 31, 2002
Total Revenue
Total
revenue for the year ended December 31, 2003 was approximately $45 million
including approximately $4 million in license fees received from YEC in
exchange for a right to manufacture our BOOSTCAP® ultracapacitors in
China. The license fee is a one time
event and is shown as a separate line item in our Consolidated Statements of
Operations. Product revenue (which
excludes the YEC licensee fees) for the year ended December 31, 2003 was
approximately $41 million compared to approximately $58 million for the year
ended December 31, 2002, which was a reduction of approximately $17 million, or
29%. The reduction was attributed
mainly to our I-Bus Computing Systems business, which was sold in the third
quarter of 2002 and, therefore, did not generate any revenue for the year ended
December 31, 2003. Increase in revenue
from our flagship product, BOOSTCAP® ultracapacitors, was offset by a reduction
in revenue from microelectronic products.
Segment Revenue
High
Reliability
For the
year ended December 31, 2003, revenue from our High Reliability business
segment was $35.2 million compared to $40.1 million for the year ended December
31, 2002. This represents a decrease of
approximately $5 million, or 12%. Most
of the decrease in revenue was from reduced sales of radiation-mitigated
microelectronics products due to the downturn in the telecommunication industry
and from the power systems products, as we phased-out our low-margin
transformer business.
Winding
Equipment
For the
year ended December 31, 2003, revenue from our Winding Equipment business
segment was $9.8 million compared to $3.6 million for the year ended December
31, 2002. This represents an increase
of approximately $6.2 million, or 175%.
For the year ended December 31, 2002, revenue from this segment only
covers the six-month period from our acquisition of Montena in July 2002
through year end December 31, 2002. We
determined that our Winding Equipment business segment was not adding value to
the Company in terms of margin contribution, technological advances, improvement
in market share or contributing to improvements in economies of scale. Therefore, this segment of our business was
sold at the end of December 2003. We
reported the results of operations of the Winding Equipment product line as
continuing operations because of our continued involvement therewith.
28
I-Bus
Computing Systems
Our I-Bus
Computing Systems business was sold in September 2002 and did not generate any
revenue in the year ended December 31, 2003.
For the year ended December 31, 2002, revenue from our I-Bus Computing
Systems business was approximately $11.0 million.
TeknaSeal
For the
year ended December 31, 2002, revenue from the TeknaSeal glass-to-metal seals
business was $3.3 million. The
TeknaSeal glass-to-metal seals business was sold in September 2002. No revenue was generated for the year ended
December 31, 2003.
Cost of Sales
For
the year ended December 31, 2003, our cost of sales was $36.7 million compared
to $51.1 million for the year ended December 31, 2002. This represents a decrease of $14.4 million,
or 28%. This decrease was attributable
primarily to our disposition and phase-out activities in 2002.
Total Operating Expenses
Operating Expenses – 2003 vs. 2002
(Dollars in Thousands)
|
|
|
2003
|
|
Change
|
|
2002
|
|
|
|
|
|
|
|
|
|
|
|
Research and
Development
|
|
$
|
5,917
|
|
|
(30
|
)%
|
$
|
8,417
|
|
|
Percentage
of Net Revenues
|
|
|
13
|
%
|
|
(2
|
)Pts
|
|
15
|
%
|
|
Selling,
General and Administrative
|
|
$
|
13,866
|
|
|
(25
|
)%
|
$
|
18,092
|
|
|
Percentage
of Net Revenues
|
|
|
30
|
%
|
|
(1
|
)Pts
|
|
31
|
%
|
|
Intangible Assets Amortization
|
|
$
|
76
|
|
|
N/M
|
|
$
|
483
|
(1)
|
|
|
(1)
|
$464 was
attributable to the backlog acquired with the purchase of Montena, which was
completely amortized in 2002.
|
Selling, General & Administrative
(SG&A) Expense
SG&A
expense for the year ended December 31, 2003 was $13.8 million compared to
$18.1 million for the year ended December 31, 2002. The decrease of $4.3 million, or 24%, was primarily due to a
reduction in personnel and overhead as a result of our disposition and
phase-out activities during 2002 and 2003.
SG&A expense was approximately 30% of revenue for the years ended
December 31, 2003 and 2002.
Research & Development (R&D) Expense
R&D
expense for the year ended December 31, 2003 was $5.9 million compared to $8.4
million for the year ended December 31, 2002.
The decrease of $2.5 million, or 30%, was partly due to our decision to
streamline product lines and focus on our core High Reliability business
segment products. R&D as a percent
of sales was 13% and 15% for the years ended December 31, 2003 and 2002,
respectively.
Income (Loss) From Continuing Operations
Before Income Taxes
Income
(Loss) from continuing operations before income taxes for the year ended
December 31, 2003 was $(7.2) million compared to $(35.5) million for the year
ended December 31, 2002, an improvement of $28.3 million, or 80%. The decrease in losses was primarily
attributable to the disposition and phase-out of operations which were
unprofitable. The loss from continuing
operations for the year ended December 31, 2003 includes $695,000 in income
from the sale of our TeknaSeal glass-to-metal seals business which is reflected
in (gain) loss on sale of operations in 2003.
Income
(Loss) from continuing operations before income taxes for the year ended December 31, 2003 includes a curtailment and
settlement gain of $2.2 million. Under
Swiss law, the pension plan for our Swiss employees must be managed by an
entity that is legally separate from the Company. However, according to Statement of Financial Accounting Standard
(“SFAS”) No. 87, we are required to
29
recognize the gain or loss of the pension fund on our balance sheet and
income statement. Regardless of the
fact that the pension plan is over funded, we are obliged to continue
contributing to it at a rate mandated by Swiss law. As a result, the defined benefit accounting treatment may create
a distorted picture of our balance sheet and financial results for the year
ended December 31, 2003 and in future periods.
Income (Loss) from continuing operations before income taxes without the pension benefit would have been $(9.6)
million.
High
Reliability business segment operating losses were $7.6 million in the year
ended December 31, 2003 and $6.2 million in the year ended December 31, 2002,
an increase of $1.4 million, or 23%.
This increase is primarily attributable to an increase in inventory
reserves for our power systems business, as we phased-out the magnetics portion
of our power systems business.
Provision (Benefit) For Income Taxes
Our tax
benefit for the year ended December 31, 2003 was $220,000 compared to $132,000
for the year ended December 31, 2002, an improvement of $88,000, or
67%. The benefit consists primarily of
foreign income tax benefit recorded by our subsidiary, Maxwell Technologies
SA. The valuation allowance increased
in the year ended December 31, 2003 by $3.2 million from the prior year and we
had net deferred tax assets before our valuation allowance of approximately
$34.2 million at December 31, 2003.
Year Ended December 31, 2002 Compared to Year Ended December 31, 2001
Total Revenue
Total
revenue for the year ended December 31, 2002 was approximately $58 million
compared to approximately $78 million for the year ended December 31, 2001,
which was a reduction of approximately $20 million, or 26%. The reduction was attributed mainly to the
sale of non-core business subsidiaries, including our non-core TeknaSeal
glass-to-metal seals business. In
addition, the economic slow down, which started in 2001, negatively impacted our
I-Bus Computing Systems business, which continued to decline in 2002.
Segment Revenue
High
Reliability
For the
year ended December 31, 2002, revenue from our High Reliability business
segment was $40.1 million compared to $39.4 million for the year ended December
31, 2001. This represents an increase
of $700,000, or 2%. The acquisition of
Montena in July 2002, which contributed an $8.1 million increase in revenue,
and modest increases in sales of radiation-mitigated microelectronics and
BOOSTCAP® ultracapacitors was offset by a decrease in sales of power systems
products in the medical imaging equipment market.
Winding
Equipment
Our Winding
Equipment business segment was acquired in July 2002 as part of our acquisition
of Montena and thus did not impact our revenue for the year ended December 31,
2001. Revenue for the six-month period
ended December 31, 2002 was $3.6 million.
I-Bus
Computing Systems
For the
year ended December 31, 2002, revenue from our I-Bus Computing Systems business
was approximately $11 million compared to $24.1 million for the year ended
December 31, 2001. This represents a
decrease of $13.1 million, or 54%. We
sold the I-Bus Computing Systems business in September 2002. Although the computing systems business was
focused on high reliability, high-availability computer servers, the markets
for such systems, particularly telecommunications, deteriorated dramatically
during the year, which negatively impacted results of operations.
Sierra
and TeknaSeal
For the
year ended December 31, 2002, revenue from our Sierra-KD EMI filter and ceramic
business and our TeknaSeal glass-to-metal seals business was $3.3 million
compared to $14.4 million for the year ended December 31, 2001. This represents a decrease of $11.1, million
or 77%. The reduction in revenue was
attributed primarily to the sale of Sierra-KD EMI in June of 2001. The TeknaSeal glass-to-metal seals business
was sold in September 2002.
30
Cost of Sales
For the year ended December 31, 2002, our
cost of sales was $51.1 million compared to $66.6 million for the year ended
December 31, 2001. This represents a
decrease of $15.5 million, or 23%. This
decrease was attributable primarily to our continued implementation and pursuit
of our restructuring plan initiated in late 1999, which resulted in closing and
selling non-strategic operations.
Total Operating Expenses
Operating
Expenses – 2002 vs. 2001
(Dollars in Thousands)
|
|
|
2002
|
|
Change
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Research and
Development
|
|
$
|
8,417
|
|
|
27
|
%
|
$
|
11,519
|
|
|
Percentage
of Net Revenues
|
|
|
15
|
%
|
|
—
|
|
|
15
|
%
|
|
Selling,
General and Administrative
|
|
$
|
18,092
|
|
|
20
|
%
|
$
|
22,465
|
|
|
Percentage
of Net Revenues
|
|
|
31
|
%
|
|
2
|
Pts
|
|
29
|
%
|
|
Intangible Assets Amortization
|
|
$
|
483
|
(1)
|
|
N/M
|
|
$
|
0
|
|
|
|
|
(1)
|
$464 was
attributable to the backlog acquired with the purchase of Montena, which was
completely amortized in 2002.
|
|
|
|
|
|
Selling, General & Administrative
(SG&A) Expense
SG&A
expense for the year ended December 31, 2002 was $18.1 million compared to $22.5
million for the year ended December 31, 2001.
The decrease of $4.4 million, or 19%, was due primarily to a reduction
in personnel and overhead as a result of our dispositions and phase-out
activities during 2002. SG&A
expense was 31% of revenue for the year ended December 31, 2002 and 29% for the
year ended December 31, 2001.
Research & Development (R&D) Expense
R&D
expense for the year ended December 31, 2002 was $8.4 million compared to $11.5
million for the year ended December 31, 2001.
The decrease of $3.1 million, or 27%, was primarily attributable to
reductions in headcount and the sale of the I-Bus Computing Systems
business. R&D as a percent of sales
was 15% for each of the years ended December 31, 2002 and 2001.
Income (Loss) From Continuing Operations
Before Income Taxes
Income
(Loss) from continuing operations before income taxes for the year ended
December 31, 2002 was $(35.5) million compared to $14.7 million for the year
ended December 31, 2001, a decrease of approximately $50 million. We recognized a gain of $39.1 million from a
sale of our Sierra-KD EMI filter and ceramics business in 2001, which was sold
for $46.9 million. In addition, non-recurring
charges of goodwill impairment of $5.3 million, property and plant impairment
of $2.3 million, restructuring charges of $1.6 million and loss on the sale of
businesses of $6.5 million were included in the operating expenses for the year
ended December 31, 2002.
Provision (Benefit) For Income Taxes
Our tax benefit for the year ended December 31, 2002 was $132,000
compared to a tax provision of approximately $23 million for the year ended
December 31, 2001. We recognized a gain
of $39.1 million from a sale of our Sierra-KD EMI filter and ceramics business
in 2001, which was sold for $46.9 million.
Acquisitions, Restructuring, Divestitures,
Discontinued Operations and Other Events
Acquisitions
In July
2002, we acquired Montena Components Ltd., a provider of ultracapacitors and
high-voltage capacitors to OEM customers and automated winding equipment used
to produce capacitors and lithium batteries, for approximately $3.0 million in
cash and 2.25 million shares of Maxwell common stock. This acquisition brought us an additional high reliability power
31
business focused on ultracapacitors and high-voltage capacitors and
additional design and production capabilities that enhanced our profile as a
reliable, global supplier. (See
“—Divestitures” below for a discussion of our disposition of the Winding
Equipment business, which we acquired through our acquisition of Montena.)
Restructuring
Restructuring
charges were $1.6 million for the year ended December 31, 2002. There were no restructuring charges for the
year ended December 31, 2001. In 2002,
the restructuring charges were primarily attributable to restructuring of our
I-Bus Computing Systems business and our actions to position that business for
sale. In the first half of 2002,
I-Bus/Phoenix introduced new applied computing products that had been developed
in 2001. However, the market for
applied computing products, particularly in telecommunications, deteriorated
throughout 2002. We responded to the poor
market conditions for computing systems and other capital goods by restructuring
I-Bus/Phoenix. In June 2002, we began
implementing the restructuring plan and recorded restructuring charges of
$700,000. In addition, we also
determined that certain components in inventory had been adversely
impacted. Accordingly, we recorded an inventory
charge of approximately $3.0 million for certain excess and obsolete raw
material components and finished goods. This charge is included in cost
of sales. During the third quarter of
2002, we decided to sell the applied computing business of I-Bus/Phoenix to a
new company organized by former I-Bus/Phoenix senior managers. In
preparation for the sale and to configure the I-Bus/Phoenix computing business
to be self-supporting, I-Bus/Phoenix consolidated all production of the applied
computing products in its facility in Tangmere, United Kingdom, and reduced
personnel worldwide. As a result of these actions, we recorded additional
restructuring charges of $900,000 during the quarter ended September 30,
2002. The unpaid restructuring balance
of $400,000 at December 31, 2002 was paid in 2003.
Divestitures
In June
2001, we sold our Sierra-KD EMI filter and ceramic capacitor business for $46.9
million in cash. We retained accounts
receivable as of the acquisition date, which amounted to $2.5 million. As a result of this transaction, we recorded
a net pre-tax gain of $39.1 million on that sale for the year ended December
31, 2001.
In
September 2002, we sold the I-Bus Computing Systems business for $7.0 million
in debt and certain other considerations.
We also incurred $7.6 million in charges related to goodwill impairment
and other asset write-downs related to that business. The loss on the disposition totaled $7.0 million as we fully
reserved for the note due to risks of collectability.
In
September 2002, we also sold our non-core TeknaSeal glass-to-metal seals
business for $5.5 million in cash, of which $1.0 million was held in an escrow
account and subsequently released to us over the succeeding four calendar quarters. Approximately $400,000 of the $5.5 million
proceeds were paid to certain former employees of TeknaSeal. We recorded a net gain of $200,000 in the
fourth quarter of 2002and
recorded additional gains of $695,000 for the year ended December 31, 2003.
(Gain) loss
on sale of businesses was $6.5 million for the year ended December 31, 2002 and
($39.1) million for the year ended December 31, 2001.
In June
2003, we decided to discontinue marketing and supporting our electronic components
tester business and recorded charges in cost of sales of $444,000 primarily
attributable to excess inventory and equipment, $393,000 primarily attributable
to warranty buy-outs, and $259,000 primarily attributable to expected future
warranty returns in the quarters ended June 30, 2003, September 30, 2003 and
December 31, 2003, respectively. Sales
for our electronic components tester business were immaterial in all periods
presented.
In December
2003, we sold our former I-Bus manufacturing and administrative facility in San
Diego. The facility was previously
classified as Assets Held for Sale at its book value of $7.4 million. Proceeds from the sale of the facility were
$9.0 million, resulting in a gain of $1.2 million after payment of a loan
balance with Comerica Bank and closing costs of $387,000, which was recorded in
gain on sale of property and equipment.
In December
2003, Maxwell Technologies SA (our Swiss subsidiary formerly known as Montena
Components Ltd.) sold all of the fixed assets, substantially all inventory, and
all warranty and employee agreement obligations of its Winding Equipment
business, located in Matran, Switzerland, to Metar SA, a new company formed by
the former CEO of Montena Components and Metar employees. The business was sold for $324,000, and we
recognized a net loss of $538,000.
32
Discontinued
Operations
Our
Government Systems business and PurePulse are reported as discontinued
operations. The loss from discontinued
operations was $6,000 for the year ended December 31, 2003, compared to $4.8
million for the year ended December 31, 2002 and $4.7 million for the year
ended December 31, 2001.
In March
2001, we sold our Government Systems business for $20.7 million and recorded a
gain of $1.1 million, net of a $2.7 million provision mainly related to ongoing
lease obligations. As of December 31,
2003, the remaining lease obligation, which expires in April 2006, is $1.1
million with a reserve provision of
$600,000.
In
September 2002, PurePulse suspended operations and we recorded non-cash charges
of approximately $1.7 million and cash charges of approximately $0.5 million
for severance and other charges.
PurePulse had been designing and developing systems that generate
extremely intense, broad-spectrum, pulsed light to purify water and inactivate
viruses and other pathogens that contaminate vaccines and products sourced from
human or animal tissues, such as plasma derivatives, transfusion blood
components and biopharmaceuticals.
Although PurePulse raised $5 million of equity capital from Millipore
and Maxwell in March 2002, the venture capital and other equity markets
deteriorated after that time and PurePulse was not able to raise additional
capital to fund its operations.
Loss from
operations of these discontinued businesses was $5.8 million for the year ended
December 31, 2001. Included in the loss
is a charge to the tax provision of $2.5 million for recording a valuation
allowance.
Other
Events
An
investment impairment of $500,000 was recorded in 2001 related to Maxwell’s
ownership of approximately 1% of a privately-held company involved in support
services in the areas of information technology, system and software
integration and engineering and technical services under contract with various
government agencies. Upon review of its
annual financial statements and discussions with its chief financial offer, we
were informed that the company had a negative net worth and had decided to
restructure its operations to discontinue its information technology and
software integration and engineering businesses and focus only on government
contracting. Based on these facts and
the uncertainty surrounding its ability to return to profitability, we
concluded that the investment was impaired and we fully reserved for the
investment.
Amortization
of goodwill was $1.2 million for the year ended December 31, 2001. In connection with the adoption of SFAS 142,
the amortization of goodwill was discontinued beginning with fiscal year 2002.
In 2003, we
made an assessment of the Company’s goodwill and intangible assets and
determined that there was no impairment.
Accordingly, no goodwill impairments were recognized for the year ended
December 31, 2003. Goodwill impairments
were $5.3 million for the year ended December 31, 2002. There was no goodwill impairment recognized
for the year ended December 31, 2001.
We received
$209,000 from the sale of the privately-held company referred to above, of
which $26,000 had previously been recorded by us as investment. In 2003, we recovered $183,000 of the
$500,000 recorded as impaired in 2001 and reflected in (gain) loss on sale of
business.
Amortization
of other intangibles was $76,000 for the year ended December 31, 2003 and
$483,000 for the year ended December 31, 2002, and relates to the amortization
of customer backlog acquired in conjunction with the acquisition of Montena and
the amortization of ultracapacitor intellectual property that was recorded in
conjunction with the merger of the Electronic Components Group, a
majority-owned subsidiary, into Maxwell after the purchase of all shares not
already owned by us.
Minority
interest in income of consolidated subsidiaries was $200,000 and $700,000 for
the years ended December 31, 2002 and 2001, respectively. During the first quarter of 2002, we
acquired all of the outstanding minority interests, including stock options, of
our majority-owned subsidiaries, except for PurePulse (see “—Discontinued
Operations” above), in exchange for shares and options in Maxwell.
Interest
(income) expense, net was $1,000, ($42,000) and $600,000 for the years ended
December 31, 2003, 2002 and 2001, respectively. We used proceeds from the sale of businesses to pay down debt and
the excess was invested in high quality short-term marketable investments.
33
Fixed asset
impairments were $2.3 million for the year ended December 31, 2002. Impairment charges recorded in 2002 were
related to fixed assets associated with the I-Bus Computing Systems business
that were abandoned, and computers and computer systems infrastructure directly
related to supporting the I-Bus Computing Systems business. The impairment also included fixed assets
associated with transformer and harness production for the I-Bus/Phoenix power
systems group. Production of
transformers and harnesses subsequently was outsourced.
Liquidity and Capital
Resources
Changes in Cash Flow
For the
year ended December 31, 2003, cash used by operating activities was $5.0
million compared to $9.0 million for the year ended December 31, 2002 and $17.3
million in for the year ended December 31, 2001. The use of cash for the year ended December 31, 2003 was
primarily attributed to operating losses.
For the
year ended December 31, 2002, the use of cash primarily was attributable to
operating losses, including restructuring-related cash expenses for our
continuing operations, which for most of 2002 included the I-Bus Computing
Systems business. Cash used in
discontinued operations, which included PurePulse and residual leases and other
obligations of divested businesses, in the year ended December 31, 2002 was
$4.1 million, as compared to $9.7 million in the year ended December 31,
2001. Capital expenditures for the
years ended December 31, 2003, 2002 and 2001 were $2.4 million, $1.8 million and $6.2 million,
respectively. We spent over $10 million
in capital investments to build and outfit state-of-the-art production
facilities, which include both mechanization and full-scale automation. In 2002, cash of $3.0 million was used in
the Company’s third quarter as part of the purchase price for Montena. Capital expenditures for 2004 are not
expected to exceed $3.6 million, which is approximately equal to our annual
depreciation and amortization charges.
Our
restructuring plan which started in early 2000 was completed in 2003, and we
started realizing the benefit of our restructuring effort in the fourth quarter
of 2003. All indicators such as
productivity, lower product cost and new product introduction have
increased. The reduction of overhead
and increased productivity should improve our gross margin and reduce our operating
expenses in 2004. Based on our current
plan, we believe we will generate positive cash flow from operations for the
year ending December 31, 2004. In
January 2004, we secured a $3.0 million line of credit from a U.S. bank that is
available for working capital needs; the line has not been used to date. We also have a line of credit for $1.6
million from a Swiss bank for working capital in Switzerland. The line has been
fully used as of December 31, 2003. We
had $9.8 million in cash and $2.5 million in short-term investments at the end
of December 2003. We also have a
$925,000 term loan available from a Swiss bank for capital equipment
purchases. We have a loan from the
employee pension fund in the amount of approximately $250,000. We believe the liquidity provided by the
existing cash and cash equivalents, as well as the cash generated from
operations and available under our lines of credit, will provide sufficient
capital to fund our capital equipment and working capital requirements and
potential operating losses for more than the next 12 months. Failure to achieve expected cash flows or to
obtain additional debt or equity investments, if necessary, would have a
material adverse effect on us.
Net
accounts receivable decreased to $5.9 million as of December 31, 2003 from $8.5
million at December 31, 2002. The primary reasons for the decrease was due to
lower revenues and improvement
in the collection cycle.
Net
inventory balance decreased to $7.3 million as of December 31, 2003 from $11.8
million as of December 2002. This reduction is due to improved inventory
management and the increase in inventory reserves due to the phase-out of our
tester and magnetic based power products. Inventory reserves as of December 31, 2003,
were $3.1 million compared to $2.0 million as of December 31, 2002.
Accounts
payable and accrued liabilities as of December 31, 2003 were $7.7 million
compared to $10.4 million as of December 31, 2002. The primary reason for the reduction was lower inventory
purchases and a decrease in operating expenses. Short-term borrowing increased to $1.9 million as of December 31,
2003 from $570,000 as of December 31, 2002. Net liability of discontinued
operations as of December 31, 2003 and 2002 was $1.5 million and $2.3 million,
respectively.
During 2002
and 2001, we financed operating losses with term debt, as described under the
heading “Short-term and Long-term Borrowings,” and the sale of non-strategic
businesses. In the year ended December 31, 2001, we received $46.9 million and
$20.7 million of cash in connection with the sale of Sierra-KD EMI, our filter and ceramic capacitor business, and
Government Systems , our defense contracting business, respectively. These funds were used to pay down debt of
$22.8 million and to fund continuing and discontinued operations. On the first
day of our fourth fiscal quarter of 2002, we sold TeknaSeal, our glass-to-metal
seals business, and received approximately $5.1 million net cash, of which $1.0
million was held in an escrow account and was later paid upon TeknaSeal
achieving certain revenue benchmarks in 2003. We used a
34
portion of these proceeds to prepay $2.8 million of our bank term loan,
which reduced the outstanding term loan to $3.0 million. The term loan was paid off in full in
December 2003.
Maxwell
Technologies SA requires advances from customers for certain product lines and
issues bank guarantees that give the customer the right to receive back the
advance if the product is not delivered by a specific date. As of the end of
December 2003, we had issued guarantees of
$400,000 related to these product arrangements, most of which we expect to ship
to customers in the first quarter of 2004.
During the
quarter ended September 2002, we suspended the operations of PurePulse, sold
the I-Bus Computing Systems business and started consolidating our power
systems business and corporate headquarters into our leased facility in San
Diego, which also contains, in part, our ultracapacitor and microelectronics
businesses. We also decided to offer for sale our 85,000 square foot owned
facility that housed I-Bus/Phoenix’s computing systems North American
operations and administration. These actions, combined with the acquisition of
Montena, are consistent with our strategy to focus on high value, high
reliability power and microelectronic products and to structure the Company’s
operations to be self-supporting on product revenues in the near future. The former I-Bus/Phoenix facility was sold
in December 2003.
Short-term and Long-term Borrowings
Short-term
Borrowings
Maxwell’s
European subsidiary, Maxwell Technologies SA, has a $1.6 million bank credit
agreement with a Swiss bank. Borrowings under the credit agreement bear
interest at 5.5% plus .25% for every quarter borrowings are outstanding. Under
the credit agreement, we are eligible to borrow fixed term loans at LIBOR plus
1.75% with repayment terms extending beyond one month from the date of funding.
Borrowings under the credit agreement are secured by the assets of Maxwell
Technologies SA. As of December 31,
2003, the full amount of the credit line was drawn. In addition, $400,000 of letters of guarantee were outstanding as
of December 31, 2003 related to customer deposits.
In
February 2004, we secured a $3.0 million credit line from a U.S. bank for
working capital purposes, subject to a one-year repayment period. This line is
secured by accounts receivable and assets of the Company and bears interest at
the bank’s prime plus 1.75%, but subject to a minimum interest rate of
5.75%. The agreement requires us to
maintain a minimum tangible net worth of $15 million plus 50% of any
consideration from future equity and debt transactions plus 50% of net income
in each fiscal quarter after the date of the agreement.
Long-term
Borrowings
At the
beginning of 2004, Maxwell Technologies SA obtained a $925,000 term loan for
financing the acquisition of specific capital equipment. Borrowings under the
term loan are secured by the equipment being purchased. This credit agreement
bears interest at the Swiss inter-bank borrowing rate plus 2.0%. The term loan
can be borrowed in quarterly advances up to the $925,000 limit and repaid over
one to five years. If funds were borrowed at the beginning of 2004 and repaid
over a 5-year period, the interest rate would be 4.3%.
Maxwell
SA had a loan from the Montena SA pension plan for 300,000 Swiss Francs or
$250,000 at December 31, 2003 and December 31, 2002. The loan from the pension plan bears interest at the variable
mortgage rate of the Banque Cantonale de Fribourg plus 1%, which resulted in a
5% interest rate for 2003.
In February
2001, we entered into a Loan and Security Agreement with Comerica
Bank-California. The Loan and Security Agreement, as amended, consisted of a
$5.0 million credit line secured by a deed on the I-Bus/Phoenix facility in San
Diego, as well as certain other collateral. The term loan bore interest, at our
option, at the bank’s reference rate plus .5%, or cost of funds plus 2.25%. The
interest rate was 4.75% at December 31, 2002. The principal was amortized
monthly over 20 years with the balance due December 31, 2004. The amount of the
loan was paid in full in December 2003 with a portion of the proceeds from the
sale of the I-Bus/Phoenix facility.
35
Minority Equity Interests in Subsidiaries and Subsidiary Option
Programs
In January
2002, we adopted a plan to complete merger transactions between Maxwell, our
Electronic Components Group and our I-Bus/Phoenix subsidiary whereby all of the
minority shareholdings and options in such subsidiaries would be converted to
shares and options of Maxwell. On April 15, 2002, these merger transactions
resulted in the issuance of 565,000 common shares of Maxwell and options to
purchase 520,000 common shares of Maxwell. In February 2002, PacifiCorp Energy
Ventures, Inc., the largest minority shareholder in the Electronic Components
Group, exchanged its preferred shares of the Electronic Components Group for
518,000 common shares of Maxwell
pursuant to its right under the original investment agreement.
PurePulse,
which is classified as discontinued operations, has minority equity investors.
These investors are former strategic partners, former employees who were issued
shares when PurePulse originally was incorporated and former employees who have
exercised stock options in that entity. As of December 31, 2003, minority
investors owned approximately 18% of the outstanding stock of PurePulse.
Loss on the
Sale of the I-Bus Computing Systems Business
We fully
reserved for the $7.0 million note received in exchange for the I-Bus Computing
Systems business in September 2002 due to the uncertainty as to its collectability. The note was discounted and cancelled in
exchange for $475,000 in the fourth quarter of 2003.
Contractual
Obligations
|
|
|
Payment due by period
|
|
|
|
|
|
|
|
|
|
Total
|
|
Less than 1 Year
|
|
1-3 Years
|
|
3-5 Years
|
|
More than 5 Years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Lease Obligations (1)
|
|
$
|
7,318
|
|
|
$
|
1,612
|
|
|
|
$
|
4,523
|
|
|
|
$
|
1,183
|
|
|
|
|
—
|
|
|
|
Debt
Obligations (2)
|
|
|
1,851
|
|
|
|
1,851
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
9,169
|
|
|
$
|
3,463
|
|
|
|
$
|
4,523
|
|
|
|
$
|
1,183
|
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Operating
lease obligations represent building leases and vehicle
leases for management personnel at our Rossens, Switzerland, facility.
|
|
(2)
|
Debt obligations represent short-term borrowings and current portion of long-term debt.
|
Critical Accounting
Policies
This
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements, which are prepared in
accordance with accounting principles generally accepted in the United States
of America, which we refer to as U.S. GAAP.
We have used certain assumptions and judgments in the preparation of
these financial statements, which assumptions and estimates may potentially
affect the reported amounts of assets and liabilities and the disclosure of contingencies
as well as reported amounts of revenues and expenses. The following may involve a higher degree of judgment and
complexity and, as such, management assumptions and conclusions in these areas
may significantly impact the results of operations of the Company.
Revenue
Recognition
For
the fiscal year ended December 31, 2003, substantially all of our revenue was
derived from the sale of manufactured products directly to customers and
licensing fees received for the right to manufacture our proprietary BOOSTCAP®
ultracapacitors. Product
revenue is recognized at the time the product is shipped and title passes to
the customer unless specific terms require otherwise. In general no discounts
are offered and there is no right of return.
License fee revenues are recognized when the performance requirements
have been met, the fee is fixed or determinable, and collection of fees is
probable. In prior years, certain
continuing and discontinued segments involved revenues from both long-term and
short-term fixed price contracts and cost plus contracts with the U.S.
Government directly or through a prime contractor. Those revenues, including estimated profits, were recognized at
the time the costs were incurred and included provisions for any anticipated
losses. These contracts are subject to
rate audits and other audits, which could result in the reduction of revenue in
excess of estimated provisions. In turn,
this could increase losses for the periods in which any such reduction occurs.
36
Accounts
Receivable
We
establish and maintain customer credit limits based on references, financial
information, credit-worthiness and payment history. Accounts receivable consist primarily of amounts due to us from
our normal business activities. We
maintain an allowance for doubtful accounts to reflect anticipated bad debts
based on past collection history and any specific risks identified in the
portfolio. We determine our bad debt
reserve based on an analysis we make to measure our reserve requirements and we
establish specific reserves when we recognize the inability of our customer to
pay its obligation. If we become aware
of increasing negative changes in the financial condition of our customers, or
if economic conditions change adversely, we may have to increase the
allowance. An increase in such
allowances would adversely impact our financial condition and results of
operations.
Assets
Held for Sale and Remaining Lease Obligation
In December
2003, we sold the building formerly occupied by I-Bus/Phoenix, Inc., which was
classified as assets held for sale in 2002.
Proceeds from the sale of the facility were approximately $9.0 million
and closing expenses were $387,000, resulting in a gain from the sale of the
facility of $1.2 million.
We have
provided an estimate of the remaining liability of discontinued operations of
PurePulse associated with a remaining lease obligation, which has been recorded
in discontinued operations. In making
this estimate, we considered factors such as the commercial real estate market,
including our estimate as to how and when we will be able to sub-lease,
terminate or buy out the remaining lease obligation. Given the currently depressed commercial real estate markets and
the continued spending reductions by businesses and government agencies, there
can be no guarantee that we will be able to conclude this lease obligation for
the amount that we have accrued, which could require additional charges.
Excess and Obsolete Inventory
We value
inventories at the lower of cost or market. In assessing the ultimate
realization of inventories, we make judgments as to future demand requirements
and compare that with current and committed inventory levels. The markets for
the Company’s products are extremely competitive and are characterized by rapid
technological change, new product development, product obsolescence and
evolving industry standards. In
addition, price competition is intense and significant price erosion generally
occurs over the life of a product. We have recorded significant charges for
reserves in recent periods to reflect changes in market conditions. We believe
that future events are subject to change and errors in estimates may have significant
adverse impact on the balance sheet.
Long-Lived
Assets and Other Intangible Assets
Long-lived
assets such as property, plant and equipment and other intangible assets are
reviewed for impairment whenever events and changes in business circumstances
indicate that the carrying value of the long-lived asset may not be recoverable
in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of
Long-Lived Assets.” The most significant
assumptions in the analysis of impairment involve estimates of future
discounted cash flows. We use cash flow
assumptions that are consistent with our business plans and consider other
relevant information. If we determine
that the carrying value of the long-lived asset may not be recoverable, a
permanent impairment charge is recorded for the amount by which the carrying
value of the long-lived assets exceeds its fair market value. If there are changes in business
circumstances or in the key assumptions used in estimating undiscounted cash
flows, the carrying value of our long-lived assets may be overstated or
understated, as well as the related impairment charge.
Goodwill
We account
for goodwill in accordance with SFAS No. 142, “Goodwill and Other Intangible
Assets.” This standard requires that
goodwill no longer be amortized but is subject to an annual impairment test and
when an event occurs or circumstances change such that it is reasonably
possible that an impairment may exist.
The first step consists of estimating the fair value of each reporting
unit based on a discounted cash flow model using revenue and profit forecasts
and comparing those estimated fair values with the carrying values of the
reporting unit, which includes the allocated goodwill. If the fair value is less than the carrying
value, a second step is performed to compute the amount of the impairment by
determining an implied fair value of goodwill.
The implied fair value of goodwill is the residual fair value derived by
deducting the fair value of a reporting unit’s assets and liabilities from its
estimated fair value, which was calculated in step one. The impairment charge represents the excess
of the carrying amount of the reporting units’ goodwill over the implied fair
value of their goodwill.
37
In
assessing the implied fair value of goodwill, we have made assumptions
regarding estimates of future cash flows and other operating factors. The most significant assumptions in the
analysis of impairment involve estimates of revenue and expense forecasts of
the reporting unit. If there are
changes in business circumstances of in the key assumptions used in estimating
the fair value of the reporting unit, the carrying value of our goodwill may be
overstated or understated, as well as the related impairment charge. We cannot say with certainty that we may not
incur charges for impairment of goodwill in the future if the fair value of
Maxwell Technologies and Maxwell SA decrease due to market conditions or other
unanticipated circumstances. We may
have to revise our assumptions and incur additional charges. Any additional impairment charges will
adversely affect our results of operations.
Valuation Allowance for Deferred Tax Assets
A valuation
allowance is provided for deferred tax assets if it is more likely than not
that these items will either expire before we are able to realize their
benefit, or that future deductibility is uncertain. In general, companies that
have had a recent history of operating losses are faced with a difficult burden
of proof as to their ability to generate sufficient future income in order to
realize the benefit of the deferred tax assets. We determined that it was appropriate to record a valuation
allowance as of December 31, 2003 against our deferred tax assets based on the
recent history of losses to amounts that are expected to be more likely than
not realizable. The deferred tax assets are still available for us to use in
the future to offset taxable income, which would result in the recognition of a
tax benefit and a reduction to the Company’s effective tax rate.
Impact of Inflation
We believe
that inflation has not had a material impact on our results of operations for
each of our fiscal years in the three-year period ended December 31, 2003.
However, there can be no assurance that future inflation would not have an
adverse impact on our operating results and financial condition.
New
Accounting Pronouncements
Effective
January 1, 2003, we adopted SFAS No. 87, “Employers’ Accounting for Pensions,”
as amended, in accordance with Emerging Issues Task Force 03-4, “Determining
the Classification and Benefit Attribution Method for a “Cash Balance” Pension
Plan” related to its Swiss pension plan.
This statement requires a standardized method for measuring net periodic
pension cost and recognizing the compensation cost of an employee’s pension
over the employee’s approximate service period by relating the cost more
directly to the terms of the plan. This
statement requires immediate recognition of a liability (the minimum liability)
when the accumulated benefit obligation exceeds the fair value of plan
assets. This statement also requires
expanded disclosures about pension plan assets, obligations, benefit payments,
contributions and net benefit cost.
The
adoption of SFAS No. 87 on January 1, 2003, resulted in a cumulative effect of
an accounting change, net of tax, of $878,000 (Note 11).
In January
2003, the Financial Accounting Standards Board (FASB) issued FASB
Interpretation (FIN) 46, “Consolidation of Variable Interest Entities.”
This interpretation provided guidance on the identification of, and financial
reporting for, variable interest entities. Variable interest entities are
entities that lack the characteristics of a controlling financial interest or
lack sufficient equity to finance activities without additional subordinated
financial support. FIN 46 requires a company to consolidate a variable interest
entity if that company is obligated to absorb the majority of the entity’s
expected losses or is entitled to receive the majority of the entity’s residual
returns, or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate but in which it has a
significant variable interest. FIN 46 is applicable immediately to variable
interest entities created after January 31, 2003. For all variable interest
entities created prior to February 1, 2003, FIN 46 is applicable to the first
interim or annual period ending after December 15, 2003. The application
of this interpretation is not expected to have a material effect on our
Consolidated Financial Statements.
In December
2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based Compensation-
Transition and Disclosure- an amendment of FASB Statement No. 123” (SFAS No.
148). This statement amends SFAS No.
123 “Accounting for Stock Based Compensation”
(SFAS No. 123) to provide alternative methods of voluntarily
transitioning to the fair value based method of accounting for stock-based
employee compensation. SFAS No. 148
also amends the disclosure requirements of SFAS No. 123 to require disclosure
of the method used to account for stock-based employee compensation and the
effects of the method on reported results in both annual and interim financial
statements. The disclosure provisions
were effective for our fiscal year ended December 31, 2002.
38
In November
2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s Accounting and
Disclosure Requirements for Guarantees, Including Indirect Guarantees of
Indebtedness of Others,” which elaborates on the disclosures to be made by a
guarantor and clarifies that a guarantor is required to recognize, at the
inception of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee. The recognition provisions of FIN 45 are
applicable to guarantees issued or modified after December 31, 2002 and the
disclosure provisions were effective for the year ended December 31, 2003. The
adoption of FIN 45 did not have a material impact on our consolidated financial
position or results of operations.
In June
2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with Exit
or Disposal Activities” (SFAS No. 146).
This statement supercedes Emerging Issues Task Force (EITF) issue No.
94-3 “Liabilities Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring).” SFAS No. 146 requires that a liability for
cost associated with an exit or disposal activity be recognized at the date an
entity commits to an exit plan. SFAS No.
146 also establishes that the liability should initially be measured and recorded
at fair value. The provisions of SFAS
No. 146 were effective for any exit and disposal activities initiated after
December 31, 2002. Adoption of SFAS No.
146 as of January 1, 2003 did not have a material impact on the Company’s
financial position and results of operations.
In August
2001, the FASB issued SFAS No. 144, “Accounting for the Impairment or
Disposal of Long-Lived Assets.” SFAS No. 144 addresses the financial
accounting and reporting for the impairment or disposal of long-lived assets.
SFAS No. 144 supersedes SFAS No. 121 but retains SFAS No. 121’s
fundamental provisions for recognition and measurement of impairment of
long-lived assets to be held and used and measurement of long-lived assets to
be disposed of by sale. SFAS No. 144 also supersedes the accounting and
reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30
for segments of a business to be disposed of but retains APB Opinion
No. 30’s requirement to report discontinued operations separately from continuing
operations and extends that reporting to a component of an entity that either
has been disposed of or is classified as held for sale. SFAS No. 144
became effective for the Company beginning January 1, 2002. Adoption of
SFAS No. 144 as of January 1, 2002 did not have a material impact on
the Company’s financial position or results of operations.
We have not
entered into or invested in any instruments that are subject to market risk,
except as follows:
We face
exposure to financial market risks, including adverse movements in foreign
currency exchange rates and changes in interest rates. These exposures may
change over time and could have a material adverse impact on our financial
results.
Foreign Currency Risk
Our primary
foreign currency exposure is related to our subsidiary in Switzerland. Maxwell
Technologies SA has Euro and local currency (Swiss Franc) revenue and local
currency operating expenses. Changes in these currency exchange rates impact
the U.S. dollar amount of revenue and expenses. We do not hedge our currency
exposures.
Interest Rate Risk
At December
31, 2003, we had $1.6 million or 2 million Swiss Franc denominated-term debt.
The carrying value of these short-term borrowings approximates fair value due
to the short maturity dates of this instrument. We do not anticipate significant interest rate swings in the near
future; however, the exchange loss or gain may significantly affect the balance
sheet or the statement of operations.
We invest
excess cash in debt instruments of the U.S. Government and its agencies,
high-quality corporate issuers and money market accounts. The primary objective
of our investment activities is to preserve principal while maximizing yields
without significantly increasing risk. Current policies do not allow the use of
interest rate derivative instruments to manage exposure to interest rate
changes. As of December 31, 2003, a third party manages approximately $2.5
million of the investment portfolio under guidelines approved by the Company’s
Board of Directors. The balance of our cash is invested in money market
accounts with banks.
39
See pages
F-1 through F-36.
Effective
March 27, 2003, the Company engaged Deloitte & Touche LLP to serve as the
Company’s principal accountant to audit the Company’s financial statements for
the fiscal year ending December 31, 2003.
Ernst & Young LLP continued to serve as the Company’s principal
accountant to audit the Company’s financial statements for the fiscal year
ended December 31, 2002, through the completion of that audit and the date
of the Company’s Annual Report on Form 10-K for that period. The change in the Company’s principal
accountant was approved by the Audit Committee.
The
reports of Ernst & Young LLP with respect to the Company’s financial
statements for the fiscal years ended December 31, 2002 and December 31, 2001
contained no adverse opinion or disclaimer of opinion and were not qualified or
modified as to uncertainty, audit scope, or accounting principles. During the fiscal years ended December 31,
2002 and December 31, 2001 and the period from December 31, 2002 through the
end of Ernst & Young LLP’s engagement by the Company, there were no
disagreements between the Company and Ernst & Young LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure, which disagreements, if not resolved to the satisfaction of
Ernst & Young LLP, would have caused Ernst & Young LLP to make
reference to the subject matter of the disagreements in its report on the
Company’s financial statements for such years.
During
the fiscal years ended December 31, 2002 and December 31, 2001 and the period
from December 31, 2002 to the date of the Company’s Annual Report on Form 10-K for
the year ended December 31, 2002, the Company did not consult with Deloitte
& Touche LLP regarding either the application of accounting principles to a
specified transaction, the type of audit opinion that might be rendered on the
Company’s financial statements, or any matter that was the subject of a
disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K under the
Securities Exchange Act of 1934, as amended, or reportable event, as defined in
Item 304(a)(1)(v) of Regulation S-K.
Pursuant
to Item 304(a)(3) of Regulation S-K, the Company requested that Ernst &
Young LLP furnish it with a letter addressed to the SEC stating whether or not
it agrees with the above statements. A
copy of that letter was included as an exhibit to the Company’s Current Report
on Form 8-K filed with the SEC on April 1, 2003.
On
March 29, 2004, the Audit Committee received a letter from Deloitte & Touche
LLP identifying a reportable condition under the standards established by the
American Institute of Certified Public Accountants and advising us that, in their judgment, the reportable condition constitutes a material weakness under such standards. In planning and performing
the audit of our consolidated financial statements for the year ended December
31, 2003, Deloitte & Touche LLP observed that the Company has experienced
significant turnover during 2003 in our financial accounting and reporting
function, which has resulted in the loss of in-house expertise in the areas of
generally accepted accounting principals (GAAP) and the financial statements
reporting requirements of the SEC. In their March 29, 2004 letter to us,
Deloitte & Touche LLP recommended that we reassess our current accounting
and reporting organization/positions and hire additional personnel with GAAP and
SEC reporting expertise as soon as possible to augment current resources. Our
Audit Committee has discussed with Deloitte & Touche LLP the matters raised
in its March 29, 2004 letter to the Audit Committee. We have authorized Deloitte
& Touche LLP to respond fully to the inquiries of our successor accountant
concerning the subject matter of such letter.
We
have been informed that Deloitte & Touche LLP is resigning as our
independent auditors and we are filing a Current Report on Form 8-K regarding
this matter concurrently with this Annual Report.
The
report of Deloitte & Touche LLP with respect to the Company’s financial
statements for the fiscal year ended December 31, 2003 contained no adverse
opinion or disclaimer of opinion and was not qualified or modified as to
uncertainty, audit scope or accounting principles. During the fiscal year ended
December 31, 2003 and the period from December 31, 2003 through the end of
Deloitte & Touche LLP’s engagement with the Company, there were no disagreements between the Company and Deloitte
& Touche LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure, which disagreements, if not resolved to the satisfaction of Deloitte
& Touche LLP, would have caused Deloitte & Touche LLP to make reference
to the subject matter of the disagreements in its report on the Company’s
financial statements for such year.
Pursuant
to Item 304(a)(3) of Regulation S-K, the Company requested that Deloitte &
Touche LLP furnish it with a letter addressed to the SEC stating whether or not
it agrees with the above statements. A copy of that letter will be filed with
the SEC promptly upon receipt.
Disclosure Controls and Procedures
Richard
D. Balanson, our Chief Executive Officer, and Tesfaye Hailemichael, our Chief
Financial Officer, evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this Annual Report. Based on the evaluation, they believe that:
|
|
•
|
our
disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act is recorded, processed, summarized and reported within the time
periods specified in the SEC’s rules and forms; and
|
|
|
|
|
|
|
•
|
our
disclosure controls and procedures were effective to ensure that information
required to be disclosed by us in the reports we file or submit under the
Exchange Act was accumulated and communicated to our management, including
our Chief Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosure.
|
Internal Control Over Financial Reporting
There
has not been any change in our internal control over financial reporting that
occurred during our quarterly period ended December 31, 2003 that has
materially affected, or is reasonably likely to materially affect, our internal
control over financial reporting.
40
Limitations on the Effectiveness of Controls
The
Company’s management, including the Chief Executive Officer and Chief Financial
Officer, does not expect that our disclosure controls or our internal control
over financial reporting will prevent all error and all fraud. A control system, no matter how well
designed and operated, can provide only reasonable, not absolute, assurance
that the control system’s objectives will be met. Further, the design of a control system must reflect the fact
that there are resource constraints, and the benefits of controls must be
considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the Company have been detected. These inherent limitations include the
realities that judgments in decision-making can be faulty and that breakdowns
can occur because of simple error or mistake.
Controls can also be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
controls. The design of any system of
controls is based in part on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions. Over time, controls may become inadequate
because of changes in conditions or deterioration in the degree of compliance
with policies or procedures. Because of
the inherent limitations in a cost-effective control system, misstatements due
to error or fraud may occur and not be detected.
41
PART III
The
information required by this item will be contained in our definitive Proxy
Statement with respect to our Annual Meeting of Stockholders, to be held on May
6, 2004, under the captions “Election of Directors,” “Board of Directors
Meetings and Committees,” “Section 16(a) Beneficial Ownership Reporting
Compliance,” “Executive Compensation” and “Code of Business Ethics and Conduct”
and is incorporated by reference herein.
The
information required by this item will be contained in our definitive Proxy
Statement with respect to our Annual Meeting of Stockholders, to be held on May
6, 2004, under the caption “Executive Compensation,” is incorporated by
reference herein.
The
information required by this item will be contained in our definitive Proxy
Statement with respect to our Annual Meeting of Stockholders, to be held on May
6, 2004, under the caption “Security Ownership of Certain Beneficial Owners and
Management” and is incorporated by reference herein.
The
information required by this item will be contained in our definitive Proxy
Statement with respect to our Annual Meeting of Stockholders, to be held on May
6, 2004, under the caption “Certain Transactions” and is incorporated by
reference herein.
The
information required by this item will be contained in our definitive Proxy
Statement with respect to our Annual Meeting of Stockholders, to be held on May
6, 2004, under the caption “Ratification of Independent Auditor” and is
incorporated by reference herein.
42
PART IV
(a)
Documents
filed as part of this report.
1.
Financial Statements.
The consolidated
financial statements required by this item are submitted in a separate section
beginning on page F-1 of this Annual Report on Form 10-K.
2.
Financial
Statement Schedules.
The
financial statement schedule entitled “Valuation and Qualifying Accounts”
required by this item is submitted in a separate section beginning on page F-36
of this Annual Report on Form 10-K. All
other schedules are omitted because they are not applicable.
3.
Exhibits.
|
|
Exhibit
Number
|
|
Description of Document
|
|
|
|
|
|
|
|
2.1
|
|
Asset
Purchase Agreement dated December 10, 2003 between the Registrant and Metar
SA en constitution. (1)
|
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|
|
|
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|
|
2.2
|
|
Purchase and
Sale Agreement and Joint Escrow Instructions dated August 15, 2003 by and
between the Registrant and Horizon Christian Fellowship. (1)
|
|
|
|
|
|
|
|
2.3
|
|
First
Amendment to Purchase and Sale Agreement and Joint Escrow Instructions by and
between the Registrant and Horizon Christian Fellowship, dated September 26,
2003 (1)
|
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|
|
|
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|
2.4
|
|
Second
Amendment to Purchase and Sale Agreement and Joint Escrow Instructions by and
between the Registrant and Horizon Christian Fellowship, dated October 13,
2003. (1)
|
|
|
|
|
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|
|
2.5
|
|
Third
Amendment to Purchase and Sale Agreement and Joint Escrow Instructions by and
between the Registrant and Horizon Christian Fellowship, dated December 23,
2003. (1)
|
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3.1
|
|
Restated
Certificate of Incorporation of the Registrant. (19)
|
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|
3.2
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of the Registrant,
dated November 22, 1996. (13)
|
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|
|
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|
|
3.3
|
|
Certificate
of Amendment of Restated Certificate of Incorporation of the Registrant,
dated February 9, 1998. (2)
|
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|
|
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3.4
|
|
Amended and
Restated Bylaws of the Registrant. (3)
|
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|
|
|
|
4.1
|
|
Rights
Agreement dated November 5, 1999 between the Registrant and Chase Mellon
Shareholders Services, LLC, as Rights Agent. (18)
|
|
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4.2
|
|
Amendment of
Rights Agreement dated as of July 5, 2002 *
|
|
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|
|
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10.1
|
|
Amended and
Restated 1995 Stock Option Plan of the Registrant. (3)
|
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|
|
|
|
|
10.2
|
|
Stock Option
Agreement under 1995 Stock Option Plan by and between Registrant and Kenneth
Potashner, dated as of May 19, 2003. *
|
|
|
|
|
|
|
|
10.3
|
|
Maxwell
Laboratories, Inc. 1989 Director Stock Option Plan. (20)
|
|
|
|
|
|
|
|
10.4
|
|
Amendment
Number One to Maxwell Laboratories, Inc. Director Stock Option Plan, dated
February 7, 1997. (13)
|
43
|
|
10.5
|
|
Amendment
Number Two to Maxwell Laboratories, Inc. Director Stock Option Plan, dated
January 28, 1999. (2)
|
|
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|
|
|
|
|
10.6
|
|
1999
Director Stock Option Plan of the Registrant. (5)
|
|
|
|
|
|
|
|
10.7
|
|
Maxwell
Laboratories, Inc. 1994 Employee Stock Purchase Plan. (14)
|
|
|
|
|
|
|
|
10.8
|
|
Amendment
Number One to the Maxwell Laboratories, Inc. 1994 Employee Stock Purchase
Plan, effective as of April 30, 1997. (13)
|
|
|
|
|
|
|
|
10.9
|
|
Maxwell
Laboratories, Inc. 1994 Director Stock Purchase Plan. (14)
|
|
|
|
|
|
|
|
10.10
|
|
PurePulse
Technologies, Inc. 1994 Stock Option Plan. (15)
|
|
|
|
|
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|
|
10.11
|
|
Employment
Agreement dated November 9, 1999 between the Registrant and Carlton J. Eibl.
(5)
|
|
|
|
|
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|
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10.12
|
|
Restricted
Stock Agreement dated July 25, 1996, between the Registrant and Kenneth F.
Potashner. (15)
|
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|
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10.13
|
|
Amendment
Number One to Restricted Stock Agreement, dated June 24, 1997, between the
Registrant and Kenneth F. Potashner. (13)
|
|
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10.14
|
|
Secured
Promissory Note dated February 2, 1999 and Stock Pledge Agreement dated
February 2, 1999 between Registrant and Kenneth F. Potashner. (2)
|
|
|
|
|
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|
|
10.15
|
|
Stock Pledge
Agreement dated February 2, 1999 between Registrant and Kenneth F. Potashner.
(2)
|
|
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|
|
|
|
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10.16
|
|
Shareholder
Agreement among the Registrant, PurePulse Technologies, Inc., Sanyo E&E
Corporation and Three Oceans Inc., dated January 28, 1999. (2)
|
|
|
|
|
|
|
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10.17
|
|
Loan and
Security Agreement dated February 26, 2001, between the Registrant, Maxwell
Electronic Components Group, Inc., I-Bus/Phoenix, Inc., PurePulse
Technologies, Inc., Maxwell Technologies Systems Division, Inc., MML
Acquisition Corporation and Comerica Bank – California. (6)
|
|
|
|
|
|
|
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10.18
|
|
Third
Amendment to Loan and Security Agreement dated December 21, 2001, among the
Registrant, Maxwell Electronic Components Group, Inc., I-Bus/Phoenix, Inc.,
PurePulse Technologies, Inc., MML Acquisition Corp. and Comerica Bank –
California. (12)
|
|
|
|
|
|
|
|
10.19
|
|
Fourth
Amendment to Loan and Security Agreement dated July 2, 2002, among the
Registrant, Maxwell Electronic Components Group, Inc., I-Bus/Phoenix, Inc.,
PurePulse Technologies, Inc., MML Acquisition Corp. and Comerica
Bank-California. *
|
|
|
|
|
|
|
|
10.20
|
|
Fifth
Amendment to Loan and Security Agreement dated August 13, 2002, among the
Registrant, Maxwell Electronic Components Group, Inc., I-Bus/Phoenix, Inc.,
PurePulse Technologies, Inc., MML Acquisition Corp. and Comerica
Bank-California. *
|
|
|
|
|
|
|
|
10.21
|
|
Sixth
Amendment to Loan and Security Agreement dated October 31, 2002, among the
Registrant, Maxwell Electronic Components Group, Inc., I-Bus/Phoenix, Inc.,
PurePulse Technologies, Inc., MML Acquisition Corp. and Comerica
Bank-California. *
|
|
|
|
|
|
|
|
10.22
|
|
Seventh
Amendment to Loan and Security Agreement dated June 30, 2003, among the
Registrant, Maxwell Electronic Components Group, Inc., I-Bus/Phoenix, Inc.,
PurePulse Technologies, Inc., MML Acquisition Corp. and Comerica
Bank-California. *
|
|
|
|
|
|
|
|
10.23
|
|
Term Loan
Agreement dated December 21, 2001 between the Registrant and Comerica
Bank-California. (12)
|
|
|
|
|
|
|
|
10.24
|
|
Lease dated
March 28, 2000 by and between Balboa Boulevard Building, G.P., as Lessor, and
the Registrant, as Lessee. (6)
|
44
|
|
10.25
|
|
Lease dated
November 1, 1996, by and between Ponderosa Pines Partnership, as Lessor, and
PurePulse Technologies, Inc., as Lessee. (13)
|
|
|
|
|
|
|
|
10.26
|
|
Stock
Purchase and Barter Agreement by and between the Registrant and Montena SA
dated May 30, 2002 (8)
|
|
|
|
|
|
|
|
10.27
|
|
Amendment
Number One to Stock Purchase and Barter Agreement by and between the
Registrant and Montena SA dated June 28, 2002 (8)
|
|
|
|
|
|
|
|
10.28
|
|
Amendment
Number Two to the Stock Purchase and Barter Agreement by and between the
Registrant and Montena SA dated August 12, 2002. (9)
|
|
|
|
|
|
|
|
10.29
|
|
Asset Purchase
Agreement dated as of September 30, 2002 between Maxwell Electronic
Components Group, Inc. and TeknaSeal L.L.C. (10)
|
|
|
|
|
|
|
|
10.30
|
|
Purchase and
Sale Agreement dated as of September 29, 2002 between I-Bus/Phoenix, Inc. and
I-Bus Corporation. (10)
|
|
|
|
|
|
|
|
10.31
|
|
8% Senior
Subordinated Promissory Note dated September 29, 2002 in the principal amount
of $7,000,000. (10)
|
|
|
|
|
|
|
|
10.32
|
|
Warrant for
Common Stock of I-Bus Corporation dated September 29, 2002 issued to
I-Bus/Phoenix, Inc. (10)
|
|
|
|
|
|
|
|
10.33
|
|
Term Loan
Agreement Amendments dated August 13, 2002 and October 31, 2002 between the
Registrant and Comerica Bank California. (11)
|
|
|
|
|
|
|
|
10.34
|
|
Services
Agreement dated April 4, 2003 between the Registrant and Carlton Eibl. (16)
|
|
|
|
|
|
|
|
10.35
|
|
Separation Agreement
and General Release of Claims effective as of May 8, 2003 between the
Registrant and Kenneth Potashner. (17)
|
|
|
|
|
|
|
|
10.36
|
|
Employment
Agreement dated August 1, 2003 between the Registrant and Richard D.
Balanson. (17)
|
|
|
|
|
|
|
|
10.37
|
|
Employment
Agreement dated December 22, 2003 between the Registrant and Tesfaye
Hailemichael. *
|
|
|
|
|
|
|
|
10.38
|
|
Employment
Agreement dated December 22, 2003 between the Registrant and Richard Smith. *
|
|
|
|
|
|
|
|
10.39
|
|
Separation
Agreement and General Release of All Claims effective as of October 31, 2003
between the Registrant and James Baumker. *
|
|
|
|
|
|
|
|
10.40
|
|
Indemnity
Agreement for Directors of the Registrant. *
|
|
|
|
|
|
|
|
10.41
|
|
Loan and
Security Agreement dated February 4, 2004 between the Registrant and Silicon
Valley Bank. *
|
|
|
|
|
|
|
|
10.42
|
|
Schedule to
Loan and Security Agreement dated February 4, 2004 between the Registrant and
Silicon Valley Bank. *
|
|
|
|
|
|
|
|
10.43
|
|
Loan and
Security Agreement (Exim Program) dated February 4, 2004 between the
Registrant and Silicon Valley Bank. *
|
|
|
|
|
|
|
|
10.44
|
|
Schedule to
Loan and Security Agreement (Exim Program) dated February 4, 2004 between the
Registrant and Silicon Valley Bank. *
|
|
|
|
|
|
|
|
10.45
|
|
Export-Import
Bank of the United States Agreement Executed by Borrower dated February 4,
2004 between Registrant, Export-Import Bank of the United States and Silicon Valley Bank.
*
|
45
|
|
|
|
|
|
|
10.46
|
|
Intellectual
Property Security Agreement dated February 4, 2004 between Registrant and
Silicon Valley Bank. *
|
|
|
|
|
|
|
|
10.47
|
|
Securities
Account Control Agreement dated February 4, 2004 between Registrant and
Silicon Valley Bank. *
|
|
|
|
|
|
|
|
21.1
|
|
List of
subsidiaries of the Registrant. *
|
|
|
|
|
|
|
|
23.1
|
|
Consent of
Deloitte & Touche LLP, Independent Auditors. *
|
|
|
|
|
|
|
|
23.2
|
|
Consent of
Ernst & Young LLP, Independent Auditors. *
|
|
|
|
|
|
|
|
31.1
|
|
Certification
of Chief Executive Officer pursuant to Rule 13a-14(a) (Section 302
Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. *
|
|
|
|
|
|
|
|
31.2
|
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14(a) (Section 302
Certification) as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002. *
|
|
|
|
|
|
|
|
32
|
|
Certification
of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
|
|
(1)
|
Incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed with
the SEC on January 15, 2004.
|
|
|
|
|
(2)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1999.
|
|
|
|
|
(3)
|
Incorporated
herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003.
|
|
|
|
|
(4)
|
Incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed with
the SEC on November 18, 1999.
|
|
|
|
|
(5)
|
Incorporated
herein by reference to the Registrant’s Transition Report on Form 10-K for
the transition period from August 1, 1999 to December 31, 1999.
|
|
|
|
|
(6)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2000.
|
|
|
|
|
(7)
|
Incorporated
herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended September 30, 2000.
|
|
|
|
|
(8)
|
Incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed with
the SEC on July 19, 2002.
|
|
|
|
|
(9)
|
Incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed with
the SEC on September 18, 2002.
|
|
|
|
|
(10)
|
Incorporated
herein by reference to the Registrant’s Current Report on Form 8-K filed with
the SEC on October 15, 2002.
|
|
|
|
|
(11)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2002.
|
|
|
|
|
(12)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended December 31, 2001.
|
46
|
|
|
|
(13)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1997.
|
|
|
|
|
(14)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1995.
|
|
|
|
|
(15)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1996.
|
|
|
|
|
(16)
|
Incorporated
herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended March 31, 2003.
|
|
|
|
|
(17)
|
Incorporated
herein by reference to the Registrant’s Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003.
|
|
|
|
|
(18)
|
Incorporated
herein by reference to Form 8-A filed November 18, 1999.
|
|
|
|
|
(19)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1987 (SEC file no. 000-10964).
|
|
|
|
|
(20)
|
Incorporated
herein by reference to the Registrant’s Annual Report on Form 10-K for the
fiscal year ended July 31, 1989 (SEC file no. 000-10964).
|
|
|
(b)
|
Reports On Form 8-K
.
|
|
|
|
|
|
On
October 29, 2003 we filed a report on Form 8-K with the SEC relating to the
announcement of our results of operations and financial condition for the
third quarter and the nine-month period ended on September 30, 2003.
|
|
|
|
|
|
|
(c)
|
See Exhibits
required by this item under Item 15(a)(3).
|
|
|
|
|
|
|
(d)
|
See the financial
statement schedule required by this item under Item 15(a)(2).
|
47
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, on this 30th day of March 2004.
|
|
MAXWELL
TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
|
By:
|
/s/ Richard
D. Balanson
|
|
|
|
|
|
|
|
Richard D.
Balanson
|
|
|
|
President
and Chief Executive Officer
|
Pursuant to
the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Richard D. Balanson
|
|
President,
Chief Executive Officer and
|
|
March 30,
2004
|
|
|
Director
|
|
|
|
Richard D. Balanson
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Tesfaye Hailemichael
|
|
Vice
President, Finance,
|
|
March 30,
2004
|
|
|
Treasurer
and Chief Financial Officer
|
|
|
|
Tesfaye Hailemichael
|
|
(Principal
Financial and Accounting Officer)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Carlton J. Eibl
|
|
Director
|
|
March 30,
2004
|
|
|
|
|
|
|
Carlton J. Eibl
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Mark Rossi
|
|
Director
|
|
March 30,
2004
|
|
|
|
|
|
|
Mark Rossi
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Jean Lavigne
|
|
Director
|
|
March 30,
2004
|
|
|
|
|
|
|
Jean Lavigne
|
|
|
|
|
|
|
|
|
|
|
|
/s/ Robert Guyett
|
|
Director
|
|
March 30,
2004
|
|
|
|
|
|
|
Robert Guyett
|
|
|
|
|
|
|
|
|
|
|
|
/s/ José Cortes
|
|
Director
|
|
March 30,
2004
|
|
|
|
|
|
|
José Cortes
|
|
|
|
|
48
Item
8. Financial Statements and Supplementary Data
Our
consolidated financial statements and notes thereto appear on pages F-1 to F-36
of this Annual Report on
Form 10-K.
MAXWELL TECHNOLOGIES, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
INDEPENDENT AUDITORS’ REPORT
To the Board of Directors
and Stockholders
Maxwell Technologies, Inc.
We have audited the
accompanying consolidated balance sheet of Maxwell Technologies, Inc. and
subsidiaries (the “Company”) as of December 31, 2003, and the related
consolidated statements of operations, shareholders’ equity and comprehensive
loss, and cash flows for the year then ended. Our audit also
included the 2003 financial statement schedule listed at Item 15. These financial statements and financial
statement schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audit.
We conducted our audit in
accordance with auditing standards generally accepted in the United States of
America. 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 audit provides a reasonable basis
for our opinion.
In our opinion, such
consolidated financial statements present fairly, in all material respects, the
financial position of Maxwell Technologies, Inc. and subsidiaries as of
December 31, 2003, and the results of their operations and their cash flows for
the year then ended in conformity with accounting principles generally accepted
in the United States of America. Also,
in our opinion, such financial statement schedule, when considered in relation
to the basic consolidated financial statements taken as a whole, presents
fairly in all material respects the information set forth therein.
As discussed in Note 1 to
the consolidated financial statements, effective January 1, 2003, the Company
changed its method of accounting for its Swiss pension plan to conform with
Statement of Financial Accounting Standards No. 87, as amended.
Deloitte & Touche LLP
San Diego, California
March 29, 2004
F-2
REPORT OF ERNST & YOUNG LLP,
INDEPENDENT AUDITORS
To the Board of Directors
and Stockholders
Maxwell Technologies, Inc.
We have audited the accompanying
consolidated balance sheet of Maxwell Technologies, Inc. and subsidiaries as of
December 31, 2002, and the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the two years in the period
ended December 31, 2002. Our audits
also included the financial statement schedule II, Valuation and Qualifying
Accounts. These consolidated financial
statements and schedule are the responsibility of the Company’s management. Our
responsibility is to express an opinion on these financial statements and
schedule 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, 2002, and the consolidated results of their
operations and their cash flows for each of the two years in the period ended
December 31, 2002, in conformity with accounting principles generally accepted
in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
As discussed in Note 8 to
the consolidated financial statements, effective January 1, 2002, the Company
adopted Financial Accounting Standards Board Statement No. 142, “Goodwill and
Other Intangible Assets.”
San Diego, California
February 7, 2003
F-3
MAXWELL TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share data)
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
9,784
|
|
$
|
3,545
|
|
|
|
Short-term investments
|
|
|
2,455
|
|
|
7,546
|
|
|
|
Trade and other accounts receivable, net
|
|
|
5,936
|
|
|
8,530
|
|
|
|
Inventories
|
|
|
7,309
|
|
|
11,833
|
|
|
|
Assets held-for-sale
|
|
|
—
|
|
|
7,356
|
|
|
|
Prepaid expenses and other current assets
|
|
|
1,143
|
|
|
1,037
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
26,627
|
|
|
39,847
|
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net
|
|
|
10,769
|
|
|
11,653
|
|
|
|
Other intangible assets, net
|
|
|
2,002
|
|
|
2,009
|
|
|
|
Goodwill
|
|
|
19,478
|
|
|
17,577
|
|
|
|
Prepaid pension asset
|
|
|
3,962
|
|
|
—
|
|
|
|
Other non-current assets
|
|
|
175
|
|
|
294
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,013
|
|
$
|
71,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
7,650
|
|
$
|
10,354
|
|
|
|
Accrued warranty
|
|
|
1,262
|
|
|
1,154
|
|
|
|
Customer deposits
|
|
|
599
|
|
|
2,305
|
|
|
|
Accrued employee compensation
|
|
|
1,653
|
|
|
1,590
|
|
|
|
Short-term borrowings and current portion of
long-term debt
|
|
|
1,851
|
|
|
570
|
|
|
|
Deferred tax liability
|
|
|
339
|
|
|
272
|
|
|
|
Net liabilities of discontinued operations
|
|
|
1,494
|
|
|
2,326
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
14,848
|
|
|
18,571
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liability
|
|
|
473
|
|
|
183
|
|
|
Long-term debt, excluding current portion
|
|
|
—
|
|
|
2,675
|
|
|
Commitments and contingencies (Note 10)
|
|
|
|
|
|
|
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.10 par value per share, 40,000
shares authorized; 14,339 and
13,726 shares issued and outstanding at December 31, 2003 and 2002,
respectively
|
|
|
1,434
|
|
|
1,373
|
|
|
|
Additional paid-in capital
|
|
|
113,221
|
|
|
112,255
|
|
|
|
Accumulated deficit
|
|
|
(70,310
|
)
|
|
(64,015
|
)
|
|
|
Accumulated other comprehensive income
|
|
|
3,347
|
|
|
338
|
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
47,692
|
|
|
49,951
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
63,013
|
|
$
|
71,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes to consolidated financial statements.
F-4
MAXWELL TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
41,024
|
|
$
|
57,965
|
|
$
|
77,856
|
|
|
License Fees
|
|
|
4,000
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Revenue
|
|
|
45,024
|
|
|
57,965
|
|
|
77,856
|
|
|
Cost of sales
|
|
|
36,740
|
|
|
51,133
|
|
|
66,616
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
8,284
|
|
|
6,832
|
|
|
11,240
|
|
|
Operating expenses (income):
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and
administrative
|
|
|
13,866
|
|
|
18,092
|
|
|
22,465
|
|
|
Pension curtailment and
settlement gain
|
|
|
(2,177
|
)
|
|
—
|
|
|
—
|
|
|
Research and development
|
|
|
5,917
|
|
|
8,417
|
|
|
11,519
|
|
|
Property, plant and
equipment impairment
|
|
|
—
|
|
|
2,308
|
|
|
—
|
|
|
Goodwill impairment
|
|
|
—
|
|
|
5,320
|
|
|
—
|
|
|
Restructuring charge
|
|
|
—
|
|
|
1,629
|
|
|
—
|
|
|
Investment impairment
|
|
|
—
|
|
|
—
|
|
|
500
|
|
|
Amortization of goodwill
|
|
|
—
|
|
|
—
|
|
|
1,196
|
|
|
Amortization of other
intangibles
|
|
|
76
|
|
|
483
|
|
|
—
|
|
|
Gain on sale of property and
equipment
|
|
|
(1,417
|
)
|
|
—
|
|
|
—
|
|
|
(Gain) loss on sale of
businesses
|
|
|
(632
|
)
|
|
6,542
|
|
|
(39,142
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating
expenses (income)
|
|
|
15,633
|
|
|
42,791
|
|
|
(3,462
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from operations
|
|
|
(7,349
|
)
|
|
(35,959
|
)
|
|
14,702
|
|
|
Interest (expense) income, net
|
|
|
(1
|
)
|
|
42
|
|
|
(615
|
)
|
|
Other (expense) income, net
|
|
|
(37
|
)
|
|
220
|
|
|
17
|
|
|
Minority interest in income of consolidated
subsidiaries
|
|
|
—
|
|
|
241
|
|
|
710
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations before
income taxes
|
|
|
(7,387
|
)
|
|
(35,456
|
)
|
|
14,814
|
|
|
Income tax (benefit) provision
|
|
|
(220
|
)
|
|
(132
|
)
|
|
23,035
|
|
|
Loss from continuing operations
|
|
|
(7,167
|
)
|
|
(35,324
|
)
|
|
(8,221
|
)
|
|
Discontinued operations (Note 14):
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations, net of
tax
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(5,777
|
)
|
|
Gain on disposal, net of tax
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from
discontinued operations
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(4,696
|
)
|
|
Net loss before cumulative effect of accounting
change
|
|
|
(7,173
|
)
|
|
(40,156
|
)
|
|
(12,917
|
)
|
|
Cumulative effect of accounting change, net of tax
(Note 11)
|
|
|
878
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(12,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(0.51
|
)
|
$
|
(2.88
|
)
|
$
|
(0.82
|
)
|
|
Loss from
discontinued operations, net of tax
|
|
|
—
|
|
|
(0.39
|
)
|
|
(0.47
|
)
|
|
Cumulative
effect of accounting change, net of tax
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(0.51
|
)
|
$
|
(2.88
|
)
|
$
|
(0.82
|
|
|
Loss from
discontinued operations, net of tax
|
|
|
—
|
|
|
(0.39
|
)
|
|
(0.47
|
)
|
|
Cumulative
effect of accounting change, net of tax
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares used in computing:
|
|
|
|
|
|
|
|
|
|
|
|
Basic net loss per share
|
|
|
13,939
|
|
|
12,264
|
|
|
10,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
|
13,939
|
|
|
12,264
|
|
|
10,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes to consolidated financial statements.
F-5
MAXWELL TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY AND
COMPREHENSIVE LOSS
(in thousands)
|
|
|
Shares
|
|
Amount
|
|
Additional
Paid—in
Capital
|
|
Deferred
Compensation
and Notes
Receivable from
Executives for
Stock Purchases
|
|
Accumulated
Deficit
|
|
Accumulated
Other
Comprehensive
Income (Loss)
|
|
Total
Stockholders’
Equity
|
|
Comprehensive
Loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2001
|
|
|
9,877
|
|
$
|
988
|
|
$
|
81,204
|
|
$
|
(915
|
)
|
$
|
(10,942
|
)
|
$
|
(581
|
)
|
$
|
69,754
|
|
|
—
|
|
|
Stock
purchase and option plans
|
|
|
291
|
|
|
29
|
|
|
3,079
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,108
|
|
|
—
|
|
|
Interest
on notes issued for stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
—
|
|
|
—
|
|
|
(97
|
)
|
|
—
|
|
|
Payment
on notes issued for
purchase of stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
—
|
|
|
100
|
|
|
—
|
|
|
Amortization
of deferred
compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
—
|
|
|
15
|
|
|
—
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(12,917
|
)
|
|
—
|
|
|
(12,917
|
)
|
$
|
(12,917
|
)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(311
|
)
|
|
(311
|
)
|
|
(311
|
)
|
|
Unrealized
gain on securities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
79
|
|
|
79
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2001
|
|
|
10,168
|
|
|
1,017
|
|
|
84,283
|
|
|
(897
|
)
|
|
(23,859
|
)
|
|
(813
|
)
|
|
59,731
|
|
$
|
(13,149
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase and option plans
|
|
|
225
|
|
|
23
|
|
|
560
|
|
|
868
|
|
|
—
|
|
|
—
|
|
|
1,451
|
|
|
—
|
|
|
Shares
issued for business
acquisition
|
|
|
2,250
|
|
|
225
|
|
|
17,724
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17,949
|
|
|
—
|
|
|
Shares
issued in exchange for
subsidiaries’ minority interest
|
|
|
1,083
|
|
|
108
|
|
|
9,688
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,796
|
|
|
—
|
|
|
Payment
on notes issued for
purchase of stock
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
—
|
|
|
29
|
|
|
—
|
|
|
Deferred
compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
|
—
|
|
|
—
|
|
|
(154
|
)
|
|
—
|
|
|
Amortization
of deferred
compensation
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
154
|
|
|
—
|
|
|
—
|
|
|
154
|
|
|
—
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40,156
|
)
|
|
—
|
|
|
(40,156
|
)
|
$
|
(40,156
|
)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,121
|
|
|
1,121
|
|
|
1,121
|
|
|
Unrealized
gain on securities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
30
|
|
|
30
|
|
|
30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2002
|
|
|
13,726
|
|
|
1,373
|
|
|
112,255
|
|
|
—
|
|
|
(64,015
|
)
|
|
338
|
|
|
49,951
|
|
$
|
(39,005
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock
purchase and option plans
|
|
|
148
|
|
|
15
|
|
|
1,012
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,027
|
|
|
—
|
|
|
Shares
issued for business
acquisition
|
|
|
465
|
|
|
46
|
|
|
(46
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
Net
loss
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,295
|
)
|
|
—
|
|
|
(6,295
|
)
|
$
|
(6,295
|
)
|
|
Other
comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency translation
adjustments
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3,112
|
|
|
3,112
|
|
|
3,112
|
|
|
Unrealized
(loss) on securities
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(103
|
)
|
|
(103
|
)
|
|
(103
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31,
2003
|
|
|
14,339
|
|
$
|
1,434
|
|
$
|
113,221
|
|
$
|
—
|
|
$
|
(70,310
|
)
|
$
|
3,347
|
|
$
|
47,692
|
|
$
|
(3,286
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to
consolidated financial statements.
F-6
MAXWELL TECHNOLOGIES, INC. AND
SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(7,167
|
)
|
$
|
(35,324
|
)
|
$
|
(8,221
|
)
|
|
|
Adjustments to reconcile loss from continuing
operations to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
3,805
|
|
|
4,633
|
|
|
5,295
|
|
|
|
Pension curtailment and settlement gain
|
|
|
(2,265
|
)
|
|
—
|
|
|
—
|
|
|
|
Non-cash restructuring and other charges
|
|
|
—
|
|
|
3,254
|
|
|
—
|
|
|
|
Impaired asset write-down
|
|
|
—
|
|
|
7,628
|
|
|
—
|
|
|
|
Gain on sales of property and equipment
|
|
|
(1,417
|
)
|
|
—
|
|
|
—
|
|
|
|
Loss (gain) on sales of business
|
|
|
(632
|
)
|
|
6,542
|
|
|
(39,119
|
)
|
|
|
Cancellation of stock notes
|
|
|
—
|
|
|
116
|
|
|
—
|
|
|
|
Minority interest in net income (loss) of
subsidiaries
|
|
|
—
|
|
|
(241
|
)
|
|
(710
|
)
|
|
|
Provision for losses on accounts receivable
|
|
|
241
|
|
|
576
|
|
|
534
|
|
|
|
Amortization of deferred compensation
|
|
|
—
|
|
|
182
|
|
|
15
|
|
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Trade and other accounts receivable
|
|
|
2,335
|
|
|
6,846
|
|
|
8,039
|
|
|
|
Inventories
|
|
|
4,449
|
|
|
2,184
|
|
|
2,441
|
|
|
|
Prepaid expenses and other current assets
|
|
|
13
|
|
|
1,861
|
|
|
(268
|
)
|
|
|
Deferred income taxes
|
|
|
(116
|
)
|
|
75
|
|
|
24,640
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
(2,596
|
)
|
|
(8,709
|
)
|
|
(7,848
|
)
|
|
|
Customer deposits
|
|
|
(1,706
|
)
|
|
2,305
|
|
|
—
|
|
|
|
Accrued employee compensation
|
|
|
63
|
|
|
(920
|
)
|
|
(2,118
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(4,993
|
)
|
|
(8,992
|
)
|
|
(17,320
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of businesses
|
|
|
632
|
|
|
4,927
|
|
|
67,731
|
|
|
|
Purchases of business, net of cash acquired
|
|
|
—
|
|
|
(2,692
|
)
|
|
235
|
|
|
|
Purchases of property and equipment
|
|
|
(2,439
|
)
|
|
(1,796
|
)
|
|
(6,232
|
)
|
|
|
Proceeds from sale of property and equipment
|
|
|
8,872
|
|
|
—
|
|
|
—
|
|
|
|
Proceeds from sale of short-term investments
|
|
|
7,746
|
|
|
14,247
|
|
|
14,114
|
|
|
|
Purchases of short-term investments
|
|
|
(2,758
|
)
|
|
(9,877
|
)
|
|
(25,921
|
)
|
|
|
Proceeds from collection of notes receivable
|
|
|
—
|
|
|
—
|
|
|
2,100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
12,053
|
|
|
4,809
|
|
|
52,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments on long-term debt and short-term
borrowings
|
|
|
(4,520
|
)
|
|
(3,385
|
)
|
|
(59,857
|
)
|
|
|
Proceeds from short-term borrowings
|
|
|
3,013
|
|
|
360
|
|
|
43,103
|
|
|
|
Proceeds from issuance of company and subsidiary
stock
|
|
|
1,027
|
|
|
1,167
|
|
|
2,781
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities
|
|
|
(480
|
)
|
|
(1,858
|
)
|
|
(13,973
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in cash and cash equivalents
from
continuing operations
|
|
|
6,580
|
|
|
(6,041
|
)
|
|
20,734
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in discontinued operations
|
|
|
(838
|
)
|
|
(4,148
|
)
|
|
(9,744
|
)
|
|
Effect of exchange rate changes on cash and cash
equivalents
|
|
|
497
|
|
|
61
|
|
|
(3
|
)
|
|
Increase (decrease) in cash and cash equivalents
|
|
|
6,239
|
|
|
(10,128
|
)
|
|
10,987
|
|
|
Cash and cash equivalents at beginning of year
|
|
|
3,545
|
|
|
13,673
|
|
|
2,686
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year
|
|
$
|
9,784
|
|
$
|
3,545
|
|
$
|
13,673
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
193
|
|
$
|
124
|
|
$
|
379
|
|
|
|
Income taxes
|
|
$
|
164
|
|
$
|
69
|
|
$
|
(633
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying
notes to consolidated financial statements.
F-7
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Description of Business and Summary of Significant
Accounting Policies
Description
of Business
Maxwell
Technologies, Inc. (the “Company” or “Maxwell”) is a Delaware corporation
originally incorporated in 1965 under the name “Maxwell Laboratories,
Inc.” In 1996, the Company changed its
name to Maxwell Technologies, Inc.
Presently headquartered in San Diego, California, Maxwell is a developer
and manufacturer of innovative, cost-effective energy storage and power
delivery solutions.
Maxwell’s High Reliability business segment
is comprised of three product lines:
|
|
•
|
Ultracapacitors
: Maxwell’s primary product,
ultracapacitors, includes its BOOSTCAP® ultracapacitor cells and multi-cell
modules and POWERCACHE® backup power systems, which provide highly reliable
power solutions for applications in consumer and industrial electronics,
transportation and telecommunications.
|
|
|
|
|
|
|
•
|
High-Voltage
Capacitors
:
Maxwell’s CONDIS® high-voltage grading and coupling capacitors are
used in electric utility infrastructure and other applications involving
transport, distribution and measurement of high-voltage electrical energy.
|
|
|
|
|
|
|
•
|
Radiation-Mitigated
Microelectronic Products
:
Maxwell’s radiation-mitigated microelectronic products
include power modules, memory modules and single-board computers for
applications in the space and satellite industries.
|
The
Company’s products are designed and manufactured to perform reliably for the
life of the products and systems into which they are integrated. The Company achieves high reliability
through the application of proprietary technologies and rigorously controlled
design, development, manufacturing and test processes. This high reliability strategy emphasizes
development and marketing of products that enables Maxwell to achieve higher
profit margins than commodity electronic components and systems.
Financial Statement
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.
The Company’s Government Systems business, which was sold in March 2001, and
its PurePulse business, which was discontinued in September 2002, each of which
was previously reported as a separate segment, have been classified as
discontinued operations in the accompanying consolidated financial statements
(Note 14). The results of operations of
other businesses that do not meet the criteria to be classified as a component
of an entity and were sold or otherwise disposed of are included in continuing
operations through the date of sale.
The preparation of the financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect reported
amounts and related disclosures. These
estimates include assessing the collectability of accounts receivable, the
usage and recoverability of inventories and long-lived assets and the
incurrence of losses on warranty costs, vacant leased facilities and other
facilities offered for sale. The markets for the Company’s products are
extremely competitive and are characterized by rapid technological change, new
product development, product obsolescence and evolving industry standards. In addition, price competition is intense
and significant price erosion generally occurs over the life of a product. With respect to vacant leased facilities,
commercial real estate markets have been depressed due to continued poor
economic conditions and spending reductions by businesses and government
agencies. As a result of such factors,
actual results could differ from the estimates used by management. Certain
prior year amounts have been reclassified to conform to the current year
presentation. The Company’s fiscal
quarters end on the last day of the calendar month on March 31, June 30,
September 30, and December 31.
Cash and Cash Equivalents, Short-Term
Investments
The Company invests its excess cash in debt
instruments of the U.S. Government and its agencies, and in high-quality
corporate issuers. All highly liquid
instruments with an original maturity of three months or less from purchase are
considered cash equivalents, and those with original maturities greater than
three months on the date of purchase are considered short-term
investments. The Company’s short-term
investments in marketable securities are classified as available-for-sale and
are reported at fair value, with unrealized gains and losses included in
stockholders’ equity as a
F-8
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
separate
component of comprehensive income.
Realized gains or losses and other-than-temporary declines in value, if
any, on available-for-sale securities are reported in other income or expense
as incurred. The Company recognized
$49,000, $22,000 and $82,000 in net realized gains in the years ended December
31, 2003, 2002 and 2001, respectively.
The Company uses the specific identification method on sales of
investments.
Maturities and gross
unrealized gains (losses) on short-term investments at December 31, 2003
are as follows (in thousands):
|
|
|
Gross
Amortized
Cost
|
|
Gross
Unrealized
Gain
|
|
Gross
Unrealized
Loss
|
|
Estimated
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and Agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
$
|
1,113
|
|
|
|
$
|
4
|
|
|
|
$
|
—
|
|
|
|
$
|
1,117
|
|
|
|
|
Maturing
between 1 and 5 years
|
|
|
|
903
|
|
|
|
|
2
|
|
|
|
|
—
|
|
|
|
|
905
|
|
|
|
|
Corporate
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
204
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
204
|
|
|
|
|
Certificates
of Deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
100
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
100
|
|
|
|
|
Asset-Backed
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
102
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
102
|
|
|
|
|
Maturing between 1 and 5 years
|
|
|
|
27
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,449
|
|
|
|
$
|
6
|
|
|
|
$
|
—
|
|
|
|
$
|
2,455
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S.
Government and Agencies:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
$
|
2,747
|
|
|
|
$
|
31
|
|
|
|
$
|
—
|
|
|
|
$
|
2,778
|
|
|
|
|
Maturing between 1 and 5 years
|
|
|
|
2,815
|
|
|
|
|
57
|
|
|
|
|
—
|
|
|
|
|
2,872
|
|
|
|
|
Corporate
Debt Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
761
|
|
|
|
|
16
|
|
|
|
|
—
|
|
|
|
|
777
|
|
|
|
|
Certificates
of Deposit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
452
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
452
|
|
|
|
|
Asset-Backed
Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturing within 1 year
|
|
|
|
662
|
|
|
|
|
5
|
|
|
|
|
—
|
|
|
|
|
667
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,437
|
|
|
|
$
|
109
|
|
|
|
$
|
—
|
|
|
|
$
|
7,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts
The
allowance for doubtful accounts reflects management’s best estimate of probable
losses inherent in the accounts receivable balance. Management determines the
allowance based on known troubled accounts, historical experience, and other
currently available evidence.
Inventories
Inventories are stated at the lower of cost or
market. Inventory values are based on
standard costs, which approximate average costs (first-in first-out method).
Property, Plant and Equipment
Property, plant and equipment are carried at cost
and are depreciated using the straight-line method. Depreciation and
amortization is provided over the estimated useful lives of the related assets
(three to ten years).
F-9
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Long-Lived Assets
Long-lived
assets such as property, plant and equipment are reviewed for impairment
whenever events and changes in business circumstances indicate the carrying
value of the long-lived asset may not be recoverable. If the Company determines that the carrying value of the long-lived
asset may not be recoverable, a permanent impairment charge is recorded for the
amount by which the carrying value of the long-lived asset exceeds its fair
value.
Goodwill and Intangible Assets
Goodwill,
which represents the excess of the cost of an acquired business over the net of
the fair value assigned to its assets acquired and liabilities assumed, is not
amortized. Instead, goodwill is
assessed for impairment under SFAS No. 142, “Goodwill and Other Intangible
Assets” (Note 8). Intangible assets with finite lives continue to be amortized
on a straight-line basis over their useful lives of 10 to 12 years and are
evaluated for impairment whenever events, or changes in circumstances, indicate
that their carrying value may not be recoverable under SFAS No. 144,
“Accounting for Impairment or Disposal of Long-Lived Assets.”
Warranty Obligation
The
Company provides a warranty to its customers for one year in the normal course
of business. The Company accrues for
the estimated warranty at the time of sale based on historical warranty
expenses. The estimated warranty
liability is calculated based on historical warranty expenses plus any known
warranty exposure.
Income Taxes
The
Company accounts for income taxes in accordance with Statement of Financial
Accounting Standards (SFAS) No. 109, “Accounting for Income Taxes,” which requires the use of the liability
method of accounting for deferred income taxes. Under this method, deferred
income taxes are recorded to reflect the tax consequences on future years of
temporary differences between the tax bases of assets and liabilities and their
financial reporting amounts at each period end. If it is more likely than not
that some portion or all of a deferred tax asset will not be realized, a
valuation allowance is recognized.
Concentration of Credit Risk
Financial instruments, which subject the Company
to potential concentrations of credit risk, consist principally of the
Company’s accounts receivable. The
Company’s accounts receivable result from product sales to customers in various
industries and in various geographical areas, both domestic and foreign. The
Company performs ongoing credit evaluations of its customers and generally
requires no collateral. One customer,
ABB Ltd., provided 13% of revenue in 2003 and comprised 17% of accounts
receivable balances at December 31, 2003.
Revenue Recognition
The Company derives substantially all of its
revenue from the sale of manufactured products. Product revenue is recognized as products are shipped and title
passes to the customer. Revenues from
licensing arrangements became significant during 2003 as a result of the
Company’s strategic alliance with YEC, which paid it for the right to
manufacture its proprietary BOOSTCAP® Ultracapacitors. License fee revenue is recognized when the
performance requirements have been met, the fee is fixed or determinable and
collection of fees is probable. In
general, the Company does not offer discounts and there is no right of return. The Company does not provide installation
services or incur post sale obligations other than product warranty, which is
accrued for at the time of the sale.
In prior years, certain continuing and
discontinued segments recorded revenue from both long-term and short-term fixed
price contracts and cost plus contracts with the U.S. Government directly or
through a prime contractor. Those
revenues, including estimated profits, were recognized as costs were incurred
and included provisions for any anticipated losses.
F-10
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Foreign Currencies
The
Company’s primary foreign currency exposure is related to its subsidiary in
Switzerland. Maxwell Technologies SA has Euro and local currency (Swiss Franc)
revenue and operating expenses. Changes
in these currency exchange rates impact the U.S. dollar amount of revenue and
expenses. Assets and liabilities of
Maxwell’s Swiss subsidiary are translated at year-end exchange rates, and
revenues, expenses, gains and losses are translated at rates of exchange that
approximate the rate in effect at the time of the transaction. The Company does not hedge its currency
exposures.
Other Comprehensive Income (Loss)
Comprehensive
income (loss), as defined, includes all changes in equity during a period from
non-owner sources. Net loss and other
comprehensive loss, including foreign currency translation adjustments, and
unrealized gains and losses on short-term investments are reported, net of
their related tax effect, to arrive at comprehensive loss. As of December 31, 2003, accumulated other
comprehensive income consisted of $3.3 million of unrealized gain on foreign
currency translation and $6,000 in unrealized gain on short-term investments.
Income (Loss) Per Share
Income
(loss) per share is calculated using the weighted average number of common
shares outstanding. Diluted income loss
per share is calculated on the basis of the weighted average number of common
shares outstanding plus the dilutive effect of outstanding stock options of the
Company and certain of its subsidiaries, assuming their exercise using the
“treasury stock” method. The following
table sets forth the computation of basic and diluted income (loss) per share
(in thousands, except per share data):
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Numerator
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(7,167
|
)
|
$
|
(35,324
|
)
|
$
|
(8,221
|
)
|
|
|
Loss from
discontinued operations
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(4,696
|
)
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
878
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(12,917
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding
|
|
|
13,939
|
|
|
12,264
|
|
|
10,040
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of
dilutive securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
stock options
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
weighted average common and potential common
shares outstanding
|
|
|
13,939
|
|
|
12,264
|
|
|
10,040
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
$
|
(0.51
|
)
|
$
|
(2.88
|
)
|
$
|
(0.82
|
)
|
|
|
Loss from discontinued operations
|
|
|
—
|
|
|
(0.39
|
)
|
|
(0.47
|
)
|
|
|
Cumulative effect of accounting change, net of tax
|
|
|
0.06
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net loss per share
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
fiscal years 2003, 2002, and 2001, common stock options of 143,560, 87,955, and
410,514 respectively, were not included in the computation of diluted earnings
per share as their impact would have been anti-dilutive.
F-11
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Stock Compensation
The
Company has adopted the disclosure only provisions of FASB Statement No. 123,
Accounting for Stock-Based Compensation (“Statement No. 123”) as amended by
SFAS No. 148 Accounting for Stock Based Compensation – Transitions and
Disclosure. 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 to employees in the years ended December 31, 2003, 2002 and 2001, as
the stock options have been granted to employees with exercise prices equal to
the fair value of the underlying common stock at the time of grant. If the Company had elected to recognize
compensation cost based on the fair value method prescribed by Statement No.
123, the Company’s net loss per share would have been adjusted to the pro forma
amounts indicated below (in thousands, except per share amounts):
|
|
|
Years
Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Net loss as reported
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(12,917
|
)
|
|
Deduct:
Total stock-based employee compensation expense
determined under fair value based method for all
awards, net of
related tax effects
|
|
|
(3,684
|
)
|
|
(6,528
|
)
|
|
(6,910
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net loss
|
|
$
|
(9,979
|
)
|
$
|
(46,684
|
)
|
$
|
(19,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-as reported
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic-pro forma
|
|
$
|
(0.72
|
)
|
$
|
(3.81
|
)
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-as reported
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted-pro forma
|
|
$
|
(0.72
|
)
|
$
|
(3.81
|
)
|
$
|
(1.97
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
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:
|
Years
Ended
|
|
Risk-Free
Interest Rates
|
|
Dividend
Yields
|
|
Volatility
Factors
|
|
Weighted-
Average
Expected
Terms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2003
|
|
|
3.3
|
%
|
|
|
–
|
|
|
|
59.5
|
%
|
|
|
5 Years
|
|
|
|
December 31, 2002
|
|
|
3.3
|
%
|
|
|
–
|
|
|
|
68.4
|
%
|
|
|
5 Years
|
|
|
|
December 31, 2001
|
|
|
5.5
|
%
|
|
|
–
|
|
|
|
80.3
|
%
|
|
|
5 Years
|
|
|
F-12
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Recent Accounting Pronouncements
In
January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB
Interpretation No. 46, “Consolidation of Variable Interest Entities” (FIN
46). This interpretation of Accounting
Research Bulletin No. 51, “Consolidated Financial Statements,” addresses
consolidation by business enterprises of variable interest entities (VIEs) that
either: (1) do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial
support, or (2) the equity investors lack an essential characteristic of a
controlling financial interest. This
interpretation applies immediately to VIEs created after January 31, 2003. It applies in the first fiscal year or
interim period beginning after June 15, 2003, to VIEs in which an enterprise
holds a variable interest that it acquired before February 1, 2003. The application of this interpretation is
not expected to have a material effect on its consolidated financial
statements.
In
December 2002, the FASB issued SFAS No. 148 “Accounting for Stock-Based
Compensation – Transition and Disclosure – an amendment of FASB Statement No.
123” (SFAS No. 148). This statement
amends SFAS No. 123 “Accounting for Stock Based Compensation” (SFAS No. 123) to
provide alternative methods of voluntarily transitioning to the fair value
based method of accounting for stock-based employee compensation. SFAS No. 148 also amends the disclosure
requirements of SFAS No. 123 to require disclosure of the method used to
account for stock-based employee compensation and the effects of the method on
reported results in both annual and interim financial statements. The disclosure provisions will be effective
for the Company’s year ended December 31, 2002. The application of this interpretation did not have a material
effect on the Company’s consolidated financial statements.
In
November 2002, the FASB issued FASB Interpretation No. 45, “Guarantor’s
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others” (FIN 45). FIN 45 requires that a liability be recorded for the fair value
of the obligation in the guarantor’s balance sheet upon issuance of a
guarantee. In addition, FIN 45 requires certain disclosures about each of the
entity’s guarantees. The Company’s adoption of FIN 45 did not have a material
impact on its operations.
In
June 2002, the FASB issued SFAS No. 146 “Accounting for Costs Associated with
Exit or Disposal Activities” (SFAS No. 146).
This statement supercedes Emerging Issues Task Force (EITF) issue No.
94-3 “Liabilities Recognition for Certain Employee Termination Benefits and
Other Costs to Exit an Activity (including Certain Costs Incurred in a
Restructuring)”. SFAS No. 146 requires
that a liability for cost associated with an exit or disposal activity be
recognized at the date an entity commits to an exit plan. SFAS No. 146 also establishes that the
liability should initially be measured and recorded at fair value. The provisions of SFAS No. 146 were
effective or any exit and disposal activities initiated after December 31,
2002. Adoption of SFAS No. 146 as of
January 1, 2003, did not have a material impact on the Company’s financial
position and results of operations.
In
August 2001, the Financial Accounting Standards Board (FASB) issued SFAS
No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets.”
SFAS No. 144 addresses the financial accounting and reporting for the
impairment or disposal of long-lived assets. SFAS No. 144 supersedes SFAS
No. 121 but retains SFAS No. 121’s fundamental provisions for
recognition and measurement of impairment of long-lived assets to be held and
used and measurement of long-lived assets to be disposed of by sale. SFAS
No. 144 also supersedes the accounting and reporting provisions of
Accounting Principles Board (“APB”) Opinion No. 30 for segments of a
business to be disposed of but retains APB Opinion No. 30’s requirement to
report discontinued operations separately from continuing operations and
extends that reporting to a component of an entity that either has been
disposed of or is classified as held for sale. SFAS No. 144 became
effective for the Company beginning January 1, 2002. Adoption of SFAS
No. 144 as of January 1, 2002 did not have a material impact on the
Company’s financial position or results of operations.
F-13
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Accounting Change
Effective
January 1, 2003, the Company adopted SFAS No. 87, “Employers’ Accounting for
Pensions,” as amended, in accordance with Emerging Issues Task Force 03-4,
“Determining the Classification and Benefit Attribution Method for a “Cash
Balance” Pension Plan” related to its Swiss pension plan. This statement required a standardization
method for measuring net periodic pension cost and recognizing the compensation
cost of an employee’s pension over the employee’s approximate service period by
relating the cost more directly to the terms of the plan. This statement requires immediate
recognition of a liability (the minimum liability) when the accumulated benefit
obligation exceeds the fair value of plan assets. This statement also requires expanded disclosures about pension
plan assets, obligations, benefits payments, contributions and net benefit
cost.
The
adoption of SFAS No. 87 on January 1, 2003, resulted in a cumulative effect of
an accounting change, net of tax, of $878,000 (Note 11).
Note 2 — Business Combinations
On
July 5, 2002, the Company acquired Montena Components Ltd., or Montena, a Swiss
corporation, with its principal facility in Rossens, Switzerland. In the
transaction, the Company acquired all of the outstanding shares of capital
stock of Montena from its parent company, Montena SA, a Swiss corporation, in
exchange for (i) 2,250,000 shares of Maxwell common stock issued directly to
Montena SA, (ii) an additional 300,000 shares of Maxwell common stock
originally held by the Company as collateral for a $3 million loan to Montena
SA and (iii) an additional 464,927 shares of Maxwell common stock issued based
on Montena achieving revenues of at least $20 million for the four quarters
ended June 30, 2003.
The
calculation of the third and final common stock issuance to Montena SA was
calculated using the following formula: To the extent that each share of
Maxwell stock issued as part of the purchase price and held by Montena SA on
September 1, 2003 has a market value based on the average 30-day trading
closing price ending on September 1, 2003 (the “30 Day Measurement Price”) of
less than $9 per share, then the Company will provide to Montena SA additional
consideration equal, in total value, to (i) the difference between $9 and the
30-Day Measurement Price multiplied by (ii) such number of shares held by
Montena SA on September 1, 2003;
provided
,
however
, that such additional
consideration will in no event be greater than 500,000 shares of Maxwell common
stock (based on the 30-Day Measurement Price) or cash equal in value to 500,000
shares of Maxwell common stock valued at the 30-Day Measurement Price according
to that formula. In September 2003,
464,927 shares of common stock were issued to Montena SA. As a result of the purchase transaction,
Montena SA held approximately 18% of Maxwell common stock as of December 31,
2003.
The
results of operations of Montena have been included in the consolidated
statement of operations from July 5, 2002, the date of the acquisition.
The purchase price was allocated as follows (in thousands):
|
|
Total acquisition cost:
|
|
|
|
|
|
|
|
Cash and
stock paid at acquisition
|
|
$
|
20,949
|
|
|
|
|
Acquisition
related expenses
|
|
|
340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,289
|
|
|
|
|
|
|
|
|
|
|
Allocation to assets and liabilities as follows:
|
|
|
|
|
|
|
|
Tangible
assets
|
|
$
|
14,936
|
|
|
|
|
Assumed
liabilities
|
|
|
(10,153
|
)
|
|
|
|
Acquired
backlog
|
|
|
464
|
|
|
|
|
Developed
core technology
|
|
|
1,100
|
|
|
|
|
Goodwill
|
|
|
14,942
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
21,289
|
|
|
|
|
|
|
|
|
F-14
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Pro Forma Results:
The
following unaudited pro forma information assumes that the acquisition of
Montena occurred on January 1, 2001.
These unaudited pro forma results have been prepared for comparative
purposes only and do not purport to be indicative of the results of operations
that would have actually resulted had the combination been in effect on January
1, 2001 or of future results of operations.
The unaudited pro forma results for the years ended December 31, 2002
and 2001 are as follows (in thousands, except per share amounts):
|
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Pro Forma Results:
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
67,974
|
|
|
99,986
|
|
|
|
|
Loss from
continuing operations
|
|
$
|
(34,045
|
)
|
|
(8,669
|
)
|
|
|
|
Loss from
continuing operations per share
|
|
$
|
(2.78
|
)
|
|
(0.71
|
)
|
|
|
|
|
|
|
|
|
|
|
In
September 2000, the Company’s subsidiary, I-Bus/Phoenix, Inc., acquired
Gateworks Corporation (“Gateworks”), which designs and supplies embedded
computer boards, in a transaction accounted for as a purchase. On the closing date,
I-Bus/Phoenix, Inc. paid $500,000 in cash and issued 855,153 new shares of
I-Bus/Phoenix, Inc. common stock to the selling shareholders of Gateworks in
exchange for all outstanding shares of Gateworks. The total number of I-Bus/Phoenix, Inc. shares issued to the
selling Gateworks shareholders was adjusted by an additional 342,450 newly
issued shares of
I-Bus/Phoenix, Inc. in the first quarter of 2002 to reflect the final purchase
price based upon actual Gateworks and
I-Bus/Phoenix, Inc. 2001 revenues. The
value of these additional shares was accrued for in December 2001. In connection with this acquisition,
I-Bus/Phoenix, Inc. granted certain rights to the selling Gateworks
shareholders that permitted such shareholders, in January 2002, to require
I-Bus/Phoenix, Inc. to repurchase 193,624 of the I-Bus/Phoenix, Inc. shares
issued to the shareholders on the closing date for $1.2 million. For purchase accounting purposes, the
closing date payment was valued at approximately $4.4 million and the final
payment was valued at $1.4 million of which $(0.1) million was allocated to the
net liabilities acquired and $5.9 million was allocated to goodwill, which was
being amortized over a period of five years, prior to the adoption of SFAS
141. The remaining $0.5 million related
to acquired technologies, which had not achieved technological or commercial
feasibility as of the closing date and was charged to operations as of the
closing date. The pro forma results of
operations of the Company and Gateworks, assuming Gateworks was acquired
January 1, 2000, would not be materially different than reported results.
Note 3 — Divestitures and Assets Held-for-Sale
In
June 2003, the Company decided to discontinue marketing and supporting a
product line of electronic components testers and recorded charges in cost of
sales of $444,000 primarily related to excess inventory and equipment, $393,000
primarily related to warranty buy-outs, and $259,000 related to expected future
warranty returns in the quarters ended June 30, 2003 and September 30,
2003 and December 31, 2003, respectively.
Sales for accelerated life testers product line were immaterial in all
periods presented.
In
December 2003, the Company’s Maxwell Technologies, SA subsidiary sold all fixed
assets, substantially all inventory except work in process inventory, and all
warranty and employee agreement obligations of its Metar Winding Equipment
business segment, located in Matran, Switzerland to Metar SA, a new company,
whose principal shareholder is a former CEO of Montena SA. The Company received $324,000 cash and
recognized a loss on sale of $538,000, which is reflected in (gain) loss on
sale of businesses. The new Metar
Company will complete certain work in progress related to customer orders
received by Maxwell Technologies, SA before the date of sale. Metar SA will
complete the machines in work in progress and deliver them according to the
delivery schedule, which will be between January and June of 2004. Metar SA will be paid for its services based
on an agreed payment schedule. The
Company has reported the results of operations of its Winding Equipment
business segment as continuing operations because of its continued involvement
therewith.
In
December 2003, the Company sold the manufacturing and administrative facility
in San Diego that contained the
I-Bus/Phoenix operations. The facility
was previously classified as Assets Held-for-Sale at its net book value of $7.4
million. Proceeds from the sale of the
facility were $9.0 million and closing expenses were $387,000, resulting in a
net gain from the sale of the facility of $1.2 million. Net cash proceeds from the sale of the
facility were $5.9 million after the payment of closing expenses and repayment
of the $2.7 million term loan secured by deed of trust on the facility.
F-15
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On
September 29, 2002, the Company’s I-Bus/Phoenix subsidiary sold substantially
all of the assets, liabilities and business operations of its applied computing
business, located principally in San Diego, California and Tangmere, United
Kingdom, to I-Bus Corporation, a new company, whose principal shareholders are
former I-Bus/Phoenix senior managers. The applied computing business designs,
manufactures and sells applied computing systems mainly to original equipment
manufacturers serving the telecommunications, broadcasting and industrial
automation markets. The business was sold for (i) an 8% Senior
Subordinated Note in the aggregate principal amount of $7.0 million, under the
terms of which $1.0 million is payable (plus 50% of all accrued interest) on
March 30, 2004 and $3 million is payable (plus 100% of all accrued interest) on
each of March 30, 2005 and March 30, 2006; (ii) a warrant to purchase up to
19.9% of the common stock of the new I-Bus Corporation exercisable any time
after June 30, 2004 at the fair market value per share at the time of exercise;
and (iii) an additional contingent purchase price payment of $1.0 million if
the new I-Bus Corporation sells the computing business prior to the full
payment of the 8% Senior Subordinated Note referred to above.
I-Bus/Phoenix also agreed to reimburse I-Bus Corporation for certain shutdown
and restructuring costs and to provide a back up working capital credit
facility in the amount of $300,000 until September 2003. The Company had
assigned no value to the subordinated debt as its collectability was uncertain
and will record any collections on such note as a gain on the date of such
collection. The table below details the
loss recognized by the Company related to the sale. In addition, the
Company incurred related restructuring charges discussed in Note 12 and
impairment charges discussed in Note 13.
|
|
Disposition of I-Bus computing systems assets (in
thousands):
|
|
|
|
|
|
|
|
Subordinated
note receivable
|
|
$
|
7,000
|
|
|
|
|
Less
reserve for note
|
|
|
(7,000
|
)
|
|
|
|
Assets
sold, net of liabilities assumed by buyer
|
|
|
(6,252
|
)
|
|
|
|
Shutdown
costs assumed by Maxwell
|
|
|
(762
|
)
|
|
|
|
|
|
|
|
|
|
Net loss on disposition of I-Bus computing systems
|
|
$
|
(7,014
|
)
|
|
|
|
|
|
|
|
During
2003, the Company received payments of $475,000 from the new I-Bus Corporation,
which was a partial recovery of the $7.0 million subordinated note that was
fully reserved for in 2002. This recovery is reflected in (gain) loss on sale
of business.
On
September 30, 2002, the Company sold substantially all of the assets,
liabilities and business operations of its TeknaSeal glass-to-metal seals
division in Minneapolis, Minnesota, to a group of private investors.
TeknaSeal designs, manufactures and sells hermetic glass-to-metal seals for
vacuum components, battery headers, implantable medical devices and other
specialty applications. The aggregate selling price was $5.5 million in
cash, of which $1.0 million was held in an escrow account as of December 31,
2002.
|
|
Disposition TeknaSeal assets (in thousands):
|
|
|
|
|
|
|
|
Cash
Received
|
|
$
|
5,500
|
|
|
|
|
Less
amount held in escrow
|
|
|
(1,000
|
)
|
|
|
|
Receivable
due from escrow
|
|
|
253
|
|
|
|
|
Assets
sold net of liabilities assumed by buyer
|
|
|
(1,338
|
)
|
|
|
|
Goodwill
associated with TeknaSeal
|
|
|
(2,839
|
)
|
|
|
|
Expenses
related to sale
|
|
|
(340
|
)
|
|
|
|
|
|
|
|
|
|
Net gain on disposition of TeknaSeal
|
|
$
|
236
|
|
|
|
|
|
|
|
|
The
Company’s involvement with TeknaSeal ended during the year ended December 31,
2003. During 2003, the Company
recognized a gain of $695,000, which is included in (gain) loss on sale of
businesses in the accompanying consolidated statement of operations, upon the
receipt of funds released through escrow.
All amounts held in escrow were released to the Company as of December
31, 2003.
On June 18, 2001 (“Closing Date”), the Company’s
former majority-owned subsidiary, Maxwell Electronic Components Group, Inc.
(“ECG”), sold substantially all of the assets (except for accounts receivable),
liabilities and business operations of its Sierra KD Components Division in
Carson City, Nevada (“Sierra”) to GB Acquisition Co., Inc., a wholly-owned
subsidiary of Wilson Greatbatch Technologies, Inc (“WGT”). Sierra manufactured and commercialized
ceramic filter capacitors with wire feedthroughs for implantable medical
devices and ceramic capacitors for aerospace and commercial applications. The aggregate purchase price was $46.9
million, which was received in cash at closing. EGC retained the accounts receivable of Sierra as of the Closing
Date, which amounted to $2.5 million.
The net assets sold had a net book value of $6.4 million as of the
Closing Date. The Company recorded a
pre-tax gain from the sale of these assets of $39.1 million,
F-16
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
net
of accrued transaction costs of $1.4 million including certain sale bonuses and
amounts paid to cancel certain ECG employee stock options held by employees
transferring to WGT. The Company used
$15.7 million of the aggregate proceeds to repay all amounts outstanding on the
Closing Date under its credit facility with Comerica Bank.
Note 4 — Balance Sheet Details, (in thousands):
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Trade and other accounts receivable, net:
|
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
$
|
6,115
|
|
$
|
9,214
|
|
|
|
Allowance
for doubtful accounts
|
|
|
(179
|
)
|
|
(684
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
5,936
|
|
$
|
8,530
|
|
|
|
|
|
|
|
|
|
|
|
Inventory:
|
|
|
|
|
|
|
|
|
|
Raw
material and purchased parts
|
|
$
|
5,631
|
|
$
|
7,234
|
|
|
|
Work-in-process
|
|
|
1,584
|
|
|
2,130
|
|
|
|
Finished goods
|
|
|
3,248
|
|
|
4,495
|
|
|
|
Inventory
reserve
|
|
|
(3,154
|
)
|
|
(2,026
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,309
|
|
$
|
11,833
|
|
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment:
|
|
|
|
|
|
|
|
|
|
Machinery,
furniture and office equipment
|
|
$
|
16,453
|
|
$
|
15,955
|
|
|
|
Computer
hardware and software
|
|
|
7,183
|
|
|
5,416
|
|
|
|
Leasehold
improvements
|
|
|
2,524
|
|
|
2,166
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
26,160
|
|
|
23,537
|
|
|
|
Less
accumulated depreciation and amortization
|
|
|
(15,391
|
)
|
|
(11,979
|
)
|
|
|
Construction-in-progress
|
|
|
—
|
|
|
95
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
10,769
|
|
$
|
11,653
|
|
|
|
|
|
|
|
|
|
|
|
Other non-current assets:
|
|
|
|
|
|
|
|
|
|
Equity
investments in unconsolidated companies
|
|
$
|
—
|
|
$
|
26
|
|
|
|
Notes
receivable and other
|
|
|
175
|
|
|
268
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
175
|
|
$
|
294
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,555
|
|
$
|
6,577
|
|
|
|
Other
accrued liabilities
|
|
|
3,204
|
|
|
3,426
|
|
|
|
Advance
payments
|
|
|
891
|
|
|
—
|
|
|
|
Accrued
restructuring costs
|
|
|
—
|
|
|
351
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,650
|
|
$
|
10,354
|
|
|
|
|
|
|
|
|
|
|
Warranty
Reserve Analysis
|
|
|
December 31, 2003
|
|
December 31, 2002
|
|
|
|
|
|
|
|
|
|
Accrued Warranty:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
|
$
|
1,154
|
|
|
|
$
|
268
|
|
|
|
|
New
product warranties
|
|
|
|
827
|
|
|
|
|
731
|
|
|
|
|
Settlement
of warranties
|
|
|
|
(776
|
)
|
|
|
|
(424
|
)
|
|
|
|
Other
changes/adjustments to warranties
|
|
|
|
57
|
|
|
|
|
579
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
Balance
|
|
|
$
|
1,262
|
|
|
|
$
|
1,154
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-17
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 5 — Short-term and Long-term Borrowings
Short-term borrowings
Maxwell
Technologies SA has a $1.6 million bank credit agreement with a Swiss
bank. Borrowings under the credit agreement bear interest at 5.5% plus
.25% for every quarter borrowings are outstanding. Under the credit
agreement, Maxwell Technologies SA is eligible to borrow fixed term loans at
LIBOR plus 1.75% with repayment terms extending beyond one month from the date
of funding. Borrowings under the credit agreement are secured by the
assets of Maxwell Technologies SA. As of December 31, 2003, the full
amount of the credit agreement was drawn.
In addition, $400,000 of letters of guarantee related to customer
deposits were outstanding as of December 31, 2003.
The
Company entered into a new U.S. loan and security agreement in February 2004,
which provides an overall credit limit of $3.0 million, subject to a one-year
repayment period. Borrowings are
secured by eligible accounts receivable balances, which are calculated and
reported on a monthly basis. Borrowings
under the credit agreement bear interest at Prime Rate plus 1.75% provided that
the rate is not less than 5.75%. The
agreement requires the Company to maintain a minimum tangible net worth of $15
million plus 50% of any consideration from future equity and debt transactions
plus 50% of net income in each fiscal quarter after the date of the agreement.
Long-term borrowings
In
January 2004, Maxwell SA obtained a $925,000 term loan for financing specific
capital equipment expenditures.
Borrowings under the term loan are secured by the equipment being
purchased. This credit agreement bears
interest at the Swiss inter-bank borrowing rate plus 2.0%. The term loan can be borrowed in quarterly
advances up to the $925,000 limit and repaid in 1 to 5 year time frames.
Maxwell SA has a loan from the Montena SA pension
plan for 300,000 Swiss Francs or $250,000 at December 31, 2003 and December 31,
2002. The loan from the pension plan
bears interest at the variable mortgage rate of the Banque Cantonale de
Fribourg plus 1%, which resulted in a 5% interest rate for 2003.
In
February 2001, the Company entered into a Loan and Security Agreement with
Comerica Bank-California. The Loan and Security Agreement, as amended,
consisted of a $5.0 million credit line secured by a deed on the I-Bus/Phoenix
facility in San Diego, as well as certain other collateral. The term loan bore interest, at the
Company’s option, at the bank’s reference rate plus .5%, or cost of funds plus
2.25%. The interest rate was 4.75% at December 31, 2002. The principal was
amortized monthly over 20 years with the balance due December 31, 2004. The
amount of the loan was paid in full in December 2003 with a portion of the
proceeds from the sale of the I-Bus/Phoenix facility.
Note 6 — Stock Activity and Stock Plans
Stock Option Plans
In December 1995, the Company adopted the 1995
Stock Option Plan under which, as amended, 3,340,000 shares of common stock
were reserved for future grant. The
Company’s 1999 Director Stock Option Plan, under which 75,000 shares were
reserved for future grant, was adopted in 1999 and approved by the Company’s
shareholders in January 2000. The plans
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 granted 294,030 non-qualified options to the Company’s then
new President and Chief Executive Officer, Mr. Eibl, outside of the Company’s
other option plans. In April 2002, in
conjunction with the purchase of shares of its I-Bus/Phoenix and Electronic
Components Group subsidiaries not already owned (see Note 7), the Company
issued approximately 520,000 options to purchase Maxwell common stock in
exchange for options to purchase subsidiary common stock. This issuance of stock options was outside
of the Company’s option plans. 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 1999 Director Stock Option Plan are fully exercisable one year from date
of grant. The options have terms of
five to ten years. As of December 31,
2003, the Company has 582,633 shares available for future grant under its stock
option plans.
F-18
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
November 2002, the Board of Directors approved, and the Company established, a
program to restore equity incentives for key employees and outside
directors. In November 2002, 853,461
options with strike prices above $10, which were held by senior management and
outside directors, were voluntarily cancelled by the option holders in exchange
for the future issuance in late May 2003 of substitute stock options with a
strike price equal to the then-prevailing market price of the Common
Stock.
The
following table summarizes total aggregate stock option activity for the period
January 1, 2001 through December 31, 2003:
|
|
|
|
Number of
Shares
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2001
|
|
2,676,174
|
|
$
|
15.70
|
|
|
|
|
Granted
|
|
124,250
|
|
$
|
12.64
|
|
|
|
|
Exercised
|
|
(243,308
|
)
|
$
|
9.13
|
|
|
|
|
Expired or forfeited
|
|
(513,419
|
)
|
$
|
19.76
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2001
|
|
2,043,697
|
|
$
|
15.29
|
|
|
|
|
Granted
|
|
1,111,557
|
|
$
|
8.54
|
|
|
|
|
Exercised
|
|
(220,873
|
)
|
$
|
3.71
|
|
|
|
|
Expired or forfeited
|
|
(1,737,941
|
)
|
$
|
15.72
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
1,196,440
|
|
$
|
10.50
|
|
|
|
|
Granted
|
|
1,860,316
|
|
$
|
6.73
|
|
|
|
|
Exercised
|
|
(124,455
|
)
|
$
|
4.78
|
|
|
|
|
Expired or forfeited
|
|
(373,928
|
)
|
$
|
12.09
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
2,558,373
|
|
$
|
7.81
|
|
|
|
|
|
|
|
|
|
|
F-19
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table summarizes information concerning outstanding and exercisable
Company common stock options at December 31, 2003:
|
Range of
Exercise Prices
|
|
Options
Outstanding
|
|
Weighted
Average
Remaining
Contractual
Life
|
|
Weighted
Average
Exercise
Price
|
|
Options
Exercisable
|
|
Weighted
Average
Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
.01-$3.2750
|
|
|
47,550
|
|
|
3.0
|
|
|
$
|
2.50
|
|
|
47,550
|
|
|
$
|
2.50
|
|
|
|
$
|
3.2751-$6.5500
|
|
|
1,090,751
|
|
|
7.3
|
|
|
$
|
6.18
|
|
|
551,909
|
|
|
$
|
6.16
|
|
|
|
$
|
6.5501-$9.8250
|
|
|
1,110,520
|
|
|
8.4
|
|
|
$
|
8.05
|
|
|
393,170
|
|
|
$
|
8.70
|
|
|
|
$
|
9.8251-$13.1000
|
|
|
178,750
|
|
|
6.4
|
|
|
$
|
10.91
|
|
|
97,000
|
|
|
$
|
11.17
|
|
|
|
$
|
13.1001-$16.3750
|
|
|
101,802
|
|
|
6.5
|
|
|
$
|
14.26
|
|
|
84,302
|
|
|
$
|
14.28
|
|
|
|
$
|
16.3751-$19.6500
|
|
|
0
|
|
|
0.0
|
|
|
$
|
—
|
|
|
0
|
|
|
$
|
—
|
|
|
|
$
|
19.6501-$22.9250
|
|
|
8,000
|
|
|
3.1
|
|
|
$
|
20.00
|
|
|
8,000
|
|
|
$
|
20.00
|
|
|
|
$
|
22.9251-$26.2000
|
|
|
6,000
|
|
|
3.9
|
|
|
$
|
25.88
|
|
|
6,000
|
|
|
$
|
25.88
|
|
|
|
$
|
26.2001-$29.4750
|
|
|
8,000
|
|
|
4.1
|
|
|
$
|
28.81
|
|
|
8,000
|
|
|
$
|
28.81
|
|
|
|
$
|
29.4751-$32.7500
|
|
|
7,000
|
|
|
5.1
|
|
|
$
|
32.75
|
|
|
7,000
|
|
|
$
|
32.75
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,558,373
|
|
|
7.6
|
|
|
$
|
7.81
|
|
|
1,202,931
|
|
|
$
|
8.31
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
estimated weighted average fair value at grant date for Company options granted
during the years ended December 31, 2003, 2002 and 2001 was $8.31, $6.23
and $8.59 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 the years ended December 31, 2003, 2002
and 2001, aggregate shares of 23,404, 44,660 and 56,975, respectively, were
issued under the two plans for aggregate proceeds to the Company of $117,000,
$353,000 and $997,000 respectively. At
December 31, 2003, 256,476 shares are reserved for future issuance under these
plans.
In
June 2002 and as part of completing the consolidation of ownership by the
Company of I-Bus/Phoenix, four employees and one consultant of I-Bus/Phoenix
were granted 19,500 shares of the Company’s common stock subject to certain
restrictions. The shares granted vest over the next two years and had a
fair market value of $182,000 at the date of grant. As a result of the
divestiture of the applied computing business operations completed in the 2002
third fiscal quarter, vesting was accelerated and the balance of the deferred
compensation was fully amortized.
In
January 2000, the Board adopted, and the Company’s stockholders 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 were 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 loans were 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. On
January 29, 2002 loans in the aggregate amount of $75,000, bearing interest at
4.85%, were made in connection with the aggregate purchase of 9,258 newly
issued shares of the Company’s common stock at $8.10 per
F-20
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
share, the closing market
price on the date of purchase. On June
3, 2002 the Company determined to extinguish the program and cancelled the
74,000 shares and $970,000 loan balance outstanding under the plan. The company recorded expense of $116,000,
related to the cancellation of these notes.
Deferred Compensation
In
1996 and 1997, the Chairman 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 $645,000 and $190,000, respectively. Those values, net of
accumulated amortization, are shown as deferred compensation in the
accompanying consolidated statements of stockholders’ equity. The deferred
compensation, which has been fully recognized as of December 31, 2001, was
amortized to expense over the four-year vesting periods.
In
2003, the Company and its former Chairman of the Board entered into a services
agreement whereby the former Chairman received an option to acquire 94,251
shares at the fair market value as of the date of the grant. The options are fully vested and have a
fixed life of four years. Accordingly, the Company recorded compensation
expense of $313,000 representing the fair value of the options pursuant to the
Black-Scholes valuation model.
Stockholder Rights Plan
In
November 1999, the Company adopted a Stockholder Rights Plan as a successor to
its previous plan, which expired in June 1999.
In accordance with the 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, 20% 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 Stockholder Rights Plan expires on October 21, 2009.
Note 7 —
Consolidation of Subsidiary Ownership
In
February 2002, PacifiCorp Energy Ventures, Inc., the largest minority
shareholder in the Electronic Components Group, exchanged its preferred shares
of the Electronic Components Group for 518,000 common shares of Maxwell
pursuant to its right under the original investment agreement.
On
April 15, 2002, the Company completed merger transactions with the Electronic
Components Group subsidiary and the I-Bus/Phoenix subsidiary whereby all of the
remaining minority shareholdings and options in such subsidiaries were
converted to shares and options of Maxwell.
The conversion ratio was established through the Company’s analysis of
the fair market value of the subsidiaries and an average trading price of
Maxwell’s stock at the time of the analysis.
The Company issued 86,000 shares to Electronic Components Group minority
shareholders in exchange for their ownership. The value of this stock issuance
was determined to be $795,000 based on the closing price of Maxwell shares on
the day of the merger. As a result of these transactions relating to the
ECG Group, the Company recorded $3.8 million of excess purchase price based on
the value of Maxwell common shares above the minority interest on the balance
sheet, $2.8 million was allocated as goodwill related to the TeknaSeal Division
which was sold in September 2002 and $987,000 was allocated to ultracapacitor
intellectual property. In addition, the Company issued 479,000 shares to I-Bus/Phoenix
minority shareholders in exchange for their ownership. The value of this stock
issuance was determined at $4.4 million based on the closing price of Maxwell
shares on the day of the merger. The Company recorded $1.1 million excess
purchase price based on the value of Maxwell’s common shares above the minority
interest on the balance sheet; $422,000 was allocated as goodwill associated
with the I-Bus Computing Systems business and was considered impaired and
written off in conjunction with its sale in September 2002. The balance was allocated as goodwill
related to the Power Systems business.
Note 8 —
Goodwill and Other Intangibles
The
Company has implemented SFAS No. 142 and began applying the rules on accounting
for goodwill and other intangible assets effective January 1, 2002. The
SFAS No. 142 goodwill impairment test is a two-step process. The first step
consists of estimating the fair value of each reporting unit based on a
discounted cash flow model using revenue and profit forecasts and comparing
those estimated fair values with the carrying values, which includes the
allocated goodwill. If the
F-21
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
fair value is less than
the carrying value, a second step is performed to compute the amount of the
impairment by determining an implied fair value of goodwill. The implied fair
value of goodwill is the residual fair value derived by deducting the fair
value of a reporting unit’s assets and liabilities from its estimated fair
value, which was calculated in step one. The impairment charge represents the
excess of the carrying amount of the reporting unit’s goodwill over the implied
fair value of their goodwill. SFAS No. 142 requires goodwill to be tested
annually at the same time every year and when an event occurs or circumstances
change such that it is reasonably possible that an impairment may exist. The
Company selected December 31 as its annual testing date. As a result of
the Company’s annual assessment as of December 31, 2003, no impairment was
indicated.
In
assessing the recoverability of goodwill during 2002, the Company made
assumptions regarding future cash flows and other factors to determine the fair
value. Goodwill associated with the
I-Bus Computing Systems business was written off in conjunction with the
disposition of that business. The
remaining goodwill is mainly attributable to the acquisition of Montena, which
was completed in July 2002. The
Company’s analysis, which was completed early in the fourth quarter of 2002,
was based on the determination that circumstances since the recently completed
acquisition of Montena had not materially changed and the Company’s fair market
value at that date was significantly in excess of the carrying value of its
assets including goodwill.
The
change in the carrying amount of goodwill as of December 31, 2003 is as follows
(in thousands):
|
|
|
Power
Systems
|
|
Electronic
Components
Group
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2002
|
|
|
$
|
1,647
|
|
|
|
$
|
15,930
|
|
|
$
|
17,577
|
|
|
|
Foreign
currency translation adjustments
|
|
|
|
—
|
|
|
|
|
1,901
|
|
|
|
1,901
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2003
|
|
|
$
|
1,647
|
|
|
|
$
|
17,831
|
|
|
$
|
19,478
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
following table presents a reconciliation of net loss and per share data to
what would have been reported had the new rules been in effect during the year
ended December 31, 2001(in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Net loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported net loss
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(12,917
|
)
|
|
|
Add back
goodwill amortization, net of tax
|
|
|
—
|
|
|
—
|
|
|
1,196
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net loss
|
|
$
|
(6,295
|
)
|
$
|
(40,156
|
)
|
$
|
(11,721
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share, basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net loss
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
Add back
goodwill amortization, net of tax
|
|
|
—
|
|
|
—
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net loss
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Per Share, diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Reported
net loss
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.29
|
)
|
|
|
Add back
goodwill amortization, net of tax
|
|
|
—
|
|
|
—
|
|
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
net loss
|
|
$
|
(0.45
|
)
|
$
|
(3.27
|
)
|
$
|
(1.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
F-22
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Acquired
intangible assets subject to amortization at December 31, 2003, and 2002 were
as follows (in thousands):
|
|
|
Useful
Life
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Foreign
Currency
Adjustment
|
|
Net
Carrying
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed core technology
|
|
10 years
|
|
$
|
1,100
|
|
|
$
|
181
|
|
|
|
$
|
190
|
|
|
$
|
1,109
|
|
|
|
Acquired backlog
|
|
6 months
|
|
|
464
|
|
|
|
464
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Patents
|
|
12 years
|
|
|
988
|
|
|
|
95
|
|
|
|
|
—
|
|
|
|
893
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,552
|
|
|
$
|
740
|
|
|
|
$
|
190
|
|
|
$
|
2,002
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Developed core technology
|
|
10 years
|
|
$
|
1,100
|
|
|
$
|
60
|
|
|
|
$
|
—
|
|
|
$
|
1,040
|
|
|
|
Acquired backlog
|
|
6 months
|
|
|
464
|
|
|
|
464
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Patents
|
|
12 years
|
|
|
988
|
|
|
|
19
|
|
|
|
|
—
|
|
|
|
969
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,552
|
|
|
$
|
543
|
|
|
|
$
|
—
|
|
|
$
|
2,009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
expense for intangible assets was $197,000 and $543,000 for the years ended
December 31, 2003 and 2002, respectively.
The estimated amortization for each of the next five years ended
December 31 is as follows:
|
|
Fiscal
Years
|
|
|
|
|
|
|
2004
|
|
$
|
192
|
|
|
|
2005
|
|
|
192
|
|
|
|
2006
|
|
|
192
|
|
|
|
2007
|
|
|
192
|
|
|
|
2008
|
|
|
192
|
|
|
|
Thereafter
|
|
|
1,042
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,002
|
|
|
|
|
|
|
|
|
Actual
amortization expense to be reported in future periods could differ from these
estimates as a result of impairments and other factors.
F-23
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 9 — Income Taxes
The
provision (benefit) for income taxes based on income (loss) from continuing
operations is as follows (in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Federal:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
—
|
|
$
|
(213
|
)
|
$
|
569
|
|
|
|
Deferred
|
|
|
(3,315
|
)
|
|
(10,408
|
)
|
|
3,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,315
|
)
|
|
(10,621
|
)
|
|
4,446
|
|
|
State:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
3
|
|
|
2
|
|
|
81
|
|
|
|
Deferred
|
|
|
104
|
|
|
(2,537
|
)
|
|
(265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
107
|
|
|
(2,535
|
)
|
|
(184
|
)
|
|
Foreign:
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
|
|
|
(132
|
)
|
|
(81
|
)
|
|
(35
|
)
|
|
|
Deferred
|
|
|
(91
|
)
|
|
160
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
79
|
|
|
(35
|
)
|
|
Valuation allowance
|
|
|
3,211
|
|
|
12,945
|
|
|
18,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(220
|
)
|
$
|
(132
|
)
|
$
|
23,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The
provision (benefit) for income taxes in the accompanying consolidated
statements of operations differs from the amount calculated by applying the
statutory income tax rate to income (loss) from continuing operations before
income taxes. The primary components of
such difference are as follows (in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Taxes at Federal statutory rate
|
|
$
|
(2,511
|
)
|
$
|
(12,055
|
)
|
$
|
4,936
|
|
|
State taxes, net of federal benefit
|
|
|
(460
|
)
|
|
(794
|
)
|
|
823
|
|
|
Effect of tax rate differential for foreign
subsidiary
|
|
|
(458
|
)
|
|
(70
|
)
|
|
(463
|
)
|
|
Impact of asset basis difference in acquisitions
|
|
|
26
|
|
|
2,278
|
|
|
419
|
|
|
Tax credits
|
|
|
(249
|
)
|
|
(2,081
|
)
|
|
(1,525
|
)
|
|
Valuation allowance, including tax benefits of stock
activity
|
|
|
3,245
|
|
|
12,945
|
|
|
18,808
|
|
|
Other items not reflected in consolidated statement
of operations.
|
|
|
187
|
|
|
(355
|
)
|
|
37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
(benefit) provision
|
|
$
|
(220
|
)
|
$
|
(132
|
)
|
$
|
23,035
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Because
of cumulative losses from operations through December 31, 2003, the Company
established a valuation allowance of $3.2 million. The valuation allowance was established as realizability of the
deferred tax assets was no longer assessed as being more likely than not. The Company has continued to record
valuation allowances for deferred tax assets generated in 2003.
Pursuant
to Internal Revenue Code Sections 382 and 383, use of the Company’s federal net
operating loss and credit carryforwards may be limited due to a cumulative
change in ownership of more than 50% within a three-year period.
As
of December 31, 2003, the Company had net operating loss carryforwards for
federal and state income tax of approximately $74.0 million and $28.8 million,
respectively. The federal loss carryforward begins to expire in calendar year
2011, while the state loss carryforwards will continue to expire in 2004
through 2011. In addition, the Company
has research and development and other tax credit carryforwards for federal and
state income tax purposes as of December 31, 2003 of $3.3 million and $2.3
million, respectively, which begin to expire in 2004.
F-24
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. The primary components of the
Company’s deferred tax assets and liabilities within continuing operations are
as follows (in thousands):
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Tax loss
carryforwards
|
|
$
|
26,858
|
|
$
|
24,412
|
|
|
|
Research
and development and other tax credit carryforwards
|
|
|
5,625
|
|
|
4,813
|
|
|
|
Uniform
capitalization, contract and inventory related reserves
|
|
|
2,044
|
|
|
1,384
|
|
|
|
Environmental
and restructuring provisions
|
|
|
241
|
|
|
320
|
|
|
|
Asset
impairment
|
|
|
23
|
|
|
930
|
|
|
|
Accrued
vacation
|
|
|
215
|
|
|
168
|
|
|
|
Allowance
for doubtful accounts
|
|
|
40
|
|
|
181
|
|
|
|
Other
|
|
|
103
|
|
|
200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,149
|
|
|
32,408
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax
depreciation in excess of book depreciation
|
|
|
(151
|
)
|
|
(655
|
)
|
|
|
Foreign
|
|
|
(812
|
)
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(963
|
)
|
|
(1,085
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net
deferred tax assets before valuation allowance
|
|
|
34,186
|
|
|
31,323
|
|
|
Valuation allowance
|
|
|
(34,998
|
)
|
|
(31,753
|
)
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liabilities
|
|
$
|
(812
|
)
|
$
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 10 —
Leases
Rental
expense amounted to $1.5 million, $2.6 million and $1.9 million in the years
ended December 31, 2003, 2002 and 2001, respectively, and was incurred
primarily for facility rental. Future annual minimum rental commitments and
automobile leases as of December 31, 2003, are as follows (in thousands):
|
|
Fiscal
Years
|
|
|
|
|
|
|
2004
|
|
$
|
1,612
|
|
|
|
2005
|
|
|
1,629
|
|
|
|
2006
|
|
|
1,608
|
|
|
|
2007
|
|
|
1,286
|
|
|
|
2008
|
|
|
789
|
|
|
|
Thereafter
|
|
|
394
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
7,318
|
|
|
|
|
|
|
|
|
F-25
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 11
– Pension and Other Postretirement Benefit Plans
Foreign
Plans
In
July 2002, the Company acquired Montena, including its pension plan covering
its Swiss employees (Note 2). The plan
provides pension benefits to employees under the terms of the plan as required
by Swiss law and regulations. The plan
has characteristics of defined benefit, defined contribution and cash balance
plans. For the year ended December 31,
2002, this plan was treated as a defined contribution plan; however, for the
year ended December 31, 2003 in accordance with Emerging Issues Task Force
(EITF) 03-4, “Determining the Classification and Benefit Attribution Method for
a “Cash Balance” Pension Plan
,
” the plan has been classified as a
defined benefit pension plan. The
adoption of EITF 03-4 is being accounted for as the effect of adopting a new
accounting principle as of the beginning of the year, January 1, 2003, and
resulted in a cumulative effect of an accounting change, net of tax, of
$878,000.
The
pension benefit is based on compensation, length of service and credited
investment earnings. The plan
guarantees both a minimum rate of return as well as minimum annuity purchase
rates. The Company’s funding policy
with respect to the pension plan is to contribute the amount required by Swiss
law, using the required percentage applied to the employee’s compensation. In addition, the employee is required to
contribute an identical amount to the pension plan. The Company made pension contributions of $302,000 in 2003. This plan has a measurement date of December
31.
During
2003, approximately 46 former employees of Montena left the plan and were paid
out their participant balances in accordance with the terms of the plan. This resulted in a settlement gain of
$154,000 in 2003. This amount is shown
in the development of the change in benefit obligation.
In
December 2003, the Company sold its Winding Equipment business segment. As a result, approximately 50 employees have
left the Company. This resulted in a
curtailment gain of $2.0 million. The
Company will be obligated during fiscal 2004 to pay the obligation to the
employees based upon their participant balances at the date of termination plus
any other amounts that may be allocable to them as a result of the plan
operating results prior to the settlement.
This amount is shown in the development of the change in benefit
obligation.
F-26
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
U.S.
Plans
The
Company has other post retirement benefit plans covering substantially all of
its employees in the United States.
Substantially all U.S. 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 $190,000, $283,000 and $275,000 for the
years ended December 31, 2003, 2002 and 2001, respectively.
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2003
|
|
|
|
|
|
|
|
|
|
(in
thousands)
|
|
|
Change in benefit obligation:
|
|
|
|
|
Benefit obligation at
beginning of year
|
|
|
$
|
18,185
|
|
|
|
Service cost
|
|
|
|
545
|
|
|
|
Interest cost
|
|
|
|
567
|
|
|
|
Plan participant
contributions
|
|
|
|
302
|
|
|
|
Benefits paid
|
|
|
|
(5,080
|
)
|
|
|
Curtailments
|
|
|
|
(2,023
|
)
|
|
|
Special termination
benefits / asset transfers in
|
|
|
|
158
|
|
|
|
Effect of foreign
currency translation
|
|
|
|
1,666
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at
end of year
|
|
|
|
14,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in plan assets:
|
|
|
|
|
|
|
|
Fair value of plan
assets at beginning of year
|
|
|
|
19,536
|
|
|
|
Actual return on plan
assets
|
|
|
|
1,688
|
|
|
|
Special termination
benefits /asset transfers in
|
|
|
|
158
|
|
|
|
Company contributions
|
|
|
|
302
|
|
|
|
Plan participant
contributions
|
|
|
|
302
|
|
|
|
Benefits paid
|
|
|
|
(5,080
|
)
|
|
|
Effect of currency
translation
|
|
|
|
2,065
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan
assets at end of year
|
|
|
|
18,971
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status at end of year
|
|
|
|
4,651
|
|
|
|
Unrecognized net actuarial gain
|
|
|
|
(689
|
)
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
|
$
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in the consolidated
balance sheet consist of:
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
|
$
|
3,617
|
|
|
|
Accumulated other
comprehensive income
|
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
|
$
|
3,962
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Components of net periodic benefit cost:
|
|
|
|
|
|
|
|
Service cost
|
|
|
$
|
545
|
|
|
|
Interest cost
|
|
|
|
567
|
|
|
|
Expected return on
plan assets
|
|
|
|
(899
|
)
|
|
|
Curtailments
|
|
|
|
(2,023
|
)
|
|
|
Settlements
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
Net periodic income
|
|
|
$
|
(1,964
|
)
|
|
|
|
|
|
|
|
|
|
The accumulated benefit
obligation was $14.3 million as of December 31, 2003.
F-27
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine
benefit obligations at December 31, 2003:
|
|
|
|
|
|
Discount rate
|
|
3.50
|
%
|
|
|
Rate of compensation
increase
|
|
1.50
|
%
|
|
|
|
|
|
|
|
|
Weighted-average assumptions used to determine
net periodic benefit cost for the year ended
December 31, 2003:
|
|
|
|
|
|
Discount rate
|
|
3.50
|
%
|
|
|
Expected long-term
return on plan assets
|
|
5.00
|
%
|
|
|
Rate of compensation
increase
|
|
1.50
|
%
|
|
The accumulated benefit
obligation was $14.3 million as of December 31, 2003.
Note 12 — Restructuring Charges
In
2003, restructuring reserves were fully utilized and the Company paid $216,000
for severance and $42,000 for taxes. No
remaining restructuring liability was outstanding at December 31, 2003.
In
the first half of 2002, I-Bus/Phoenix introduced new applied computing products
that had been developed in 2001. However, the market for applied computing
products, particularly in telecommunications, deteriorated throughout 2002. The
Company responded to the poor market conditions for computing systems and other
capital goods by restructuring I-Bus/Phoenix. In June 2002, the Company began implementing the
restructuring plan and recorded restructuring charges of $707,000 during the
quarter ended June 30, 2002 which was comprised of i) severance payments and
other employee related expenses of $269,000 and ii) impairment of assets that
will no longer be used, facility lease terminations and other closure cost
related to certain facilities in Europe totaling $438,000. In addition, the
Company also determined that certain components in inventory had been adversely
impacted. Accordingly, the Company recorded an inventory charge of $3.0
million for certain excess and obsolete raw material components and finished
goods. This charge is classified in “Cost of Sales” in the accompanying
Consolidated Statements of Operations.
During
the third fiscal quarter of 2002, the Company decided to sell the applied
computing business of I-Bus/Phoenix to a new company organized by former
I-Bus/Phoenix senior managers. In
preparation for the sale and to configure the I-Bus/Phoenix computing business to be self-supporting, I-Bus/Phoenix
consolidated all production of the applied computing products to its facility
in Tangmere, United Kingdom, and reduced worldwide personnel. As a result
of this plan, the Company recorded restructuring charges of $922,000 during the
quarter ended September 2002. As of the date of sale, $245,000 of restructuring
reserves were disposed as part of the sale.
During
1999 and 2000, the Company had undertaken various actions to consolidate its
facilities and reduce its cost structure.
As a result, the Company recorded restructuring related charges in the
five months ended December 31, 1999 and the year ended December 31, 2000
of $3.3 million, which included the
termination of approximately 75 employees.
These cutbacks impacted all segments and classes of employees.
F-28
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table summarizes the restructuring charges recorded, and the activity
related to such charges, in the years ended December 31, 2001, 2002 and 2003
(in thousands):
|
|
|
Severance Costs
for Involuntary
Employee
Terminations
|
|
Costs to Exit
Certain Contractual
and Lease
Obligations
|
|
Other Costs
Related to
Consolidation of
Facilities
|
|
Other
|
|
Total
Restructuring
Charges
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2001
|
|
|
$
|
620
|
|
|
|
$
|
196
|
|
|
|
$
|
311
|
|
|
$
|
—
|
|
|
$
|
1,127
|
|
|
|
Reserves established
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
Utilization of reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
(395
|
)
|
|
|
|
(163
|
)
|
|
|
|
(311
|
)
|
|
|
—
|
|
|
|
(869
|
)
|
|
|
Non-cash
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
exchange loss
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2001
|
|
|
|
225
|
|
|
|
|
33
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
258
|
|
|
|
Reserves established
|
|
|
|
1,191
|
|
|
|
|
215
|
|
|
|
|
223
|
|
|
|
—
|
|
|
|
1,629
|
|
|
|
Utilization of
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
(1,068
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1,068
|
)
|
|
|
Non-cash
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
(223
|
)
|
|
|
—
|
|
|
|
(223
|
)
|
|
|
I-Bus
disposition
|
|
|
|
(44
|
)
|
|
|
|
(201
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(245
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2002
|
|
|
|
304
|
|
|
|
|
47
|
|
|
|
|
—
|
|
|
|
—
|
|
|
|
351
|
|
|
|
Reserves established
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
135
|
|
|
|
135
|
|
|
|
Utilization of
reserves:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
|
(216
|
)
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(42
|
)
|
|
|
(258
|
)
|
|
|
Non-cash
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
|
—
|
|
|
|
(93
|
)
|
|
|
(93
|
)
|
|
|
Reserves recovered
|
|
|
|
(88
|
)
|
|
|
|
(47
|
)
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(135
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2003
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 13 — Impairment Charges
In
2002, in connection with the sale of the I-Bus Computing Systems business (Note
3), the Company recorded $7.6 million of impairment charges related to long
lived-assets. The write down of impaired assets consisted of $5.3 million of
goodwill associated with the computing systems business. The Company conducted an extensive review of
fixed assets supporting multiple businesses including the computing systems
business. As part of these reviews, the
Company determined the carrying values of the related long-lived assets was in
excess of fair market value and as a result, an asset impairment charge of $2.3
million was recorded.
Investment
impairment of $500,000 was recorded in 2001 relating to Maxwell’s ownership of
approximately 1% of a privately held company involved in support services in
the areas of information technology, system and software integration and
engineering and technical services under contract with various government
agencies. In late 2003, Maxwell sold its stock in this company for a gain of
$184,000.
Note 14 — Discontinued Operations
In
March 2001, the Company sold the assets of its defense contracting business in
separate transactions with two buyers, for an aggregate purchase price of
approximately $20.7 million, the proceeds of which were recorded in 2001. The buyers assumed certain liabilities and
ongoing contractual obligations of the business and hired most of the employees
of the business. The Company retained
certain leases and lease obligations expiring in 2006 and certain assets and
liabilities of the business, including estimated amounts provided at closing
for the expenses of the transaction and the net costs of winding up any
remaining activities of the business.
The Company recorded a gain, net of tax, of approximately $3.9 million
in the first quarter of 2001, representing the net gain on the disposition of
the assets and the net income from the operations of this discontinued
business. Based on current and
projected vacancies at leased facilities, the Company has revised previously
estimated costs and has written off related leasehold improvements. These charges, which totaled $2.8 million,
were
F-29
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
recorded in September
2001 and are included in the loss from discontinued operations. As of December 31, 2003, the net lease
obligations are $1.1 million and run through 2006 of which $600,000 has been
reserved.
The
Company increased the reserves for net lease obligations by $720,000 in the
first quarter of 2003, which covers lease payments through the first quarter of
2005. The owner of the vacant facility
is actively marketing the property for sale or lease and additional reserves
may be required if these marketing activities do not result in a sale or lease
before the end of 2004.
In
September 2002, the Company decided to suspend the operations of
PurePulse. PurePulse had been designing
and developing systems that generate extremely intense, broad-spectrum, pulsed
light to purify water and inactivate viruses and other pathogens that
contaminate vaccines and products sourced from human or animal tissues, such as
plasma derivatives, transfusion blood components and biopharmaceuticals.
The Company plans to preserve its intellectual property and certain other technology
assets for a possible future sale of such assets.
Operating
results of the discontinued operations are shown separately, net of tax, in the
accompanying consolidated statements of operations. No provision for income taxes was provided for discontinued
operations for the years ended December 31, 2003 and 2002. For the fiscal year ended December 31, 2001,
the provision for income taxes related to discontinued operations was $4.6
million. The businesses included in
discontinued operations had sales aggregating
$351,000, $758,000 and $11.7 million in the years ended December 31,
2003, 2002 and 2001, respectively.
These amounts are not included in net sales in the accompanying
consolidated statements of operations.
Net
liabilities of discontinued operations have been separately classified in the
accompanying consolidated balance sheets as of December 31, 2003 and 2002 in
the amounts of $1.5 million and $2.3 million respectively. The net liability balances of discontinued
operations were comprised of $600,000 for lease obligations and $894,000 for
minority interest as of December 31, 2003.
As of December 31, 2002, net liability balances were comprised of $1.1
million for accrued liabilities lease obligations and suppliers and $1.3 million
for minority interest.
Results
for discontinued operations, by segment, consisted of the following (in
thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations, net of tax:
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations:
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
$
|
—
|
|
$
|
—
|
|
$
|
(473
|
)
|
|
PurePulse
Technologies.
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(5,304
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6
|
)
|
|
(4,832
|
)
|
|
(5,777
|
)
|
|
Gain on disposal:
|
|
|
|
|
|
|
|
|
|
|
|
Government
Systems
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
PurePulse
Technologies
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
—
|
|
|
—
|
|
|
1,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6
|
)
|
$
|
(4,832
|
)
|
$
|
(4,696
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
F-30
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 — Business Segments
Based
on Maxwell’s strategy of developing, manufacturing and marketing high
reliability power and microelectronic products for original equipment
manufacturers (OEMs) in multiple industries, the Company has reorganized into
two reportable 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,” have restated segment results to reflect the following new
reporting segments.
After
the acquisition of Montena and the dispositions of the I-Bus Computing Systems
business and the TeknaSeal glass-to-metal seals business, which were completed
during the third and fourth quarters of 2002, respectively, the Company’s
businesses were organized into two segments, the High Reliability business
segment and the Winding Equipment business segment. The
High Reliability
business segment consists of:
|
|
•
|
Ultracapacitors for electrical energy storage and delivery
of peak power for a variety of applications;
|
|
|
|
|
|
|
•
|
High-voltage grading and coupling capacitors used in
electric utility infrastructure, high-voltage laboratories and other
applications involving transport, distribution and measurement of high-voltage
electrical energy; and
|
|
|
|
|
|
|
•
|
Radiation-shielded microelectronics, including
integrated circuits, power modules, memory modules and single board computers
for aerospace and military applications.
|
The
Winding Equipment
business segment makes
winding machines and automated assembly lines used to manufacture metalized
film capacitors and lithium batteries.
This segment was sold in December 2003 (Note 3). Nonetheless, the Company has reported
results of operations of its Winding Equipment business segment as continuing
operations because of its continuing involvement therewith.
Prior
to the sale of its computing systems business at the end of the third quarter
of 2002, the Company’s I-Bus/Phoenix Power and Computing Systems segment designed,
manufactured and marketed applied computing systems and power distribution and
power conditioning systems mainly to OEMs serving the telecommunications,
industrial automation, broadcasting and medical imaging markets. The power distribution and conditioning
systems now are part of the High Reliability business segment. The restated I-Bus Computing Systems segment
consists solely of the computing business, which was sold in September 2002.
In
June 2001, the Company sold substantially all the assets (except for accounts
receivable), liabilities and business operations of Sierra. Sierra manufactured and commercialized
ceramic filter capacitors with wire feedthroughs for implantable medical
devices and ceramic capacitors for aerospace and commercial applications. On September 30, 2002, the Company sold its
non-core TeknaSeal glass-to-metal seals business in Minneapolis,
Minnesota. Both of these businesses,
which were previously reported in the former Electronic Components segment,
have been combined into a segment for reporting purposes called the Sierra and
TeknaSeal segment.
Maxwell’s
management evaluates performance and allocates resources based on a measure of
segment profit (loss) excluding interest, taxes, 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.
F-31
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Business
segment financial data is as follows (in thousands):
|
|
|
Years ended December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
2001
|
|
|
|
|
|
|
|
|
|
|
|
Sales:
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell High
Reliability
|
|
$
|
35,168
|
|
$
|
40,106
|
|
$
|
39,398
|
|
|
Winding Equipment
|
|
|
9,856
|
|
|
3,571
|
|
|
—
|
|
|
I-Bus Computing
Systems
|
|
|
—
|
|
|
11,002
|
|
|
24,082
|
|
|
Sierra KD and
TeknaSeal
|
|
|
—
|
|
|
3,286
|
|
|
14,376
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
total
|
|
$
|
45,024
|
|
$
|
57,965
|
|
$
|
77,856
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell High
Reliability
|
|
$
|
(7,560
|
)
|
$
|
(6,204
|
)
|
$
|
(11,470
|
)
|
|
Winding Equipment
|
|
|
(523
|
)
|
|
(123
|
)
|
|
—
|
|
|
I-Bus Computing
Systems
|
|
|
31
|
|
|
(10,955
|
)
|
|
(10,070
|
)
|
|
Sierra KD and
TeknaSeal
|
|
|
—
|
|
|
940
|
|
|
2,021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
segment operating (loss)
|
|
|
(8,052
|
)
|
|
(16,342
|
)
|
|
(19,519
|
)
|
|
Impairment of long
lived assets
|
|
|
—
|
|
|
7,628
|
|
|
500
|
|
|
Restructuring
|
|
|
—
|
|
|
1,629
|
|
|
—
|
|
|
Corporate expenses
|
|
|
3,524
|
|
|
3,818
|
|
|
4,421
|
|
|
Pension curtailment
and settlement gain
|
|
|
(2,177
|
)
|
|
—
|
|
|
—
|
|
|
Gain on sale of property
|
|
|
(1,417
|
)
|
|
—
|
|
|
—
|
|
|
(Gain) loss on sale of
businesses
|
|
|
(632
|
)
|
|
6,542
|
|
|
(39,142
|
)
|
|
Minority interest
|
|
|
—
|
|
|
(241
|
)
|
|
(710
|
)
|
|
Interest and other,
net
|
|
|
37
|
|
|
(262
|
)
|
|
598
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations
before income taxes
|
|
$
|
(7,387
|
)
|
$
|
(35,456
|
)
|
$
|
14,814
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization:
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell High
Reliability
|
|
$
|
3,770
|
|
$
|
2,883
|
|
$
|
1,926
|
|
|
Winding Equipment
|
|
|
35
|
|
|
5
|
|
|
—
|
|
|
I-Bus Computing
Systems
|
|
|
—
|
|
|
498
|
|
|
1,667
|
|
|
Sierra KD and TeknaSeal
|
|
|
—
|
|
|
83
|
|
|
361
|
|
|
Corporate
|
|
|
—
|
|
|
1,164
|
|
|
1,341
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
total
|
|
$
|
3,805
|
|
$
|
4,633
|
|
$
|
5,295
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures:
|
|
|
|
|
|
|
|
|
|
|
|
Maxwell High
Reliability
|
|
$
|
2,434
|
|
$
|
1,477
|
|
$
|
1,260
|
|
|
Winding Equipment
|
|
|
5
|
|
|
10
|
|
|
—
|
|
|
I-Bus Computing
Systems
|
|
|
—
|
|
|
173
|
|
|
1,358
|
|
|
Sierra KD and
TeknaSeal
|
|
|
—
|
|
|
—
|
|
|
202
|
|
|
Corporate
|
|
|
—
|
|
|
136
|
|
|
3,412
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated
total
|
|
$
|
2,439
|
|
$
|
1,796
|
|
$
|
6,232
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-32
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2003
|
|
2002
|
|
|
|
|
|
|
|
|
|
Identifiable assets:
|
|
|
|
|
|
|
|
|
Maxwell High
Reliability
|
|
|
52,475
|
|
|
40,612
|
|
|
Winding Equipment
|
|
|
168
|
|
|
3,744
|
|
|
I-Bus Computing
Systems
|
|
|
—
|
|
|
—
|
|
|
Sierra KD and
TeknaSeal
|
|
|
—
|
|
|
—
|
|
|
Corporate
|
|
|
10,370
|
|
|
27,024
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
63,013
|
|
$
|
71,380
|
|
|
|
|
|
|
|
|
|
|
Intersegment
sales are insignificant. Identifiable
assets by segment include the assets directly identified with those segments.
Corporate assets consist primarily of cash and cash equivalents, short-term
investments, deferred tax assets and liabilities, and the centralized
telecommunications, networking and other information technology equipment of
the Company.
International
sales amounted to $26.0 million, $25.1 million and $21.8 million in the years
ended December 31, 2003, 2002 and 2001, respectively, and were made principally
to customers in the Pacific Rim and Europe. Company assets located outside the United
States totaled approximately $33.9 million and $29.8 million at December 31,
2003 and 2002, respectively.
The
Company made sales to one major customer of its High Reliability business
segment, which aggregated 13%, 20% and 24% of total Company sales for the years
ended December 31, 2003, 2002 and 2001, respectively.
Note 16 — Related Party Transactions
In
January 2001, the Company borrowed $1.5 million from its Chief Executive
Officer under an unsecured promissory note bearing interest at 11.0%. The note and accrued interest was fully
repaid in March 2001.
Montena
SA, the former parent company of Montena and a significant shareholder of
Maxwell Technologies, Inc., is the lessor for the Company’s headquarters in
Rossens, Switzerland. During the years ended December 31, 2003 and 2002,
the Company paid $809,000 and $346,000, respectively, in rental fees to Montena
SA. Future rental commitments as of
December 31, 2003 are $4.3 million.
F-33
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 17 — Unaudited Quarterly Results of
Operations (in thousands, except per share amounts)
|
|
|
Quarter Ended
|
|
|
|
|
|
|
|
|
|
March
|
|
June
|
|
September
|
|
December
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2003:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
10,241
|
|
$
|
10,653
|
|
$
|
10,993
|
|
$
|
13,137
|
(4)
|
|
Gross profit
|
|
|
1,311
|
|
|
1,357
|
(2)
|
|
1,585
|
(2)
|
|
4,031
|
|
|
(Loss) income from
continuing
operations
|
|
|
(3,786
|
)(3)
|
|
(3,446
|
)(3)
|
|
(2,188
|
)
|
|
2,253
|
(5)
|
|
Discontinued
operations, net of tax
|
|
|
(575
|
)(1)
|
|
7
|
|
|
115
|
|
|
447
|
|
|
Cumulative effect of
change in
accounting
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
878
|
|
|
Net (loss) income
|
|
|
(4,361
|
)
|
|
(3,439
|
)
|
|
(2,073
|
)
|
|
3,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from
continuing
operations
|
|
$
|
(0.28
|
)
|
$
|
(0.25
|
)
|
$
|
(0.16
|
)
|
$
|
0.16
|
|
|
(Loss) income from
discontinued
operations
|
|
|
(0.04
|
)
|
|
0.00
|
|
|
0.01
|
|
|
0.03
|
|
|
Gain from cumulative
effect of change
in accounting, net of tax
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income per
share
|
|
$
|
(0.32
|
)
|
$
|
(0.25
|
)
|
$
|
(0.15
|
)
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2002:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
|
|
$
|
12,789
|
|
$
|
13,155
|
|
$
|
16,565
|
|
$
|
15,456
|
|
|
Gross profit
|
|
|
947
|
|
|
(796
|
)(6)
|
|
2,706
|
|
|
3,974
|
|
|
Loss from continuing
operations
|
|
|
(5,906
|
)
|
|
(8,510
|
)(6)
|
|
(20,786
|
)(7)
|
|
(122
|
)(8)
|
|
Discontinued
operations, net of tax
|
|
|
(805
|
)
|
|
(879
|
)
|
|
(2,761
|
)
|
|
(387
|
)
|
|
Net Loss
|
|
|
(6,711
|
)
|
|
(9,389
|
)
|
|
(23,547
|
)
|
|
(509
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing
operations
|
|
$
|
(0.57
|
)
|
$
|
(0.75
|
)
|
$
|
(1.53
|
)
|
$
|
(0.01
|
)
|
|
Loss from discontinued
operations
|
|
|
(0.08
|
)
|
|
(0.08
|
)
|
|
(0.20
|
)
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
$
|
(0.65
|
)
|
$
|
(0.83
|
)
|
$
|
(1.73
|
)
|
$
|
(0.04
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Includes charge of $720,000 for lease obligations
related to vacant facilities of discontinued operations.
|
|
(2)
|
Includes charge of $444,000 to write off inventory
and equipment in the second quarter and a charge of $393,000 in the third
quarter for warranty buy-outs, both of which relate to the discontinuation of
the accelerated life testers product line.
|
|
(3)
|
Includes charge of $327,000 for severance payable to
the Chief Executive Officer in the first quarter, and a charge of $313,000
for compensation expense related to options provided to a former Chairman of
the Board in the second quarter.
|
|
(4)
|
Includes license fees of $4 million.
|
|
(5)
|
Includes gain on sale of property of $1.2 million,
loss on sale of business of $538,000 for the Winding Equipment business, gain
on sale of business of $475,000 for recovery of I-Bus note receivable, gain
on sale of business of $695,000 for payments received from the sale of
TeknaSeal, and pension curtailment and settlement gain of $2.2 million.
|
F-34
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
|
(6)
|
Includes charges of $3 million for excess and obsolete
inventory and $812,000 of restructuring charges related to I-Bus/Phoenix
restructuring.
|
|
(7)
|
Includes a charge of $7.6 million for impairment of
assets related to the sale of I-Bus/Phoenix, a charge of $1.7 million related
to the suspension of PurePulse operations and a charge of $922,000 related
to the restructuring of I-Bus/Phoenix.
|
|
(8)
|
Includes gain on sale of business of $236,000 for
the sale of TeknaSeal.
|
F-35
MAXWELL
TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Schedule II
Valuation and Qualifying Accounts
(in thousands)
|
|
|
Balance at the
Beginning of
the
Year
|
|
Charged to
Expense
|
|
Acquisitions/
Transfers and
Other
|
|
Write-offs
net of
Recoveries
|
|
Balance at
the End of
the
Period
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for Doubtful Accounts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2001
|
|
|
$
|
826
|
|
|
|
$
|
534
|
|
|
|
$
|
138
|
|
|
|
$
|
(667
|
)
|
|
|
$
|
831
|
|
|
|
December 31, 2002
|
|
|
|
831
|
|
|
|
|
576
|
|
|
|
|
(238
|
)
|
|
|
|
(485
|
)
|
|
|
|
684
|
|
|
|
December 31, 2003
|
|
|
|
684
|
|
|
|
|
241
|
|
|
|
|
18
|
|
|
|
|
(763
|
)
|
|
|
|
179
|
|
|
|
Inventory
Reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2001
|
|
|
$
|
2,534
|
|
|
|
$
|
3,250
|
|
|
|
$
|
—
|
|
|
|
$
|
(1,888
|
)
|
|
|
$
|
3,896
|
|
|
|
December 31, 2002
|
|
|
|
3,896
|
|
|
|
|
8,011
|
|
|
|
|
1,047
|
|
|
|
|
(10,928
|
)
|
|
|
|
2,026
|
|
|
|
December 31, 2003
|
|
|
|
2,026
|
|
|
|
|
3,070
|
|
|
|
|
75
|
|
|
|
|
(2,016
|
)
|
|
|
|
3,155
|
|
|
F-36
[Illegible]
Amendment
to Rights Agreement
This
Amendment to Rights Agreement (this “Amendment”), dated as of July
[handwritten]
5, 2002, is entered into by
Maxwell Technologies, Inc., a Delaware corporation (the “Company”), and Mellon
Investor Services LLC (formerly ChaseMellon Shareholder Services, L.L.C.), a
New Jersey limited liability company, as Rights Agent (the “Rights Agent”).
Whereas,
the Company and the Rights Agent executed a Rights Agreement, dated as of
November 5, 1999 (the “Rights Agreement”) that provided for the terms and
conditions governing common share purchase rights distributed as a dividend to
the Company’s stockholders; and
Whereas,
pursuant to Section 27 of the Rights Agreement, the Company desires amend the
Rights Agreement to increase the percentage of the Company’s stock that causes
a stockholder to become an “Acquiring Person” within the meaning of the Rights
Agreement from 15% to 20%;
Now,
therefore, the Rights Agreement is hereby amended as follows:
|
|
1.
|
The definition of “Acquiring Person” in Section 1(a)
of the Rights Agreement is amended to change the figure 15% to 20% each time
such figure appears in the definition, it being understood that the purpose
of this amendment is to raise the threshold for determining an Acquiring
Person from the beneficial ownership of 15% of the Company’s outstanding
common stock to the beneficial ownership of 20% of such outstanding common
stock.
|
|
|
|
|
|
|
2.
|
Each time the figure “15%” appears in Section 3(a),
Exhibit B or elsewhere in the Rights Agreement in reference to the threshold
beneficial ownership of an Acquiring Person such figure is hereby amended to
the figure “20%”.
|
|
|
|
|
|
|
3.
|
Except as specifically provided in this Amendment,
the Rights Agreement shall continue in full force and effect in accordance
with its terms.
|
|
|
|
|
|
|
4.
|
This Amendment shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts to
be made and performed entirely within such State, provided, however, that all
provisions regarding the rights, duties and obligations of the Rights Agent
shall be governed by and construed in accordance with the laws of the State
of New York applicable to contracts made and to be performed entirely within
such State.
|
|
|
|
|
|
|
5.
|
This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed
an original, and all such counterparts shall together constitute but one and
the same instrument.
|
|
|
6.
|
Except as expressly set forth herein, this Amendment
shall not by implication or otherwise alter, modify, amend or in any way
affect any of the terms, conditions, obligations, covenants or agreements
contained in the Rights Agreement, all of which are ratified and affirmed in
all respects and shall continue in full force and effect.
|
|
|
|
|
|
|
7.
|
Capitalized terms used herein but not defined shall
have the meanings given to them in the Rights Agreement.
|
[remainder of page
intentionally left blank]
In
witness whereof, the parties have caused this Amendment to be executed as of
the date first written above.
|
|
Mellon Investor Services
LLC, as Rights Agent
|
|
Maxwell Technologies, Inc.
|
|
|
|
|
|
|
|
By /s/
Sharon Knepper
|
|
By /s/
Donald M. Roberts
|
|
|
|
|
|
|
|
|
Title Vice
President
|
|
Title Vice
President
|
MAXWELL
TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
UNDER 1995 STOCK OPTION PLAN
THIS
AGREEMENT, made and entered into as of May 19, 2003 by and between MAXWELL
TECHNOLOGIES, INC., a Delaware corporation (the “Company”), and Kenneth
Potashner (“Optionee”).
WITNESSETH:
WHEREAS,
the Board of Directors of the Company, with the approval and authorization of
the shareholders thereof, has adopted the 1995 Stock Option Plan (the “Plan”),
in the conviction that the interests of the Company and key employees
(including officers and directors and other service providers) of the Company
and its subsidiaries will be advanced by encouraging and enabling said persons
to acquire a proprietary interest in the Company; and
WHEREAS,
the Plan is administered by the Stock Option Committee of the Board of
Directors of the Company (the “Committee”); and
WHEREAS,
the Committee, having determined that Optionee is qualified to participate
under the Plan, has, as of May 19, 2003 (the “Grant Date”), granted to Optionee
the option to acquire stock of 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
.
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 94,251 shares of the Company’s Common Stock, par
value $.10, at the purchase price of $6.18 per share (the “Option”). The Option
shall continue for, and is limited to, the period ending on May 8, 2007, 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 in the Plan, 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
Options are fully exercisable at the date of grant.
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.
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 payment by
cash and/or check payable to the Company of the full purchase price therefor
and, 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 President 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
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.
5.
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.
6.
Investment
Representation and Restrictions on Disposition
. By accepting the Option, Optionee 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
2
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.
7.
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.
8.
Capital
Adjustments
. In the event that
prior to the delivery by the Company of all the shares covered by the Option,
there shall be any change in the outstanding common shares of the Company in
the manner described in Paragraph 7 of the Plan, the number of shares
deliverable upon the exercise of the Option and the purchase price therefor
shall be adjusted as provided in said Paragraph 7.
9.
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.
10.
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.
3
11.
Interpretation
of Agreement and Plan
. 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
the Plan and to correct any defect or supply any omission or reconcile any
inconsistency herein and in the Plan and to prescribe rules and regulations
relating to the administration of the Option and other similar options granted
under the Plan, provided that such constructions, interpretation, definitions,
corrections, additions or reconciliations and other such actions are permitted
by the Plan, a copy of which is attached hereto (unless separately delivered
prior to or concurrently with the execution hereof by Optionee) and all of the
provisions of which are incorporated herein by this reference thereto.
12.
Cancellation
of Option
. Notwithstanding anything
herein to the contrary, the Company may cancel the Option, or any portion
thereof, at any time if the Company determines that Optionee has 1) committed
fraud, embezzlement or other act of dishonesty; 2) engaged in other gross
misconduct or deliberate disregard of the law; 3) made any unauthorized
disclosure of any secret or confidential information of the Company or any of
its subsidiaries.
IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date
first above written.
|
|
|
|
|
|
|
|
|
Kenneth Potashner, “Optionee”
|
|
|
|
|
|
|
|
|
|
MAXWELL TECHNOLOGIES, INC.
|
|
|
|
|
|
|
|
|
|
By:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Richard D. Balanson, CEO and President
|
|
Sale Notification
The
undersigned agrees to notify the Company of any sale of the shares acquired
upon exercise of the Option if such shares are sold within 12 months of their
acquisition.
4
SEPARATION
AGREEMENT AND GENERAL
RELEASE OF ALL CLAIMS
This
Separation Agreement and General Release of All Claims (“Agreement”) is made by
and between Kenneth Potashner (“Director”) on the one hand, and Maxwell
Technologies, Inc. (“the Company”) on the other. (Collectively, Director and
the Company shall be referred to as “the Parties.”)
1. Director
has served as an employee of the Company and as a member of the Board of
Directors of the Company. As of May 8, 2003 (the “Effective Date”), Director
served only as a member of the Board of Directors of the Company, and on such
date resigned from the Company Board of Directors. From the Effective Date
until May 8, 2007 (the “End Date”), Director will be available from time to
time as reasonably requested for consultation with the Chief Executive Officer
of the Company regarding the Company’s business operations. The Company is
prepared to provide Director the benefits provided herein in exchange for such
consulting services and the other terms and conditions of this Agreement, and
the Director is prepared to enter into this Agreement in exchange for such
benefits. This Agreement will also resolve any and all differences related to
Director’s prior employment with the Company and service as a member of the
Board of Directors and/or the cessation of that employment and service and any
known or unknown claims between the Parties. For these reasons, the Parties
have entered into this Agreement.
2. In
consideration of Director’s consulting services and other agreements under this
Agreement, Director shall receive fully vested stock options to purchase 94,251
shares of the Company’s common stock at $6.18 per share. Such stock options
will be issued pursuant to the standard terms and conditions of the 1995 Stock
Option Plan and the related grant agreement (other than a vesting schedule
which will not apply). In accordance with the terms of the 1995 Stock Option
Plan and the agreement covering such stock options, Director will have a 60-day
period following the End Date to exercise any such options or they will expire.
Director hereby acknowledges and agrees that, except for the stock options
granted pursuant to this paragraph 2, Director has surrendered (and has no
rights to) any and all other stock options to purchase shares of stock of the
Company or any of its subsidiaries.
3. In
consideration of and in return for the promises and covenants undertaken herein
by the Company, including the grant of the stock options under paragraph 2
herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, Director does hereby acknowledge full and complete
satisfaction of and does hereby release, absolve and discharge the Company and
the Company’s parents, subsidiaries, affiliates, employees, related companies
and business concerns, past and present, and each of them, as well as each of
their partners, trustees, directors, officers, agents, attorneys, servants and
employees, past and present, and each of them (hereinafter collectively
referred to as “Releasees”) from any and all claims, demands, liens,
agreements, contracts, covenants, actions, suits, causes of action, grievances,
wages, vacation payments, severance payments, obligations, commissions,
overtime payments, debts, expenses, damages, judgments, orders and liabilities
of whatever kind or nature in state or federal law, equity or otherwise,
whether known or unknown to Director which Director now owns or holds or has at
any time owned or held as against Releasees, or any of them, including specifically
but not exclusively and without limiting the generality of the
1
foregoing, any and all
claims, demands, grievances, agreements, obligations and causes of action,
known or unknown, suspected or unsuspected by Director: (1) arising out of Director’s
prior employment with the Company or service as a member of the Board of
Directors or the ending of that employment and service; or (2) arising out of
or in any way connected with any claim, loss, damage or injury whatever, known
or unknown, suspected or unsuspected, resulting from any act or omission by or
on the part of the Releasees, or any of them, committed or omitted on or before
the Effective Date. Also without limiting the generality of the foregoing,
Director specifically releases the Releasees from any claim for attorneys’ fees
and/or costs of suit. DIRECTOR SPECIFICALLY AGREES AND ACKNOWLEDGES DIRECTOR IS
WAIVING ANY RIGHT TO RECOVERY BASED ON STATE OR FEDERAL AGE, SEX, PREGNANCY,
RACE, COLOR, NATIONAL ORIGIN, MARITAL STATUS, RELIGION, VETERAN STATUS,
DISABILITY, SEXUAL ORIENTATION, MEDICAL CONDITION, OR OTHER ANTI-DISCRIMINATION
LAWS, INCLUDING, WITHOUT LIMITATION, TITLE VII OF THE CIVIL RIGHTS ACT OF 1964,
THE AGE DISCRIMINATION IN EMPLOYMENT ACT, THE AMERICANS WITH DISABILITIES ACT
AND THE CALIFORNIA FAIR EMPLOYMENT AND HOUSING ACT, OR BASED ON THE DIRECTOR
RETIREMENT INCOME SECURITY ACT, ALL AS AMENDED, WHETHER SUCH CLAIM BE BASED
UPON AN ACTION FILED BY DIRECTOR OR BY A GOVERNMENTAL AGENCY.
4. It
is the intention of Director in executing this Agreement that it shall be
effective as a bar to each and every claim, demand, grievance and cause of
action hereinabove specified. In furtherance of this intention, Director hereby
expressly waives any and all rights and benefits conferred upon Director by the
provisions of Section 1542 of the California Civil Code and expressly consents
that this Agreement shall be given full force and effect according to each and
all of its express terms and provisions, including those relating to unknown
and unsuspected claims, demands and causes of action, if any, as well as those
relating to any other claims, demands and causes of action hereinabove
specified. Section 1542 provides:
“A
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”
Having
been so apprised, Director nevertheless hereby voluntarily elects to and does
waive the rights described in Civil Code Section 1542 and elects to assume all
risks for claims that now exist in Director’s favor, known or unknown, that are
released under this Agreement.
5. The
Company expressly denies any violation of any federal, state or local statute,
ordinance, rule, regulation, policy, order or other law. Nothing contained
herein is to be construed as an admission of liability on the part of the
parties hereby released, or any of them, by whom liability is expressly denied.
Accordingly, while this Agreement resolves all issues regarding the Company
referenced herein, it does not constitute an adjudication or finding on the
merits of any allegations and it is not, and shall not be construed as, an
admission by the Company of any violation of federal, state or local statute,
ordinance, rule, regulation, policy, order or other law, or of any liability.
Moreover, neither this Agreement nor anything in it shall be construed to be or
shall be admissible in any proceeding as evidence of or an admission by the
2
Company of any violation
of any federal, state or local statute, ordinance, rule, regulation, policy,
order or other law, or of any liability. This Agreement may be introduced,
however, in any proceeding to enforce the Agreement.
6. Without
regard to any other provision of this Agreement, Company acknowledges and
agrees that this Agreement shall not reduce or terminate Director’s rights to
indemnification, defense, exoneration, and to be held harmless from any claims
or actions now pending or brought against him at any time in the future with
regard to Director’s activities as an employee, officer or director of the
Company or any affiliate of the Company or as the designee or nominee of the
Company or any affiliate of the Company, to the extent such rights are created
by law, by the charter documents or bylaws of the Company or by any resolutions
of the shareholders or board of directors of the Company or any committee
thereof, or pursuant to any directors and officers insurance policy or errors
and omissions insurance policy or other liability insurance policy or program
covering the Company, any of its affiliates, or any of its officers, directors,
employees or agents (except for any such reduction or termination that is
applicable generally to the officers, directors, employees or agents of the
Company). Company further agrees not to reduce, terminate, non renew or rescind
any such insurance or indemnification rights, policies or programs with regard
to Director except for any such reduction, termination, non renewal or
rescission that is applicable generally to the officers, directors, employees
or agents of the Company.
7. Director
acknowledges that during Director’s prior employment and service as a member of
the Board of Directors, Director had access to trade secrets and confidential
information about the Company, including but not limited to the Company’s
products and services, research and development of new products and services,
customers, and methods of doing business. Director agrees that Director shall
not disclose any information constituting the trade secrets or confidential
information of the Company or its customers that has not been disclosed to the
general public prior to that time.
8. Each
party expressly agrees that such party will not in any way disparage or
otherwise cause to be published or disseminated any negative statements,
remarks, comments or information regarding the other party.
9. This
Agreement shall be construed in accordance with, and be deemed governed by, the
laws of the State of California.
10. The
Parties hereto acknowledge each has read this Agreement, that each fully
understands its rights, privileges and duties under the Agreement, and that
each enters this Agreement freely and voluntarily. Each party further
acknowledges each has had the opportunity to consult with an attorney of its
choice to explain the terms of this Agreement and the consequences of signing
it.
11. Within
three calendar days of signing and dating this Agreement, Director shall
deliver the executed original of the Agreement to Richard Balanson, Chief
Executive Officer, Maxwell Technologies, Inc., 9244 Balboa Avenue, San Diego,
California 92123. However, Director acknowledges that Director may revoke this
Agreement for up to seven (7) calendar days following Director’s execution of
this Agreement and that it shall not become
3
effective or enforceable
until the revocation period has expired. Director acknowledges that such
revocation must be in writing addressed to Richard Balanson, Chief Executive
Officer, Maxwell Technologies, Inc., 9244 Balboa Avenue, San Diego, California
92123, and received not later than midnight on the seventh day following
execution of this Agreement by Director. If Director revokes this Agreement
under this paragraph, the Agreement shall not be effective or enforceable and
Director will not receive the benefits described in paragraph 2 above.
12. If
Director does not revoke this Agreement in the time frame specified in the
preceding paragraph, the Agreement shall be effective at 12:01 a.m. on the
eighth day after it is signed by Director.
13. If
litigation or any other legal proceeding is instituted to interpret or enforce
this Agreement, the prevailing party in that litigation or other legal
proceeding shall be entitled to reasonable attorneys’ fees and costs in
addition to any other relief granted.
4
I
have read the foregoing Separation Agreement and General Release of All Claims
and I accept and agree to the provisions contained therein and hereby execute
it voluntarily and with full understanding of its consequences.
PLEASE READ
CAREFULLY. THIS AGREEMENT
CONTAINS A GENERAL RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
Date: May ____, 2003
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Kenneth
Potashner
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Date: May ____, 2003
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Maxwell
Technologies, Inc.
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By:
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Richard
Balanson
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Chief
Executive Officer
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5
FOURTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This
Fourth Amendment to Loan and Security Agreement is entered into as of July 2,
2002 (the “Amendment”), by and between COMERICA BANK-CALIFORNIA (“Bank”) and
MAXWELL TECHNOLOGIES, INC., MAXWELL ELECTRONIC COMPONENTS GROUP, INC.,
I-BUS/PHOENIX, INC., PUREPULSE TECHNOLOGIES, INC., and MML ACQUISITION CORP.
(individually, a “Borrower” and collectively, the “Borrowers”).
RECITALS
Borrowers
and Bank are parties to that certain Loan and Security Agreement dated as of
February 26, 2001, as amended from time to time, including but not limited
to by that certain Amendment to Loan and Security Agreement dated as of May 25,
2001, that certain Second Amendment to Loan and Security Agreement dated as of
June 18, 2001, and that certain Third Amendment to Loan and Security Agreement
dated as of December 21, 2001 (collectively, the “Agreement”). The parties desire to amend the Agreement in
accordance with the terms of this Amendment.
Borrower
has entered into an agreement (the “Purchase Agreement”) with Montena
Components Ltd. (“Montena”) pursuant to which, among other things, Borrower
will acquire the issued and outstanding stock of Montena (the “Montena Stock”)
for 2,550,000 shares of Borrower’s common stock, all as more particularly
described in the Purchase Agreement.
Borrower has requested that Bank permit the consummation by the
Borrower of the Purchase Agreement, and Bank has agreed to the same
provided Borrower agrees to the terms of this Amendment.
NOW,
THEREFORE, the parties agree as follows:
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1.
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Section 6.9 of the Agreement hereby is amended in
its entirety as follows:
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“6.9
Cash-Total Bank
Obligations.
Borrowers shall at
all times through August 15, 2002 maintain a ratio of Cash (defined as cash
and cash equivalents held at Bank, Comerica Securities, and Munder Capital)
to total Obligations owing Bank of at least 1.50 to 1.00. Borrowers shall at all times from and
after August 16, 2002 and through September 30, 2002, maintain a ratio of
Cash (defined as cash and cash equivalents held at Bank, Comerica Securities,
and Munder Capital) to total Obligations owing Bank of at least 2.00 to
1.00.”
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2.
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Section 6.10 of the Agreement hereby is amended in
its entirety as follows:
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“6.10
Tangible Net
Worth.
Borrowers shall at all
times through August 15, 2002 maintain a Tangible Net Worth of not less than
Forty Two Million Dollars ($42,000,000).
Borrowers shall at all times from and after August 16, 2002 and through
September 30, 2002, maintain a Tangible Net Worth of not less than Forty
Eight Million Dollars ($48,000,000).”
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3. Bank
consents to the execution and performance by Borrower of the Purchase
Agreement. Specifically, Bank waives
Section 7.3 of the Agreement only to the extent such section otherwise
prohibits the Purchase Agreement and or the transactions contemplated thereby.
4. Exhibit
D to the Agreement hereby is replaced with Exhibit D hereto.
5. Unless
otherwise defined, all initially capitalized terms in this Amendment shall be
as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in accordance
with its respective terms and hereby is ratified and confirmed in all
respects. Except as expressly set forth
herein, the execution, delivery, and performance of this Amendment shall
not operate as a waiver of, or as an amendment
of, any right, power, or
remedy of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the
continuing effectiveness of all promissory notes, guaranties, security
agreements, mortgages, deeds of trust, environmental agreements, and all other
instruments, documents and agreements entered into in connection with the
Agreement.
6. Each
Borrower represents and warrants that the representations and warranties
contained in the Agreement are true and correct as of the date of this
Amendment, and that no Event of Default has occurred and is continuing.
7. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.
8. As
a condition to the effectiveness of this Amendment, Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) This
Amendment, duly executed by the Borrowers;
(b) The
certificate for the Shares of Montena Stock, accompanied by an instrument of
assignment duly executed in blank by the appropriate Borrower, in the forms
attached hereto;
(c) An
amount equal to all Bank Expenses incurred to date; and
(d) Such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.
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MAXWELL TECHNOLOGIES, INC.
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By: /s/ Donald M. Roberts
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Title: Vice President
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MAXWELL ELECTRONIC COMPONENTS GROUP,
INC.
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By: /s/ Donald M. Roberts
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Title: Vice President
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I-BUS/PHOENIX, INC.
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By: /s/ Donald M. Roberts
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Title: Vice President
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2
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PUREPULSE TECHNOLOGIES, INC.
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By: /s/ Donald M. Roberts
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Title: Vice President
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MML ACQUISITION CORP.
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By: /s/ Donald M. Roberts
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Title: Vice President
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COMERICA BANK-CALIFORNIA
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By: /s/ [Illegible]
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Title: Vice President
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3
EXHIBIT D
COMPLIANCE CERTIFICATE
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TO:
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COMERICA BANK-CALIFORNIA
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FROM:
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MAXWELL TECHNOLOGIES, INC., MAXWELL ELECTRONIC
COMPONENTS GROUP, INC., I-BUS/PHOENIX, INC., PUREPULSE TECHNOLOGIES,
INC., MAXWELL TECHNOLOGIES SYSTEMS DIVISION, INC., MML ACQUISITION CORP.
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The
undersigned authorized officer of MAXWELL TECHNOLOGIES, INC. (“Parent”) on
behalf of Parent and MAXWELL ELECTRONIC COMPONENTS GROUP, INC., I-BUS/PHOENIX,
INC., PUREPULSE TECHNOLOGIES, INC., MAXWELL TECHNOLOGIES SYSTEMS DIVISION,
INC., MML ACQUISITION CORP. (collectively, “Borrowers”) hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrowers and Bank (the “Agreement”), (i) Borrower(s) are in
complete compliance for the period ending ___________________ with all required
covenants except as noted below and (ii) all representations and warranties of
Borrowers stated in the Agreement are true and correct in all material respects
as of the date hereof. Attached
herewith are the required documents supporting the above certification. The Officer further certifies that these are
prepared in accordance with Generally Accepted Accounting Principles (GAAP) and
are consistently applied from one period to the next except as explained in an
accompanying letter or footnotes.
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Please indicate compliance status by circling Yes/No under
“Complies” column.
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Reporting Covenant
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Required
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Complies
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Monthly financial
statements
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Monthly within 30 days
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Yes
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No
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Quarterly financial
statements
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Quarterly within 45 days
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Yes
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No
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Annual (CPA Audited)
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FYE within 90 days
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Yes
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No
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10K & 10Q
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within 5 days of filing
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Yes
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No
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A/R & A/P Agings
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Quarterly beginning
12/31/02 within 45 days
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Yes
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No
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A/R Audit
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Initial and Annual
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Yes
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No
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IP Report
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Within 30 days of 2/1 and
8/1
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Yes
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No
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Financial Covenant
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Required
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Actual
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Complies
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Maintain on a Quarterly
Basis:
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Minimum Quick Ratio
(beginning 12/31/02)
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1.35:1.00
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_____:1.00
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Yes
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No
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Minimum Cash to Bank Debt
(through 8/15/02; monitored continuously)
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1.50:1.00
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_____:1.00
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Yes
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No
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Minimum Cash to Bank Debt
(from 8/16/02 through 9/30/02; monitored monthly)
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2.00:1.00
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_____:1.00
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Yes
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No
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Minimum Tangible Net Worth
(through 8/15/02; monitored continuously)
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$ 42,000,000
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$ _______
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Yes
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No
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Minimum Tangible Net Worth
(from 8/16/02 through 9/30/02; monitored monthly)
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$ 48,000,000
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$ _______
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Yes
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No
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Fixed Charge Coverage Ratio
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2.00:1.00
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_____:1.00
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Yes
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No
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Comments Regarding Exceptions:
See
Attached.
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BANK USE ONLY
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Received by:
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Sincerely,
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AUTHORIZED
SIGNER
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Date:
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Verified:
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SIGNATURE
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AUTHORIZED
SIGNER
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Date:
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TITLE
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Compliance Status
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Yes
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No
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DATE
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1
ASSIGNMENT SEPARATE FROM CERTIFICATE
FOR
VALUE RECEIVED the undersigned does hereby sell, assign and transfer unto
___________________________________________________________________________
___________________________________ (______________) shares of the Capital
Stock of
Montena Components Ltd.
standing in the undersigned’s name on the books of said corporation represented
by Certificate No._______________ herewith and does hereby irrevocably
constitute and appoint _____________________________ attorney-in-fact to
transfer the said stock on the books of said corporation with full power of
substitution in the premises.
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Dated: July 2, 2002
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MAXWELL TECHNOLOGIES, INC.
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By: /s/ Donald M. Roberts
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Printed Name: Donald M. Roberts
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Title: Vice President
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ASSIGNMENT SEPARATE
FROM CERTIFICATE
FOR VALUE
RECEIVED the undersigned does hereby sell, assign and transfer unto
___________________________________________________________________________
___________________________________ (______________) shares of the Capital
Stock of
Montena Components Ltd. standing in the undersigned’s name on the books
of said corporation represented by Certificate No._______________ herewith and
does hereby irrevocably constitute and appoint _____________________________
attorney-in-fact to transfer the said stock on the books of said corporation
with full power of substitution in the premises.
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Dated: July
2, 2002
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MAXWELL
TECHNOLOGIES, INC.
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By: /s/
Donald M. Roberts
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Printed
Name: Donald M. Roberts
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Title: Vice
President
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RECEIPT
The
undersigned, Comerica Bank-California, acknowledges receipt of the original
certificate number 000001 representing 99,995 shares of the capital stock of
Montena Components issued in the name of Maxwell Technologies, Inc. and dated
July 1, 2002. This certificate is being held under the terms of that certain
Loan and Security Agreement dated as of February 26, 2001, as amended by the
First through Fourth Amendments thereto.
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Comerica
Bank-California
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Date 7/24/02
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By
[illegible]
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Title Vice
President
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FIFTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This
Fifth Amendment to Loan and Security Agreement is entered into as of August 13,
2002 (the “Amendment”), by and between COMERICA BANK-CALIFORNIA (“Bank”) and
MAXWELL TECHNOLOGIES, INC., MAXWELL ELECTRONIC COMPONENTS GROUP, INC.,
I-BUS/PHOENIX, INC., PUREPULSE TECHNOLOGIES, INC., and MML ACQUISITION CORP.
(individually, a “Borrower” and collectively, the “Borrowers”).
RECITALS
Borrowers
and Bank are parties to that certain Loan and Security Agreement dated as of
February 26, 2001, as amended from time to time, including but not limited
to by that certain Amendment to Loan and Security Agreement dated as of May 25,
2001, that certain Second Amendment to Loan and Security Agreement dated as of
June 18, 2001, that certain Third Amendment to Loan and Security Agreement
dated as of December 21, 2001, and that certain Fourth Amendment to Loan and
Security Agreement dated as of July 2, 2002 (collectively, the “Agreement”). The parties desire to amend the Agreement in
accordance with the terms of this Amendment.
NOW,
THEREFORE, the parties agree as follows:
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1.
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Borrowers may not request or receive any further
Credit Extensions until October 16, 2002.
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2.
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Section 6.9 of the Agreement hereby is amended in
its entirety as follows:
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“6.9
Minimum
Cash
. Borrowers shall at all
times maintain with Bank (or Comerica Securities, Inc. or Munder
Capital) cash and cash equivalents in a minimum aggregate amount of Seven
Million Dollars ($7,000,000).”
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3.
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Section 6.10 of the Agreement hereby is amended in
its entirety as follows:
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“6.10
Tangible
Net Worth
. Borrowers shall at all
times through October 15, 2002 maintain a Tangible Net Worth of not less than
Forty Two Million Dollars ($42,000,000).
At all times after October 15, 2002, Borrowers shall maintain a
Tangible Net Worth of not less than Forty Eight Million Dollars
($48,000,000).”
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4.
|
Exhibit D to the Agreement hereby is replaced with
Exhibit D hereto.
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5. Unless
otherwise defined, all initially capitalized terms in this Amendment shall be
as defined in the Agreement. The
Agreement, as amended hereby, shall be and remain in full force and effect in
accordance with its respective terms and hereby is ratified and confirmed in
all respects. Except as expressly set
forth herein, the execution, delivery, and performance of this Amendment shall
not operate as a waiver of, or as an amendment of, any right, power, or remedy
of Bank under the Agreement, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the
continuing effectiveness of all promissory notes, guaranties, security
agreements, mortgages, deeds of trust, environmental agreements, and all other
instruments, documents and agreements entered into in connection with the
Agreement.
6. Each
Borrower represents and warrants that the representations and warranties
contained in the Agreement are true and correct as of the date of this
Amendment, and that no Event of Default has occurred and is continuing.
7. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.
8. As
a condition to the effectiveness of this Amendment, Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) This
Amendment, duly executed by the Borrowers;
(b) An
amount equal to all Bank Expenses incurred to date; and
(c) Such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.
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MAXWELL
TECHNOLOGIES, INC.
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By: /s/
Donald M. Roberts
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Title: Vice
President
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MAXWELL
ELECTRONIC COMPONENTS GROUP,
INC.
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By: /s/
Donald M. Roberts
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Title: Vice
President
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I-Bus/PHOENIX,
INC.
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By: /s/
Donald M. Roberts
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Title: Vice
President
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PUREPULSE
TECHNOLOGIES, INC.
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By: /s/
Donald M. Roberts
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Title: Vice
President
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MML
ACQUISITION CORP.
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By: /s/
Donald M. Roberts
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Title: Vice
President
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COMERICA BANK-CALIFORNIA
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By: /s/ [illegible]
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Title: Vice President
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EXHIBIT D
COMPLIANCE CERTIFICATE
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TO:
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COMERICA BANK-CALIFORNIA
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FROM:
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MAXWELL TECHNOLOGIES, INC., MAXWELL ELECTRONIC
COMPONENTS GROUP, INC., I-BUS/PHOENIX, INC., PUREPULSE TECHNOLOGIES,
INC., MAXWELL TECHNOLOGIES SYSTEMS DIVISION, INC., MML ACQUISITION CORP.
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The
undersigned authorized officer of MAXWELL TECHNOLOGIES, INC. (“Parent”) on
behalf of Parent and MAXWELL ELECTRONIC COMPONENTS GROUP, INC., I-BUS/PHOENIX,
INC., PUREPULSE TECHNOLOGIES, INC., MAXWELL TECHNOLOGIES SYSTEMS DIVISION,
INC., MML ACQUISITION CORP. (collectively, “Borrowers”) hereby certifies that
in accordance with the terms and conditions of the Loan and Security Agreement
between Borrowers and Bank (the “Agreement”), (i) Borrower(s) are in complete
compliance for the period ending __________________ with all required covenants
except as noted below and (ii) all representations and warranties of Borrowers
stated in the Agreement are true and correct in all material respects as of the
date hereof. Attached herewith are the
required documents supporting the above certification. The Officer further certifies that these
are prepared in accordance with Generally Accepted Accounting Principles (GAAP)
and are consistently applied from one period to the next except as explained in
an accompanying letter or footnotes.
Please
indicate compliance status by circling Yes/No under “Complies” column.
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Reporting Covenant
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Required
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Complies
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Monthly financial
statements
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Monthly within 30 days
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Yes
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No
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Quarterly financial
statements
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Quarterly within 45 days
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Yes
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No
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Annual (CPA Audited)
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FYE within 90 days
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Yes
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No
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10K & 10Q within 5 days
of filing
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Yes
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No
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A/R & A/P Agings
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Quarterly beginning
12/31/02 within 45 days
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Yes
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No
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A/R Audit
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Initial and Annual
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Yes
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No
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IP Report
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Within 30 days of 2/1 and
8/1
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Yes
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No
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Financial Covenant
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Required
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Actual
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Complies
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Maintain on a Quarterly
Basis:
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Minimum Quick Ratio
(beginning 12/31/02)
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1.35:1.00
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_____:1.00
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Yes
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No
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Fixed Charge Coverage Ratio
(beginning 12/31/02)
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2.00:1.00
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_____:1.00
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Yes
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No
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Maintain at all Times:
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Minimum Cash
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$7,000,000
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$________
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Yes
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No
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Minimum Tangible Net Worth
(through 10/15/02)
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$42,000,000
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$________
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Yes
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No
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Minimum Tangible Net Worth
(beginning 10/16/02)
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$48,000,000
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$________
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Yes
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No
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Comments Regarding Exceptions:
See
Attached.
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BANK USE ONLY
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Received by:
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Sincerely,
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AUTHORIZED
SIGNER
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Date:
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Verified:
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SIGNATURE
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AUTHORIZED
SIGNER
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Date:
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TITLE
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Compliance
Status Yes No
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DATE
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SIXTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This
Sixth Amendment to Loan and Security Agreement is entered into as of October
31,2002 (the “Amendment”), by and between
COMERICA BANK-CALIFORNIA (“Bank”) and MAXWELL TECHNOLOGIES, INC. (“
Parent”) and MML ACQUISITION CORP. (individually, a “Borrower” and
collectively, the “Borrowers”).
RECITALS
Borrowers
and Bank are parties to that certain Loan and Security Agreement dated as of
February 26, 2001, as amended from time to time, including but not limited to
by that certain Amendment to Loan and Security Agreement dated as of May 25,
2001, that certain Second Amendment to Loan and Security Agreement dated as of
June 18, 2001, that certain Third Amendment to Loan and Security Agreement dated
as of December 21, 2001 (the “Third Amendment”), that certain Fourth Amendment
to Loan and Security Agreement dated as of July 2, 2002, and that certain Fifth
Amendment to Loan and Security Agreement dated as of August 13, 2002
(collectively, the “Agreement”).
In
addition, Bank agreed to make the Term Loan (as defined in the Third Amendment)
to Parent under the terms and conditions set forth in the Term Loan Agreement,
the Note, Addendum to Note, and Environmental Indemnity (each as defined in the
Third Amendment and dated as of December 21, 2001) (collectively, the “Term Loan Agreements”). Parent’s obligations under the Term Loan Agreements are secured
by the Collateral as well as by a Deed of Trust, Security Agreement, and
Fixture Filing (With Assignment of Rents and Leases) recorded on December 26,
2001, as File Number 2001-0954268, in the office of the County Recorder of San
Diego County, California (the “Deed of Trust”), an Assignment of Real Property
Leases and Rents (the “Assignment”), and a UCC fixture filing, each dated as of
December 21, 2001. The Agreement, the
Term Loan Agreements, the Deed of Trust and the Assignment are collectively
referred to herein as the Agreements.
Further,
effective as of October 9, 2002, Maxwell Electronic Components Group, Inc., a
California corporation (“ MECG”), a former Borrower under the Agreement, merged
with and into Parent, with Parent continuing as the surviving corporation (the
“Merger”). Pursuant to the Loan
Agreement, Bank must consent to such Merger.
Parent
desires to assume all obligations of MECG under the Agreement (the
“Assumption”). Parent and MECG have
requested Bank’s consent to such Merger, and Bank desires to grant such
consent, provided Parent assumes all obligations of MECG to Bank under the
Agreement in accordance with this Amendment.
Additionally,
the parties desire to amend the Agreements in accordance with the terms of this
Amendment.
NOW,
THEREFORE, the parties agree as follows:
1. To
the extent not already provided for in the agreement(s) setting forth the terms
of the Merger, or otherwise made effective as a consequence of such Merger,
Parent hereby assumes all obligations of MECG, including, but not limited to,
the payment of any amounts outstanding (including but not limited to Bank’s
expenses, fees, attorney’s fees, and collection fees), under the
Agreements. Parent confirms that, to
secure such performance, Parent grants Bank a security interest in all the
Collateral, including any portion of the Collateral which was formerly owned by
MECG but is now owned by Parent as a result of such merger.
2. Bank
hereby waives Borrowers’ default under Section 7.3 of the Agreement as it
relates to the Merger.
3. The
following defined term in Section 1.1 of the Agreement is hereby amended as
follows:
“Credit
Extension” means the issuance of credit cards under Section 2.1(d), the Term
Loan under Section 2.1(g), or any other extension of credit by Bank for
the benefit of Borrower hereunder.
4. Bank
hereby waives Borrowers’ default under Section 6.10 of the Agreement, as in
effect prior to the date of this Amendment, for the period ending August 31,
2002.
5. Section
2.1(a) of the Agreement hereby is amended in its entirety as follows:
“2.1(a)
Intentionally
Omitted
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“2.1(b)
Intentionally
Omitted
.”
“2.1(c)
Credit
Card
. Subject to the terms and
conditions of this Agreement, Bank agrees to issue or cause to be issued corporate credit cards for the executives of
Borrowers in an aggregate credit limit not to exceed Two Hundred Twenty Five
Thousand Five Hundred Dollars ($225,500) (the “Credit Card Sublimit”). The terms and conditions (including
repayment and fees) of such Credit Card Sublimit shall be subject to the terms
and conditions of the Bank’s standard forms of application and agreement for
corporate credit card(s), which Borrowers hereby agree to execute.”
“2.1(d)
Intentionally
Omitted
.”
6. Section
6.8 of the Agreement hereby is amended in its entirety as follows:
“6.8
Intentionally
Omitted
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7. Section
6.9 of the Agreement hereby is amended in its entirety as follows:
“6.9
Intentionally
Omitted
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8. Section
6.10 of the Agreement hereby is amended in its entirety as follows:
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“6.10
Tangible
Net Worth
. Borrowers shall at all
times maintain a Tangible Net Worth of not less than Twenty Four Million
Dollars ($24,000,000).”
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9. Section
6.11 of the Agreement hereby is amended in its entirety as follows:
“6.11
Intentionally
Omitted.
”
10. Exhibit
D to the Agreement hereby is replaced with Exhibit D hereto.
11. The
references to “$6,000,000” and or “Six Million Dollars ($6,000,000) in the Term
Note (or otherwise in the Term Loan Agreements) hereby are replaced with
“$3,000,000” and “Three Million Dollars ($3,000,000),” respectively.
12. In
consideration of the foregoing amendment, Parent assumes and agrees to pay the
indebtedness evidenced by the Term Note as
hereby amended and Borrowers agree to pay and perform each and all of the
conditions and covenants required to be performed by Borrowers pursuant
to the Agreements.
13. In
order to induce Lender to execute this Amendment, Parent represents and
warrants that title to the real property described in the Deed of Trust is
vested in Maxwell Technologies, Inc., subject only to those exceptions as shown
on the preliminary title report dated as of October 15, 2002, issued by Chicago
Title Company.
14. Unless otherwise defined, all initially
capitalized terms in this Amendment shall be as defined in the Agreements. The Agreements, as amended hereby, shall be
and remain in full force and effect in accordance with their respective terms
and hereby are ratified and confirmed in all respects. Except as expressly set forth herein, the
execution, delivery, and performance of this Amendment shall not operate as a
waiver of, or as an amendment of, any right, power, or remedy of Bank under the
Agreements, as in effect prior to the date hereof. Each Borrower ratifies and reaffirms the continuing
effectiveness of all promissory notes, guaranties, security agreements,
mortgages, deeds
of trust,
environmental agreements, and all other instruments, documents and agreements
entered into in connection with the Agreements.
15. Each
Borrower represents and warrants that the representations and warranties
contained: in the Agreements are true
and correct as of the date of this Amendment, and that, except as expressly
waived hereby, no Event of Default has occurred and is continuing.
16. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.
17. As
a condition to the effectiveness of this Amendment, Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) This
Amendment, duly executed by the Borrowers;
(b) Corporate
Resolutions to Borrow;
(c) An
amount sufficient to reduce the Term Loan to $3,000,000, which amount maybe
debited from Borrower’s account no. 1891-382036;
(d) An
amount equal to all Bank Expenses inc d to date, which amount may be debited
from any of Borrower’s account no. 1891-382036;
(e)
[handwritten]
$22,000.00, to satisfy the “unused line fee” charged (pursuant to Section
2.5(a) of the Agreement) but not previously collected, which amount may be
debited from Borrower’s account no. 1891-382036; and
(f) Such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.
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MAXWELL TECHNOLOGIES, INC.
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[handwritten
and initialized “CJE”]
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By: /s/ [illegible]
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Title:
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MML ACQUISITION CORP.
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[handwritten
and initialized “CJE”]
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By: /s/ [illegible]
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Title:
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COMERICA BANK-CALIFORNIA
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By: /s/ [illegible]
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Title: Vice President
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EXHIBIT D
COMPLIANCE CERTIFICATE
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TO:
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COMERICA BANK-CALIFORNIA
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FROM:
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MAXWELL TECHNOLOGIES, INC., MML ACQUISITION CORP.
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The
undersigned authorized officer of MAXWELL TECHNOLOGIES, INC. (“Parent”) on
behalf of Parent and MML ACQUISITION CORP. (collectively, “Borrowers”) hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrowers and Bank (the “Agreement”), (i)
Borrower(s) are in complete compliance for the period ending
____________________ with all required covenants except as noted below and (ii)
all representations and warranties of Borrowers stated in the Agreement are
true and correct in all material respects as of the date hereof. Attached herewith are the required documents
supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
Please
indicate compliance status by circling Yes/No under “Complies” column.
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Reporting Covenant
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Required
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Complies
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Monthly financial
statements
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Monthly within 30 days
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Yes
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No
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Quarterly financial
statements
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Quarterly within 45 days
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Yes
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No
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Annual (CPA Audited)
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FYE within 90 days
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Yes
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No
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10K & 10Q
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within 5 days of filing
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Yes
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No
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IP Report
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Within 30 days of 2/1 and
8/1
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Yes
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No
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Financial Covenant
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Required
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Actual
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Complies
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Maintain monthly:
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Minimum
Tangible Net Worth
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$24,000,000
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$___________
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Yes
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No
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Comments Regarding Exceptions:
See
Attached.
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BANK USE ONLY
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Received by:
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Sincerely,
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AUTHORIZED
SIGNER
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Date:
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Verified:
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SIGNATURE
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AUTHORIZED
SIGNER
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Date:
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TITLE
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Compliance
Status Yes No
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DATE
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[handwritten and initialized
“CJE”
]
[handwritten
and initialized “CJE”
]
CORPORATE
RESOLUTIONS TO BORROW
Borrower
: MAXWELL
TECHNOLOGIES, INC.
I,
the undersigned
[handwritten and initialized “CJE”]
Chief Executive Officer of
MAXWELL TECHNOLOGIES, INC. (the “Corporation”), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of
Delaware.
I
FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation, as amended, and the
Restated Bylaws of the Corporation, each of which is in full force and effect
on the date hereof.
I
FURTHER CERTIFY that at a meeting of the Directors of the Corporation duly
called and held, at which a quorum was present and voting, (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE
IT RESOLVED, that
any one (1)
of the following named
officers, employees, or agents of this Corporation, whose actual signatures are
shown below:
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NAMES
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POSITIONS
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ACTUAL SIGNATURES
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Carlton J. Eibl
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CEO
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/s/ C
ARLTON
J. E
IBL
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James A. Baumker
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CFO
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/s/ J
AMES
A. B
AUMKER
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acting for an on behalf of this
Corporation and as its act and deed be, and they hereby are, authorized and
empowered:
Borrow
Money.
To borrow from
time to time from Comerica Bank-California (“Bank”), on such terms as may be
agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Sixth Amendment to Loan
and Security Agreement dated as of October 31, 2002 (the “Amendment”).
Execute
Amendments.
To
execute and deliver to Bank the Amendment, and also to execute and deliver to
Bank one or more renewals, extensions, modifications, consolidations, or
substitutions therefor.
Grant
Security.
To grant a
security interest to Bank in the Collateral described in the Amendment, which
security interest shall secure all of the Corporation’s Obligations, as described
in the Amendment.
Negotiate
Items.
To draw, endorse, and discount with Bank all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation or in which the
Corporation may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of the Corporation with Bank,
or to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
Further
Acts.
In the case of
lines of credit, to designate additional or alternate individuals as being
authorized to request advances thereunder, and in all cases, to do and perform
such other acts and things, to pay any
and all fees and costs,
and to execute and deliver such other documents and agreements as they may in
their discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions.
BE
IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the
Corporation’s agreements or commitments in effect at the time notice is given.
I
FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I
FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN
WITNESS WHEREOF, I have hereunto set my hand on November _, 2002 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
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CERTIFIED TO AND ATTESTED BY:
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X /s/ [illegible]
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CORPORATE
RESOLUTIONS TO BORROW
Borrower
: MML
ACQUISITION CORP.
I,
the undersigned
[handwritten and initialized “CJE”]
Chief Executive Officer of
MAXWELL TECHNOLOGIES, INC. (the “Corporation”), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the laws of
Delaware.
I
FURTHER CERTIFY that attached hereto as Attachments 1 and 2 are true and
complete copies of the Certificate of Incorporation, as amended, and the
Restated Bylaws of the Corporation, each of which is in full force and effect
on the date hereof.
I
FURTHER CERTIFY that at a meeting of the Directors of the Corporation duly
called and held, at which a quorum was present and voting, (or by other duly
authorized corporate action in lieu of a meeting), the following resolutions
were adopted.
BE
IT RESOLVED, that
any one (1)
of the following named
officers, employees, or agents of this Corporation, whose actual signatures are
shown below:
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NAMES
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POSITIONS
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ACTUAL SIGNATURES
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Carlton J. Eibl
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CEO
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/s/ C
ARLTON
J. E
IBL
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James A. Baumker
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CFO
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/s/ J
AMES
A. B
AUMKER
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acting for an on behalf of this
Corporation and as its act and deed be, and they hereby are, authorized and
empowered:
Borrow
Money.
To borrow from
time to time from Comerica Bank-California (“Bank”), on such terms as may be
agreed upon between the officers, employees, or agents and Bank, such sum or
sums of money as in their judgment should be borrowed, without limitation,
including such sums as are specified in that certain Sixth Amendment to Loan
and Security Agreement dated as of October 31, 2002 (the “Amendment”).
Execute
Amendments.
To
execute and deliver to Bank the Amendment, and also to execute and deliver to
Bank one or more renewals, extensions, modifications, consolidations, or
substitutions therefor.
Grant
Security.
To grant a
security interest to Bank in the Collateral described in the Amendment, which
security interest shall secure all of the Corporation’s Obligations, as
described in the Amendment.
Negotiate
Items.
To draw, endorse, and discount with Bank all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation or in which the
Corporation may have an interest, and either to receive cash for the same or to
cause such proceeds to be credited to the account of the Corporation with Bank,
or to cause such other disposition of the proceeds derived therefrom as they
may deem advisable.
Further
Acts.
In the case of
lines of credit, to designate additional or alternate individuals as being
authorized to request advances thereunder, and in all cases, to do and perform
such other acts and things, to pay any
and all fees and costs,
and to execute and deliver such other documents and agreements as they may in
their discretion deem reasonably necessary or proper in order to carry into
effect the provisions of these Resolutions.
BE
IT FURTHER RESOLVED, that any and all acts authorized pursuant to these
resolutions and performed prior to the passage of these resolutions are hereby
ratified and approved, that these Resolutions shall remain in full force and
effect and Bank may rely on these Resolutions until written notice of their
revocation shall have been delivered to and received by Bank. Any such notice shall not affect any of the
Corporation’s agreements or commitments in effect at the time notice is given.
I
FURTHER CERTIFY that the officers, employees, and agents named above are duly
elected, appointed, or employed by or for the Corporation, as the case may be,
and occupy the positions set forth opposite their respective names; that the
foregoing Resolutions now stand of record on the books of the Corporation; and
that the Resolutions are in full force and effect and have not been modified or
revoked in any manner whatsoever.
I
FURTHER CERTIFY that attached hereto are true and correct copies of the
Certificate of Incorporation and Bylaws of the Corporation.
IN
WITNESS WHEREOF, I have hereunto set my hand on November _, 2002 and attest
that the signatures set opposite the names listed above are their genuine
signatures.
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CERTIFIED TO AND ATTESTED BY:
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X /s/ [illegible]
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SEVENTH AMENDMENT
TO
LOAN AND SECURITY AGREEMENT
This
Seventh Amendment to Loan and Security Agreement is entered into as of June 30,
2003 (the “Amendment”), by and between COMERICA BANK, successor by merger to
COMERICA BANK-CALIFORNIA (“Bank”) and MAXWELL TECHNOLOGIES, INC. (“Parent”) and
MML ACQUISITION CORP. (individually, a “Borrower” and collectively, the
“Borrowers”).
RECITALS
Borrowers
and Bank are parties to that certain Loan and Security Agreement dated as of
February 26, 2001, as amended from time to time, including but not limited to
by that certain Amendment to Loan and Security Agreement dated as of May 25,
2001, that certain Second Amendment to Loan and Security Agreement dated as of
June 18, 2001, that certain Third Amendment to Loan and Security Agreement
dated as of December 21, 2001 (the “Third Amendment”), that certain Fourth
Amendment to Loan and Security Agreement dated as of July 2, 2002, that certain
Fifth Amendment to Loan and Security Agreement dated as of August 13, 2002, and
that certain Sixth Amendment to Loan and Security Agreement dated as of October
31, 2002 (collectively, the “Loan Agreement”).
In
addition, Bank agreed to make the Term Loan (as defined in the Third Amendment)
to Parent under the terms and conditions set forth in the Term Loan Agreement,
the Note, Addendum to Note, and Environmental Indemnity
(each as defined in the Third Amendment and dated as of December 21, 2001)
(collectively, the “Term Loan Agreements”). Parent’s obligations under the Term Loan Agreements are secured
by the Collateral as well as by a Deed of
Trust, Security Agreement, and Fixture Filing (With Assignment of Rents and
Leases) recorded on December 26,2001, as File Number 2001-0954268, in
the office of the County Recorder of San Diego County, California (the “Deed of
Trust”), an Assignment of Real Property Leases and Rents (the “Assignment”),
and a UCC fixture filing, each dated as of December 21, 2001. The Loan Agreement, the Term Loan
Agreements, the Deed of Trust and the Assignment are collectively referred to
herein as the Loan Documents.
The
parties desire to amend the Loan Documents in accordance with the terms of this
Amendment.
NOW,
THEREFORE, the parties agree as follows:
1. Section
6.10 of the Loan Agreement hereby is amended in its entirety to read as
follows:
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“6.10
Tangible Net
Worth
. Borrowers shall maintain,
as of the last day of each calendar month, a Tangible Net Worth of not less
than Eighteen Million Dollars ($18,000,000).”
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2. Exhibit
D to the Loan Agreement hereby is replaced by Exhibit D attached hereto.
3. In
consideration of the foregoing amendment, Borrowers agree to pay and perform
each and all of the conditions and covenants required to be performed by
Borrowers pursuant to the Loan Documents.
4. Unless
otherwise defined, all initially capitalized terms in this Amendment shall be
as defined in the Loan Documents. The
Loan Documents, as amended hereby, shall be and remain in full force and effect
in accordance with their respective terms and hereby are ratified and confirmed
in all respects. Except as expressly
set forth herein, the execution, delivery, and performance of this Amendment
shall not operate as a waiver of, or as an amendment of, any right, power, or
remedy of Bank under the Loan Documents, as in effect prior to the date
hereof. Each Borrower ratifies and
reaffirms the continuing effectiveness of all promissory notes, guaranties, security
agreements, mortgages, deeds of trust, environmental agreements, and all other
instruments, documents and agreements entered into in connection with the Loan
Documents.
5. Each
Borrower represents and warrants that the representations and warranties
contained in the Loan Documents are true and correct as of the date of this
Amendment, and that no Event of Default has occurred and is continuing.
6. This
Amendment may be executed in two or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one instrument.
7. As
a condition to the effectiveness of this Amendment, Bank shall have received,
in form and substance satisfactory to Bank, the following:
(a) This
Amendment, duly executed by the Borrowers;
(b) An
amount equal to all Bank Expenses incurred to date, which amount may be debited
from any of Borrower’s account no. 1891-382036; and
(c) Such
other documents, and completion of such other matters, as Bank may reasonably
deem necessary or appropriate.
IN
WITNESS WHEREOF, the undersigned have executed this Amendment as of the first
date above written.
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MAXWELL TECHNOLOGIES, INC.
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By: /s/ [illegible]
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Title: VP CFO
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MML ACQUISITION CORP.
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By: /s/ [illegible]
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Title: VP CFO
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COMERICA BANK
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By: /s/ [illegible]
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Title: Vice President
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EXHIBIT D
COMPLIANCE CERTIFICATE
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TO:
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COMERICA BANK
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FROM:
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MAXWELL TECHNOLOGIES, INC., MML ACQUISITION CORP.
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The
undersigned authorized officer of MAXWELL TECHNOLOGIES, INC. (“Parent”) on
behalf of Parent and MML ACQUISITION CORP. (collectively, “Borrowers”) hereby
certifies that in accordance with the terms and conditions of the Loan and
Security Agreement between Borrowers and Bank (the “Agreement”), (i)
Borrower(s) are in complete compliance for the period ending
____________________ with all required covenants except as noted below and (ii)
all representations and warranties of Borrowers stated in the Agreement are
true and correct in all material respects as of the date hereof. Attached herewith are the required documents
supporting the above certification. The
Officer further certifies that these are prepared in accordance with Generally
Accepted Accounting Principles (GAAP) and are consistently applied from one
period to the next except as explained in an accompanying letter or footnotes.
Please
indicate compliance status by circling Yes/No under “Complies” column.
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Reporting Covenant
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Required
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Complies
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Monthly financial
statements
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Monthly within 30 days
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Yes
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No
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Quarterly financial
statements
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Quarterly within 45 days
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Yes
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No
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Annual (CPA Audited)
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FYE within 90 days
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Yes
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No
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10K & 10Q
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within 5 days of filing
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Yes
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No
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IP Report
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Within 30 days of 2/1 and
8/1
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Yes
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No
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Financial Covenant
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Required
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Actual
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Complies
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Maintain monthly:
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Minimum
Tangible Net Worth
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$ 18,000,000
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$_______
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Yes
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No
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Comments Regarding Exceptions:
See
Attached.
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BANK USE ONLY
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Received by:
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Sincerely,
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AUTHORIZED
SIGNER
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Date:
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Verified:
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SIGNATURE
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AUTHORIZED
SIGNER
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Date:
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TITLE
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Compliance
Status Yes No
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DATE
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[Illegible
initials]
MAXWELL
TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is made as of this 22nd day of December
2003, by and between MAXWELL TECHNOLOGIES, INC. a Delaware corporation,
(“Company”) and Tesfaye Hailemichael, VP of Maxwell Technologies (“Executive”).
The parties agree with each other as follows:
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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 the date of this Agreement 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.
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2.
Duties
of Executive
.
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(a)
Executive shall serve as the Vice President and CFO of the Company. In such
capacities, Executive shall report to the CEO of the Company 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 CEO
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(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) on civic or charitable boards or committees and (ii) with the prior
written 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.
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3.
Compensation of Executive
. As compensation for the services to be
performed under this Agreement:
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(a)
Base Salary
. Effective as of the
date of this Agreement, Executive shall be paid a base salary at the initial
annual rate of $200,000, 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;
the temporary reduction of compensation for 2004, is both voluntary and not
applicable to any severance or other compensation described in this contract.
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(b)
Annual
Bonus
. Executive shall be
entitled to an annual bonus which shall be determined as provided in this
subsection (b):
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(i) Commencing
with the Company’s current fiscal year ending December 31, 2003 and for each
subsequent fiscal year of the Company, the Board will set specific financial
performance targets and the amount of Executive’s bonus will range $0 to a
maximum amount equal to 50% of Executive’s annual base salary as in effect
for such fiscal year (with a target bonus of 50% of the then effective base
salary) depending on the CEO’s determination of Executive’s success in
achieving the specified targets. The financial performance targets for fiscal
year 2004 will be established in January 2004 as part of the Company’s annual
financial plan.
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(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.
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(c)
Options
. Executive is eligible for, and has received, the grant of stock
options under the Company’s stock option programs. 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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(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
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(e)
Vacation
. Executive shall be entitled to vacation
according to the prevailing rules in effect during this employment contract.
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.
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(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.
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4.
Termination
.
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(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:
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(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
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(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
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(iii) if
Executive is convicted of a felony; or
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(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
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(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 its
subsidiaries is a party or with which it is associated without making
disclosure to and obtaining prior written consent of the Company.
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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.
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(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 30 days’ prior written notice. In the event of
termination pursuant to this Subsection (b), Executive will be paid an amount
equal to one half of Executive’s annual base salary in effect on the date of
such termination of employment with the exception noted above for the
voluntary 2004 pay reduction. Such amount will be paid in equal monthly
installments following the date of termination of employment.
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In
addition, notwithstanding anything to the contrary contained herein or in the
applicable stock option agreements, all of the stock options then held by
Executive shall continue to vest in accordance with their terms until the six
month anniversary of the date the Company terminates Executive’s employment
under this subsection (b) and shall be exercisable to the extent so vested by
Executive on or prior to the 60th day following such anniversary date of
termination
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(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 CEO. 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.
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(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 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 six
months salary at Executive’s annual base salary rate as in effect on the date
of the termination under this clause (d). 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 CEO.
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(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:
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(i) Following
the date of the Triggering Event, Executive shall be paid two cash payments,
each to be equal to one half of the Executive’s annual base salary in effect
on the date of the Triggering Event, with the first of such payment to be
paid within 30 days of the Triggering Event and the second of such payments
to be paid on the six month anniversary of the date of the Triggering Event,
in each case subject to normal withholding.
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(ii) As
of the date of the Triggering Event, notwithstanding the vesting schedule of
any stock options then held by Executive, all stock options then held by
Executive shall thereupon become fully vested; and
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(iii) For
a six months 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.
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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 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).
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For
purposes of this Subsection 4(e):
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(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
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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.
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(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 Vice President and CFO or a 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.
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(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.
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(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.
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(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.
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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.
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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
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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.
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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.
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6.
General
Obligations of Executive
.
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(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.
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(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.
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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.
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8.
Non-competition
. 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.
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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 there under) 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
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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.
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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 CEO on behalf of the Company and by Executive.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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proper postage prepaid and addressed to the party or
parties to be notified, at the following addresses:
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If to Executive to:
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Tesfaye Hailemichael
Telephone: (858) 503-0085
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If to the Company to:
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Maxwell Technologies Inc.
9244 Balboa Avenue
San Diego, California 92123
Attn: Chairman of the Board
Telephone: (858) 503-3300
Fax: (858) 503-3301
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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 22nd
day of December, 2003.
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“Company”
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MAXWELL TECHNOLOGIES, INC.
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By:
/s/ Richard Balanson
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Richard Balanson
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/s/Tesfaye
Hailemichael
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Tesfaye Hailemichael
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10
MAXWELL
TECHNOLOGIES, INC.
EMPLOYMENT AGREEMENT
This
Employment Agreement (the “Agreement”) is made as of this 22
nd
day of December, 2003, by and
between MAXWELL TECHNOLOGIES, INC. a Delaware corporation, (“Company”) and
Richard Smith, EVP of Maxwell Technologies (“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 the date of this Agreement 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
.
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(a) Executive
shall serve as the Executive Vice President and head of Strategic Business
Development of the Company. In such capacities, Executive shall report to the
CEO of the Company 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 CEO
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(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) on civic or
charitable boards or committees and (ii) with the prior written 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.
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3.
Compensation
of Executive
. As compensation for
the services to be performed under this Agreement:
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(a)
Base
Salary
. Effective as of the date
of this Agreement, Executive shall be paid a base salary at the initial
annual rate of $200,000, 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; the temporary reduction of
compensation
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for 2004, is both voluntary and not applicable to
any severance or other compensation described in this contract.
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(b)
Annual
Bonus
. Executive shall be
entitled to an annual bonus which shall be determined as provided in this
subsection (b):
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(i) Commencing
with the Company’s current fiscal year ending December 31, 2003 and for each
subsequent fiscal year of the Company, the Board will set specific financial
performance targets and the amount of Executive’s bonus will range $0 to a
maximum amount equal to 50% of Executive’s annual base salary as in effect
for such fiscal year (with a target bonus of 50% of the then effective base
salary) depending on the CEO’s determination of Executive’s success in
achieving the specified targets. The financial performance targets for fiscal
year 2004 will be established in January 2004 as part of the Company’s annual
financial plan.
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(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.
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(c)
Options
. Executive is eligible for, and has
received, the grant of stock options under the Company’s stock option programs.
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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(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 vacation
according to the prevailing rules in effect during this employment
contract. 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.
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(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.
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4.
Termination
.
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(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:
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(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
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(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
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(iii) if
Executive is convicted of a felony; or
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(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
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(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 its
subsidiaries is a party or with which it is associated without making
disclosure to and obtaining prior written consent of the Company.
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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.
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(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 30 days’ prior written
notice. In the event of termination
pursuant to this Subsection (b), Executive will be paid an amount equal to one
half of Executive’s annual base salary in effect on the date of such
termination of employment with the exception noted above for the voluntary
2004 pay reduction. Such amount will be paid in equal monthly installments
following the date of termination of employment.
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In
addition, notwithstanding anything to the contrary contained herein or in the
applicable stock option agreements, all of the stock options then held by
Executive shall continue to vest in accordance with their terms until the six
month anniversary of the date the Company terminates Executive’s employment
under this subsection (b) and shall be exercisable to the extent so vested by
Executive on or prior to the 60
th
day following such anniversary
date of termination
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(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 CEO. 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.
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(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 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 six months salary at Executive’s
annual base salary rate as in effect on the date of the termination under
this clause (d). 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 CEO.
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(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:
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(i) Following
the date of the Triggering Event, Executive shall be paid two cash payments,
each to be equal to one half of the Executive’s annual base salary in effect
on the date of the Triggering Event, with the first of such payment to be
paid within 30 days of the Triggering Event and the second of such payments
to be paid on the six month anniversary of the date of the Triggering Event,
in each case subject to normal withholding.
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(ii) As
of the date of the Triggering Event, notwithstanding the vesting schedule of
any stock options then held by Executive, all stock options then held by
Executive shall thereupon become fully vested; and
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(iii) For
a six months 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.
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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 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).
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For
purposes of this Subsection 4(e):
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(a) Change
of Control” means the occurrence of any one of the following: (1) 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
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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.
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(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 Executive Vice President and head of Strategic
Business Development or a 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.
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(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.
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(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.
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(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.
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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
6
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.
6.
General
Obligations of Executive
.
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(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.
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(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.
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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.
Non-competition
. 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 there under) 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
7
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.
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 CEO
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
8
proper postage prepaid
and addressed to the party or parties to be notified, at the following
addresses:
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If to Executive to:
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Richard Smith
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Telephone: (619) 222-6830
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If to the Company to:
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Maxwell Technologies Inc.
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9244 Balboa Avenue
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San Diego, California 92123
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Attn: Chairman of the Board
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Telephone:
(858) 503-3300
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Fax: (858)
503-3301
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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.
9
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 22
day of December, 2003
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“Company”
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MAXWELL TECHNOLOGIES, INC.
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By:
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/s/ R
ICHARD
B
ALANSON
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Richard Balanson
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/s/ R
ICHARD
S
MITH
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Richard Smith
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10
EXHIBIT
10.39
SEPARATION
AGREEMENT AND GENERAL
RELEASE OF ALL CLAIMS
This
Separation Agreement and General Release of All Claims (“Agreement”) is made by
and between James Baumker (“Employee”) on the one hand, and Maxwell Technologies, Inc
.
(“the Company”) on the other. (Collectively, Employee and the Company
shall be referred to as “the Parties.”)
1. Employee
is a former employee of the Company.
Employee’s last day of employment with the Company was 10/31/03(Effective Date). The Parties desire to resolve any and all
differences related to Employee’s employment with the Company and/or the
cessation of that employment.
Additionally, the Parties desire to resolve any known or unknown claims
between them, neither party admitting any liability or fault. For these reasons, the Parties have entered
into this Agreement.
2. a.
Without entering into this Agreement, Employee is entitled to a severance
payment equal to two weeks pay
at Employee’s existing weekly rate of pay, less payroll tax deductions. This amount has been paid in one lump sum on
the Effective Date. All vacation
accrual and other fringe benefits of Employee ceased on the Effective Date,
other than insurance benefits which will cease on November 30, 2003.
b. If
Employee enters into this Agreement and does not revoke this Agreement within
the time period provided below in Section 15, the Company will provide Employee
with an additional severance payment equal to 24 weeks pay at Employee’s existing weekly rate of pay, less
payroll tax deductions. This amount
will be paid in one lump sum as soon as possible following the expiration of 10
business days after Employee signs this Agreement.
3. In
consideration of and in return for the promises and covenants undertaken herein
by the Company, including the payments Employee will receive under paragraph 2
herein, and for other good and valuable consideration, receipt of which is
hereby acknowledged, Employee does hereby acknowledge full and complete
satisfaction of and does hereby release, absolve and discharge the Company and
the Company’s parents, subsidiaries, affiliates, related companies and business
concerns, past and present, and each of them, as well as each of their
partners, trustees, directors, officers, agents, attorneys, servants and
employees, past and present, and each of them (hereinafter collectively
referred to as “Releasees”) from any and all claims, demands, liens,
agreements, contracts, covenants, actions, suits, causes of action, grievances,
wages, vacation payments, severance payments, obligations, commissions,
overtime payments, debts, expenses, damages, judgments, orders and liabilities
of whatever kind or nature in state or federal law, equity or otherwise,
whether known or unknown to Employee which Employee now owns or holds or has at
any time owned or held as against Releasees, or any of them, including
specifically but not exclusively and
without limiting the
generality of the foregoing, any and all claims, demands, grievances,
agreements, obligations and causes of action, known or unknown, suspected or
unsuspected by Employee: (1) arising
out of Employee’s employment with the Company or the ending of that employment;
or (2) arising out of or in any way connected with any claim, loss, damage or
injury whatever, known or unknown, suspected or unsuspected, resulting from any
act or omission by or on the part of the Releasees, or any of them, committed
or omitted on or before the Effective Date.
Also without limiting the generality of the foregoing, Employee
specifically releases the Releasees from any claim for attorneys’ fees and/or
costs of suit. EMPLOYEE SPECIFICALLY
AGREES AND ACKNOWLEDGES EMPLOYEE IS WAIVING ANY RIGHT TO RECOVERY BASED ON
STATE OR FEDERAL AGE, SEX, PREGNANCY, RACE, COLOR, NATIONAL ORIGIN, MARITAL
STATUS, RELIGION, VETERAN STATUS, DISABILITY, SEXUAL ORIENTATION, MEDICAL
CONDITION, OR OTHER ANTI-DISCRIMINATION LAWS, INCLUDING, WITHOUT LIMITATION,
TITLE VII OF THE CIVIL RIGHTS ACT OF 1964, THE AGE DISCRIMINATION IN EMPLOYMENT
ACT, THE AMERICANS WITH DISABILITIES ACT AND THE CALIFORNIA FAIR EMPLOYMENT AND
HOUSING ACT, OR BASED ON THE EMPLOYEE RETIREMENT INCOME SECURITY ACT, ALL AS AMENDED,
WHETHER SUCH CLAIM BE BASED UPON AN ACTION FILED BY EMPLOYEE OR BY A
GOVERNMENTAL AGENCY.
4. It
is the intention of Employee in executing this Agreement that it shall be
effective as a bar to each and every claim, demand, grievance and cause of
action hereinabove specified. In
furtherance of this intention, Employee hereby expressly waives any and all
rights and benefits conferred upon Employee by the provisions of Section 1542
of the California Civil Code and expressly consents that this Agreement shall
be given full force and effect according to each and all of its express terms
and provisions, including those relating to unknown and unsuspected claims,
demands and causes of action, if any, as well as those relating to any other
claims, demands and causes of action hereinabove specified. Section 1542 provides:
“A
general release does not extend to claims which the creditor does not know or
suspect to exist in his favor at the time of executing the release, which if
known by him must have materially affected his settlement with the debtor.”
Having
been so apprised, Employee nevertheless hereby voluntarily elects to and does
waive the rights described in Civil Code Section 1542 and elects to assume all
risks for claims that now exist in Employee’s favor, known or unknown, that are
released under this Agreement.
5. The
Company expressly denies any violation of any federal, state or local statute,
ordinance, rule, regulation, policy, order or other law. The Company
-2-
also expressly denies any
liability to Employee. This Agreement
is the compromise of disputed claims and nothing contained herein is to be
construed as an admission of liability on the part of the parties hereby
released, or any of them, by whom liability is expressly denied. Accordingly, while this Agreement resolves
all issues regarding the Company referenced herein, it does not constitute an
adjudication or finding on the merits of any allegations and it is not, and
shall not be construed as, an admission by the Company of any violation of
federal, state or local statute, ordinance, rule, regulation, policy, order or
other law, or of any liability. Moreover,
neither this Agreement nor anything in it shall be construed to be or shall be
admissible in any proceeding as evidence of or an admission by the Company of
any violation of any federal, state or local statute, ordinance, rule,
regulation, policy, order or other law, or of any liability. This Agreement may be introduced, however,
in any proceeding to enforce the Agreement.
Such introduction shall be pursuant to an order protecting its
confidentiality.
6. Employee
acknowledges that during Employee’s employment, Employee had access to trade
secrets and confidential information about the Company, including but not
limited to the Company’s products and services, research and development of new
products and services, customers, and methods of doing business. Employee agrees that Employee shall not
disclose any information relating to the trade secrets or confidential
information of the Company or its customers which has not already been
disclosed to the general public.
7. Employee
agrees the terms and conditions of this Agreement are confidential, and shall
not be disclosed, discussed or revealed by Employee to any other person or
entity.
8. Each
party expressly agrees that such party will not in any way disparage or otherwise
cause to be published or disseminated any negative statements, remarks,
comments or information regarding the other party.
9. This
Agreement shall be construed in accordance with, and be deemed governed by, the
laws of the State of California.
10. If
any provision of this Agreement or application thereof is held invalid, the
invalidity shall not affect other provisions or applications of the Agreement
which can be given effect without the invalid provision or application. To this end, the provisions of this
Agreement are severable.
11. The
Parties hereto acknowledge each has read this Agreement, that each fully
understands its rights, privileges and duties under the Agreement, and that
each enters this Agreement freely and voluntarily. Each party further acknowledges each has had the opportunity to
consult with an attorney of its choice to explain the terms of this Agreement
and the consequences of signing it.
-3-
12. The
undersigned each acknowledge and represent that no promise or representation
not contained in this Agreement has been made to them and acknowledge and
represent that this Agreement contains the entire understanding between the
Parties and contains all terms and conditions pertaining to the compromise and
settlement of the subjects referenced herein.
The undersigned further acknowledge that the terms of this Agreement are
contractual and not a mere recital.
13. Employee
acknowledges Employee may hereafter discover facts different from, or in
addition to, those Employee now knows or believes to be true with respect to
the Claims herein released, and agrees the release herein shall be and remain
in effect in all respects as a complete and general release as to all matters
released herein, notwithstanding any such different or additional facts.
14. The
Company hereby advises Employee in writing to discuss this Agreement with
Employee’s attorney before executing it.
Employee acknowledges that the Company has provided Employee at least
forty-five (45) days within which to review and consider this Agreement before
signing it. Should Employee decide not
to use the full forty-five days, then Employee knowingly and voluntarily waives
any claims that Employee was not in fact given that period of time or did not
use the entire forty-five days to consult an attorney and/or consider this
Agreement.
15. Within
three calendar days of signing and dating this Agreement, Employee shall
deliver the executed original of the Agreement to Donald M. Roberts, General
Counsel, Maxwell Technologies, Inc., 9244 Balboa Avenue, San Diego,
California 92123. However, Employee acknowledges that Employee
may revoke this Agreement for up to seven (7) calendar days following
Employee’s execution of this Agreement and that it shall not become effective
or enforceable until the revocation period has expired. Employee acknowledges that such revocation must
be in writing addressed to Rich Balanson, Chief Executive Officer, Maxwell
Technologies, Inc., 9244 Balboa Avenue, San Diego, California 92123, and received not later than midnight
on the seventh day following execution of this Agreement by Employee. If Employee revokes this Agreement under this
paragraph, the Agreement shall not be effective or enforceable and Employee
will not receive the payments described in paragraph 2b above.
16. If
Employee does not revoke this Agreement in the time frame specified in the
preceding paragraph, the Agreement shall be effective at 12:01 a.m. on the
eighth day after it is signed by Employee.
17. Employee acknowledges that, despite the
cessation of Employee’s employment with the Company, Employee may continue to
be subject to Section 16 of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). Employee further
acknowledges that the Company has advised him to consult independent counsel
regarding the applicability of Section 16 of the Exchange Act.
-4-
I
have read the foregoing Separation Agreement and General Release of All Claims
and I accept and agree to the provisions contained therein and hereby execute
it voluntarily and with full understanding of its consequences.
PLEASE READ
CAREFULLY. THIS AGREEMENT
CONTAINS A GENERAL RELEASE OF ALL KNOWN AND
UNKNOWN CLAIMS.
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Date: ____________,
2003
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James Baumker
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Maxwell Technologies, Inc.
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By:
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Date: ____________, 2003
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Rich Balanson
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Chief Executive Officer
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-5-
EXHIBIT 10.40
INDEMNITY AGREEMENT
THIS
INDEMNITY AGREEMENT (this “Agreement”) dated as of ________________, is made by
and between Maxwell Technologies, Inc., a Delaware corporation (the “Company”),
and ________________ (the “Indemnitee”).
R
E
C
I
T
A
L
S
:
A. The
Company recognizes that competent and experienced persons are increasingly
reluctant to serve as directors of corporations unless they are protected by
comprehensive liability insurance or indemnification, or both, due to increased
exposure to litigation costs and risks resulting from their service to such
corporations, and due to the fact that the exposure frequently bears no
reasonable relationship to the compensation of such directors.
B. The
statutes and judicial decisions regarding the duties of directors are often
difficult to apply, ambiguous, or conflicting, and therefore fail to provide
such directors with adequate, reliable knowledge of legal risks to which they
are exposed or information regarding the proper course of action to take.
C. The
Company and the Indemnitee recognize that plaintiffs often seek damages in such
large amounts and the costs of litigation may be so substantial (whether or not
the case is meritorious), that the defense and/or settlement of such litigation
is often beyond the personal resources of directors.
D. The
Company believes that it is unfair for its directors to assume the risk of
substantial judgments and other expenses which may occur in cases in which the
director received no personal profit and in cases where such person acted in
good faith.
E. Section
145 of the General Corporation Law of Delaware (“Section 145”), under which the
Company is organized, empowers the Company to indemnify, among others, its
directors by agreement and to indemnify persons who serve, at the request of
the Company, as the directors of other corporations or enterprises, and
expressly provides that the indemnification provided by Section 145 is not
exclusive.
F. The
Board of Directors of the Company has determined that contractual
indemnification as set forth herein is not only reasonable and prudent but
necessary to promote the best interests of the Company and its stockholders.
G. The
Company desires and has requested the Indemnitee to serve or continue to serve
as a director of the Company.
H. The
Indemnitee only is willing to serve, or to continue to serve, as a director of
the Company if the Indemnitee is furnished the indemnity provided for herein by
the Company.
A
G
R
E
E
M
E
N
T
:
NOW
THEREFORE, in consideration of the mutual covenants and agreements set forth
below, the parties hereto, intending to be legally bound, hereby agree as
follows:
1.
Definitions
. For purposes of this Agreement, the
following terms shall have the meanings set forth below:
(a) “Agent”
of the Company shall mean any person who:
(i) is or was a director of the Company; or (ii) is or was
serving at the request of, for the convenience of, or to represent the interest
of the Company as a director of a Subsidiary of the Company or of another
foreign or domestic corporation, partnership, joint venture, trust or other
enterprise.
(b) “Expenses”
shall mean all direct and indirect costs of any type or nature whatsoever
(including, without limitation, all attorneys’ fees, fees of experts, witness
fees, travel fees, and all related disbursements, or other out-of-pocket costs
of the types customarily incurred in connection with prosecuting, defending or
appealing, preparing to prosecute, defend or appeal investigations, being or
preparing to be a witness in or otherwise participating in, a Proceeding or
establishing or enforcing a right to indemnification under this Agreement,
Section 145 or otherwise.
(c) “Proceeding”
shall mean any threatened, pending, or completed action, suit, arbitration,
hearing or other proceeding, whether civil, criminal, administrative,
legislative, investigative or any other type whatsoever.
(d) “Subsidiary” shall mean any
corporation of which more than 50% of the outstanding voting securities are
owned directly or indirectly by the Company.
2.
Agreement
to Serve
. The Indemnitee agrees to
serve and/or continue to serve as an Agent of the Company for so long as the
Indemnitee is duly appointed or elected and qualified in accordance with the
applicable provisions of the bylaws of the Company or of any Subsidiary
thereof, or until such time as the Indemnitee tenders his resignation in
writing or is removed from his or her position in accordance with the bylaws of
the Company or otherwise;
provided
,
however
, that nothing
contained in this Agreement is intended to create any right to continued
service with the Company or any other entity in any capacity.
3.
Indemnification
.
(a)
Indemnification
in Third Party Proceedings
.
(i) Subject
to
Section 10
hereof, the Company shall indemnify the Indemnitee if
the Indemnitee is a party to or threatened to be made a party to or otherwise
involved in any Proceeding (other than a Proceeding by or in the name of the
Company to procure a judgment in its favor) by reason of the fact that the
Indemnitee is or was an Agent of the Company, or by reason of any act or
inaction by him in any such capacity (including, but not limited to, any
written statement of the Indemnitee that (A) is required to be, and is, filed
with the Securities and Exchange Commission (the “SEC”) regarding the adequacy
of the Company’s internal controls or the accuracy of reports or statements
filed by the Company with the SEC pursuant to federal laws and/or
administrative regulations (each, a “Required Statement”) or (B) is made
to another officer or employee of the Company to support a Required Statement),
against any and all Expenses and liabilities of any type whatsoever (including,
but not limited to, judgments, fines (including any excise taxes assessed with
respect to any employee benefit plan), penalties and, subject to
Section
10(d)
hereof, amounts paid in settlement), actually and
2
reasonably incurred by him in connection with the investigation,
defense, settlement or appeal of such Proceeding, but only if the Indemnitee,
subject to the presumption set forth in
Section 3(c)
hereof, acted in
good faith and in a manner the Indemnitee reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any
criminal Proceeding, had no reasonable cause to believe Indemnitee’s conduct
was unlawful.
(ii) The
termination of any Proceeding by judgment, order, settlement, conviction or
upon a plea of nolo contendere or its equivalent, shall not, of itself, create
a presumption that the Indemnitee did not act in good faith in a manner which
the Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal Proceeding, that
the Indemnitee had reasonable cause to believe that the Indemnitee’s conduct
was unlawful.
(b)
Indemnification
in Derivative Actions
. Subject to
Section
10
hereof, the Company shall indemnify the Indemnitee if the Indemnitee is
a party to or threatened to be made a party to or otherwise involved in any
Proceeding by or in the name of the Company to procure a judgment in its favor
by reason of the fact that the Indemnitee is or was an Agent of the Company, or
by reason of any act or inaction by the Indemnitee in any such capacity
(including, but not limited to, any written statement of the Indemnitee that
(i) is a Required Statement or (ii) is made to another officer or employee of
the Company to support a Required Statement), against all Expenses actually and
reasonably incurred by the Indemnitee in connection with the investigation, defense,
settlement, or appeal of such Proceedings, but only if the Indemnitee, subject
to the presumption set forth in
Section 3(c)
hereof, acted in good faith
and in a manner the Indemnitee reasonably believed to be in, or not opposed to,
the best interests of the Company;
provided
,
however
, that no
indemnification under this subsection (b) shall be made in respect of any
claim, issue or matter as to which the Indemnitee shall have been finally
adjudged to be liable to the Company by a court of competent jurisdiction,
except and only to the extent that any court in which such Proceeding was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnitee is
fairly and reasonably entitled to indemnity for such expenses as such court
shall deem proper.
(c)
Conclusive
Presumption Regarding Indemnitee Conduct
.
With respect to
Sections 3(a)
and
3(b)
hereof, the
Indemnitee shall be conclusively presumed to have acted in good faith and in a
manner Indemnitee reasonably believed to be in, or not opposed to, the best
interests of the Company, and, with respect to any criminal Proceeding, to have
had no reasonable cause to believe Indemnitee’s conduct was unlawful, unless a
determination is made that the Indemnitee has not acted in accordance with the
standards set forth above (i) by the Board of Directors of the Company by
a majority vote of a quorum thereof consisting of directors who were not parties
to the Proceeding due to which a claim is made under this Agreement,
(ii) by the stockholders of the Company by a majority vote of stockholders
who were not parties to such a Proceeding, or (iii) in a written opinion
of independent legal counsel, selection of whom has been approved by the
Indemnitee in writing or by a panel of arbitrators, one of whom is selected by
the Company, another of whom is selected by the Indemnitee and the last of whom
is selected by the first two arbitrators so selected.
3
4.
Indemnification
of Expenses of Successful Party
.
Notwithstanding any other provisions of this Agreement, to the extent
that the Indemnitee has been successful on the merits or otherwise in defense
of (a) any Proceeding referred to in
Section 3(a)
or
3(b)
hereof
or (b) any claim, issue or matter therein, including the dismissal of any
action without prejudice, the Company shall indemnify the Indemnitee (to the
maximum extent permitted by law) against all Expenses actually and reasonably
incurred by the Indemnitee in connection with the investigation, defense or
appeal of such Proceeding, or any claim, issue or matter therein.
5.
Partial
Indemnification
. If the Indemnitee is
entitled under any provision of this Agreement to indemnification by the
Company for some or a portion of any Expenses or liabilities of any type
whatsoever (including, but not limited to, judgments, fines, penalties or,
subject to
Section 10(d)
hereof, amounts paid in settlement) actually
and reasonably incurred by him in the investigation, defense, settlement or
appeal of a Proceeding but is not entitled, however, to indemnification for the
total amount thereof, the Company shall nevertheless indemnify the Indemnitee
for the portion thereof to which the Indemnitee is entitled.
6.
Advancement
of Expenses
. Subject to
Section 10(b)
hereof, the Company shall advance all reasonable Expenses incurred by the
Indemnitee in connection with the investigation, defense, settlement or appeal
of any Proceeding to which the Indemnitee is a party or is threatened to be
made a party by reason of the fact that the Indemnitee is or was an Agent of
the Company. The Indemnitee hereby
undertakes to repay such advanced Expenses only if, and to the extent that, it
shall ultimately be determined by a final judgment or other final adjudication
that the Indemnitee is not entitled to be indemnified by the Company as
authorized by this Agreement. The
advances to be made hereunder shall be paid by the Company to or on behalf of
the Indemnitee within 10 days following delivery of a written request therefor
by the Indemnitee to the Company.
7.
Notice
and Other Indemnification Procedures
.
(a)
Notification
of Proceeding
. Promptly after receipt
by the Indemnitee of notice of the commencement of or the threat of any
Proceeding, the Indemnitee shall, if the Indemnitee believes that
indemnification with respect thereto may be sought from the Company under this
Agreement, notify the Company of the commencement or threat thereof.
(b)
Indemnification
Payments
. Any indemnification payment
pursuant to
Section 3
hereof requested by the Indemnitee shall be made
no later than 10 days after receipt of the written request of the Indemnitee,
unless a good faith determination is made within said 10-day period in
accordance with one of the methods set forth in
Section 3(c)
hereof
that the Indemnitee is not or (subject to final judgment or other final adjudication
as provided in
Section 10(a)
hereof) ultimately will not be
entitled to indemnification hereunder.
(c)
Application
for Enforcement
. Notwithstanding a
determination under
Section 3(c)
hereof that the Indemnitee is not
entitled to indemnification with respect to any specific Proceeding, the
Indemnitee shall have the right to apply to any court of competent jurisdiction
for the purpose of enforcing the Indemnitee’s right to indemnification pursuant
to this Agreement. In such an
enforcement hearing or Proceeding, the burden of proving by clear and
convincing evidence that indemnification or advances are not appropriate shall
be on the
4
Company. Neither the failure of
the Company (including its Board of Directors, stockholders, independent legal
counsel or the panel of arbitrators) to have made a determination prior to the
commencement of such action that the Indemnitee is entitled to indemnification
hereunder, nor an actual determination by the Company (including its Board of
Directors or independent legal counsel or the panel of arbitrators) that the
Indemnitee is not entitled to indemnification hereunder, shall be a defense to
the action or create any presumption that the Indemnitee is not entitled to
indemnification hereunder.
(d)
Indemnification
of Certain Expenses
. The Company shall
indemnify the Indemnitee against all expenses incurred in connection with any
hearing or proceeding under this
Section 7
unless the Company prevails by
clear and convincing evidence in such hearing or proceeding.
8.
Assumption
of Defense
. In the event the Company
shall be obligated to pay the Expenses of the Indemnitee in any Proceeding, the
Company, if appropriate, shall be entitled to assume the defense of such
Proceeding, with counsel reasonably acceptable to the Indemnitee, upon the
delivery to the Indemnitee of written notice of its election to do so. After delivery of such notice, approval of
such counsel by the Indemnitee and the retention of such counsel by the
Company, the Company shall not be liable to the Indemnitee under this Agreement
for any fees of counsel subsequently incurred by the Indemnitee with respect to
the same Proceeding,
provided
that (a) the Indemnitee shall have
the right to employ separate counsel in such Proceeding at the Indemnitee’s own
expense, and (b) if (i) the employment of separate counsel by the
Indemnitee has been previously authorized in writing by the Company,
(ii) the Indemnitee’s separate counsel delivers a written statement to the
Company stating that such counsel has reasonably concluded that there may be an
actual or potential conflict of interest or actual or potential separate or
different defenses between the Company and the Indemnitee in the conduct of any
such defense or (iii) the Company shall not, in fact, have employed
counsel to assume the defense of such Proceeding within a reasonable time, then
in any such event the reasonable fees and expenses of the Indemnitee’s counsel
shall be paid by the Company.
9.
Insurance
. The Company may, but is not obligated to,
obtain directors’ and officers’ liability insurance (“D&O Insurance”) on
behalf of the Indemnitee against any liability which may be asserted against or
incurred by the Indemnitee in Indemnitee’s capacity or arising out of the
Indemnitee’s status as an Agent of the Company, whether or not the Company
would have the power to indemnify the Indemnitee hereunder. Notwithstanding any other provision of this
Agreement, the Company shall not be obligated to indemnify the Indemnitee for
Expenses, judgments, fines or penalties which have been paid directly to the
Indemnitee by D&O Insurance. If the
Company has D&O Insurance in effect at the time the Company receives from
the Indemnitee any notice of the commencement or threat of a Proceeding, the
Company shall give prompt notice of the commencement or threat of such
Proceeding to the insurers in accordance with the procedures set forth in the
D&O Insurance policy. The Company
shall thereafter take all necessary or desirable action to cause such insurers
to pay, on behalf of the Indemnitee, all amounts payable as a result of such
Proceeding in accordance with the terms of such policy.
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10.
Exceptions
.
(a)
Certain
Matters
. Any provision herein to the
contrary notwithstanding, the Company shall not be obligated to indemnify the
Indemnitee pursuant to the terms of this Agreement on account of any Proceeding
with respect to (i) remuneration paid to the Indemnitee if it is
determined by final judgment or other final adjudication that such remuneration
was in violation of law; (ii) which final judgment is rendered against the
Indemnitee for an accounting of profits made from the purchase or sale by the
Indemnitee of securities of the Company pursuant to the provisions of
Section 16(b) of the Securities Exchange Act of 1934, as amended, or
similar provisions of any federal, state or local statute; or (iii) which
(but only to the extent that) it is determined by final judgment or other final
adjudication that the Indemnitee’s conduct was in bad faith, knowingly
fraudulent or deliberately dishonest.
For purposes of the foregoing sentence, a final judgment or other
adjudication may be reached in either the underlying Proceeding or action in
connection with which indemnification is sought or a separate Proceeding or
action to establish rights and liabilities under this Agreement.
(b)
Securities
Act Liabilities
. Any provision herein
to the contrary notwithstanding, the Company shall not be obligated pursuant to
the terms of this Agreement to indemnify the Indemnitee or otherwise act in
violation of any undertaking appearing in and required by the rules and
regulations promulgated under the Securities Act of 1933, as amended (the
“Act”) in any registration statement filed with the SEC under the Act. The Indemnitee acknowledges that paragraph
(h) of Item 512 of Regulation S-K promulgated under the Act requires the
Company to undertake in connection with any registration statement filed under
the Act to submit the issue of the enforceability of the Indemnitee’s rights
under this Agreement in connection with any liability under the Act on public
policy grounds to a court of appropriate jurisdiction and to be governed by any
final adjudication of such issue. The
Indemnitee specifically agrees that any such undertaking shall supersede the
provisions of this Agreement and to be bound by any such undertaking.
(c)
Claims
Initiated by the Indemnitee
. Any
provision herein to the contrary notwithstanding, the Company shall not be
obligated pursuant to the terms of this Agreement to indemnify or advance
Expenses to the Indemnitee with respect to Proceedings or claims initiated or
brought voluntarily by the Indemnitee and not by way of defense, except with
respect to Proceedings brought to establish or enforce a right to
indemnification under this Agreement as contemplated by
Section 7(c)
or
any other statute or law or otherwise as required under Section 145, but
such indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors of the Company finds it to be
appropriate.
(d)
Unauthorized
Settlements
. Any provision herein to
the contrary notwithstanding, the Company shall not be obligated pursuant to
the terms of this Agreement to indemnify the Indemnitee under this Agreement
for any amounts paid in settlement of a Proceeding effected without the
Company’s prior written consent.
Neither the Company nor the Indemnitee shall unreasonably withhold
consent to any proposed settlement;
provided
,
however
, that the
Company may in any event decline to consent to (or to otherwise admit or agree
to any liability for indemnification hereunder in respect of) any proposed
settlement if the Company determines in good faith (pursuant to
Section 3(c)
hereof) that the Indemnitee is not or ultimately will not be entitled to
indemnification hereunder.
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11.
Nonexclusivity
. The provisions for indemnification and
advancement of Expenses set forth in this Agreement shall not be deemed
exclusive of any other rights which the Indemnitee may have under any provision
of law, the Company’s certificate of incorporation or bylaws, in any court in
which a Proceeding is brought, the vote of the Company’s stockholders or
disinterested directors, other agreements or otherwise, both as to action in
the Indemnitee’s official capacity and to action in another capacity while
occupying his position as an Agent of the Company, and the Indemnitee’s rights
hereunder shall continue after the Indemnitee has ceased acting as an Agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of the Indemnitee. Any
provision herein to the contrary notwithstanding, the Company may provide, in
specific cases, the Indemnitee with full or partial indemnification of any
Expenses if the Board of Directors of the Company determines that such
indemnification is appropriate.
12.
Subrogation
. In the event of payment under this
Agreement, the Company shall be subrogated to the extent of such payment to all
of the rights of recovery of the Indemnitee, who, at the request and expense of
the Company, shall execute all papers required and shall do everything that may
be reasonably necessary to secure such rights, including the execution of such
documents necessary to enable the Company effectively to bring suit to enforce
such rights.
13.
Interpretation of
Agreement
. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so as to
provide indemnification to the Indemnitee to the fullest extent now or
hereafter permitted by law.
14.
Severability
. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for any reason
whatsoever, (a) the validity, legality and enforceability of the remaining
provisions of the Agreement (including without limitation, all portions of any
paragraphs of this Agreement containing any such provision held to be invalid,
illegal or unenforceable, that are not themselves invalid, illegal or
unenforceable) shall not in any way be affected or impaired thereby; and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this Agreement
containing any such provision held to be invalid, illegal or unenforceable,
that are not themselves invalid, illegal or unenforceable) shall be construed
so as to give effect to the intent manifested by the provision held invalid,
illegal or unenforceable and to give effect to
Section 13
hereof.
15.
Modification
and Waiver
. No supplement, modification
or amendment of this Agreement shall be binding unless executed in writing by
the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provision hereof (whether or not similar) nor shall such waiver
constitute a continuing waiver. The
indemnification rights afforded to the Indemnitee hereby are contract rights
and may not be diminished, eliminated or otherwise affected by amendments to
the certificate of incorporation or bylaws of the Company or by other
agreements.
16.
Successors and Assigns
. The terms of this Agreement shall bind, and
shall inure to the benefit of, the successors and assigns of the parties
hereto.
17.
Notice
. Except as otherwise provided herein, any
notice or demand which, by the provisions hereof, is required or which may be
given to or served upon the parties hereto shall be
7
in writing and, if by telegram, telecopy or telex, shall be deemed to
have been validly served, given or delivered when sent, if 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
mails, as registered or certified mail, with proper postage prepaid and
addressed to the party or parties to be notified at the addresses set forth on
the signature page of this Agreement (or such other address(es) as a party may
designate for itself by like notice).
18.
Governing Law
. This Agreement shall be governed exclusively
by and construed according to the laws of the State of Delaware, as applied to
contracts between Delaware residents entered into and to be performed entirely
within Delaware.
19.
Entire Agreement
. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, written and
oral, between the parties with respect to the subject matter of this Agreement.
8
IN WITNESS
WHEREOF, the parties hereto have entered into this Agreement effective as of
the date first above written.
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THE
“COMPANY”:
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Maxwell
Technologies, Inc.,
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a Delaware
corporation
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By:
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Title:
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Address:
9244 Balboa Avenue
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San Diego,
CA 92123
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Attention:
Chief Executive Officer
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THE
“INDEMNITEE”:
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Signature of
the Indemnitee
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Print or
Type Name of the Indemnitee
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Address:
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9
Silicon Valley Bank
Loan and Security Agreement
Borrower: Maxwell Technologies,
Inc.
Address: 9244
Balboa Avenue
San
Diego, CA 92123
Date: February
4, 2004
THIS
LOAN AND SECURITY AGREEMENT
is entered into on the above date
between SILICON VALLEY BANK (“Silicon”), whose address is 3003 Tasman Drive,
Santa Clara, California 95054 and the borrower(s) named above (jointly and
severally, the “Borrower”), whose chief executive office is located at the
above address (“Borrower’s Address”).
The Schedule to this Agreement (the “Schedule”) shall for all purposes
be deemed to be a part of this Agreement, and the same is an integral part of
this Agreement. (Definitions of certain
terms used in this Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans.
Silicon will make
loans to Borrower (the “Loans”) up to the amounts (the “Credit Limit”) shown on
the Schedule, provided no Default or Event of Default has occurred and is
continuing, and subject to deduction of Reserves for accrued interest and such
other Reserves as Silicon deems proper from time to time in its good faith
business judgment.
1.2 Interest.
All Loans and all
other monetary Obligations shall bear interest at the rate shown on the
Schedule, except where expressly set forth to the contrary in this
Agreement. Interest shall be payable
monthly, on the last day of the month.
Interest may, in Silicon’s discretion, be charged to Borrower’s loan
account, and the same shall thereafter bear interest at the same rate as the
other Loans. Silicon may, in its
discretion, charge interest to Borrower’s Deposit Accounts maintained with
Silicon. Regardless of the amount of
Obligations that may be outstanding from time to time, Borrower shall pay
Silicon minimum monthly interest during the term of this Agreement in the
amount set forth on the Schedule (the “Minimum Monthly Interest”).
1.3 Overadvances.
If
at any time or for any reason the total of all outstanding Loans and all other
monetary Obligations exceeds the Credit Limit (an “Overadvance”), Borrower
shall immediately pay the amount of the excess to Silicon, without notice or
demand. Without limiting Borrower’s
obligation to repay to Silicon the amount of any Overadvance, Borrower agrees
to pay Silicon interest on the outstanding amount of any Overadvance, on
demand, at the Default Rate.
1.4 Fees.
Borrower
shall pay Silicon the fees shown on the Schedule, which are in addition to all
interest and other sums payable to Silicon and are not refundable.
1.5 Loan Requests.
To
obtain a Loan, Borrower shall make a request to Silicon by facsimile or
telephone. Loan requests received after
12:00 Noon will not be considered by Silicon until the next Business Day. Silicon may rely on any telephone request
for a Loan given by a person whom Silicon believes is an authorized
representative of Borrower, and Borrower will indemnify Silicon for any loss
Silicon suffers as a result of that reliance.
1.6 Letters of Credit.
At
the request of Borrower, Silicon may, in its good faith business judgment,
issue or arrange for the issuance of letters of credit for the account of
Borrower, in each case in form and substance satisfactory to Silicon in its
sole discretion (collectively, “Letters of Credit”). The aggregate face amount of all Letters of Credit from time to
time outstanding shall not exceed the amount shown on the Schedule (the “Letter
of Credit Sublimit”), and shall be reserved against Loans which would otherwise
be available hereunder, and in the event at any time there are insufficient
Loans available to Borrower for such reserve, Borrower shall deposit and
maintain with Silicon cash collateral in an amount at all times equal to such
deficiency, which shall be held as Collateral for all purposes of this
Agreement. Borrower shall pay all bank charges (including charges of Silicon) for the
issuance of Letters of Credit, together with such additional fee as
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Silicon’s letter of
credit department shall charge in connection with the issuance of the Letters
of Credit. Any payment by Silicon under
or in connection with a Letter of Credit shall constitute a Loan hereunder on
the date such payment is made. Each
Letter of Credit shall have an expiry date no later than thirty days prior to
the Maturity Date. Borrower hereby
agrees to indemnify and hold Silicon harmless from any loss, cost, expense, or
liability, including payments made by Silicon, expenses, and reasonable
attorneys’ fees incurred by Silicon arising out of or in connection with any
Letters of Credit. Borrower agrees to
be bound by the regulations and interpretations of the issuer of any Letters of
Credit guarantied by Silicon and opened for Borrower’s account or by Silicon’s
interpretations of any Letter of Credit issued by Silicon for Borrower’s
account, and Borrower understands and agrees that Silicon shall not be liable
for any error, negligence, or mistake, whether of omission or commission, in
following Borrower’s instructions or those contained in the Letters of Credit
or any modifications, amendments, or supplements thereto, Borrower understands
that Letters of Credit may require Silicon to indemnify the issuing bank for
certain costs or liabilities arising out of claims by Borrower against such
issuing bank. Borrower hereby agrees to
indemnify and hold Silicon harmless with respect to any loss, cost, expense, or
liability incurred by Silicon under any Letter of Credit as a result of Silicon’s
indemnification of any such issuing bank.
The provisions of this Loan Agreement, as it pertains to Letters of
Credit, and any other Loan Documents relating to Letters of Credit are
cumulative.
2. SECURITY INTEREST.
To
secure the payment and performance of all of the Obligations when due, Borrower
hereby grants to Silicon a security interest in all of the following
(collectively, the “Collateral”): all
right, title and interest of Borrower in and to all of the following, whether
now owned or hereafter arising or acquired and wherever located: all Accounts; all Inventory; all Equipment;
all Deposit Accounts; all General Intangibles (including without limitation all
Intellectual Property); all Investment Property; all Other Property; and any
and all claims, rights and interests in any of the above, and all guaranties
and security for any of the above, and all substitutions and replacements for,
additions, accessions, attachments, accessories, and improvements to, and
proceeds (including proceeds of any insurance policies, proceeds of proceeds
and claims against third parties) of, any and all of the above, and all
Borrower’s books relating to any and all of the above.
3. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF BORROWER.
In
order to induce Silicon to enter into this Agreement and to make Loans,
Borrower represents and warrants to Silicon as follows, and Borrower
covenants that the following representations will continue to be true, and that
Borrower will at all times comply with all of the following covenants,
throughout the term of this Agreement and until all Obligations have been paid
and performed in full:
3.1 Corporate Existence and Authority.
Borrower is and
will continue to be, duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Borrower is and will continue to be
qualified and licensed to do business in all jurisdictions in which any failure
to do so would result in a Material Adverse Change. The execution, delivery and performance by Borrower of this
Agreement, and all other documents contemplated hereby (i) have been duly and
validly authorized, (ii) are enforceable against Borrower in accordance with
their terms (except as enforcement may be limited by equitable principles and
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to creditors’ rights generally), and (iii) do not violate Borrower’s articles
or certificate of incorporation, or Borrower’s by-laws, or any law or any material agreement or instrument which is binding upon
Borrower or its property, and (iv) do not constitute grounds for
acceleration of any material indebtedness or obligation under any agreement or
instrument which is binding upon Borrower or its property.
3.2 Name; Trade Names and Styles.
The name of
Borrower set forth in the heading to this Agreement is its correct name. Listed in the Representations are all prior
names of Borrower and all of Borrower’s present and prior trade names. Borrower shall give Silicon 30 days’ prior
written notice before changing its name or doing business under any other
name. Borrower has complied, and will
in the future comply, in all material respects, with all laws relating to the
conduct of business under a fictitious business name, except where the failure
to so comply would not reasonably be expected to result in a Material Adverse
Change.
3.3 Place of Business; Location of Collateral.
The address set
forth in the heading to this Agreement is Borrower’s chief executive
office. In addition, Borrower has
places of business and Collateral is located only at the locations set forth in
the Representations. Borrower will give
Silicon at least 30 days prior written notice before opening any additional
place of business, changing its chief executive office, or moving any of the
Collateral to a location other than Borrower’s Address or one of the locations
set forth in the Representations, except that Borrower may maintain sales
offices in the ordinary course of business at which not more than a total of
$10,000 fair market value of Equipment is located.
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3.4 Title
to Collateral; Perfection; Permitted Liens.
(a) Borrower
is now, and will at all times in the future be, the sole owner of all the
Collateral, except for items of Equipment which are leased to Borrower. The Collateral now is and will remain free
and clear of any and all liens, charges, security interests, encumbrances and
adverse claims, except for Permitted Liens.
Silicon now has, and will continue to have, a first-priority perfected
and enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Silicon and the Collateral
against all claims of others.
(b) Borrower
has set forth in the Representations all of Borrower’s Deposit Accounts, and
Borrower will give Silicon five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to Silicon a
control agreement in form sufficient to perfect Silicon’s security interest in
the Deposit Account and otherwise satisfactory to Silicon in its good faith
business judgment. Nothing herein
limits any requirements which may be set forth in the Schedule as to where
Deposit Accounts will be maintained.
(c) In
the event that Borrower shall at any time after the date hereof have any
commercial tort claims against others, which it is asserting or intends to
assert, and in which the potential recovery exceeds $100,000, Borrower shall
promptly notify Silicon thereof in writing and provide Silicon with such
information regarding the same as Silicon shall request (unless providing such
information would waive the Borrower’s attorney-client privilege). Such notification to Silicon shall
constitute a grant of a security interest in the commercial tort claim and all
proceeds thereof to Silicon, and Borrower shall execute and deliver all such
documents and take all such actions as Silicon shall request in connection
therewith.
(d) None
of the Collateral now is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Borrower is not and will not become a lessee under any real
property lease pursuant to which the lessor may obtain any rights in any of the
Collateral and no such lease now prohibits, restrains, impairs or will
prohibit, restrain or impair Borrower’s right to remove any Collateral from the
leased premises. Whenever any
Collateral is located upon premises in which any third party has an interest,
Borrower shall, whenever requested by Silicon, use its best efforts to cause
such third party to execute and deliver to Silicon, in form acceptable to
Silicon, such waivers and subordinations as Silicon shall specify in its good
faith business judgment. Borrower will
keep in full force and effect, and will comply with all material terms of, any
lease of real property where any of the Collateral now or in the future may be
located.
3.5 Maintenance of Collateral.
Borrower
will maintain the Collateral in good working condition (ordinary wear and tear
excepted), and Borrower will not use the Collateral for any unlawful
purpose. Borrower will immediately
advise Silicon in writing of any material loss or damage to the Collateral.
3.6 Books and Records.
Borrower
has maintained and will maintain at Borrower’s Address complete and accurate
books and records, comprising an accounting system in accordance with GAAP.
3.7 Financial Condition, Statements and Reports.
All
financial statements now or in the future delivered to Silicon have been, and
will be, prepared in conformity with GAAP and now and in the future will fairly
present the results of operations and financial condition of Borrower, in
accordance with GAAP, at the times and for the periods therein stated. Between the last date covered by any such
statement provided to Silicon and the date hereof, there has been no Material
Adverse Change.
3.8 Returns and Payments; Pension Contributions.
Borrower
has timely filed, and will timely file, all required tax returns and reports,
and Borrower has timely paid, and will timely pay, all foreign, federal, state
and local taxes, assessments, deposits and contributions now or in the future
owed by Borrower. Borrower may,
however, defer payment of any contested taxes, provided that Borrower (i) in
good faith contests Borrower’s obligation to pay the taxes by appropriate
proceedings promptly and diligently instituted and conducted, (ii) notifies
Silicon in writing of the commencement of, and any material development in, the
proceedings, and (iii) posts bonds or takes any other steps required to keep
the contested taxes from becoming a lien upon any of the Collateral. Borrower is unaware of any claims or
adjustments proposed for any of Borrower’s prior tax years which could result
in additional taxes becoming due and payable by Borrower. Borrower has paid, and shall continue to pay
all amounts necessary to fund all present and future pension, profit sharing
and deferred compensation plans in accordance with their terms, and Borrower
has not and will not withdraw from participation in, permit partial or complete
termination of, or permit the occurrence of any other event with respect to,
any such plan which could reasonably be expected to result in any liability of
Borrower, including any liability to the Pension Benefit Guaranty Corporation
or its successors or any other governmental agency.
3.9 Compliance with Law.
Borrower
has, to the best of its knowledge, complied, and will comply, in all material
respects, with all provisions of all foreign, federal, state and local laws and
regulations applicable to Borrower, including, but
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not limited to, those
relating to Borrower’s ownership of real or personal property, the conduct and
licensing of Borrower’s business, and all environmental matters.
3.10 Litigation.
There
is no claim, suit, litigation, proceeding or investigation pending or (to best
of Borrower’s knowledge) threatened against or affecting Borrower in any court
or before any governmental agency (or any basis therefor known to Borrower)
which could reasonably be expected to result, either separately or in the
aggregate, in any Material Adverse Change.
Borrower will promptly inform Silicon in writing of any claim,
proceeding, litigation or investigation in the future threatened or instituted
against Borrower involving any single claim of $100,000 or more, or involving
$250,000 or more in the aggregate.
3.11 Use of Proceeds.
All
proceeds of all Loans shall be used solely for lawful business purposes. Borrower is not purchasing or carrying any
“margin stock” (as defined in Regulation U of the Board of Governors of the
Federal Reserve System) and no part of the proceeds of any Loan will be used to
purchase or carry any “margin stock” or to extend credit to others for the
purpose of purchasing or carrying any “margin stock.”
4. ACCOUNTS.
4.1 Representations Relating to Accounts.
Borrower
represents and warrants to Silicon as follows:
Each Account with respect to which Loans are requested by Borrower
shall, on the date each Loan is requested and made, (i) represent an undisputed
bona fide existing unconditional obligation of the Account Debtor created by
the sale, delivery, and acceptance of goods or the rendition of services, or
the non-exclusive licensing of Intellectual Property, in the ordinary course of
Borrower’s business, and (ii) meet the Minimum Eligibility Requirements set
forth in Section 8 below.
4.2 Representations Relating to Documents and
Legal Compliance.
Borrower represents and warrants
to Silicon as follows: All statements
made and all unpaid balances appearing in all invoices, instruments and other
documents evidencing the Accounts are and shall be true and correct and all
such invoices, instruments and other documents and all of Borrower’s books and
records are and shall be genuine and in all respects what they purport to
be. All sales and other transactions
underlying or giving rise to each Account shall comply in all material respects
with all applicable laws and governmental rules and regulations. To the best of Borrower’s knowledge, all
signatures and endorsements on all documents, instruments, and agreements
relating to all Accounts are and shall be genuine, and all such documents,
instruments and agreements are and shall be legally enforceable in accordance
with their terms.
4.3 Schedules and Documents relating to
Accounts.
Borrower shall deliver to Silicon
transaction reports and schedules of collections, as provided in the Schedule,
on Silicon’s standard forms; provided, however, that Borrower’s failure to
execute and deliver the same shall not affect or limit Silicon’s security
interest and other rights in all of Borrower’s Accounts, nor shall Silicon’s
failure to advance or lend against a specific Account affect or limit Silicon’s
security interest and other rights therein.
If requested by Silicon, Borrower shall furnish Silicon with copies (or,
at Silicon’s request, originals) of all contracts, orders, invoices, and other
similar documents, and all shipping instructions, delivery receipts, bills of
lading, and other evidence of delivery, for any goods the sale or disposition
of which gave rise to such Accounts, and Borrower warrants the genuineness of
all of the foregoing. Borrower shall
also furnish to Silicon an aged accounts receivable trial balance as provided
in the Schedule. In addition, Borrower
shall deliver to Silicon, on its request, the originals of all instruments,
chattel paper, security agreements, guarantees and other documents and property
evidencing or securing any Accounts, in the same form as received, with all
necessary indorsements, and copies of all credit memos.
4.4 Collection of Accounts.
Borrower
shall have the right to collect all Accounts, unless and until a Default or an
Event of Default has occurred and is continuing. Whether or not an Event of Default has occurred and is
continuing, Borrower shall hold all payments on, and proceeds of, Accounts in
trust for Silicon, and Borrower shall immediately deliver all such payments and
proceeds to Silicon in their original form, duly endorsed, to be applied to the
Obligations in such order as Silicon shall determine. Silicon may, in its good faith business judgment, require that
all proceeds of Collateral be deposited by Borrower into a lockbox account, or
such other “blocked account” as Silicon may specify, pursuant to a blocked
account agreement in such form as Silicon may specify in its good faith
business judgment.
4.5 Remittance of Proceeds.
All
proceeds arising from the disposition of any Collateral shall be delivered, in
kind, by Borrower to Silicon in the original form in which received by Borrower
not later than the following Business Day after receipt by Borrower, to be
applied to the Obligations in such order as Silicon shall determine; provided
that, if no Default or Event of Default has occurred and is continuing,
Borrower shall not be obligated to remit to Silicon the proceeds of the sale of
worn out or obsolete Equipment disposed of by Borrower in good faith in an
arm’s length transaction for an aggregate purchase price of $50,000 or less
(for all such transactions in any fiscal year). Borrower agrees that it will not commingle proceeds of Collateral
with any of Borrower’s other funds or property, but will hold such proceeds
separate and apart from
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such other funds and
property and in an express trust for Silicon.
Nothing in this Section limits the restrictions on disposition of
Collateral set forth elsewhere in this Agreement.
4.6 Disputes.
Borrower
shall notify Silicon promptly of all disputes or claims relating to
Accounts. Borrower shall not forgive
(completely or partially), compromise or settle any Account for less than
payment in full, or agree to do any of the foregoing, except that Borrower may
do so, provided that: (i) Borrower does
so in good faith, in a commercially reasonable manner, in the ordinary course of
business, and in arm’s length transactions, which are reported to Silicon on
the regular reports provided to Silicon; (ii) no Default or Event of Default
has occurred and is continuing; and (iii) taking into account all such
discounts, settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit.
4.7 Returns.
Provided
no Event of Default has occurred and is continuing, if any Account Debtor
returns any Inventory to Borrower, Borrower shall promptly determine the reason
for such return and promptly issue a credit memorandum to the Account Debtor in
the appropriate amount. In the event
any attempted return occurs after the occurrence and during the continuance of
any Event of Default, Borrower shall hold the returned Inventory in trust for
Silicon, and immediately notify Silicon of the return of the Inventory.
4.8 Verification.
Silicon
may, from time to time, verify directly with the respective Account Debtors the
validity, amount and other matters relating to the Accounts, by means of mail,
telephone or otherwise, either in the name of Borrower or Silicon or such other
name as Silicon may choose.
4.9 No Liability.
Silicon
shall not be responsible or liable for any shortage or discrepancy in, damage
to, or loss or destruction of, any goods, the sale or other disposition of
which gives rise to an Account, or for any error, act, omission, or delay of
any kind occurring in the settlement, failure to settle, collection or failure
to collect any Account, or for settling any Account in good faith for less than
the full amount thereof, nor shall Silicon be deemed to be responsible for any
of Borrower’s obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however,
relieve Silicon from liability for its own gross negligence or willful
misconduct.
5. ADDITIONAL DUTIES OF
BORROWER.
5.1 Financial and Other Covenants.
Borrower
shall at all times comply with the financial and other covenants set forth in
the Schedule.
5.2 Insurance.
Borrower
shall, at all times insure all of the tangible personal property Collateral and
carry such other business insurance, with insurers reasonably acceptable to
Silicon, in such form and amounts as Silicon may reasonably require and that
are customary and in accordance with standard practices for Borrower’s industry
and locations, and Borrower shall provide evidence of such insurance to
Silicon. All such insurance policies
shall name Silicon as an additional loss payee, and shall contain a lenders
loss payee endorsement in form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its good faith business judgment, except that,
provided no Default or Event of Default has occurred and is continuing, Silicon
shall release to Borrower insurance proceeds with respect to Equipment totaling
less than $100,000, which shall be utilized by Borrower for the replacement of
the Equipment with respect to which the insurance proceeds were paid. Silicon may require reasonable assurance
that the insurance proceeds so released will be so used. If Borrower fails to provide or pay for any
insurance, Silicon may, but is not obligated to, obtain the same at Borrower’s
expense. Borrower shall promptly
deliver to Silicon copies of all material reports made to insurance companies.
5.3 Reports.
Borrower,
at its expense, shall provide Silicon with the written reports set forth in the
Schedule, and such other written reports with respect to Borrower (including
budgets, sales projections, operating plans and other financial documentation),
as Silicon shall from time to time specify in its good faith business judgment.
5.4 Access to Collateral, Books and Records.
At
reasonable times, and on one Business Day’s notice, Silicon, or its agents,
shall have the right to inspect the Collateral, and the right to audit and copy
Borrower’s books and records. The
parties contemplate that such audits will be performed no more frequently than
quarterly, but nothing herein restricts Silicon’s right to conduct such audits
more frequently if (i) Silicon believes that it is advisable to do so in
Silicon’s good faith business judgment, or (ii) Silicon believes in good faith
that an event of default or an event which, with notice or passage of time or
both would constitute an event of default, has occurred and is continuing. Silicon shall take reasonable steps to keep
confidential all information obtained in any such inspection or audit, but
Silicon shall have the right to disclose any such information to its auditors,
regulatory agencies, and attorneys, and pursuant to any subpoena or other legal
process. The foregoing inspections and
audits shall be at Borrower’s expense and the charge therefor shall be $750 per
person per day (or such higher amount as shall represent Silicon’s then current
standard charge for the same), plus reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule
an audit more than 10 days in advance, and Borrower seeks to
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reschedules the audit
with less than 10 days written notice to Silicon, then (without limiting any of
Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation fee of
$1,000 plus any out-of-pocket expenses incurred by Silicon, to compensate
Silicon for the anticipated costs and expenses of the cancellation.
5.5 Negative Covenants.
Except
as may be permitted in the Schedule, Borrower shall not, without Silicon’s
prior written consent (which shall be a matter of its good faith business
judgment), do any of the following: (i)
merge or consolidate with another corporation or entity; (ii) acquire any
assets, except in the ordinary course of business; (iii) enter into any other
transaction outside the ordinary course of business; (iv) sell or transfer any
Collateral, except for the sale of finished Inventory in the ordinary course of
Borrower’s business, and except for the sale of obsolete or unneeded Equipment
in the ordinary course of business; (v) store any Inventory or other Collateral
with any warehouseman or other third party; (vi) sell any Inventory on a
sale-or-return, guaranteed sale, consignment, or other contingent basis; (vii)
make any loans of any money or other assets; (viii) incur any debts, outside
the ordinary course of business, which would result in a Material Adverse
Change; (ix) guarantee or otherwise become liable with respect to the
obligations of another party or entity; (x) pay or declare any dividends on
Borrower’s stock (except for dividends payable solely in stock of Borrower);
(xi) redeem, retire, purchase or otherwise acquire, directly or indirectly, any
of Borrower’s stock; (xii) make any change in Borrower’s capital structure
which would result in a Material Adverse Change; or (xiii) engage, directly or
indirectly, in any business other than the businesses currently engaged in by
Borrower or reasonably related thereto; or (xiv) dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Default or Event of Default
would occur as a result of such transaction.
5.6 Litigation Cooperation.
Should
any third-party suit or proceeding be instituted by or against Silicon with
respect to any Collateral or relating to Borrower, Borrower shall, without
expense to Silicon, at reasonable times and upon reasonable notice make
available Borrower and its officers, employees and agents and Borrower’s books
and records, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 Further Assurances.
Borrower
agrees, at its expense, on request by Silicon, to execute all documents and
take all actions, as Silicon, may, in its good faith business judgment, deem
necessary or useful in order to perfect and maintain Silicon’s perfected
first-priority security interest in the Collateral (subject to Permitted
Liens), and in order to fully consummate the transactions contemplated by this
Agreement.
6. TERM.
6.1 Maturity Date.
This
Agreement shall continue in effect until the maturity date set forth on the
Schedule (the “Maturity Date”), subject to Section 6.3 below.
6.2 Early Termination.
This
Agreement may be terminated prior to the Maturity Date as follows: (i) by Borrower, effective three Business
Days after written notice of termination is given to Silicon; or (ii) by
Silicon at any time after the occurrence and during the continuance of an Event
of Default, without notice, effective immediately. If this Agreement is terminated by Borrower or by Silicon under
this Section 6.2, Borrower shall pay to Silicon a termination fee in an amount
equal to two percent (2.0%) of the Overall Credit Limit (as defined in the
Schedule), provided that the total termination fee under this Loan Agreement
and under the Exim Agreement (as defined in the Schedule) shall not exceed two
percent (2.0%) of the Overall Credit Limit, and, provided that no termination
fee shall be charged if the credit facility hereunder is replaced with a new
facility from another division of Silicon Valley Bank. The termination fee shall be due and payable
on the effective date of termination and thereafter shall bear interest at a
rate equal to the highest rate applicable to any of the Obligations.
6.3 Payment of Obligations.
On
the Maturity Date or on any earlier effective date of termination, Borrower
shall pay and perform in full all Obligations, whether evidenced by installment
notes or otherwise, and whether or not all or any part of such Obligations are
otherwise then due and payable. Without
limiting the generality of the foregoing, if on the Maturity Date, or on any
earlier effective date of termination, there are any outstanding Letters of
Credit issued by Silicon or issued by another institution based upon an
application, guarantee, indemnity or similar agreement on the part of Silicon,
then on such date Borrower shall provide to Silicon cash collateral in an
amount equal to 105% of the face amount of all such Letters of Credit plus all
interest, fees and cost due or to become due in connection therewith (as
estimated by Silicon in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon’s then
standard form cash pledge agreement.
Notwithstanding any termination of this Agreement, all of Silicon’s
security interests in all of the Collateral and all of the terms and provisions
of this Agreement shall continue in full force and effect until all Obligations
have been paid and performed in full; provided that Silicon may, in its sole
discretion, refuse to make any further Loans after termination. No termination shall in any way affect or
impair any right or remedy of Silicon, nor shall any such termination relieve
Borrower of any Obligation to Silicon, until all of the Obligations have been
paid and performed in full. Upon
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payment and performance
in full of all the Obligations and termination of this Agreement, Silicon shall
promptly terminate its financing statements with respect to the Borrower and
deliver to Borrower such other documents as may be required to fully terminate
Silicon’s security interests.
7. EVENTS OF DEFAULT AND
REMEDIES.
7.1 Events of Default.
The occurrence of any of the
following events shall constitute an “Event of Default” under this Agreement,
and Borrower shall give Silicon immediate written notice thereof: (a) Any warranty, representation, statement,
report or certificate made or delivered to Silicon by Borrower or any of
Borrower’s officers, employees or agents, now or in the future, shall be untrue
or misleading in a material respect when made or deemed to be made; or (b)
Borrower shall fail to pay when due any Loan
or any interest thereon or any other monetary Obligation; or (c) the total
Loans and other Obligations outstanding at any time shall exceed the
Credit Limit; or (d) Borrower shall fail to comply with any of the financial
covenants set forth in the Schedule, or shall fail to perform any other
non-monetary Obligation which by its nature cannot be cured, or shall fail to
permit Silicon to conduct an inspection or audit as specified in Section 5.4
hereof; or (e) Borrower shall fail to perform any other non-monetary
Obligation, which failure is not cured within five Business Days after the date
due; or (f) any levy, assessment, attachment, seizure, lien or encumbrance (other
than a Permitted Lien) is made on all or any part of the Collateral which is
not cured within 10 days after the occurrence of the same; or (g) any default
or event of default occurs under any obligation secured by a Permitted Lien,
which is not cured within any applicable cure period or waived in writing by
the holder of the Permitted Lien; or (h) Borrower breaches any material
contract or obligation, which has resulted or may reasonably be expected to
result in a Material Adverse Change; or (i) Dissolution, termination of
existence, insolvency or business failure of Borrower; or appointment of a
receiver, trustee or custodian, for all or any part of the property of,
assignment for the benefit of creditors by, or the commencement of any
proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or j) the commencement of any
proceeding against Borrower or any guarantor of any of the Obligations under
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (1) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (n) there shall be a change in the record or beneficial ownership
of an aggregate of more than 20% of the outstanding shares of stock of
Borrower, in one or more transactions, compared to the ownership of outstanding
shares of stock of Borrower in effect on the date hereof, without the prior
written consent of Silicon; or (o) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) a Material Adverse
Change shall occur. Silicon may cease
making any Loans hereunder during any of the above cure periods, and thereafter
if an Event of Default has occurred and is continuing.
7.2 Remedies.
Upon
the occurrence and during the continuance of any Event of Default, and at any
time thereafter, Silicon, at its option, and without notice or demand of any
kind (all of which are hereby expressly waived by Borrower), may do any one or
more of the following: (a) Cease making
Loans or otherwise extending credit to Borrower under this Agreement or any other
Loan Document; (b) Accelerate and declare all or any part of the Obligations to
be immediately due, payable, and performable, notwithstanding any deferred or
installment payments allowed by any instrument evidencing or relating to any
Obligation; (c) Take possession of any or all of the Collateral wherever it may
be found, and for that purpose Borrower hereby authorizes Silicon without
judicial process to enter onto any of Borrower’s premises without interference
to search for, take possession of, keep, store, or remove any of the Collateral,
and remain on the premises or cause a custodian to remain on the premises in
exclusive control thereof, without charge for so long as Silicon deems it
necessary, in its good faith business judgment, in order to complete the
enforcement of its rights under this Agreement or any other agreement;
provided, however, that should Silicon seek to take possession of any of the
Collateral by court process, Borrower hereby irrevocably waives: (i) any bond and any surety or security
relating thereto required by any statute, court rule or otherwise as an
incident to such possession; (ii) any demand for possession prior to the
commencement of any suit or action to recover possession thereof; and (iii) any
requirement that Silicon retain possession of, and not dispose of, any such
Collateral until
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after trial or final
judgment; (d) Require Borrower to assemble any or all of the Collateral and
make it available to Silicon at places designated by Silicon which are
reasonably convenient to Silicon and Borrower, and to remove the Collateral to
such locations as Silicon may deem advisable; (e) Complete the processing,
manufacturing or repair of any Collateral prior to a disposition thereof and,
for such purpose and for the purpose of removal, Silicon shall have the right
to use Borrower’s premises, vehicles, hoists, lifts, cranes, and other
Equipment and all other property without charge; (f) Sell, lease or otherwise dispose
of any of the Collateral, in its condition at the time Silicon obtains
possession of it or after further manufacturing, processing or repair, at one
or more public and/or private sales, in lots or in bulk, for cash, exchange or
other property, or on credit, and to adjourn any such sale from time to time
without notice other than oral announcement at the time scheduled for
sale. Silicon shall have the right to
conduct such disposition on Borrower’s premises without charge, for such time
or times as Silicon deems reasonable, or on Silicon’s premises, or elsewhere
and the Collateral need not be located at the place of disposition. Silicon may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other
disposition of Collateral shall not relieve Borrower of any liability Borrower
may have if any Collateral is defective as to title or physical condition or
otherwise at the time of sale; (g) Demand payment of, and collect any Accounts
and General Intangibles comprising Collateral and, in connection therewith,
Borrower irrevocably authorizes Silicon to endorse or sign Borrower’s name on
all collections, receipts, instruments and other documents, to take possession
of and open mail addressed to Borrower and remove therefrom payments made with
respect to any item of the Collateral or proceeds thereof, and, in Silicon’s
good faith business judgment, to grant extensions of time to pay, compromise
claims and settle Accounts and the like for less than face value; (h) Offset
against any sums in any of Borrower’s general, special or other Deposit
Accounts with Silicon against any or all of the Obligations; and (i) Demand and
receive possession of any of Borrower’s federal and state income tax returns
and the books and records utilized in the preparation thereof or referring
thereto. All reasonable attorneys’
fees, expenses, costs, liabilities and obligations incurred by Silicon with
respect to the foregoing shall be added to and become part of the Obligations,
shall be due on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. Without limiting any of Silicon’s rights and remedies, from and
after the occurrence and during the continuance of any Event of Default, the
interest rate applicable to the Obligations shall be increased by an additional
four percent per annum (the “Default Rate”).
7.3 Standards for Determining Commercial
Reasonableness.
Borrower and Silicon agree that a sale or other
disposition (collectively, “sale”) of any Collateral which complies with
the following standards will conclusively be deemed to be commercially
reasonable: (i) Notice of the sale is
given to Borrower at least ten days prior to the sale, and, in the case of a
public sale, notice of the sale is published at least five days before the sale
in a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 pm; (v) Payment of the purchase price in
cash or by cashier’s check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same.
Silicon shall be free to employ other methods of noticing and selling
the Collateral, in its discretion, if they are commercially reasonable.
7.4 Power
of Attorney.
Upon
the occurrence and during the continuance of any Event of Default, without
limiting Silicon’s other rights and remedies, Borrower grants to Silicon an
irrevocable power of attorney coupled with an interest, authorizing and
permitting Silicon (acting through any of its employees, attorneys or agents)
at any time, at its option, but without obligation, with or without notice to
Borrower, and at Borrower’s expense, to do any or all of the following, in
Borrower’s name or otherwise, but Silicon agrees that if it exercises any right
hereunder, it will do so in good faith and in a commercially reasonable
manner: (a) Execute on behalf of
Borrower any documents that Silicon may, in its good faith business judgment,
deem advisable in order to perfect and maintain Silicon’s security interest in
the Collateral, or in order to exercise a right of Borrower or Silicon, or in
order to fully consummate all the transactions contemplated under this
Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any
invoices relating to any Account, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim of mechanic’s, materialman’s or other lien, or assignment or
satisfaction of mechanic’s, materialman’s or other lien; (c) Take control in
any manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Silicon’s possession; (d) Endorse all
checks and other forms of remittances received by Silicon; (e) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (f) Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than
face value and execute all releases and other documents in connection
therewith; (g) Pay any sums required on account of Borrower’s taxes or to
secure the release of any liens therefor, or both; (h) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor;
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(i) Instruct any third party having custody
or control of any books or records belonging to, or relating to, Borrower to
give Silicon the same rights of access and other rights with respect thereto as
Silicon has under this Agreement; and j) Take any action or pay any sum
required of Borrower pursuant to this Agreement and any other Loan
Documents. Any and all reasonable sums
paid and any and all reasonable costs, expenses, liabilities, obligations and
attorneys’ fees incurred by Silicon with respect to the foregoing shall be
added to and become part of the Obligations, shall be payable on demand, and
shall bear interest at a rate equal to the highest interest rate applicable to
any of the Obligations. In no event
shall Silicon’s rights under the foregoing power of attorney or any of
Silicon’s other rights under this Agreement be deemed to indicate that Silicon
is in control of the business, management or properties of Borrower.
7.5 Application
of Proceeds.
All proceeds realized as the result
of any sale of the Collateral shall be applied by Silicon first to the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Silicon in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Silicon shall determine in its sole
discretion. Any surplus shall be paid
to Borrower or other persons legally entitled thereto; Borrower shall remain
liable to Silicon for any deficiency.
If, Silicon, in its good faith business judgment, directly or indirectly
enters into a deferred payment or other credit transaction with any purchaser
at any sale of Collateral, Silicon shall have the option, exercisable at any
time, in its good faith business judgment, of either reducing the Obligations
by the principal amount of purchase price or deferring the reduction of the
Obligations until the actual receipt by Silicon of the cash therefor.
7.6 Remedies Cumulative.
In
addition to the rights and remedies set forth in this Agreement, Silicon shall
have all the other rights and remedies accorded a secured party under the
California Uniform Commercial Code and under all other applicable laws, and
under any other instrument or agreement now or in the future entered into between
Silicon and Borrower, and all of such rights and remedies are cumulative and
none is exclusive. Exercise or partial
exercise by Silicon of one or more of its rights or remedies shall not be
deemed an election, nor bar Silicon from subsequent exercise or partial
exercise of any other rights or remedies.
The failure or delay of Silicon to exercise any rights or remedies shall
not operate as a waiver thereof, but all rights and remedies shall continue in
full force and effect until all of the Obligations have been fully paid and
performed.
8. Definitions. As
used in this Agreement, the following
terms have the following meanings:
“
Account
Debtor
” means the obligor on an Account.
“
Accounts
”
means all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.
“
Affiliate
”
means, with respect to any Person, a relative, partner, shareholder, director,
officer, or employee of such Person, or any parent or subsidiary of such
Person, or any Person controlling, controlled by or under common control with
such Person.
“
Business
Day
” means a day on which Silicon is open for business.
“
Code
”
means the Uniform Commercial Code as adopted and in effect in the State of
California from time to time.
“
Collateral
”
has the meaning set forth in Section 2 above.
“
continuing
”
and “
during the continuance of
’” when used with reference to a Default
or Event of Default means that the Default or Event of Default has occurred and
has not been either waived in writing by Silicon or cured within any applicable
cure period.
“
Default
”
means any event which with notice or passage of time or both, would constitute
an Event of Default.
“
Default
Rate
” has the meaning set forth in Section 7.2 above.
“
Deposit
Accounts
” means all present and future “
deposit accounts
” as defined
in the California Uniform Commercial Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.
“
Eligible
Inventory
” [Not Applicable]
“
Eligible
Accounts
” means Accounts and General Intangibles arising in the ordinary
course of Borrower’s business from the sale of goods or the rendition of
services, or the non-exclusive licensing of Intellectual Property, which
Silicon, in its good faith business judgment, shall deem eligible for
borrowing. Without limiting the fact
that the determination of which
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Accounts are eligible for
borrowing is a matter of Silicon’s good faith business judgment, the following
(the “
Minimum Eligibility Requirements
”) are the minimum requirements
for a Account to be an Eligible Account:
(i) the Account must not be outstanding for more than 90 days from its
invoice date (the “
Eligibility Period
”), (ii) the Account must not
represent progress billings, or be due under a fulfillment or requirements
contract with the Account Debtor, (iii) the Account must not be subject to any
contingencies (including Accounts arising from sales on consignment, guaranteed
sale or other terms pursuant to which payment by the Account Debtor may be
conditional), (iv) the Account must not be owing from an Account Debtor with
whom Borrower has any dispute (whether or not relating to the particular
Account), (v) the Account must not be owing from an Affiliate of Borrower, (vi)
the Account must not be owing from an Account Debtor which is subject to any
insolvency or bankruptcy proceeding, or whose financial condition is not
acceptable to Silicon, or which, fails or goes out of a material portion of its
business, (vii) the Account must not be owing from the United States or any
department, agency or instrumentality thereof (unless there has been compliance,
to Silicon’s satisfaction, with the United States Assignment of Claims Act),
(viii) the Account must not be owing from an Account Debtor located outside the
United States or Canada (unless pre-approved by Silicon in its discretion in
writing, or backed by a letter of credit satisfactory to Silicon, or FCIA
insured satisfactory to Silicon), (ix) the Account must not be owing from an
Account Debtor to whom Borrower is or may be liable for goods purchased from
such Account Debtor or otherwise (but, in such case, the Account will be deemed
not eligible only to the extent of any amounts owed by Borrower to such Account
Debtor). Accounts owing from one
Account Debtor will not be deemed Eligible Accounts to the extent they exceed
25% of the total Accounts outstanding.
In addition, if more than
50%
of
the Accounts owing from an Account Debtor are outstanding for a period longer
than their Eligibility Period (without regard to unapplied credits) or are
otherwise not eligible Accounts, then all Accounts owing from that Account
Debtor will be deemed ineligible for borrowing. Silicon may, from time to time, in its good faith business
judgment, revise the Minimum Eligibility Requirements, upon written notice to
Borrower.
“
Equipment
”
means all present and future “equipment” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all machinery,
fixtures, goods, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing.
“
Event
of Default
” means any of the events set forth in Section 7.1 of this
Agreement.
“
GAAP
”
means generally accepted accounting principles consistently applied.
“
General
Intangibles
” means all present and future “general intangibles” as defined
in the California Uniform Commercial Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance
and rights to payment of any kind.
“
good
faith business judgment
” means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of Silicon’s business judgment.
“
including
”
means including (but not limited to).
“
Intellectual
Property
” means all present and future (a) copyrights, copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work thereof, whether published or unpublished,
(b) trade secret rights, including all rights to unpatented inventions and
know-how, and confidential information; (c) mask work or similar rights
available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
applications to register and registrations of the same and like protections,
and the entire goodwill of the business of Borrower connected with and
symbolized by any such trademarks; (f) computer software and computer software
products; (g) designs and design rights; (h) technology; (i) all claims for
damages by way of past, present and future infringement of any of the rights
included above; (j) all licenses or other rights to use any property or rights
of a type described above.
“
Inventory
”
means all present and future “inventory” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returned goods and any documents of title representing any of the above.
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“
Investment
Property
” means all present and future investment property, securities,
stocks, bonds, debentures, debt securities, partnership interests, limited
liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets
held in any securities account or otherwise, and all options and warrants to
purchase any of the foregoing, wherever located, and all other securities of
every kind, whether certificated or uncertificated.
“
Loan
Documents
” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between
Silicon and Borrower, including, but not limited to those relating to this
Agreement, and all amendments and modifications thereto and replacements
therefor.
“
Material
Adverse Change
” means any of the following: (i) a material adverse change in the business, operations, or
financial or other condition of the Borrower, or (ii) a material impairment of
the prospect of repayment of any portion of the Obligations; or (iii) a
material impairment of the value or priority of Silicon’s security interests in
the Collateral.
“
Obligations
” means all present and future
Loans, advances, debts, liabilities, obligations, guaranties, covenants, duties
and indebtedness at any time owing by Borrower to Silicon, whether
evidenced by this Agreement or any note or other instrument or document, or
otherwise, whether arising from an extension of credit, opening of a letter of
credit, banker’s acceptance, loan, guaranty, indemnification or otherwise,
whether direct or indirect (including, without limitation, those acquired by
assignment and any participation by Silicon in Borrower’s debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney’s fees, expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Documents.
“
Other
Property
” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and all rights relating thereto: all present and future “commercial tort
claims” (including without limitation any commercial tort claims identified in
the Representations), “documents”, “instruments”, “promissory notes”, “chattel
paper”, “letters of credit”, “letter-of-credit rights”, “fixtures”, “farm
products” and “money”; and all other goods and personal property of every kind,
tangible and intangible, whether or not governed by the California Uniform
Commercial Code.
“
Payment
”
means all checks, wire transfers and other items of payment received by Silicon
(including proceeds of Accounts and payment of the Obligations in full) for
credit to Borrower’s outstanding Loans or, if the balance of the Loans have
been reduced to zero, for credit to its Deposit Accounts.
“
Permitted
Liens
” means the following: (i)
purchase money security interests in specific items of Equipment; (ii) leases
of specific items of Equipment; (iii) liens for taxes not yet payable; (iv)
additional security interests and liens consented to in writing by Silicon,
which consent may be withheld in its good faith business judgment; (v) security
interests being terminated substantially concurrently with this Agreement; (vi)
liens of materialmen, mechanics, warehousemen, carriers, or other similar liens
arising in the ordinary course of business and securing obligations which are
not delinquent; (vii) liens incurred in connection with the extension, renewal
or refinancing of the indebtedness secured by liens of the type described above
in clauses (i) or (ii) above, provided that any extension, renewal or
replacement lien is limited to the property encumbered by the existing lien and
the principal amount of the indebtedness being extended, renewed or refinanced
does not increase; (viii) Liens in favor of customs and revenue authorities
which secure payment of customs duties in connection with the importation of
goods. Silicon will have the right to
require, as a condition to its consent under subparagraph (iv) above, that the
holder of the additional security interest or lien sign an intercreditor
agreement on Silicon’s then standard form, acknowledge that the security
interest is subordinate to the security interest in favor of Silicon, and agree
not to take any action to enforce its subordinate security interest so long as
any Obligations remain outstanding, and that Borrower agree that any uncured
default in any obligation secured by the subordinate security interest shall
also constitute an Event of Default under this Agreement.
“
Person
”
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity..
“Representations”
means the written Representations and Warranties provided by Borrower to
Silicon referred to in the Schedule.
“
Reserves
” means, as of any date of
determination, such amounts as Silicon may from time to time establish and
revise in its good faith business judgment, reducing the amount of
Loans, Letters of Credit and other financial accommodations which would
otherwise be available to Borrower under the lending formula(s) provided in the
Schedule: (a) to reflect events,
conditions, contingencies or risks which, as determined by Silicon in its good
faith business judgment, do or may adversely affect (i) the Collateral or any
other property which is security for the Obligations or its value (including
without limitation
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any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower
or any Guarantor, or (iii) the security interests and other rights of Silicon
in the Collateral (including the enforceability, perfection and priority
thereof); or (b) to reflect Silicon’s good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Guarantor to Silicon is or may have been incomplete, inaccurate or misleading
in any material respect; or (c) in respect of any state of facts which Silicon
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.
Other
Terms
. All accounting terms used in
this Agreement, unless otherwise indicated, shall have the meanings given to
such terms in accordance with GAAP, consistently applied. All other terms contained in this Agreement,
unless otherwise indicated, shall have the meanings provided by the Code, to
the extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest Computation;
Float Charge.
In computing interest on the Obligations, all Payments
received after 12:00 Noon on any day shall be deemed received on the next
Business Day. In addition, Silicon
shall be entitled to charge Borrower a “float” charge in an amount equal to
three Business Days interest, at the interest rate applicable to the Loans, on
all Payments received by Silicon. Said
float charge is not included in interest for purposes of computing Minimum Monthly
Interest (if any) under this Agreement.
The float charge for each month shall be payable on the last day of the
month.
9.2 Application of Payments.
All
payments with respect to the Obligations may be applied, and in Silicon’s good
faith business judgment reversed and re-applied, to the Obligations, in such
order and manner as Silicon shall determine in its good faith business
judgment.
9.3 Charges to Accounts.
Silicon
may, in its discretion, require that Borrower pay monetary Obligations in cash
to Silicon, or charge them to Borrower’s Loan account, in which event they will
bear interest at the same rate applicable to the Loans. Silicon may also, in its discretion, charge
any monetary Obligations to Borrower’s Deposit Accounts maintained with
Silicon.
9.4 Monthly Accountings.
Silicon
shall provide Borrower monthly with an account of advances, charges, expenses
and payments made pursuant to this Agreement.
Such account shall be deemed correct, accurate and binding on Borrower
and an account stated (except for reverses and reapplications of payments made
and corrections of errors discovered by Silicon), unless Borrower notifies
Silicon in writing to the contrary within 60 days after such account is
rendered, describing the nature of any alleged errors or omissions.
9.5 Notices.
All
notices to be given under this Agreement shall be in writing and shall be given
either personally or by reputable private delivery service or by regular
first-class mail, or certified mail return receipt requested, addressed to Silicon
or Borrower at the addresses shown in the heading to this Agreement, or at any
other address designated in writing by one party to the other party. Notices to Silicon shall be directed to the
Commercial Finance Division, to the attention of the Division Manager or the
Division Credit Manager. All notices
shall be deemed to have been given upon delivery in the case of notices
personally delivered, or at the expiration of one Business Day following
delivery to the private delivery service, or two Business Days following the
deposit thereof in the United States mail, with postage prepaid.
9.6 Severability.
Should
any provision of this Agreement be held by any court of competent jurisdiction
to be void or unenforceable, such defect shall not affect the remainder of this
Agreement, which shall continue in full force and effect.
9.7 Integration.
This
Agreement and such other written agreements, documents and instruments as may
be executed in connection herewith are the final, entire and complete agreement
between Borrower and Silicon and supersede all prior and contemporaneous
negotiations and oral representations and agreements, all of which are merged
and integrated in this Agreement.
There
are no oral understandings, representations or agreements between the parties
which are not set forth in this Agreement or in other written agreements signed
by the parties in connection herewith
.
9.8 Waivers; Indemnity.
The failure of
Silicon at any time or times to require Borrower to strictly comply with any of
the provisions of this Agreement or any other Loan Document shall not
waive or diminish any right of Silicon later to demand and receive strict
compliance therewith. Any waiver of any
default shall not waive or affect any other default, whether prior or
subsequent, and whether or not similar.
None of the provisions of this Agreement or any other Loan Document
shall be deemed to have been waived by any act or knowledge of Silicon or its
agents or employees, but only by a specific written waiver signed by an
authorized officer of Silicon and delivered to Borrower. Borrower waives the benefit of all statutes
of limitations relating to any of the Obligations or this Agreement or any
other Loan Document, and Borrower waives demand, protest, notice of protest and
notice of default or dishonor, notice of payment and nonpayment, release,
compromise, settlement, extension or renewal of any commercial paper,
instrument, account, General Intangible, document or guaranty at any time held
by Silicon on which Borrower is or may in any way be liable, and notice of any
action taken by Silicon, unless
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expressly required by
this Agreement. Borrower hereby agrees
to indemnify Silicon and its affiliates, subsidiaries, parent, directors,
officers, employees, agents, and attorneys, and to hold them harmless from and
against any and all claims, debts, liabilities, demands, obligations, actions,
causes of action, penalties, costs and expenses (including reasonable
attorneys’ fees), of every kind, which they may sustain or incur based upon or
arising out of any of the Obligations, or any relationship or agreement between
Silicon and Borrower, or any other matter, relating to Borrower or the Obligations;
provided that this indemnity shall not extend to damages proximately caused by
the indemnitee’s own gross negligence or willful misconduct. Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement and shall for all purposes
continue in full force and effect.
9.9 No Liability for Ordinary Negligence.
Neither
Silicon, nor any of its directors, officers, employees, agents, attorneys or any
other Person affiliated with or representing Silicon shall be liable for any
claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by Borrower or any other party through the ordinary
negligence of Silicon, or any of its directors, officers, employees, agents,
attorneys or any other Person affiliated with or representing Silicon, but
nothing herein shall relieve Silicon from liability for its own gross
negligence or willful misconduct.
9.10 Amendment.
The
terms and provisions of this Agreement may not be waived or amended, except in
a writing executed by Borrower and a duly authorized officer of Silicon.
9.11 Time of Essence.
Time
is of the essence in the performance by Borrower of each and every obligation
under this Agreement.
9.12 Attorneys Fees and Costs.
Borrower
shall reimburse Silicon for all reasonable attorneys’ fees and all filing,
recording, search, title insurance, appraisal, audit, and other reasonable
costs incurred by Silicon, pursuant to, or in connection with, or relating to
this Agreement (whether or not a lawsuit is filed), including, but not limited
to, any reasonable attorneys’ fees and costs Silicon incurs in order to do the
following: prepare and negotiate this
Agreement and all present and future documents relating to this Agreement;
obtain legal advice in connection with this Agreement or Borrower; enforce, or
seek to enforce, any of its rights; prosecute actions against, or defend
actions by, Account Debtors; commence, intervene in, or defend any action or
proceeding; initiate any complaint to be relieved of the automatic stay in
bankruptcy; file or prosecute any probate claim, bankruptcy claim, third-party
claim, or other claim; examine, audit, copy, and inspect any of the Collateral
or any of Borrower’s books and records; protect, obtain possession of, lease,
dispose of, or otherwise enforce Silicon’s security interest in, the
Collateral; and otherwise represent Silicon in any litigation relating to
Borrower. In satisfying Borrower’s
obligation hereunder to reimburse Silicon for attorneys fees, Borrower may, for
convenience, issue checks directly to Silicon’s attorneys, Levy, Small &
Lallas, but Borrower acknowledges and agrees that Levy, Small & Lallas is
representing only Silicon and not Borrower in connection with this
Agreement. If either Silicon or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys’ fees, including (but not limited to) reasonable
attorneys’ fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys’ fees and costs to which Silicon may be entitled
pursuant to this Paragraph shall immediately become part of Borrower’s
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations.
9.13 Benefit of Agreement.
The
provisions of this Agreement shall be binding upon and inure to the benefit of
the respective successors, assigns, heirs, beneficiaries and representatives of
Borrower and Silicon; provided, however, that Borrower may not assign or
transfer any of its rights under this Agreement without the prior written
consent of Silicon, and any prohibited assignment shall be void. No consent by Silicon to any assignment
shall release Borrower from its liability for the Obligations.
9.14 Joint and Several Liability.
If
Borrower consists of more than one Person, their liability shall be joint and
several, and the compromise of any claim with, or the release of, any Borrower
shall not constitute a compromise with, or a release of, any other Borrower.
9.15 Limitation of Actions.
Any
claim or cause of action by Borrower against Silicon, its directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Loan Agreement, or any other Loan Document, or any other
transaction contemplated hereby or thereby or relating hereto or thereto, or
any other matter, cause or thing whatsoever, occurred, done, omitted or
suffered to be done by Silicon, its directors, officers, employees, agents,
accountants or attorneys, shall be barred unless asserted by Borrower by the
commencement of an action or proceeding in a court of competent jurisdiction by
the filing of a complaint within one year after the first act, occurrence or
omission upon which such claim or cause of
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action, or any part
thereof, is based, and the service of a summons and complaint on an officer of
Silicon, or on any other person authorized to accept service on behalf of
Silicon, within thirty (30) days thereafter.
Borrower agrees that such one-year period is a reasonable and sufficient
time for Borrower to investigate and act upon any such claim or cause of
action. The one-year period provided
herein shall not be waived, tolled, or extended except by the written consent
of Silicon in its sole discretion. This
provision shall survive any termination of this Loan Agreement or any other
Loan Document.
9.16 Paragraph Headings; Construction.
Paragraph
headings are only used in this Agreement for convenience. Borrower and Silicon acknowledge that the
headings may not describe completely the subject matter of the applicable
paragraph, and the headings shall not be used in any manner to construe, limit,
define or interpret any term or provision of this Agreement. This Agreement has been fully reviewed and
negotiated between the parties and no uncertainty or ambiguity in any term or
provision of this Agreement shall be construed strictly against Silicon or
Borrower under any rule of construction or otherwise.
9.17 Governing Law; Jurisdiction; Venue.
This
Agreement and all acts and transactions hereunder and all rights and
obligations of Silicon and Borrower shall be governed by the laws of the State
of California. As a material part of the
consideration to Silicon to enter into this Agreement, Borrower (i) agrees that
all actions and proceedings relating directly or indirectly to this Agreement
shall, at Silicon’s option, be litigated in courts located within California,
and that the exclusive venue therefor shall be Santa Clara County; (ii)
consents to the jurisdiction and venue of any such court and consents to
service of process in any such action or proceeding by personal delivery or any
other method permitted by law; and (iii) waives any and all rights Borrower may
have to object to the jurisdiction of any such court, or to transfer or change
the venue of any such action or proceeding.
9.18 Mutual Waiver of Jury Trial.
BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO
TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY
WAY RELATING TO, THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR
AGREEMENT BETWEEN SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF
SILICON OR BORROWER OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF
THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
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Borrower:
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Silicon:
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MAXWELL TECHNOLOGIES, INC.
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SILICON VALLEY BANK
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By
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By
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President or Vice President
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Title
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By
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Secretary or Ass’t Secretary
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Schedule to
Loan and Security Agreement
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Borrower:
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Maxwell
Technologies, Inc.
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Address:
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9244
Balboa Avenue
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San
Diego, CA 92123
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Date:
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February
4,2004
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This Schedule
forms an integral part of the Loan and Security Agreement between Silicon
Valley Bank and the above-borrower of even date.
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1.
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CREDIT LIMIT
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(Section
1.1):
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An amount
not to exceed the lesser of (i)
$1,500,000
at any one time outstanding (the “Maximum Credit Limit”), or (ii)
85%
(the “Advance Rate”) of the amount of
Borrower’s Eligible Accounts (as defined in Section 8 above); provided that
the total outstanding Obligations under this Loan Agreement and under the
Exim Agreement (as defined below) shall not at any time exceed
$3,000,000
(the “Overall Credit Limit”).
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Silicon may,
from time to time, modify the Advance Rate, in its good faith business
judgment, upon notice to the Borrower, based on changes in collection
experience with respect to Accounts or other issues or factors relating to
the Accounts or other Collateral.
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Combined Sublimit:
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The total
amount of Loans available hereunder which Borrower may use to obtain Cash
Management Services and Letters of Credit (as the foregoing terms are defined
herein) shall not exceed
$500,000.
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Letter of Credit
Sublimit
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(Section
1.6):
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$500,000.
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Cash Management
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Services and Reserves:
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Borrower may
use up to
$500,000
of Loans
available hereunder for Silicon’s Cash Management Services (as defined
below), including, merchant services, business credit card, ACH and other
services identified in the cash management services agreement related to such
service (the “Cash Management Services”). Silicon may, in its
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sole
discretion, reserve against Loans which would otherwise be available
hereunder such sums as Silicon shall determine in its good faith business
judgment in connection with the Cash Management Services, and Silicon may
charge to Borrower’s Loan account, any amounts that may become due or owing
to Silicon in connection with the Cash Management Services. Borrower agrees
to execute and deliver to Silicon all standard form applications and
agreements of Silicon in connection with the Cash Management Services, and,
without limiting any of the terms of such applications and agreements,
Borrower will pay all standard fees and charges of Silicon in connection with
the Cash Management Services. The Cash Management Services shall terminate on
the Maturity Date.
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Exim Agreement;
Cross-Collateralization;
Cross-Default:
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Silicon and
the Borrower are parties to that certain Loan and Security Agreement (Exim
Program) of even date (the “Exim Agreement”). Both this Agreement and the
Exim Agreement shall continue in full force and effect, and all rights and
remedies under this Agreement and the Exim Agreement are cumulative. The term
“Obligations” as used in this Agreement and in the Exim Agreement shall
include without limitation the obligation to pay when due all Loans made
pursuant to this Agreement (the “Non-Exim Loans”) and all interest thereon
and the obligation to pay when due all Loans made pursuant to the Exim
Agreement (the “Exim Loans”) and all interest thereon. Without limiting the
generality of the foregoing, all “Collateral” as defined in this Agreement
and as defined in the Exim Agreement shall secure all Exim Loans and all
Non-Exim Loans and all interest thereon, and all other Obligations. Any Event
of Default under this Agreement shall also constitute an Event of Default
under the Exim Agreement, and any Event of Default under the Exim Agreement
shall also constitute an Event of Default under this Agreement. In the event
Silicon assigns its rights under the Exim Agreement and/or under any Note evidencing
Exim Loans and/or its rights under this Agreement and/or under any Note
evidencing Non-Exim Loans, to any third party, including without limitation
the Export-Import Bank of the United States (“Exim Bank”), whether before or
after the occurrence of any Event of Default, Silicon shall have the right
(but not any obligation), in its sole discretion, to allocate and apportion
Collateral to the Agreement and/or Note assigned and to specify the
priorities of the respective security interests in such Collateral between
itself and the assignee, all without notice to or consent of the Borrower.
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-2-
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2.
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INTEREST.
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Interest Rate
(Section 1.2):
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A rate equal
to the “Prime Rate” in effect from time to time, plus
1.75%
per annum, provided that the
interest rate in effect on any day shall not be less than
5.75%
per annum. Interest shall be
calculated on the basis of a 360-day year for the actual number of days
elapsed. As used in this Agreement, “Prime Rate” means the interest rate
announced from time to time by Silicon as its “prime rate” (which is a base
rate upon which other rates charged by Silicon are based, and it is not
necessarily the best rate available at Silicon). The interest rate applicable
to the Obligations shall change on each date there is a change in the Prime
Rate.
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Minimum Monthly
Interest
(Section 1.2):
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$2,500 per
month in the aggregate as between this Agreement and the Exim Agreement.
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3.
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FEES
(Section 1.4):
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Loan Fee:
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$7,500,
payable concurrently herewith.
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Collateral
Monitoring Fee:
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$1,000, per
month in the aggregate as between this Agreement and the Exim Agreement,
payable in arrears (prorated for any partial month at the beginning and at
termination of this Agreement).
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Unused Line
Fee:
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In the
event, in any calendar month (or portion thereof at the beginning and end of
the term hereof), the average daily principal balance of the Loans
outstanding during the month is less than the amount of the Maximum Credit
Limit, Borrower shall pay Silicon an unused line fee in an amount equal to
0.25% per annum on the difference between the amount of the Maximum Credit
Limit and the average daily principal balance of the Loans outstanding during
the month, computed on the basis of a 360-day year, which unused line fee
shall be computed and paid monthly, in arrears, on the first day of the
following month.
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4.
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MATURITY DATE
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(Section
6.1):
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One year
from the date of this Agreement.
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5.
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FINANCIAL COVENANTS
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(Section
5.1):
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Maxwell
Technologies, Inc. shall, on a consolidated basis, comply
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-3-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement
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(Section
5.1):
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with each of
the following covenants. Compliance shall be determined as of the end of each
month, except as otherwise specifically provided below:
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-4-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement
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Minimum Tangible
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Net Worth:
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Borrower
shall maintain a Tangible Net Worth of not less than
$15,000,000
plus (i) 50% of all
consideration received after the date hereof for equity securities and
subordinated debt of the Borrower, plus (ii) 50% of the Borrower’s net income
in each fiscal quarter ending after the date hereof. Increases in the Minimum
Tangible Net Worth Covenant based on consideration received for equity
securities and subordinated debt of the Borrower shall be effective as of the
end of the month in which such consideration is received, and shall continue
effective thereafter. Increases in the Minimum Tangible Net Worth Covenant
based on net income shall be effective on the last day of the fiscal quarter
in which said net income is realized, and shall continue effective
thereafter. In no event shall the Minimum Tangible Net Worth Covenant be
decreased.
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Definitions.
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For purposes
of the foregoing financial covenants, the following term shall have the
following meaning:
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“Current
assets”, “current liabilities” and “liabilities” shall have the meaning
ascribed thereto by GAAP.
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“Tangible
Net Worth” shall mean the excess of total assets less total liabilities,
determined in accordance with GAAP, with the following adjustments:
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(A) there
shall be excluded from assets: (i) notes, accounts receivable and other
obligations owing to Borrower from its officers or other Affiliates, and (ii)
all assets which would be classified as intangible assets under GAAP,
including without limitation goodwill, licenses, patents, trademarks, trade
names, copyrights, capitalized software and organizational costs, licenses
and franchises, and (iii) minority investments in other Persons.
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(B) there
shall be excluded from liabilities: all indebtedness which is subordinated to
the Obligations under a subordination agreement in form specified by Silicon
or by language in the instrument evidencing the indebtedness which Silicon
agrees in writing is acceptable to Silicon in its good faith business
judgment.
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-5-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement
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6.
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REPORTING.
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(Section
5.3):
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Borrower
shall provide Silicon with the following:
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1.
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Transaction
reports and schedules of collections, each week and at the time of each Loan
request, on Silicon’s standard form
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2.
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Monthly accounts
receivable agings (separate from the agings required by the Exim Agreement),
aged by invoice date, within fifteen days after the end of each month.
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3.
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Monthly
accounts payable agings (separate from the agings required by the Exim
Agreement), aged by invoice date, and outstanding or held check registers, if
any, within fifteen days after the end of each month.
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4.
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Monthly
reconciliations of accounts receivable agings (aged by invoice date),
transaction reports, and general ledger, within fifteen days after the end of
each month.
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5.
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Monthly
unaudited financial statements of Maxwell Technologies, Inc. (on a
consolidated and consolidating basis), as soon as available, and in any event
within thirty days after the end of each month.
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6.
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Monthly
Compliance Certificates, within thirty days after the end of each month, in
such form as Silicon shall reasonably specify, signed by the Chief Financial
Officer of Borrower, certifying that as of the end of such month Borrower was
in full compliance with all of the terms and conditions of this Agreement,
and setting forth calculations showing compliance with the financial
covenants set forth in this Agreement and such other information as Silicon
shall reasonably request, including, without limitation, a statement that at
the end of such month there were no held checks.
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7.
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Copies of
all reports on Form 10-Q filed by Maxwell Technologies, Inc. with the
Securities and Exchange Commission within 5 days after such filing.
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8.
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Annual
operating budgets (including income statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower within thirty
days
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-6-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement
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prior to the
end of each fiscal year of Borrower.
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9.
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Annual
financial statements of Maxwell Technologies, Inc. (on a consolidated and
consolidating basis), as soon as available, and in any event within 90 days
following the end of Maxwell Technologies, Inc.’s fiscal year, certified by,
and with an unqualified opinion of, independent certified public accountants
acceptable to Silicon together with copies of all reports on Form 10-K filed
by Maxwell Technologies, Inc. with the Securities and Exchange Commission.
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7.
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BORROWER INFORMATION:
|
Borrower
represents and warrants that the information set forth in the Representations
and Warranties of the Borrower dated December 4, 2003, previously submitted
to Silicon (the “Representations”) is true and correct as of the date hereof.
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8.
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ADDITIONAL PROVISIONS
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(1)
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Banking Relationship.
Borrower shall at all
times maintain its primary banking relationship with Silicon. Without
limiting the generality of the foregoing, within sixty days of the date
hereof and at all times thereafter, Borrower shall maintain not less than 85%
of Maxwell Technologies, Inc.’s total cash and investments on deposit with
Silicon. As to any Deposit Accounts and investment accounts maintained with
another institution, if at any time Borrower fails to comply with the terms
of the preceding sentence, Borrower shall cause such institution, within 10
days after the date of such non-compliance, to enter into a control agreement
in form acceptable to Silicon in its good faith business judgment in order to
perfect Silicon’s first-priority security interest in said Deposit Accounts
and investment accounts.
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(2)
|
Subordination of Inside Debt.
All present
and future indebtedness of Borrower to its officers, directors and
shareholders (“Inside Debt”) shall, at all times, be subordinated to the
Obligations pursuant to a subordination agreement on Silicon’s standard form.
Borrower represents and warrants that there is no Inside Debt presently
outstanding, except for the following: NONE. Prior to incurring any Inside
Debt in the
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-7-
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Silicon Valley Bank
|
Schedule to Loan and Security Agreement
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future, Borrower
shall cause the person to whom such Inside Debt will be owed to execute and
deliver to Silicon a subordination agreement on Silicon’s standard form.
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(3)
|
Additional Condition Precedent.
In addition
to any other conditions precedent to funding set forth in this Agreement,
prior to the funding of any Loans, Silicon shall have received information
satisfactory to Silicon from Maxwell Europe’s (fka Maxwell Technologies, SA)
lender, Cantonal Bank of Freiburg (“Cantonal Bank”), regarding its relationship
with Maxwell Technologies, Inc. and Maxwell Europe. Borrower shall use its
best efforts to cause Cantonal Bank to enter into an intercreditor agreement
with Silicon, on Silicon’s standard form with such changes thereto as are
acceptable to Silicon, regarding Cantonal Bank’s and Silicon’s relationships
with Maxwell Technologies, Inc. and Maxwell Europe.
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(4)
|
Restrictions on Transfers to Affiliates.
Except for the Borrowers, Borrower covenants and agrees that while this
Agreement is in effect, Borrower shall not transfer any assets or Collateral
(beyond its historical normal course of business) to any Affiliate without
the prior written consent of Silicon.
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(5)
|
Initial Audit.
An initial audit, referred to
in Section 5.4 of this Agreement, shall be completed, with satisfactory
results to Silicon, prior to funding hereunder.
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(6)
|
Domestic Subsidiaries.
Borrower represents
and warrants to Silicon that each of Purepulse Technologies, Inc.
(“Purepulse”) and I-Bus/Phoenix, Inc. (“I-Bus”) is a wholly owned subsidiary
of Borrower and that each of Purepulse and I-Bus is inactive with little or
no assets and will remain inactive with little or no assets during the term
of this Agreement. Borrower covenants and agrees that while this Agreement is
in effect, Borrower shall not transfer any assets or Collateral to Purepulse
and/or I-Bus.
|
-8-
|
|
Silicon Valley Bank
|
Schedule to Loan and Security Agreement
|
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Borrower:
|
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Silicon:
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MAXWELL
TECHNOLOGIES, INC.
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SILICON
VALLEY BANK
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By
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By
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President or Vice President
|
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Title
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By
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Secretary or Ass’t Secretary
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-9-
Silicon
Valley Bank
Loan and Security Agreement
(Exim Program)
|
Borrower:
|
Maxwell
Technologies, Inc.
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Address:
|
9244
Balboa Avenue
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San
Diego, CA 92123
|
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Date:
|
February
4,2004
|
THIS LOAN AND SECURITY AGREEMENT
(EXIM PROGRAM)
is entered into on the above date between
SILICON VALLEY BANK (“Silicon”), whose address is 3003 Tasman Drive, Santa
Clara, California 95054 and the borrower(s) named above (jointly and severally,
the “Borrower”), whose chief executive office is located at the above address
(“Borrower’s Address”). The Schedule to this Agreement (the “Schedule”) shall
for all purposes be deemed to be a part of this Agreement, and the same is an
integral part of this Agreement. (Definitions of certain terms used in this
Agreement are set forth in Section 8 below.)
1. LOANS.
1.1 Loans.
Silicon will make loans to Borrower (the “Loans”) up to the amounts (the
“Credit Limit”) shown on the Schedule, provided no Default or Event of Default
has occurred and is continuing, and subject to deduction of Reserves for
accrued interest and such other Reserves as Silicon deems proper from time to
time in its good faith business judgment.
1.2 Interest.
All Loans and all other monetary Obligations shall bear interest at the rate
shown on the Schedule, except where expressly set forth to the contrary in this
Agreement. Interest shall be payable monthly, on the last day of the month.
Interest may, in Silicon’s discretion, be charged to Borrower’s loan account,
and the same shall thereafter bear interest at the same rate as the other
Loans. Silicon may, in its discretion, charge interest to Borrower’s Deposit
Accounts maintained with Silicon. Regardless of the amount of Obligations that
may be outstanding from time to time, Borrower shall pay Silicon minimum monthly
interest during the term of this Agreement in the amount set forth on the
Schedule (the “Minimum Monthly Interest”).
1.3 Overadvances.
If at any time or for any reason the total of all outstanding Loans and all
other monetary Obligations exceeds the Credit Limit (an “Overadvance”),
Borrower shall immediately pay the amount of the excess to Silicon, without
notice or demand. Without limiting Borrower’s obligation to repay to Silicon
the amount of any Overadvance, Borrower agrees to pay Silicon interest on the
outstanding amount of any Overadvance, on demand, at the Default Rate.
1.4 Fees.
Borrower shall pay Silicon the fees shown on the Schedule, which are in
addition to all interest and other sums payable to Silicon and are not
refundable.
1.5 Loan
Requests.
To obtain a Loan, Borrower shall make a request to Silicon by facsimile or
telephone. Loan requests received after 12:00 Noon will not be considered by
Silicon until the next Business Day. Silicon may rely on any telephone request
for a Loan given by a person whom Silicon believes is an authorized
representative of Borrower, and Borrower will indemnify Silicon for any loss
Silicon suffers as a result of that reliance.
1.6 Letters
of Credit.
[Not Applicable].
2. SECURITY INTEREST.
To secure the payment and performance of all of the Obligations when due,
Borrower hereby grants to Silicon a security interest in all of the following
(collectively, the “Collateral”): all right, title and interest of Borrower in
and to all of the following, whether now owned or hereafter arising or acquired
and wherever located: all Accounts; all Inventory; all Equipment;
-1-
|
|
Silicon
Valley Bank
|
Schedule
to Loan and Security Agreement (Exim)
|
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|
|
all Deposit Accounts; all General Intangibles
(including without limitation all Intellectual Property); all Investment
Property; all Other Property; and any and all claims, rights and interests in
any of the above, and all guaranties and security for any of the above, and all
substitutions and replacements for, additions, accessions, attachments,
accessories, and improvements to, and proceeds (including proceeds of any
insurance policies, proceeds of proceeds and claims against third parties) of,
any and all of the above, and all Borrower’s books relating to any and all of
the above.
3. REPRESENTATIONS, WARRANTIES
AND COVENANTS OF BORROWER.
In order to induce
Silicon to enter into this Agreement and to make Loans, Borrower represents and
warrants to Silicon as follows, and Borrower covenants that the following
representations will continue to be true, and that Borrower will at all times
comply with all of the following covenants, throughout the term of this
Agreement and until all Obligations have been paid and performed in full:
3.1 Corporate
Existence and Authority.
Borrower is and will
continue to be, duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation. Borrower is and will continue to
be qualified and licensed to do business in all jurisdictions in which any
failure to do so would result in a Material Adverse Change. The execution,
delivery and performance by Borrower of this Agreement, and all other documents
contemplated hereby (i) have been duly and validly authorized, (ii) are
enforceable against Borrower in accordance with their terms (except as
enforcement may be limited by equitable principles and by bankruptcy,
insolvency, reorganization, moratorium or similar laws relating to creditors’
rights generally), and (iii) do not violate Borrower’s articles or certificate
of incorporation, or Borrower’s by-laws, or any law or any material agreement
or instrument which is binding upon Borrower or its property, and (iv) do not
constitute grounds for acceleration of any material indebtedness or obligation
under any agreement or instrument which is binding upon Borrower or its
property.
3.2 Name;
Trade Names and Styles.
The name of Borrower set
forth in the heading to this Agreement is its correct name. Listed in the
Representations are all prior names of Borrower and all of Borrower’s present
and prior trade names. Borrower shall give Silicon 30 days’ prior written
notice before changing its name or doing business under any other name.
Borrower has complied, and will in the future comply, in all material respects,
with all laws relating to the conduct of business under a fictitious business
name, except where the failure to so comply would not reasonably be expected to
result in a Material Adverse Change.
3.3 Place
of Business; Location of Collateral.
The address
set forth in the heading to this Agreement is Borrower’s chief executive
office. In addition, Borrower has places of business and Collateral is located
only at the locations set forth in the Representations. Borrower will give
Silicon at least 30 days prior written notice before opening any additional
place of business, changing its chief executive office, or moving any of the
Collateral to a location other than Borrower’s Address or one of the locations
set forth in the Representations, except that Borrower may maintain sales
offices in the ordinary course of business at which not more than a total of
$10,000 fair market value of Equipment is located.
3.4 Title
to Collateral; Perfection; Permitted Liens.
(a) Borrower
is now, and will at all times in the future be, the sole owner of all the
Collateral, except for items of Equipment which are leased to Borrower. The
Collateral now is and will remain free and clear of any and all liens, charges,
security interests, encumbrances and adverse claims, except for Permitted
Liens. Silicon now has, and will continue to have, a first-priority perfected
and enforceable security interest in all of the Collateral, subject only to the
Permitted Liens, and Borrower will at all times defend Silicon and the
Collateral against all claims of others.
(b) Borrower
has set forth in the Representations all of Borrower’s Deposit Accounts, and
Borrower will give Silicon five Business Days advance written notice before
establishing any new Deposit Accounts and will cause the institution where any
such new Deposit Account is maintained to execute and deliver to Silicon a
control agreement in form sufficient to perfect Silicon’s security interest in
the Deposit Account and otherwise satisfactory to Silicon in its good faith
business judgment. Nothing herein limits any requirements which may be set
forth in the Schedule as to where Deposit Accounts will be maintained.
(c) In
the event that Borrower shall at any time after the date hereof have any commercial
tort claims against others, which it is asserting or intends to assert, and in
which the potential recovery exceeds $100,000, Borrower shall promptly notify
Silicon thereof in writing and provide Silicon with such information regarding
the same as Silicon shall request (unless providing such information would
waive the Borrower’s attorney-client privilege). Such notification to Silicon
shall constitute a grant of a security interest in the commercial tort claim
and all proceeds thereof to Silicon, and Borrower shall execute and deliver all
such documents and take all such actions as Silicon shall request in connection
therewith.
-2-
|
|
Silicon
Valley Bank
|
Schedule
to Loan and Security Agreement (Exim)
|
|
|
|
(d) None
of the Collateral now is or will be affixed to any real property in such a
manner, or with such intent, as to become a fixture. Borrower is not and will
not become a lessee under any real property lease pursuant to which the lessor
may obtain any rights in any of the Collateral and no such lease now prohibits,
restrains, impairs or will prohibit, restrain or impair Borrower’s right to
remove any Collateral from the leased premises. Whenever any Collateral is
located upon premises in which any third party has an interest, Borrower shall,
whenever requested by Silicon, use its best efforts to cause such third party
to execute and deliver to Silicon, in form acceptable to Silicon, such waivers
and subordinations as Silicon shall specify in its good faith business
judgment. Borrower will keep in full force and effect, and will comply with all
material terms of, any lease of real property where any of the Collateral now
or in the future may be located.
3.5 Maintenance
of Collateral.
Borrower will maintain the
Collateral in good working condition (ordinary wear and tear excepted), and
Borrower will not use the Collateral for any unlawful purpose. Borrower will
immediately advise Silicon in writing of any material loss or damage to the
Collateral.
3.6 Books
and Records.
Borrower has maintained and will
maintain at Borrower’s Address complete and accurate books and records,
comprising an accounting system in accordance with GAAP.
3.7 Financial
Condition, Statements and Reports.
All financial
statements now or in the future delivered to Silicon have been, and will be,
prepared in conformity with GAAP and now and in the future will fairly present
the results of operations and financial condition of Borrower, in accordance
with GAAP, at the times and for the periods therein stated. Between the last
date covered by any such statement provided to Silicon and the date hereof,
there has been no Material Adverse Change.
3.8 Tax
Returns and Payments; Pension Contributions.
Borrower has timely filed, and will timely file, all required tax returns and
reports, and Borrower has timely paid, and will timely pay, all foreign,
federal, state and local taxes, assessments, deposits and contributions now or
in the future owed by Borrower. Borrower may, however, defer payment of any
contested taxes, provided that Borrower (i) in good faith contests Borrower’s
obligation to pay the taxes by appropriate proceedings promptly and diligently
instituted and conducted, (ii) notifies Silicon in writing of the commencement
of, and any material development in, the proceedings, and (iii) posts bonds or
takes any other steps required to keep the contested taxes from becoming a lien
upon any of the Collateral. Borrower is unaware of any claims or adjustments
proposed for any of Borrower’s prior tax years which could result in additional
taxes becoming due and payable by Borrower. Borrower has paid, and shall
continue to pay all amounts necessary to fund all present and future pension,
profit sharing and deferred com pensation plans in accordance with their terms,
and Borrower has not and will not withdraw from participation in, permit
partial or complete termination of, or permit the occurrence of any other event
with respect to, any such plan which could reasonably be expected to result in
any liability of Borrower, including any liability to the Pension Benefit
Guaranty Corporation or its successors or any other governmental agency.
3.9 Compliance
with Law.
Borrower has, to the best of its
knowledge, complied, and will comply, in all material respects, with all
provisions of all foreign, federal, state and local laws and regulations
applicable to Borrower, including, but not limited to, those relating to
Borrower’s ownership of real or personal property, the conduct and licensing of
Borrower’s business, and all environmental matters.
3.10 Litigation.
There is no claim, suit, litigation, proceeding or investigation pending or (to
best of Borrower’s knowledge) threatened against or affecting Borrower in any
court or before any governmental agency (or any basis therefor known to
Borrower) which could reasonably be expected to result, either separately or in
the aggregate, in any Material Adverse Change. Borrower will promptly inform
Silicon in writing of any claim, proceeding, litigation or investigation in the
future threatened or instituted against Borrower involving any single claim of
[typed change]
$100,000 or more, or involving
[typed change]
$250,000 or more
in the aggregate.
3.11 Use
of Proceeds.
All proceeds of all Loans shall be
used solely for lawful business purposes. Borrower is not purchasing or
carrying any “margin stock” (as defined in Regulation U of the Board of
Governors of the Federal Reserve System) and no part of the proceeds of any
Loan will be used to purchase or carry any “margin stock” or to extend credit
to others for the purpose of purchasing or carrying any “margin stock.”
4. ACCOUNTS.
4.1 Representations
Relating to Accounts.
Borrower represents and
warrants to Silicon as follows: Each Account with respect to which Loans are
requested by Borrower shall, on the date each Loan is requested and made, (i)
represent an undisputed bona fide
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existing unconditional obligation of the Account
Debtor created by the sale, delivery, and acceptance of goods or the rendition
of services, or the non-exclusive licensing of Intellectual Property, in the
ordinary course of Borrower’s business, and (ii) meet the Minimum Eligibility
Requirements set forth in Section 8 below.
4.2 Representations
Relating to Documents and Legal Compliance.
Borrower represents and warrants to Silicon as follows: All statements made and
all unpaid balances appearing in all invoices, instruments and other documents
evidencing the Accounts are and shall be true and correct and all such
invoices, instruments and other documents and all of Borrower’s books and
records are and shall be genuine and in all respects what they purport to be.
All sales and other transactions underlying or giving rise to each Account
shall comply in all material respects with all applicable laws and governmental
rules and regulations. To the best of Borrower’s knowledge, all signatures and
endorsements on all documents, instruments, and agreements relating to all
Accounts are and shall be genuine, and all such documents, instruments and
agreements are and shall be legally enforceable in accordance with their terms.
4.3 Schedules
and Documents relating to Accounts.
Borrower shall
deliver to Silicon transaction reports and schedules of collections, as
provided in the Schedule, on Silicon’s standard forms; provided, however, that
Borrower’s failure to execute and deliver the same shall not affect or limit
Silicon’s security interest and other rights in all of Borrower’s Accounts, nor
shall Silicon’s failure to advance or lend against a specific Account affect or
limit Silicon’s security interest and other rights therein. If requested by
Silicon, Borrower shall furnish Silicon with copies (or, at Silicon’s request,
originals) of all contracts, orders, invoices, and other similar documents, and
all shipping instructions, delivery receipts, bills of lading, and other
evidence of delivery, for any goods the sale or disposition of which gave rise
to such Accounts, and Borrower warrants the genuineness of all of the
foregoing. Borrower shall also furnish to Silicon an aged accounts receivable
trial balance as provided in the Schedule. In addition, Borrower shall deliver
to Silicon, on its request, the originals of all instruments, chattel paper,
security agreements, guarantees and other documents and property evidencing or
securing any Accounts, in the same form as received, with all necessary
indorsements, and copies of all credit memos.
4.4 Collection
of Accounts.
Borrower shall have the right to collect all Accounts, unless and until a Default or an
Event of Default has occurred and is continuing. Whether or not an Event of
Default has occurred and is continuing, Borrower shall hold all payments on,
and proceeds of, Accounts in trust for Silicon, and Borrower shall immediately
deliver all such payments and proceeds to Silicon in their original form, duly
endorsed, to be applied to the Obligations in such order as Silicon shall
determine. Silicon may, in its good faith business judgment, require that all
proceeds of Collateral be deposited by Borrower into a lockbox account, or such
other “blocked account” as Silicon may specify, pursuant to a blocked account
agreement in such form as Silicon may specify in its good faith business
judgment.
4.5. Remittance
of Proceeds.
All proceeds arising from the
disposition of any Collateral shall be delivered, in kind, by Borrower to
Silicon in the original form in which received by Borrower not later than the
following Business Day after receipt by Borrower, to be applied to the
Obligations in such order as Silicon shall determine; provided that, if no
Default or Event of Default has occurred and is continuing, Borrower shall not
be obligated to remit to Silicon the proceeds of the sale of worn out or
obsolete Equipment disposed of by Borrower in good faith in an arm’s length
transaction for an aggregate purchase price of
[typed change]
$50,000 or less
(for all such transactions in any fiscal year). Borrower agrees that it will
not commingle proceeds of Collateral with any of Borrower’s other funds or
property, but will hold such proceeds separate and apart from such other funds
and property and in an express trust for Silicon. Nothing in this Section
limits the restrictions on disposition of Collateral set forth elsewhere in
this Agreement.
4.6 Disputes.
Borrower shall notify Silicon promptly of all disputes or claims relating to
Accounts. Borrower shall not forgive (completely or partially), compromise or
settle any Account for less than payment in full, or agree to do any of the
foregoing, except that Borrower may do so, provided that: (i) Borrower does so
in good faith, in a commercially reasonable manner, in the ordinary course of
business, and in arm’s length transactions, which are reported to Silicon on
the regular reports provided to Silicon; (ii) no Default or Event of Default
has occurred and is continuing; and (iii) taking into account all such
discounts, settlements and forgiveness, the total outstanding Loans will not
exceed the Credit Limit.
4.7 Returns.
Provided no Event of Default has occurred and is continuing, if any Account
Debtor returns any Inventory to Borrower, Borrower shall promptly determine the
reason for such return and promptly issue a credit memorandum to the Account
Debtor in the appropriate amount. In the event any attempted return occurs
after the occurrence and during the continuance of any Event of Default,
Borrower shall hold the returned Inventory in trust for Silicon, and
immediately notify Silicon of the return of the Inventory.
4.8 Verification.
Silicon may, from time to time, verify directly with the respective Account
Debtors the validity, amount and other matters relating to the Accounts, by
means of mail, telephone or otherwise, either in the name of Borrower or
Silicon or such other name as Silicon may choose.
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4.9 No Liability.
Silicon shall not be responsible or liable for any shortage or discrepancy in,
damage to, or loss or destruction of, any goods, the sale or other disposition
of which gives rise to an Account, or for any error, act, omission, or delay of
any kind occurring in the settlement, failure to settle, collection or failure
to collect any Account, or for settling any Account in good faith for less than
the full amount thereof, nor shall Silicon be deemed to be responsible for any
of Borrower’s obligations under any contract or agreement giving rise to an
Account. Nothing herein shall, however, relieve Silicon from liability for its
own gross negligence or willful misconduct.
5. ADDITIONAL DUTIES OF
BORROWER.
5.1 Financial
and Other Covenants.
Borrower shall at all times
comply with the financial and other covenants set forth in the Schedule.
5.2 Insurance.
Borrower shall, at all times insure all of the tangible personal property
Collateral and carry such other business insurance, with insurers reasonably
acceptable to Silicon, in such form and amounts as Silicon may reasonably
require and that are customary and in accordance with standard practices for
Borrower’s industry and locations, and Borrower shall provide evidence of such
insurance to Silicon. All such insurance policies shall name Silicon as an
additional loss payee, and shall contain a lenders loss payee endorsement in
form reasonably acceptable to Silicon. Upon receipt of the proceeds of any such
insurance, Silicon shall apply such proceeds in reduction of the Obligations as
Silicon shall determine in its good faith business judgment, except that, provided
no Default or Event of Default has occurred and is continuing, Silicon shall
release to Borrower insurance proceeds with respect to Equipment totaling less
than $100,000, which shall be utilized by Borrower for the replacement of the
Equipment with respect to which the insurance proceeds were paid. Silicon may
require reasonable assurance that the insurance proceeds so released will be so
used. If Borrower fails to provide or pay for any insurance, Silicon may, but
is not obligated to, obtain the same at Borrower’s expense. Borrower shall
promptly deliver to Silicon copies of all material reports made to insurance
companies.
5.3 Reports.
Borrower, at its expense, shall provide Silicon with the written reports set
forth in the Schedule, and such other written reports with respect to Borrower
(including budgets, sales projections, operating plans and other financial
documentation), as Silicon shall from time to time specify in its good faith
business judgment.
5.4 Access
to Collateral, Books and Records.
At reasonable
times, and on one Business Day’s notice, Silicon, or its agents, shall have the
right to inspect the Collateral, and the right to audit and copy Borrower’s
books and records. The parties contemplate that such audits will be performed no
more frequently than quarterly, but nothing herein restricts Silicon’s right to
conduct such audits more frequently if (i) Silicon believes that it is
advisable to do so in Silicon’s good faith business judgment, or (ii) Silicon
believes in good faith that an event of default or an event which, with notice
or passage of time or both would constitute an event of default, has occurred
and is continuing. Silicon shall take reasonable steps to keep confidential all
information obtained in any such inspection or audit, but Silicon shall have
the right to disclose any such information to its auditors, regulatory
agencies, and attorneys, and pursuant to any subpoena or other legal process.
The foregoing inspections and audits shall be at Borrower’s expense and the
charge therefor shall be $750 per person per day (or such higher amount as
shall represent Silicon’s then current standard charge for the same), plus
reasonable out-of-pocket expenses. In the event Borrower and Silicon schedule
an audit more than 10 days in advance, and Borrower seeks to reschedules the
audit with less than 10 days written notice to Silicon, then (without limiting
any of Silicon’s rights or remedies), Borrower shall pay Silicon a cancellation
fee of $1,000 plus any out-of-pocket expenses incurred by Silicon, to
compensate Silicon for the anticipated costs and expenses of the cancellation.
5.5 Negative
Covenants.
Except as may be permitted in the
Schedule, Borrower shall not, without Silicon’s prior written consent (which
shall be a matter of its good faith business judgment), do any of the
following: (i) merge or consolidate with another corporation or entity; (ii)
acquire any assets, except in the ordinary course of business; (iii) enter into
any other transaction outside the ordinary course of business; (iv) sell or
transfer any Collateral, except for the sale of finished Inventory in the
ordinary course of Borrower’s business, and except for the sale of obsolete or
unneeded Equipment in the ordinary course of business; (v) store any Inventory
or other Collateral with any warehouseman or other third party; (vi) sell any
Inventory on a sale-or-return, guaranteed sale, consignment, or other
contingent basis; (vii) make any loans of any money or other assets; (viii)
incur any debts, outside the ordinary course of business, which would result in
a Material Adverse Change; (ix) guarantee or otherwise become liable with
respect to the obligations of another party or entity; (x) pay or declare any
dividends on Borrower’s stock (except for dividends payable solely in stock of
Borrower); (xi) redeem, retire, purchase or otherwise acquire, directly or
indirectly, any of Borrower’s stock; (xii) make any change in Borrower’s
capital structure which would result in a Material Adverse Change; or (xiii)
engage, directly or indirectly, in any business other than the businesses
currently engaged in by Borrower or reasonably related thereto; or (xiv)
dissolve or elect to dissolve. Transactions permitted by the foregoing
provisions of this Section are only permitted if no Default or Event of Default
would occur as a result of such transaction.
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5.6 Litigation Cooperation.
Should any third-party suit or proceeding be instituted by or against Silicon
with respect to any Collateral or relating to Borrower, Borrower shall, without
expense to Silicon, at reasonable times and upon reasonable notice make
available Borrower and its officers, employees and agents and Borrower’s books
and records, to the extent that Silicon may deem them reasonably necessary in
order to prosecute or defend any such suit or proceeding.
5.7 Further
Assurances.
Borrower agrees, at its expense, on
request by Silicon, to execute all documents and take all actions, as Silicon,
may, in its good faith business judgment, deem necessary or useful in order to
perfect and maintain Silicon’s perfected first-priority security interest in
the Collateral (subject to Permitted Liens), and in order to fully consummate
the transactions contemplated by this Agreement.
6. TERM.
6.1 Maturity
Date.
This Agreement shall continue in effect
until the maturity date set forth on the Schedule (the “Maturity Date”),
subject to Section 6.3 below.
6.2 Early
Termination.
This Agreement may be terminated
prior to the Maturity Date as follows: (i) by Borrower, effective three
Business Days after written notice of termination is given to Silicon; or (ii)
by Silicon at any time after the occurrence and during the continuance of an
Event of Default, without notice, effective immediately. If this Agreement is
terminated by Borrower or by Silicon under this Section 6.2, Borrower shall pay
to Silicon a termination fee in an amount equal to two percent (2.0%) of the
Overall Credit Limit (as defined in the Schedule), provided that the total
termination fee under this Loan Agreement and under the Non-Exim Agreement (as
defined in the Schedule) shall not exceed two percent (2.0%) of the Overall
Credit Limit, and, provided that no termination fee shall be charged if the
credit facility hereunder is replaced with a new facility from another division
of Silicon Valley Bank. The termination fee shall be due and payable on the
effective date of termination and thereafter shall bear interest at a rate equal
to the highest rate appli cable to any of the Obligations.
6.3 Payment
of Obligations.
On the Maturity Date or on any
earlier effective date of termination, Borrower shall pay and perform in full
all Obligations, whether evidenced by installment notes or otherwise, and
whether or not all or any part of such Obligations are otherwise then due and
payable. Without limiting the generality of the foregoing, if on the Maturity
Date, or on any earlier effective date of termination, there are any outstanding
Letters of Credit issued by Silicon or issued by another institution based upon
an application, guarantee, indemnity or similar agreement on the part of
Silicon, then on such date Borrower shall provide to Silicon cash collateral in
an amount equal to 105% of the face amount of all such Letters of Credit plus
all interest, fees and cost due or to become due in connection therewith (as
estimated by Silicon in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit, pursuant to Silicon’s then
standard form cash pledge agreement. Notwithstanding any termination of this
Agreement, all of Silicon’s security interests in all of the Collateral and all
of the terms and provisions of this Agreement shall continue in full force and
effect until all Obligations have been paid and performed in full; provided
that Silicon may, in its sole discretion, refuse to make any further Loans
after termination. No termination shall in any way affect or impair any right
or remedy of Silicon, nor shall any such termination relieve Borrower of any
Obligation to Silicon, until all of the Obligations have been paid and
performed in full. Upon payment and performance in full of all the Obligations
and termination of this Agreement, Silicon shall promptly terminate its
financing statements with respect to the Borrower and deliver to Borrower such
other documents as may be required to fully terminate Silicon’s security
interests.
7. EVENTS OF DEFAULT AND
REMEDIES.
7.1 Events
of Default.
The occurrence of any of the following
events shall constitute an “Event of Default” under this Agreement, and
Borrower shall give Silicon immediate written notice thereof: (a) Any warranty,
representation, statement, report or certificate made or delivered to Silicon
by Borrower or any of Borrower’s officers, employees or agents, now or in the
future, shall be untrue or misleading in a material respect when made or deemed
to be made; or (b) Borrower shall fail to pay when due any Loan or any interest
thereon or any other monetary Obligation; or (c) the total Loans and other
Obligations outstanding at any time shall exceed the Credit Limit; or (d)
Borrower shall fail to comply with any of the financial covenants set forth in
the Schedule, or shall fail to perform any other non-monetary Obligation which
by its nature cannot be cured, or shall fail to permit Silicon to conduct an
inspection or audit as specified in Section 5.4 hereof; or (e) Borrower shall
fail to perform any other non-monetary Obligation, which failure is not cured
within five Business Days after the date due; or (f) any levy, assessment,
attachment, seizure, lien or encumbrance (other than a Permitted Lien) is made
on all or any part of the Collateral which is not cured within 10 days after the
occurrence of the same; or (g) any default or event of default occurs under any
obligation secured by a Permitted Lien, which is not cured within any
applicable cure period or waived in writing by the holder of the Permitted
Lien; or (h) Borrower breaches any material contract or obligation, which has
resulted or may reasonably be expected to result in a Material Adverse Change;
or (i) Dissolution, termination of existence,
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insolvency or business failure of Borrower; or
appointment of a receiver, trustee or custodian, for all or any part of the
property of, assignment for the benefit of creditors by, or the commencement of
any proceeding by Borrower under any reorganization, bankruptcy, insolvency,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, now or in the future in effect; or (j) the commencement of
any proceeding against Borrower or any guarantor of any of the Obligations under
any reorganization, bankruptcy, insolvency, arrangement, readjustment of debt,
dissolution or liquidation law or statute of any jurisdiction, now or in the
future in effect, which is not cured by the dismissal thereof within 30 days
after the date commenced; or (k) revocation or termination of, or limitation or
denial of liability upon, any guaranty of the Obligations or any attempt to do
any of the foregoing, or commencement of proceedings by any guarantor of any of
the Obligations under any bankruptcy or insolvency law; or (1) revocation or
termination of, or limitation or denial of liability upon, any pledge of any
certificate of deposit, securities or other property or asset of any kind
pledged by any third party to secure any or all of the Obligations, or any
attempt to do any of the foregoing, or commencement of proceedings by or
against any such third party under any bankruptcy or insolvency law; or (m)
Borrower makes any payment on account of any indebtedness or obligation which
has been subordinated to the Obligations other than as permitted in the
applicable subordination agreement, or if any Person who has subordinated such
indebtedness or obligations terminates or in any way limits his subordination
agreement; or (n) there shall be a change in the record or beneficial ownership
of an aggregate of more than 20% of the outstanding shares of stock of
Borrower, in one or more transactions, compared to the ownership of outstanding
shares of stock of Borrower in effect on the date hereof, without the prior
written consent of Silicon; or (o) Borrower shall generally not pay its debts
as they become due, or Borrower shall conceal, remove or transfer any part of
its property, with intent to hinder, delay or defraud its creditors, or make or
suffer any transfer of any of its property which may be fraudulent under any
bankruptcy, fraudulent conveyance or similar law; or (p) a Material Adverse
Change shall occur. Silicon may cease making any Loans hereunder during any of
the above cure periods, and thereafter if an Event of Default has occurred and
is continuing.
7.2 Remedies.
Upon the occurrence and during the continuance of any Event of Default, and at
any time thereafter, Silicon, at its option, and without notice or demand of
any kind (all of which are hereby expressly waived by Borrower), may do any one
or more of the following: (a) Cease making Loans or otherwise extending credit
to Borrower under this Agreement or any other Loan Document; (b) Accelerate and
declare all or any part of the Obligations to be immediately due, payable, and
performable, notwithstanding any deferred or installment payments allowed by
any instrument evidencing or relating to any Obligation; (c) Take possession of
any or all of the Collateral wherever it may be found, and for that purpose
Borrower hereby authorizes Silicon without judicial process to enter onto any
of Borrower’s premises without interference to search for, take possession of,
keep, store, or remove any of the Collateral, and remain on the premises or
cause a custodian to remain on the premises in exclusive control thereof,
without charge for so long as Silicon deems it necessary, in its good faith
business judgment, in order to complete the enforcement of its rights under
this Agreement or any other agreement; provided, however, that should Silicon
seek to take possession of any of the Collateral by court process, Borrower
hereby irrevocably waives: (i) any bond and any surety or security relating
thereto required by any statute, court rule or otherwise as an incident to such
possession; (ii) any demand for possession prior to the commencement of any
suit or action to recover possession thereof; and (iii) any requirement that
Silicon retain possession of, and not dispose of, any such Collateral until
after trial or final judgment; (d) Require Borrower to assemble any or all of
the Collateral and make it available to Silicon at places designated by Silicon
which are reasonably convenient to Silicon and Borrower, and to remove the
Collateral to such locations as Silicon may deem advisable; (e) Complete the
processing, manufacturing or repair of any Collateral prior to a disposition
thereof and, for such purpose and for the purpose of removal, Silicon shall
have the right to use Borrower’s premises, vehicles, hoists, lifts, cranes, and
other Equipment and all other property without charge; (f) Sell, lease or
otherwise dispose of any of the Collateral, in its condition at the time
Silicon obtains possession of it or after further manufacturing, processing or
repair, at one or more public and/or private sales, in lots or in bulk, for
cash, exchange or other property, or on credit, and to adjourn any such sale
from time to time without notice other than oral announcement at the time
scheduled for sale. Silicon shall have the right to conduct such disposition on
Borrower’s premises without charge, for such time or times as Silicon deems
reasonable, or on Silicon’s premises, or elsewhere and the Collateral need not
be located at the place of disposition. Silicon may directly or through any
affiliated company purchase or lease any Collateral at any such public
disposition, and if permissible under applicable law, at any private
disposition. Any sale or other disposition of Collateral shall not relieve
Borrower of any liability Borrower may have if any Collateral is defective as
to title or physical condition or otherwise at the time of sale; (g) Demand
payment of, and collect any Accounts and General Intangibles comprising
Collateral and, in connection therewith, Borrower irrevocably authorizes
Silicon to endorse or sign Borrower’s name on all collections, receipts,
instruments and other documents, to take possession of and open mail addressed
to Borrower and remove therefrom payments made with respect to any item of the
Collateral or proceeds thereof, and, in Silicon’s good faith business judgment,
to grant extensions of time to pay, compromise claims and settle Accounts and
the like for less than face value; (h) Offset against any sums in any of
Borrower’s general, special or other Deposit Accounts with Silicon against any
or all of the Obligations; and (i) Demand and receive possession of any of
Borrower’s federal and state income tax returns and the books and records
utilized in the preparation thereof or referring thereto. All reasonable
attorneys’ fees, expenses, costs, liabilities and obligations incurred by
Silicon with respect to the foregoing shall be added to and become part of the
Obligations, shall be due on demand, and shall bear interest at a rate equal to
the highest interest rate applicable to any of the Obligations. Without
limiting any of Silicon’s rights and
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remedies, from and after the occurrence and during the
continuance of any Event of Default, the interest rate applicable to the
Obligations shall be increased by an additional four percent per annum (the
“Default Rate”).
7.3 Standards
for Determining Commercial Reasonableness.
Borrower and Silicon agree that a sale or other disposition (collectively,
“sale”) of any Collateral which complies with the following standards will
conclusively be deemed to be commercially reasonable: (i) Notice of the sale is
given to Borrower at least ten days prior to the sale, and, in the case of a
public sale, notice of the sale is published at least five days before the sale
in a newspaper of general circulation in the county where the sale is to be
conducted; (ii) Notice of the sale describes the collateral in general,
non-specific terms; (iii) The sale is conducted at a place designated by
Silicon, with or without the Collateral being present; (iv) The sale commences
at any time between 8:00 a.m. and 6:00 pm; (v) Payment of the purchase price in
cash or by cashier’s check or wire transfer is required; (vi) With respect to
any sale of any of the Collateral, Silicon may (but is not obligated to) direct
any prospective purchaser to ascertain directly from Borrower any and all
information concerning the same. Silicon shall be free to employ other methods
of noticing and selling the Collateral, in its discretion, if they are
commercially reasonable.
7.4 Power
of Attorney.
Upon the occurrence and during the
continuance of any Event of Default, without limiting Silicon’s other rights
and remedies, Borrower grants to Silicon an irrevocable power of attorney
coupled with an interest, authorizing and permitting Silicon (acting through
any of its employees, attorneys or agents) at any time, at its option, but
without obligation, with or without notice to Borrower, and at Borrower’s
expense, to do any or all of the following, in Borrower’s name or otherwise,
but Silicon agrees that if it exercises any right hereunder, it will do so in
good faith and in a commercially reasonable manner: (a) Execute on behalf of
Borrower any documents that Silicon may, in its good faith business judgment,
deem advisable in order to perfect and maintain Silicon’s security interest in
the Collateral, or in order to exercise a right of Borrower or Silicon, or in
order to fully consummate all the transactions contemplated under this
Agreement, and all other Loan Documents; (b) Execute on behalf of Borrower, any
invoices relating to any Account, any draft against any Account Debtor and any
notice to any Account Debtor, any proof of claim in bankruptcy, any Notice of
Lien, claim of mechanic’s, materialman’s or other lien, or assignment or
satisfaction of mechanic’s, materialman’s or other lien; (c) Take control in
any manner of any cash or non-cash items of payment or proceeds of Collateral;
endorse the name of Borrower upon any instruments, or documents, evidence of
payment or Collateral that may come into Silicon’s possession; (d) Endorse all
checks and other forms of remittances received by Silicon; (e) Pay, contest or
settle any lien, charge, encumbrance, security interest and adverse claim in or
to any of the Collateral, or any judgment based thereon, or otherwise take any
action to terminate or discharge the same; (f) Grant extensions of time to pay,
compromise claims and settle Accounts and General Intangibles for less than
face value and execute all releases and other documents in connection
therewith; (g) Pay any sums required on account of Borrower’s taxes or to
secure the release of any liens therefor, or both; (h) Settle and adjust, and
give releases of, any insurance claim that relates to any of the Collateral and
obtain payment therefor; (i) Instruct any third party having custody or control
of any books or records belonging to, or relating to, Borrower to give Silicon
the same rights of access and other rights with respect thereto as Silicon has
under this Agreement; and (j) Take any action or pay any sum required of
Borrower pursuant to this Agreement and any other Loan Documents. Any and all
reasonable sums paid and any and all reasonable costs, expenses, liabilities,
obligations and attorneys’ fees incurred by Silicon with respect to the
foregoing shall be added to and become part of the Obligations, shall be
payable on demand, and shall bear interest at a rate equal to the highest
interest rate applicable to any of the Obligations. In no event shall Silicon’s
rights under the foregoing power of attorney or any of Silicon’s other rights
under this Agreement be deemed to indicate that Silicon is in control of the
business, management or properties of Borrower.
7
.5 Application
of Proceeds.
All proceeds realized as the result
of any sale of the Collateral shall be applied by Silicon first to the
reasonable costs, expenses, liabilities, obligations and attorneys’ fees
incurred by Silicon in the exercise of its rights under this Agreement, second
to the interest due upon any of the Obligations, and third to the principal of
the Obligations, in such order as Silicon shall determine in its sole
discretion. Any surplus shall be paid to Borrower or other persons legally
entitled thereto; Borrower shall remain liable to Silicon for any deficiency.
If, Silicon, in its good faith business judgment, directly or indirectly enters
into a deferred payment or other credit transaction with any purchaser at any
sale of Collateral, Silicon shall have the option, exercisable at any time, in
its good faith business judgment, of either reducing the Obligations by the
principal amount of purchase price or deferring the reduction of the
Obligations until the actual receipt by Silicon of the cash therefor.
7.6 Remedies
Cumulative.
In addition to the rights and remedies
set forth in this Agreement, Silicon shall have all the other rights and
remedies accorded a secured party under the California Uniform Commercial Code
and under all other applicable laws, and under any other instrument or
agreement now or in the future entered into between Silicon and Borrower, and
all of such rights and remedies are cumulative and none is exclusive. Exercise
or partial exercise by Silicon of one or more of its rights or remedies shall
not be deemed an election, nor bar Silicon from subsequent exercise or partial
exercise of any other rights or remedies. The failure or delay of Silicon to
exercise any rights or remedies shall not operate as a waiver thereof, but all
rights and remedies shall continue in full force and effect until all of the
Obligations have been fully paid and performed.
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8. DEFINITIONS.
As used in
this Agreement, the following terms have the following meanings:
“
Account
Debtor
” means the obligor on an Account.
“
Accounts
”
means all present and future “accounts” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all accounts
receivable and other sums owing to Borrower.
“
Affiliate
”
means, with respect to any Person, a relative, partner, shareholder, director,
officer, or employee of such Person, or any parent or subsidiary of such
Person, or any Person controlling, controlled by or under common control with
such Person.
“
Business
Day
” means a day on which Silicon is open for business.
“
Code
”
means the Uniform Commercial Code as adopted and in effect in the State of
California from time to time.
“
Collateral
”
has the meaning set forth in Section 2 above.
“
continuing
”
and “
during the continuance of
” when used with reference to a Default or
Event of Default means that the Default or Event of Default has occurred and
has not been either waived in writing by Silicon or cured within any applicable
cure period.
“
Default
”
means any event which with notice or passage of time or both, would constitute
an Event of Default.
“
Default
Rate
” has the meaning set forth in Section 7.2 above.
“
Deposit
Accounts
” means all present and future “deposit accounts” as defined in the
California Uniform Commercial Code in effect on the date hereof with such
additions to such term as may hereafter be made, and includes without
limitation all general and special bank accounts, demand accounts, checking
accounts, savings accounts and certificates of deposit.
“
Eligible
Inventory
” [Not Applicable]
“
Eligible
Accounts
” means Accounts and General Intangibles arising in the ordinary
course of Borrower’s business from the sale of goods or the rendition of
services, or the non-exclusive licensing of Intellectual Property, which
Silicon, in its good faith business judgment, shall deem eligible for borrowing
and which constitutes “Eligible Export-Related Accounts Receivable” (as defined
in the Exim Borrower Agreement referred to in the Schedule). Without limiting
the fact that the determination of which Accounts are eligible for borrowing is
a matter of Silicon’s good faith business judgment, the following (the “
Minimum
Eligibility Requirements
”) are the minimum requirements for a Account to be
an Eligible Account: (i) the Account must not be on terms of more than net
90 days from its invoice date and must not be outstanding for more than 60 days
past its due date as set forth in the applicable invoice (the “
Eligibility
Period
”), (ii) the Account must not represent progress billings, or be due
under a fulfillment or requirements contract with the Account Debtor, (iii) the
Account must not be subject to any contingencies (including Accounts arising
from sales on consignment, guaranteed sale or other terms pursuant to which
payment by the Account Debtor may be conditional), (iv) the Account must not be
owing from an Account Debtor with whom Borrower has any dispute (whether or not
relating to the particular Account), (v) the Account must not be owing from an
Affiliate of Borrower, (vi) the Account must not be owing from an Account
Debtor which is subject to any insolvency or bankruptcy proceeding, or whose
financial condition is not acceptable to Silicon, or which, fails or goes out
of a material portion of its business, (vii) the Account must not be owing from
the United States or any department, agency or instrumentality thereof (unless
there has been compliance, to Silicon’s satisfaction, with the United States
Assignment of Claims Act), (viii) [intentionally omitted], (ix) the
Account must not be owing from an Account Debtor to whom Borrower is or may be
liable for goods purchased from such Account Debtor or otherwise (but, in such
case, the Account will be deemed not eligible only to the extent of any amounts
owed by Borrower to such Account Debtor). Accounts owing from one Account
Debtor will not be deemed Eligible Accounts to the extent they exceed 25% of
the total Accounts outstanding. In addition, if more than 50% of the Accounts
owing from an Account Debtor are outstanding for a period longer than their
Eligibility Period (without regard to unapplied credits) or are otherwise not
eligible Accounts, then all Accounts owing from that Account Debtor will be
deemed ineligible for borrowing. Silicon may, from time to time, in its good
faith business judgment, revise the Minimum Eligibility Requirements, upon
written notice to Borrower.
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“
Equipment
”
means all present and future “equipment” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all machinery,
fixtures, goods, vehicles (including motor vehicles and trailers), and any
interest in any of the foregoing.
“
Event
of Default
” means any of the events set forth in Section 7.1 of this
Agreement.
“
GAAP
”
means generally accepted accounting principles consistently applied.
“
General
Intangibles
” means all present and future “general intangibles” as defined
in the California Uniform Commercial Code in effect on the date hereof with
such additions to such term as may hereafter be made, and includes without
limitation all Intellectual Property, payment intangibles, royalties, contract
rights, goodwill, franchise agreements, purchase orders, customer lists, route
lists, telephone numbers, domain names, claims, income tax refunds, security
and other deposits, options to purchase or sell real or personal property,
rights in all litigation presently or hereafter pending (whether in contract,
tort or otherwise), insurance policies (including without limitation key man,
property damage, and business interruption insurance), payments of insurance
and rights to payment of any kind.
“
good
faith business judgment
” means honesty in fact and good faith (as defined
in Section 1201 of the Code) in the exercise of Silicon’s business judgment.
“
including
”
means including (but not limited to).
“
Intellectual
Property
” means all present and future (a) copyrights, copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work thereof, whether published or
unpublished, (b) trade secret rights, including all rights to unpatented
inventions and know-how, and confidential information; (c) mask work or similar
rights available for the protection of semiconductor chips; (d) patents, patent
applications and like protections including without limitation improvements,
divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same; (e) trademarks, servicemarks, trade styles,
and trade names, whether or not any of the foregoing are registered, and all
applications to register and registrations of the same and like protections,
and the entire goodwill of the business of Borrower connected with and
symbolized by any such trademarks; (f) computer software and computer software
products; (g) designs and design rights; (h) technology; (i) all claims for
damages by way of past, present and future infringement of any of the rights
included above; (j) all licenses or other rights to use any property or rights
of a type described above.
“
Inventory
”
means all present and future “inventory” as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and includes without limitation all merchandise, raw
materials, parts, supplies, packing and shipping materials, work in process and
finished products, including without limitation such inventory as is
temporarily out of Borrower’s custody or possession or in transit and including
any returned goods and any documents of title representing any of the above.
“
Investment
Property
” means all present and future investment property, securities,
stocks, bonds, debentures, debt securities, partnership interests, limited
liability company interests, options, security entitlements, securities
accounts, commodity contracts, commodity accounts, and all financial assets
held in any securities account or otherwise, and all options and warrants to
purchase any of the foregoing, wherever located, and all other securities of
every kind, whether certificated or uncertificated.
“
Loan
Documents
” means, collectively, this Agreement, the Representations, and
all other present and future documents, instruments and agreements between
Silicon and Borrower, including, but not limited to those relating to this
Agreement, and all amendments and modifications thereto and replacements
therefor.
“
Material
Adverse Change
” means any of the following: (i) a material adverse change
in the business, operations, or financial or other condition of the Borrower,
or (ii) a material impairment of the prospect of repayment of any portion of
the Obligations; or (iii) a material impairment of the value or priority of
Silicon’s security interests in the Collateral.
“
Obligations
”
means all present and future Loans, advances, debts, liabilities, obligations,
guaranties, covenants, duties and indebtedness at any time owing by Borrower to
Silicon, whether evidenced by this Agreement or any note or other instrument or
document, or otherwise, whether arising from an extension of credit, opening of
a letter of credit, banker’s acceptance, loan, guaranty, indemnification or
otherwise, whether direct or indirect (including, without limitation, those
acquired by assignment and any
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participation by Silicon in Borrower’s debts owing to
others), absolute or contingent, due or to become due, including, without
limitation, all interest, charges, expenses, fees, attorney’s fees, expert
witness fees, audit fees, letter of credit fees, collateral monitoring fees,
closing fees, facility fees, termination fees, minimum interest charges and any
other sums chargeable to Borrower under this Agreement or under any other Loan
Documents.
“
Other
Property
” means the following as defined in the California Uniform
Commercial Code in effect on the date hereof with such additions to such term
as may hereafter be made, and all rights relating thereto: all present and
future “commercial tort claims” (including without limitation any commercial
tort claims identified in the Representations), “documents”, “instruments”,
“promissory notes”, “chattel paper”, “letters of credit”, “letter-of-credit
rights”, “fixtures”, “farm products” and “money”; and all other goods and
personal property of every kind, tangible and intangible, whether or not
governed by the California Uniform Commercial Code.
“
Payment
”
means all checks, wire transfers and other items of payment received by Silicon
(including proceeds of Accounts and payment of the Obligations in full) for
credit to Borrower’s outstanding Loans or, if the balance of the Loans have
been reduced to zero, for credit to its Deposit Accounts.
“
Permitted
Liens
” means the following: (i) purchase money security interests in
specific items of Equipment; (ii) leases of specific items of Equipment; (iii)
liens for taxes not yet payable; (iv) additional security interests and liens
consented to in writing by Silicon, which consent may be withheld in its good
faith business judgment; (v) security interests being terminated substantially
concurrently with this Agreement; (vi) liens of materialmen, mechanics,
warehousemen, carriers, or other similar liens arising in the ordinary course
of business and securing obligations which are not delinquent; (vii) liens
incurred in connection with the extension, renewal or refinancing of the
indebtedness secured by liens of the type described above in clauses (i) or
(ii) above, provided that any extension, renewal or replacement lien is limited
to the property encumbered by the existing lien and the principal amount of the
indebtedness being extended, renewed or refinanced does not increase; (viii)
Liens in favor of customs and revenue authorities which secure payment of
customs duties in connection with the importation of goods. Silicon will have
the right to require, as a condition to its consent under subparagraph (iv)
above, that the holder of the additional security interest or lien sign an
intercreditor agreement on Silicon’s then standard form, acknowledge that the
security interest is subordinate to the security interest in favor of Silicon,
and agree not to take any action to enforce its subordinate security interest
so long as any Obligations remain outstanding, and that Borrower agree that any
uncured default in any obligation secured by the subordinate security interest
shall also constitute an Event of Default under this Agreement.
“
Person
”
means any individual, sole proprietorship, partnership, joint venture, trust,
unincorporated organization, association, corporation, government, or any
agency or political division thereof, or any other entity..
“
Representations
”
means the written Representations and Warranties provided by Borrower to
Silicon referred to in the Schedule.
“
Reserves
”
means, as of any date of determination, such amounts as Silicon may from time
to time establish and revise in its good faith business judgment, reducing the
amount of Loans, Letters of Credit and other financial accommodations which
would otherwise be available to Borrower under the lending formula(s) provided
in the Schedule: (a) to reflect events, conditions, contingencies or risks
which, as determined by Silicon in its good faith business judgment, do or may
adversely affect (i) the Collateral or any other property which is security for
the Obligations or its value (including without limitation any increase in
delinquencies of Accounts), (ii) the assets, business or prospects of Borrower
or any Guarantor, or (iii) the security interests and other rights of Silicon
in the Collateral (including the enforceability, perfection and priority
thereof); or (b) to reflect Silicon’s good faith belief that any collateral
report or financial information furnished by or on behalf of Borrower or any
Guarantor to Silicon is or may have been incomplete, inaccurate or misleading
in any material respect; or (c) in respect of any state of facts which Silicon
determines in good faith constitutes an Event of Default or may, with notice or
passage of time or both, constitute an Event of Default.
Other
Terms
. All accounting terms used in this Agreement, unless otherwise
indicated, shall have the meanings given to such terms in accordance with GAAP,
consistently applied. All other terms contained in this Agreement, unless
otherwise indicated, shall have the meanings provided by the Code, to the
extent such terms are defined therein.
9. GENERAL PROVISIONS.
9.1 Interest
Computation; Float Charge.
In computing interest
on the Obligations, all Payments received after 12:00 Noon on any day shall be
deemed received on the next Business Day. In addition, Silicon shall be
entitled to charge Borrower a “float” charge in an amount equal to three Business
Days interest, at the interest rate applicable to the Loans, on all Payments
received by Silicon. Said
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float charge is not included in interest for purposes
of computing Minimum Monthly Interest (if any) under this Agreement. The float
charge for each month shall be payable on the last day of the month.
9.2 Application
of Payments.
All payments with respect to the
Obligations may be applied, and in Silicon’s good faith business judgment
reversed and re-applied, to the Obligations, in such order and manner as
Silicon shall determine in its good faith business judgment.
9.3 Charges
to Accounts.
Silicon may, in its discretion,
require that Borrower pay monetary Obligations in cash to Silicon, or charge
them to Borrower’s Loan account, in which event they will bear interest at the
same rate applicable to the Loans. Silicon may also, in its discretion, charge
any monetary Obligations to Borrower’s Deposit Accounts maintained with
Silicon.
9.4 Monthly
Accountings.
Silicon shall provide Borrower
monthly with an account of advances, charges, expenses and payments made
pursuant to this Agreement. Such account shall be deemed correct, accurate and
binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by
Silicon), unless Borrower notifies Silicon in writing to the contrary within 60
days after such account is rendered, describing the nature of any alleged
errors or omissions.
9.5 Notices.
All notices to be given under this Agreement shall be in writing and shall be
given either personally or by reputable private delivery service or by regular
first-class mail, or certified mail return receipt requested, addressed to
Silicon or Borrower at the addresses shown in the heading to this Agreement, or
at any other address designated in writing by one party to the other party.
Notices to Silicon shall be directed to the Commercial Finance Division, to the
attention of the Division Manager or the Division Credit Manager. All notices
shall be deemed to have been given upon delivery in the case of notices
personally delivered, or at the expiration of one Business Day following
delivery to the private delivery service, or two Business Days following the
deposit thereof in the United States mail, with postage prepaid.
9.6 Severability.
Should any provision of this Agreement be held by any court of competent
jurisdiction to be void or unenforceable, such defect shall not affect the
remainder of this Agreement, which shall continue in full force and effect.
9.7 Integration.
This Agreement and such other written agreements, documents and instruments as
may be executed in connection herewith are the final, entire and complete
agreement between Borrower and Silicon and supersede all prior and
contemporaneous negotiations and oral representations and agreements, all of
which are merged and integrated in this Agreement.
There are no oral
understandings, representations or agreements between the parties which are not
set forth in this Agreement or in other written agreements signed by the
parties in connection herewith.
9.8 Waivers;
Indemnity.
The failure of Silicon at any time or
times to require Borrower to strictly comply with any of the provisions of this
Agreement or any other Loan Document shall not waive or diminish any right of
Silicon later to demand and receive strict compliance therewith. Any waiver of
any default shall not waive or affect any other default, whether prior or
subsequent, and whether or not similar. None of the provisions of this
Agreement or any other Loan Document shall be deemed to have been waived by any
act or knowledge of Silicon or its agents or employees, but only by a specific written
waiver signed by an authorized officer of Silicon and delivered to Borrower.
Borrower waives the benefit of all statutes of limitations relating to any of
the Obligations or this Agreement or any other Loan Document, and Borrower
waives demand, protest, notice of protest and notice of default or dishonor,
notice of payment and nonpayment, release, compromise, settlement, extension or
renewal of any commercial paper, instrument, account, General Intangible,
document or guaranty at any time held by Silicon on which Borrower is or may in
any way be liable, and notice of any action taken by Silicon, unless expressly
required by this Agreement. Borrower hereby agrees to indemnify Silicon and its
affiliates, subsidiaries, parent, directors, officers, employees, agents, and
attorneys, and to hold them harmless from and against any and all claims,
debts, liabilities, demands, obligations, actions, causes of action, penalties,
costs and expenses (including reasonable attorneys’ fees), of every kind, which
they may sustain or incur based upon or arising out of any of the Obligations,
or any relationship or agreement between Silicon and Borrower, or any other
matter, relating to Borrower or the Obligations; provided that this indemnity
shall not extend to damages proximately caused by the indemnitee’s own gross
negligence or willful misconduct. Notwithstanding any provision in this
Agreement to the contrary, the indemnity agreement set forth in this Section
shall survive any termination of this Agreement and shall for all purposes
continue in full force and effect.
9.9 No
Liability for Ordinary Negligence.
Neither
Silicon, nor any of its directors, officers, employees, agents, attorneys or
any other Person affiliated with or representing Silicon shall be liable for
any claims, demands, losses or damages, of any kind whatsoever, made, claimed,
incurred or suffered by Borrower or any other party through the ordinary
negligence of Silicon, or any of its directors,
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officers, employees, agents, attorneys or any other
Person affiliated with or representing Silicon, but nothing herein shall
relieve Silicon from liability for its own gross negligence or willful
misconduct.
9.10 Amendment.
The terms and provisions of this Agreement may not be waived or amended, except
in a writing executed by Borrower and a duly authorized officer of Silicon.
9.11 Time
of Essence.
Time is of the essence in the
performance by Borrower of each and every obligation under this Agreement.
9.12 Attorneys
Fees and Costs.
Borrower shall reimburse Silicon
for all reasonable attorneys’ fees and all filing, recording, search, title
insurance, appraisal, audit, and other reasonable costs incurred by Silicon,
pursuant to, or in connection with, or relating to this Agreement (whether or
not a lawsuit is filed), including, but not limited to, any reasonable
attorneys’ fees and costs Silicon incurs in order to do the following: prepare
and negotiate this Agreement and all present and future documents relating to
this Agreement; obtain legal advice in connection with this Agreement or
Borrower; enforce, or seek to enforce, any of its rights; prosecute actions
against, or defend actions by, Account Debtors; commence, intervene in, or
defend any action or proceeding; initiate any complaint to be relieved of the
automatic stay in bankruptcy; file or prosecute any probate claim, bankruptcy
claim, third-party claim, or other claim; examine, audit, copy, and inspect any
of the Collateral or any of Borrower’s books and records; protect, obtain
possession of, lease, dispose of, or otherwise enforce Silicon’s security
interest in, the Collateral; and otherwise represent Silicon in any litigation
relating to Borrower. In satisfying Borrower’s obligation hereunder to
reimburse Silicon for attorneys fees, Borrower may, for convenience, issue
checks directly to Silicon’s attorneys, Levy, Small & Lallas, but Borrower
acknowledges and agrees that Levy, Small & Lallas is representing only Silicon
and not Borrower in connection with this Agreement. If either Silicon or
Borrower files any lawsuit against the other predicated on a breach of this
Agreement, the prevailing party in such action shall be entitled to recover its
reasonable costs and attorneys’ fees, including (but not limited to) reasonable
attorneys’ fees and costs incurred in the enforcement of, execution upon or
defense of any order, decree, award or judgment. All attorneys’ fees and costs
to which Silicon may be entitled pursuant to this Paragraph shall immediately
become part of Borrower’s Obligations, shall be due on demand, and shall bear
interest at a rate equal to the highest interest rate applicable to any of the
Obligations.
9.13 Benefit
of Agreement.
The provisions of this Agreement
shall be binding upon and inure to the benefit of the respective successors,
assigns, heirs, beneficiaries and representatives of Borrower and Silicon;
provided, however, that Borrower may not assign or transfer any of its rights
under this Agreement without the prior written consent of Silicon, and any
prohibited assignment shall be void. No consent by Silicon to any assignment
shall release Borrower from its liability for the Obligations.
9.14 Joint
and Several Liability.
If Borrower consists of
more than one Person, their liability shall be joint and several, and the
compromise of any claim with, or the release of, any Borrower shall not
constitute a compromise with, or a release of, any other Borrower.
9.15 Limitation
of Actions.
Any claim or cause of action by
Borrower against Silicon, its directors, officers, employees, agents,
accountants or attorneys, based upon, arising from, or relating to this Loan
Agreement, or any other Loan Document, or any other transaction contemplated
hereby or thereby or relating hereto or thereto, or any other matter, cause or
thing whatsoever, occurred, done, omitted or suffered to be done by Silicon,
its directors, officers, employees, agents, accountants or attorneys, shall be
barred unless asserted by Borrower by the commencement of an action or
proceeding in a court of competent jurisdiction by the filing of a complaint
within one year after the first act, occurrence or omission upon which such
claim or cause of action, or any part thereof, is based, and the service of a
summons and complaint on an officer of Silicon, or on any other person
authorized to accept service on behalf of Silicon, within thirty (30) days
thereafter. Borrower agrees that such one-year period is a reasonable and
sufficient time for Borrower to investigate and act upon any such claim or
cause of action. The one-year period provided herein shall not be waived,
tolled, or extended except by the written consent of Silicon in its sole
discretion. This provision shall survive any termination of this Loan Agreement
or any other Loan Document.
9.16 Paragraph
Headings; Construction.
Paragraph headings are
only used in this Agreement for convenience. Borrower and Silicon acknowledge
that the headings may not describe completely the subject matter of the
applicable paragraph, and the headings shall not be used in any manner to
construe, limit, define or interpret any term or provision of this Agreement.
This Agreement has been fully reviewed and negotiated between the parties and
no uncertainty or ambiguity in any term or provision of this Agreement shall be
construed strictly against Silicon or Borrower under any rule of construction
or otherwise.
9.17 Governing
Law; Jurisdiction; Venue.
This Agreement and all
acts and transactions hereunder and all rights and obligations of Silicon and
Borrower shall be governed by the laws of the State of California. As a
material part of the consideration to Silicon to enter into this Agreement,
Borrower (i) agrees that all actions and proceedings relating directly or
indirectly to this Agreement shall, at
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Silicon’s option, be litigated in courts located
within California, and that the exclusive venue therefor shall be Santa Clara
County; (ii) consents to the jurisdiction and venue of any such court and
consents to service of process in any such action or proceeding by personal
delivery or any other method permitted by law; and (iii) waives any and all
rights Borrower may have to object to the jurisdiction of any such court, or to
transfer or change the venue of any such action or proceeding.
9.18 Mutual
Waiver of Jury Trial.
BORROWER AND SILICON EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO,
THIS AGREEMENT OR ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
SILICON AND BORROWER, OR ANY CONDUCT, ACTS OR OMISSIONS OF SILICON OR BORROWER
OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH SILICON OR BORROWER, IN ALL OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
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Borrower:
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Silicon:
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MAXWELL TECHNOLOGIES, INC.
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SILICON VALLEY BANK
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By
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By
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President or Vice President
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Title
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By
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Secretary or Ass’t Secretary
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Silicon Valley Bank
Schedule to
Loan and Security Agreement
(Exim Program)
Borrower: Maxwell Technologies,
Inc.
Address: 9244
Balboa Avenue
San
Diego, CA 92123
Date: February
4, 2004
This Schedule
forms an integral part of the Loan and Security Agreement (Exim Program)
between Silicon Valley Bank and the above-borrower of even date.
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1.
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CREDIT LIMIT
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(Section 1.1):
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An amount not to exceed the lesser of (i)
$1,500,000
at any one time outstanding (the “Maximum
Credit Limit”), or (ii)
90%
(the “Advance Rate”) of the
amount of Borrower’s Eligible Accounts (as defined in Section 8 above); provided that the total outstanding Obligations
under this Loan Agreement and under the Non-Exim Agreement (as defined below)
shall not at any time exceed
$3,000,000
(the “Overall Credit Limit”).
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Silicon may, from time to time, modify the
Advance Rate, in its good faith business judgment, upon notice to the
Borrower, based on changes in collection experience with respect to Accounts
or other issues or factors relating to the Accounts or other Collateral.
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2.
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INTEREST.
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Interest Rate
(Section 1.2):
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A rate equal to the “Prime Rate” in effect
from time to time, plus
1.75%
per annum, provided that the
interest rate in effect on any day shall not be less than
5.75%
per annum. Interest shall be calculated on the basis of a 360-day year
for the actual number of days elapsed.
As used in this Agreement, “Prime Rate” means the interest rate
announced from time to time by Silicon as its “prime rate” (which is a base rate upon which other rates charged by
Silicon are based, and it is
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-1-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement (Exim)
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not necessarily the best rate available at
Silicon. The interest rate applicable
to the Obligations shall change on each date there is a change in the Primate
Rate.
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Minimum Monthly
Interest
(Section 1.2):
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$2,500 per month in the aggregate as
between this Agreement and the Non-Exim Agreement.
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3.
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FEES
(Section 1.4):
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Loan Fee:
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$22,500, payable concurrently herewith.
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Collateral Monitoring Fee:
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$1,000, per month in the aggregate as
between this Agreement and the Non-Exim Agreement, payable in arrears
(prorated for any partial month at the beginning and at termination of this
Agreement).
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Unused Line Fee:
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In the event, in any calendar
month (or portion thereof at the beginning and end of the term hereof), the
average daily principal balance of the Loans outstanding during the month is
less than the amount of the Maximum Credit Limit, Borrower shall pay Silicon
an unused line fee in an amount equal to 0.25% per annum on the difference
between the amount of the Maximum Credit Limit and the average daily
principal balance of the Loans outstanding during the month, computed on the
basis of a 360-day year, which unused line fee shall be computed and paid
monthly, in arrears, on the first day of the following month.
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4.
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MATURITY DATE
(Section 6.1):
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One year from the date of this Agreement.
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5.
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FINANCIAL COVENANTS
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(Section 5.1):
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Borrower shall comply with
each of the financial covenants set forth in the Non-Exim Agreement (defined
below).
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6.
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REPORTING.
(Section 5.3):
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Borrower shall provide Silicon with the
following:
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1.
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Transaction reports and schedules of
collections, each week and at the time of each Loan request, on Silicon’s
standard form.
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2.
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Monthly accounts receivable agings
(separate from the agings required by the Non-Exim Agreement), aged by
invoice date, within fifteen days after the end of each month.
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-2-
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Schedule to Loan and Security Agreement (Exim)
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3.
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Monthly accounts payable agings (separate
from the agings required by the Non-Exim Agreement), aged by invoice date,
and outstanding or held check registers, if any, within fifteen days after
the end of each month.
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4.
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Monthly reconciliations of accounts
receivable agings (aged by invoice date),
transaction reports, and general ledger, within fifteen days after the end of
each month.
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5.
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Monthly unaudited financial statements of
Maxwell Technologies, Inc. (on a consolidated and consolidating basis), as
soon as available, and in any event within thirty days after the end of each
month.
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6.
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Monthly Compliance Certificates, within
thirty days after the end of each month, in such form as Silicon shall
reasonably specify, signed by the Chief Financial Officer of Borrower,
certifying that as of the end of such month Borrower was in full compliance
with all of the terms and conditions of this Agreement, and setting forth
calculations showing compliance with the financial covenants set forth in this Agreement and such other
information as Silicon shall reasonably request, including, without
limitation, a statement that at the end of such month there were no held
checks.
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7.
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Copies of all reports on Form 10-Q filed by
Maxwell Technologies, Inc. with the Securities and Exchange Commission within
5 days after such filing.
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8.
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Annual operating budgets (including income
statements, balance sheets and cash flow
statements, by month) for the upcoming fiscal year of Borrower within
thirty days prior to the end of each fiscal year of Borrower.
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9.
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Annual financial statements of Maxwell
Technologies, Inc. (on a consolidated and consolidating basis), as soon as
available, and in any event within 90 days following the end of Maxwell
Technologies, Inc.’s fiscal year, certified by, and with an unqualified
opinion of, independent certified public accountants acceptable to Silicon
together with copies of all reports on Form 10-K filed by Maxwell
Technologies, Inc. with the Securities and Exchange Commission.
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-3-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement (Exim)
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7.
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BORROWER INFORMATION:
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Borrower represents and warrants that the
information set forth in the Representations and Warranties of the Borrower
dated December 4, 2003, previously submitted to Silicon (the
“Representations”) is true and correct as of the date hereof.
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8.
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ADDITIONAL PROVISIONS
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(1)
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Banking Relationship.
Borrower shall at all
times maintain its primary banking relationship with Silicon. Without
limiting the generality of the foregoing, within sixty days of the date
hereof and at all times thereafter, Borrower shall maintain not less than 85%
of Maxwell Technologies, Inc.’s total cash and investments on deposit with
Silicon. As to any Deposit Accounts and investment accounts maintained with
another institution, if at any time Borrower fails to comply with the terms
of the preceding sentence, Borrower shall cause such institution, within 10
days after the date of such non-compliance, to enter into a control agreement
in form acceptable to Silicon in its good faith business judgment in order to
perfect Silicon’s first-priority security interest in said Deposit Accounts
and investment accounts.
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(2)
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Subordination of Inside Debt.
All present
and future indebtedness of Borrower to its officers, directors and
shareholders (“Inside Debt”) shall, at all times, be subordinated to the
Obligations pursuant to a subordination agreement on Silicon’s standard
form. Borrower represents and
warrants that there is no Inside Debt presently outstanding, except for the
following: NONE. Prior to incurring
any Inside Debt in the future, Borrower shall cause the person to whom
such Inside Debt will be owed to execute and deliver to Silicon a
subordination agreement on Silicon’s standard form.
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(3)
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Additional Condition Precedent.
In addition to any other conditions
precedent to funding set forth in this Agreement, prior to the funding of any
Loans, Silicon shall have received information satisfactory to Silicon from
Maxwell Europe’s (fka Maxwell Technologies, SA) lender, Cantonal Bank of
Freiburg (“Cantonal Bank”), regarding its relationship with Maxwell
Technologies, Inc. and Maxwell Europe.
Borrower shall use its best efforts to cause Cantonal Bank to enter
into an intercreditor agreement with Silicon, on Silicon’s standard form with
such changes thereto as are acceptable to Silicon, regarding Cantonal
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-4-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement (Exim)
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Bank’s and Silicon’s relationships with
Maxwell Technologies, Inc. and Maxwell Europe.
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(4)
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Restrictions on Transfers to Affiliates.
Except for the Borrowers, Borrower covenants and agrees that while this
Agreement is in effect, Borrower shall not transfer any assets or Collateral
(beyond its historical normal course of business) to any Affiliate without
the prior written consent of Silicon.
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(5)
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Initial Audit.
An initial audit, referred to
in Section 5.4 of this Agreement, shall be completed, with satisfactory
results to Silicon, prior to funding hereunder.
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(6)
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Domestic Subsidiaries.
Borrower represents
and warrants to Silicon that each of Purepulse Technologies, Inc. (“Purepulse”)
and I-Bus/Phoenix, Inc. (“I-Bus”) is a wholly owned subsidiary of Borrower
and that each of Purepulse and I-Bus is inactive with little or no assets and
will remain inactive with little or no assets during the term of this
Agreement. Borrower covenants and agrees that while this Agreement is in
effect, Borrower shall not transfer any assets or Collateral to Purepulse
and/or I-Bus.
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9.
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EXIM PROVISIONS:
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(1)
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Exim Guaranty.
Prior to the first disbursement of any Loans hereunder,
Borrower shall cause the Export Import Bank of the United States (the “Exim
Bank”) to guarantee the Loans made under this Agreement, pursuant to a Master
Guarantee Agreement, Loan Authorization Agreement and (to the extent
applicable) Delegated Authority Letter Agreement (collectively, the “Exim
Guaranty”), and Borrower shall cause the Exim Guaranty to be in full force
and effect throughout the term of this Agreement and so long as any Loans
hereunder are outstanding. If, for
any reason, the Exim Guaranty shall cease to be in full force and effect, or
if the Exim Bank declares the Exim Guaranty void or revokes any obligations
thereunder or denies liability thereunder, any such event shall constitute an
Event of Default under this Agreement.
Nothing in any confidentiality agreement in this Agreement or in any
other agreement shall restrict Silicon’s right to make disclosures and
provide information to the Exim Bank in connection with the Exim Guaranty.
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(2)
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Exim Borrower Agreement; Costs.
Borrower shall, concurrently execute and
deliver a Borrower Agreement, in the form specified by the Exim Bank, in
favor of Silicon and the Exim Bank (the “Exim Borrower Agreement”). This Agreement is subject to all of the
terms and conditions of the Exim Borrower Agreement, all of which are
hereby incorporated herein by this reference. Borrower expressly agrees to perform
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-5-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement (Exim)
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all of the obligations and comply with all
of the affirmative and negative covenants and all other terms and conditions
set forth in the Exim Borrower Agreement as though the same were expressly
set forth herein. In the event of any
conflict between the terms of the Exim Borrower Agreement and the other terms
of this Agreement, whichever terms are more restrictive shall apply. Borrower acknowledges and agrees that it
has received a copy of the Loan Authorization Agreement which is referred to
in the Exim Borrower Agreement.
Borrower agrees to be bound by the terms of the Loan Authorization
Agreement, including, without limitation, by any additions or revisions made
prior to its execution on behalf of Exim Bank. Upon the execution of the Loan Authorization Agreement by Exim
Bank and Silicon, it shall become an attachment to the Exim Borrower
Agreement. Borrower shall reimburse
Silicon for all fees and all out of pocket costs and expenses incurred by
Silicon with respect to the Exim Guaranty and the Exim Borrower Agreement,
including without limitation all facility fees and usage fees, and Silicon is
authorized to debit Borrower’s account with Silicon for such fees, costs and
expenses when paid by Silicon.
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(3)
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Non-Exim Agreement; Cross-Collateralization; Cross-Default.
Silicon and the Borrower are parties to that certain Loan and Security
Agreement of approximate even date herewith (as amended from time to time,
the “Non-Exim Agreement”). Both this
Agreement and the Non-Exim Agreement shall continue in full force and effect,
and all rights and remedies under this Agreement and the Non-Exim Agreement
are cumulative. The term
“Obligations” as used in this Agreement and in the NonExim Agreement shall
include without limitation the obligation to pay when due all Loans made
pursuant to this Agreement (the “Exim Loans”) and all interest thereon and
the obligation to pay when due all Loans made pursuant to the Non-Exim
Agreement (the “Non-Exim Loans”) and all interest thereon. Without limiting the generality of the
foregoing, all “Collateral” as defined in this Agreement and as defined in
the Non-Exim Agreement shall secure all Exim Loans and all Non-Exim Loans and
all interest thereon, and all other Obligations. Any Event of Default under this Agreement shall also constitute
an Event of Default under the Non-Exim Agreement, and any Event of Default
under the Non-Exim Agreement shall also constitute an Event of Default under
this Agreement. In the event Silicon
assigns its rights under this Agreement and/or under any Note evidencing Exim
Loans and/or its rights under the Non-Exim Agreement and/or under any Note
evidencing Non-Exim Loans, to any third party, including without limitation
the Exim Bank, whether before or after the occurrence of any Event of
Default, Silicon shall have the right (but not any obligation), in its sole
discretion, to allocate and apportion Collateral to the Agreement
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-6-
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Silicon Valley Bank
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Schedule to Loan and Security Agreement (Exim)
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and/or Note assigned and to specify the
priorities of the respective security interests in such Collateral between
itself and the assignee, all without notice to or consent of the Borrower.
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Borrower:
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Silicon:
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MAXWELL
TECHNOLOGIES, INC.
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SILICON
VALLEY BANK
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By
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By
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President or Vice President
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Title
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By
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Secretary or Ass’t Secretary
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-7-
ANNEX
B
EXPORT-IMPORT
BANK OF THE UNITED STATES
WORKING CAPITAL GUARANTEE PROGRAM
BORROWER
AGREEMENT
THIS
BORROWER AGREEMENT (this “Agreement”) is made and entered into by the entity
identified as Borrower on the signature page hereof (“Borrower”) in favor of
the Export-Import Bank of the United States (“Ex-Im Bank”) and the institution
identified as Lender on the signature page hereof (“Lender”).
RECITALS
Borrower
has requested that Lender establish a Loan Facility in favor of Borrower for
the purposes of providing Borrower with pre-export working capital to finance
the manufacture, production or purchase and subsequent export sale of Items.
It
is a condition to the establishment of such Loan Facility that Ex-Im Bank
guarantee the payment of ninety percent (90%) of certain credit accommodations
subject to the terms and conditions of a Master Guarantee Agreement, the Loan
Authorization Agreement, and to the extent applicable, the Delegated Authority
Letter Agreement.
Borrower
is executing this Agreement for the benefit of Lender and Ex-Im Bank in
consideration for and as a condition to Lender’s establishing the Loan Facility
and Ex-Im Bank’s agreement to guarantee such Loan Facility pursuant to the
Master Guarantee Agreement.
NOW,
THEREFORE, Borrower hereby agrees as follows:
ARTICLE
I
DEFINITIONS
1.01
Definition
of Terms
. As used in this
Agreement, including the Recitals to this Agreement and the Loan Authorization
Agreement, the following terms shall have the following meanings:
“Accounts
Receivable” shall mean all of Borrower’s now owned or hereafter acquired
(a) ”accounts” (as such term is defined in the UCC), other receivables,
book debts and other forms of obligations, whether arising out of goods sold or
services rendered or from any other transaction; (b) rights in, to and under
all purchase orders or receipts for goods or services; (c) rights to any
goods represented or purported to be represented by any of the foregoing
(including unpaid sellers’ rights of rescission, replevin, reclamation and
stoppage in transit and rights to returned, reclaimed or repossessed goods);
(d) moneys due or to become due to such Borrower under all purchase orders and
contracts for the sale of goods or the performance of services or both by
Borrower (whether or not yet earned by performance on the part of Borrower),
including the proceeds of the foregoing; (e) any notes, drafts, letters of
credit, insurance proceeds or other instruments, documents and writings evidencing
or supporting the foregoing; and (f) all collateral security and guarantees of
any kind given by any other Person with respect to any of the foregoing.
“Advance
Rate” shall mean the rate specified in Section 5(C) of the Loan Authorization
Agreement for each category of Collateral.
“Business
Day” shall mean any day on which the Federal Reserve Bank of New York is open
for business.
“Buyer”
shall mean a Person that has entered into one or more Export Orders with
Borrower.
“Collateral”
shall mean all property and interest in property in or upon which Lender has
been granted a Lien as security for the payment of all the Loan Facility
Obligations including the Collateral identified in Section 6 of the Loan
Authorization Agreement and all products and proceeds (cash and non-cash)
thereof.
“Commercial
Letters of Credit” shall mean those letters of credit subject to the UCP
payable in Dollars and issued or caused to be issued by Lender on behalf of
Borrower under a Loan Facility for the benefit of a supplier(s) of Borrower in
connection with Borrower’s purchase of goods or services from the supplier in
support of the export of the Items.
“Country
Limitation Schedule” shall mean the schedule published from time to time by
Ex-Im Bank and provided to Borrower by Lender which sets forth on a country by
country basis whether and under what conditions Ex-Im Bank will provide
coverage for the financing of export transactions to countries listed therein.
“Credit
Accommodation Amount” shall mean, the sum of (a) the aggregate outstanding
amount of Disbursements and (b) the aggregate outstanding face amount of Letter
of Credit Obligations.
“Credit
Accommodations” shall mean, collectively, Disbursements and Letter of Credit
Obligations.
“Debarment
Regulations” shall mean, collectively, (a) the Governmentwide Debarment and
Suspension (Nonprocurement) regulations (Common Rule), 53 Fed. Reg. 19204 (May
26, 1988), (b) Subpart 9.4 (Debarment, Suspension, and Ineligibility) of the
Federal Acquisition Regulations, 48 C.F.R. 9.400-9.409 and (c) the revised
Govemmentwide Debarment and Suspension (Nonprocurement) regulations (Common
Rule), 60 Fed. Reg. 33037 (June 26, 1995).
“Delegated
Authority Letter Agreement” shall mean the Delegated Authority Letter
Agreement, if any, between Ex-Im Bank and Lender.
“Disbursement”
shall mean, collectively, (a) an advance of a working capital loan from Lender
to Borrower under the Loan Facility, and (b) an advance to fund a drawing under
a Letter of Credit issued or caused to be issued by Lender for the account of
Borrower under the Loan Facility.
“Dollars”
or “$” shall mean the lawful currency of the United States.
2
“Effective
Date” shall mean the date on which (a) the Loan Documents are executed by
Lender and Borrower or the date, if later, on which agreements are executed by
Lender and Borrower adding the Loan Facility to an existing working capital
loan arrangement between Lender and Borrower and (b) all of the conditions to
the making of the initial Credit Accommodations under the Loan Documents or any
amendments thereto have been satisfied.
“Eligible
Export-Related Accounts Receivable” shall mean an Export-Related Account
Receivable which is acceptable to Lender and which is deemed to be eligible
pursuant to the Loan Documents, but in no event shall Eligible Export-Related
Accounts Receivable include any Account Receivable:
(a) that
does not arise from the sale of Items in the ordinary course of Borrower’s
business;
(b) that
is not subject to a valid, perfected first priority Lien in favor of Lender;
(c) as
to which any covenant, representation or warranty contained in the Loan
Documents with respect to such Account Receivable has been breached;
(d) that
is not owned by Borrower or is subject to any right, claim or interest of
another Person other than the Lien in favor of Lender;
(e) with
respect to which an invoice has not been sent;
(f) that
arises from the sale of defense articles or defense services;
(g) that
is due and payable from a Buyer located in a country with which Ex-Im Bank is
prohibited from doing business as designated in the Country Limitation
Schedule;
(h) that
does not comply with the requirements of the Country Limitation Schedule;
(i) that
is due and payable more than one hundred eighty (180) days from the date of the
invoice;
(j) that
is not paid within sixty (60) calendar days from its original due date, unless
it is insured through Ex-Im Bank export credit insurance for comprehensive commercial
and political risk, or through Ex-Im Bank approved private insurers for
comparable coverage, in which case it is not paid within ninety (90) calendar
days from its due date;
(k) that
arises from a sale of goods to or performance of services for an employee of
Borrower, a stockholder of Borrower, a subsidiary of Borrower, a Person with a
controlling interest in Borrower or a Person which shares common controlling
ownership with Borrower;
(l) that
is backed by a letter of credit unless the Items covered by the subject letter
of credit have been shipped;
(m) that
Lender or Ex-Im Bank, in its reasonable judgment, deems uncollectible for any
reason;
3
(n) that
is due and payable in a currency other than Dollars, except as may be approved
in writing by Ex-Im Bank;
(o) that
is due and payable from a military Buyer, except as may be approved in writing
by Ex-Im Bank;
(p) that
does not comply with the terms of sale set forth in Section 7 of the Loan
Authorization Agreement;
(q) that
is due and payable from a Buyer who (i) applies for, suffers, or consents to
the appointment of, or the taking of possession by, a receiver, custodian,
trustee or liquidator of itself or of all or a substantial part of its property
or calls a meeting of its creditors, (ii) admits in writing its inability, or
is generally unable, to pay its debts as they become due or ceases operations
of its present business, (iii) makes a general assignment for the benefit of
creditors, (iv) commences a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt
or insolvent, (vi) files a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesces to, or fails to have
dismissed, any petition which is filed against it in any involuntary case under
such bankruptcy laws, or (viii) takes any action for the purpose of effecting
any of the foregoing;
(r) that
arises from a bill-and-hold, guaranteed sale, sale-and-return, sale on
approval, consignment or any other repurchase or return basis or is evidenced
by chattel paper;
(s) for
which the Items giving rise to such Account Receivable have not been shipped
and delivered to and accepted by the Buyer or the services giving rise to such
Account Receivable have not been performed by Borrower and accepted by the
Buyer or the Account Receivable otherwise does not represent a final sale;
(t) that
is subject to any offset, deduction, defense, dispute, or counterclaim or the
Buyer is also a creditor or supplier of Borrower or the Account Receivable is
contingent in any respect or for any reason;
(u) for
which Borrower has made any agreement with the Buyer for any deduction therefrom,
except for discounts or allowances made in the ordinary course of business for
prompt payment, all of which discounts or allowances are reflected in the
calculation of the face value of each respective invoice related thereto; or
(v) for
which any of the Items giving rise to such Account Receivable have been
returned, rejected or repossessed.
“Eligible
Export-Related Inventory” shall mean Export-Related Inventory which is
acceptable to Lender and which is deemed to be eligible pursuant to the Loan
Documents, but in no event shall Eligible Export-Related Inventory include any
Inventory:
(a) that
is not subject to a valid, perfected first priority Lien in favor of Lender;
(b) that
is located at an address that has not been disclosed to Lender in writing;
4
(c) that
is placed by Borrower on consignment or held by Borrower on consignment from
another Person;
(d) that
is in the possession of a processor or bailee, or located on premises leased or
subleased to Borrower, or on premises subject to a mortgage in favor of a
Person other than Lender, unless such processor or bailee or mortgagee or the
lessor or sublessor of such premises, as the case may be, has executed and delivered
all documentation which Lender shall require to evidence the subordination or
other limitation or extinguishment of such Person’s rights with respect to such
Inventory and Lender’s right to gain access thereto;
(e) that
is produced in violation of the Fair Labor Standards Act or subject to the “hot
goods” provisions contained in 29 US.C.§215 or any successor statute or
section;
(f) as
to which any covenant, representation or warranty with respect to such
Inventory contained in the Loan Documents has been breached;
(g) that
is not located in the United States;
(h) that
is demonstration Inventory;
(i) that
consists of proprietary software (i.e. software designed solely for Borrower’s
internal use and not intended for resale);
(j) that
is damaged, obsolete, returned, defective, recalled or unfit for further
processing;
(k) that
has been previously exported from the United States;
(l) that
constitutes defense articles or defense services;
(m) that
is to be incorporated into Items destined for shipment to a country as to which
Ex-Im Bank is prohibited from doing business as designated in the Country Limitation
Schedule;
(n) that
is to be incorporated into Items destined for shipment to a Buyer located in a
country in which Ex-Im Bank coverage is not available for commercial reasons as
designated in the Country Limitation Schedule, unless and only to the extent
that such Items are to be sold to such country on terms of a letter of credit
confirmed by a bank acceptable to Ex-Im Bank; or
(o) that
is to be incorporated into Items whose sale would result in an Account
Receivable which would not be an Eligible Export-Related Account Receivable.
“Eligible
Person” shall mean a sole proprietorship, partnership, limited liability
partnership, corporation or limited liability company which (a) is domiciled,
organized, or formed, as the case may be, in the United States; (b) is in good
standing in the state of its formation or otherwise authorized to conduct
business in the United States; (c) is not currently suspended or debarred from
doing business with the United States government or any instrumentality, division,
agency or department thereof; (d) exports or plans to export Items;
(e) operates and has operated as a going concern for at least one (1)
year; (f) has a positive
5
tangible net worth
determined in accordance with GAAP; and (g) has revenue generating operations
relating to its core business activities for at least one year.
“ERISA”
shall mean the Employee Retirement Income Security Act of 1974 and the rules
and regulations promulgated thereunder.
“Export
Order” shall mean a written export order or contract for the purchase by the
Buyer from Borrower of any of the Items.
“Export-Related
Accounts Receivable” shall mean those Accounts Receivable arising from the sale
of Items which are due and payable to Borrower in the United States.
“Export-Related
Accounts Receivable Value” shall mean, at the date of determination thereof,
the aggregate face amount of Eligible Export-Related Accounts Receivable less
taxes, discounts, credits, allowances and Retainages, except to the extent
otherwise permitted by Ex-Im Bank in writing.
“Export-Related
Borrowing Base” shall mean, at the date of determination thereof, the sum of
(a) the Export-Related Inventory Value multiplied by the Advance Rate
applicable to Export-Related Inventory set forth in Section 5(C)(1) of the Loan
Authorization Agreement, (b) the Export-Related Accounts Receivable Value
multiplied by the Advance Rate applicable to Export-Related Accounts Receivable
set forth in Section 5(C)(2) of the Loan Authorization Agreement, (c) if
permitted by Ex-Im Bank in writing, the Retainage Value multiplied by the
Retainage Advance Rate set forth in Section 5(C)(3) of the Loan Authorization
Agreement and (d) the Other Assets Value multiplied by the Advance Rate applicable
to Other Assets set forth in Section 5(C)(4) of the Loan Authorization
Agreement.
“Export-Related
Borrowing Base Certificate” shall mean a certificate in the form provided or
approved by Lender, executed by Borrower and delivered to Lender pursuant to
the Loan Documents detailing the Export-Related Borrowing Base supporting the
Credit Accommodations which reflects, to the extent included in the
Export-Related Borrowing Base, Export-Related Accounts Receivable, Eligible
Export-Related Accounts Receivable, Export-Related Inventory and Eligible
Export-Related Inventory balances that have been reconciled with Borrower’s
general ledger, Accounts Receivable aging report and Inventory schedule.
“Export-Related
General Intangibles” shall mean those General Intangibles necessary or
desirable to or for the disposition of Export-Related Inventory.
“Export-Related
Inventory” shall mean the Inventory of Borrower located in the United States
that has been purchased, manufactured or otherwise acquired by Borrower for
resale pursuant to Export Orders.
“Export-Related
Inventory Value” shall mean, at the date of determination thereof, the lower of
cost or market value of Eligible Export-Related Inventory of Borrower as
determined in accordance with GAAP.
“Final
Disbursement Date” shall mean, unless subject to an extension of such date
agreed to by Ex-Im Bank, the last date on which Lender may make a Disbursement
set forth in Section
6
10 of the Loan
Authorization Agreement or, if such date is not a Business Day, the next
succeeding Business Day;
provided
,
however
, to the extent that
Lender has not received cash collateral or an indemnity with respect to Letter
of Credit Obligations outstanding on the Final Disbursement Date, the Final
Disbursement Date with respect to an advance to fund a drawing under a Letter
of Credit shall be no later than thirty (30) Business Days after the expiry
date of the Letter of Credit related thereto.
“GAAP”
shall mean the generally accepted accounting principles issued by the American
Institute of Certified Public Accountants as in effect from time to time.
“General
Intangibles” shall mean all intellectual property and other “general
intangibles” (as such term is defined in the UCC) necessary or desirable to or
for the disposition of Inventory.
“Guarantor”
shall mean each Person, if any, identified in Section 3 of the Loan
Authorization Agreement who shall guarantee (jointly and severally if more than
one) the payment and performance of all or a portion of the Loan Facility
Obligations.
“Guaranty
Agreement” shall mean a valid and enforceable agreement of guaranty executed by
each Guarantor in favor of Lender.
“Inventory”
shall mean all “inventory” (as such term is defined in the UCC), now or
hereafter owned or acquired by Borrower, wherever located, including all
inventory, merchandise, goods and other personal property which are held by or
on behalf of Borrower for sale or lease or are furnished or are to be furnished
under a contract of service or which constitute raw materials, work in process
or materials used or consumed or to be used or consumed in Borrower’s business
or in the processing, production, packaging, promotion, delivery or shipping of
the same, including other supplies.
“ISP”
shall mean the International Standby Practices-ISP98, International Chamber of
Commerce Publication No. 590 and any amendments and revisions thereof.
“Issuing
Bank” shall mean the bank that issues a Letter of Credit, which bank is Lender
itself or a bank that Lender has caused to issue a Letter of Credit by way of
guarantee.
“Items”
shall mean the finished goods or services which are intended for export from
the United States, as specified in Section 4(A) of the Loan Authorization
Agreement.
“Letter
of Credit” shall mean a Commercial Letter of Credit or a Standby Letter of
Credit.
“Letter
of Credit Obligations” shall mean all outstanding obligations incurred by Lender,
whether direct or indirect, contingent or otherwise, due or not due, in
connection with the issuance or guarantee by Lender or the Issuing Bank of
Letters of Credit.
“Lien”
shall mean any mortgage, security deed or deed of trust, pledge, hypothecation,
assignment, deposit arrangement, lien, charge, claim, security interest,
security title, easement or encumbrance, or preference, priority or other
security agreement or preferential arrangement of any kind or nature whatsoever
(including any lease or title retention agreement, any financing
7
lease having
substantially the same economic effect as any of the foregoing, and the filing
of, or agreement to give, any financing statement perfecting a security
interest under the UCC or comparable law of any jurisdiction) by which property
is encumbered or otherwise charged.
“Loan
Agreement” shall mean a valid and enforceable agreement between Lender and
Borrower setting forth the terms and conditions of the Loan Facility.
“Loan
Authorization Agreement” shall mean the Loan Authorization Agreement entered
into between Lender and Ex-Im Bank or the Loan Authorization Notice setting
forth certain terms and conditions of the Loan Facility, a copy of which is
attached hereto as Annex A.
“Loan
Authorization Notice” shall mean the Loan Authorization Notice executed by
Lender and delivered to Ex-Im Bank in accordance with the Delegated Authority
Letter Agreement setting forth the terms and conditions of each Loan Facility.
“Loan
Documents” shall mean the Loan Authorization Agreement, the Loan Agreement,
this Agreement, each promissory note (if applicable), each Guaranty Agreement,
and all other instruments, agreements and documents now or hereafter executed
by Borrower or any Guarantor evidencing, securing, guaranteeing or otherwise
relating to the Loan Facility or any Credit Accommodations made thereunder.
“Loan
Facility” shall mean the Revolving Loan Facility, the Transaction Specific Loan
Facility or the Transaction Specific Revolving Loan Facility established by
Lender in favor of Borrower under the Loan Documents.
“Loan
Facility Obligations” shall mean all loans, advances, debts, expenses, fees,
liabilities, and obligations for the performance of covenants, tasks or duties
or for payment of monetary amounts (whether or not such performance is then
required or contingent, or amounts are liquidated or determinable) owing by
Borrower to Lender, of any kind or nature, present or future, arising in
connection with the Loan Facility.
“Loan
Facility Term” shall mean the number of months from the Effective Date to the
Final Disbursement Date as originally set forth in the Loan Authorization
Agreement.
“Master
Guarantee Agreement” shall mean the Master Guarantee Agreement between Ex-Im
Bank and Lender, as amended, modified, supplemented and restated from time to
time.
“Material
Adverse Effect” shall mean a material adverse effect on (a) the business,
assets, operations, prospects or financial or other condition of Borrower or
any Guarantor, (b) Borrower’s ability to pay or perform the Loan Facility
Obligations in accordance with the terms thereof, (c) the Collateral or
Lender’s Liens on the Collateral or the priority of such Lien or (d) Lender’s
rights and remedies under the Loan Documents.
“Maximum
Amount” shall mean the maximum principal balance of Credit Accommodations that
may be outstanding at any time under the Loan Facility specified in Section
5(A) of the Loan Authorization Agreement.
8
“Other
Assets” shall mean the Collateral, if any, described in Section 5(C)(4) of the
Loan Authorization Agreement.
“Other
Assets Value” shall mean, at the date of determination thereof, the value of
the Other Assets as determined in accordance with GAAP.
“Permitted
Liens” shall mean (a) Liens for taxes, assessments or other governmental
charges or levies not delinquent, or, being contested in good faith and by
appropriate proceedings and with respect to which proper reserves have been
taken by Borrower;
provided
,
that
, the Lien shall have no effect
on the priority of the Liens in favor of Lender or the value of the assets in
which Lender has such a Lien and a stay of enforcement of any such Lien shall
be in effect; (b) deposits or pledges securing obligations under worker’s
compensation, unemployment insurance, social security or public liability laws
or similar legislation; (c) deposits or pledges securing bids, tenders,
contracts (other than contracts for the payment of money), leases, statutory
obligations, surety and appeal bonds and other obligations of like nature
arising in the ordinary course of Borrower’s business; (d) judgment Liens that
have been stayed or bonded; (e) mechanics’, workers’, materialmen’s or
other like Liens arising in the ordinary course of Borrower’s business with
respect to obligations which are not due; (f) Liens placed upon fixed assets
hereafter acquired to secure a portion of the purchase price thereof, provided,
that, any such Lien shall not encumber any other property of Borrower; (g)
security interests being terminated concurrently with the execution of the Loan
Documents; (h) Liens in favor of Lender securing the Loan Facility Obligations;
and (i) Liens disclosed in Section 6(D) of the Loan Authorization Agreement.
“Person”
shall mean any individual, sole proprietorship, partnership, limited liability
partnership, joint venture, trust, unincorporated organization, association,
corporation, limited liability company, institution, public benefit
corporation, entity or government (whether national, federal, provincial,
state, county, city, municipal or otherwise, including any instrumentality,
division, agency, body or department thereof), and shall include such Person’s
successors and assigns.
“Principals”
shall mean any officer, director, owner, partner, key employee, or other Person
with primary management or supervisory responsibilities with respect to
Borrower or any other Person (whether or not an employee) who has critical
influence on or substantive control over the transactions covered by this
Agreement.
“Retainage”
shall mean that portion of the purchase price of an Export Order that a Buyer
is not obligated to pay until the end of a specified period of time following
the satisfactory performance under such Export Order.
“Retainage
Accounts Receivable” shall mean those portions of Eligible Export-Related
Accounts Receivable arising out of a Retainage.
“Retainage
Advance Rate” shall mean the percentage rate specified in Section 5(C)(3) of
the Loan Authorization Agreement as the Advance Rate for the Retainage Accounts
Receivable of Borrower.
9
“Retainage
Value” shall mean, at the date of determination thereof, the aggregate face
amount of Retainage Accounts Receivable, less taxes, discounts, credits and
allowances, except to the extent otherwise permitted by Ex-Im Bank in writing.
“Revolving
Loan Facility” shall mean the credit facility or portion thereof established by
Lender in favor of Borrower for the purpose of providing pre-export working
capital in the form of loans and/or Letters of Credit to finance the
manufacture, production or purchase and subsequent export sale of Items
pursuant to Loan Documents under which Credit Accommodations may be made and
repaid on a continuous basis based solely on the Export-Related Borrowing Base
during the term of such credit facility.
“Special
Conditions” shall mean those conditions, if any, set forth in Section 13 of the
Loan Authorization Agreement.
“Specific
Export Orders” shall mean those Export Orders specified in Section 5(D) of the
Loan Authorization Agreement.
“Standby
Letter of Credit” shall mean those letters of credit subject to the ISP or UCP
issued or caused to be issued by Lender for Borrower’s account that can be
drawn upon by a Buyer only if Borrower fails to perform all of its obligations
with respect to an Export Order.
“Transaction
Specific Loan Facility” shall mean a credit facility or a portion thereof
established by Lender in favor of Borrower for the purpose of providing
pre-export working capital in the form of loans and/or Letters of Credit to
finance the manufacture, production or purchase and subsequent export sale of
Items pursuant to Loan Documents under which Credit Accommodations are made
based solely on the Export-Related Borrowing Base relating to Specific Export
Orders and once such Credit Accommodations are repaid they may not be
reborrowed.
“Transaction
Specific Revolving Loan Facility” shall mean a Revolving Credit Facility
established to provide financing of Specific Export Orders.
“UCC”
shall mean the Uniform Commercial Code as the same may be in effect from time
to time in the jurisdiction in which Borrower or Collateral is located.
“UCP”
shall mean the Uniform Customs and Practice for Documentary Credits (1993
Revision), International Chamber of Commerce Publication No. 500 and any
amendments and revisions thereof.
“U.S.”
or “United States” shall mean the United States of America and its territorial
possessions.
“U.S.
Content” shall mean with respect to any Item all the labor, materials and
services which are of U.S. origin or manufacture, and which are incorporated
into an Item in the United States.
“Warranty”
shall mean Borrower’s guarantee to Buyer that the Items will function as
intended during the warranty period set forth in the applicable Export Order.
10
“Warranty
Letter of Credit” shall mean a Standby Letter of Credit which is issued or
caused to be issued by Lender to support the obligations of Borrower with
respect to a Warranty or a Standby Letter of Credit which by its terms becomes
a Warranty Letter of Credit.
1.02
Rules
of Construction
. For purposes of
this Agreement, the following additional rules of construction shall apply,
unless specifically indicated to the contrary: (a) wherever from the context it
appears appropriate, each term stated in either the singular or plural shall
include the singular and the plural, and pronouns stated in the masculine,
feminine or neuter gender shall include the masculine, the feminine and the
neuter; (b) the term “or” is not exclusive; (c) the term “including” (or any
form thereof) shall not be limiting or exclusive; (d) all references to
statutes and related regulations shall include any amendments of same and any
successor statutes and regulations; (e) the words “this Agreement”, “herein”,
“hereof”, “hereunder” or other words of similar import refer to this Agreement
as a whole including the schedules, exhibits, and annexes hereto as the same
may be amended, modified or supplemented; (f) all references in this Agreement
to sections, schedules, exhibits, and annexes shall refer to the corresponding
sections, schedules, exhibits, and annexes of or to this Agreement; and (g) all
references to any instruments or agreements, including references to any of the
Loan Documents, or the Delegated Authority Letter Agreement shall include any
and all modifications, amendments and supplements thereto and any and all
extensions or renewals thereof to the extent permitted under this Agreement.
1.03
Incorporation
of Recitals
. The Recitals to this
Agreement are incorporated into and shall constitute a part of this Agreement.
ARTICLE
II
OBLIGATIONS OF BORROWER
Until
payment in full of all Loan Facility Obligations and termination of the Loan
Documents, Borrower agrees as follows:
2.01
Use
of Credit Accommodations
.
(a) Borrower shall use Credit Accommodations only for the purpose
of enabling Borrower to finance the cost of manufacturing, producing,
purchasing or selling the Items. Borrower may not use any of the Credit
Accommodations for the purpose of: (i) servicing or repaying any of Borrower’s
pre-existing or future indebtedness unrelated to the Loan Facility (unless
approved by Ex-Im Bank in writing); (ii) acquiring fixed assets or capital
goods for use in Borrower’s business; (iii) acquiring, equipping or renting
commercial space outside of the United States; (iv) paying the salaries of non
U.S. citizens or non-U.S. permanent residents who are located in offices
outside of the United States; or (v) in connection with a Retainage or Warranty
(unless approved by Ex-Im Bank in writing).
(b) In
addition, no Credit Accommodation may be used to finance the manufacture,
purchase or sale of any of the following:
(i) Items
to be sold or resold to a Buyer located in a country as to which Ex-Im Bank is
prohibited from doing business as designated in the Country Limitation
Schedule;
11
(ii) that
part of the cost of the Items which is not U.S. Content unless such part is not
greater than fifty percent (50%) of the cost of the Items and is incorporated
into the Items in the United States;
(iii) defense
articles or defense services; or
(iv) without
Ex-Im Bank’s prior written consent, any Items to be used in the construction,
alteration, operation or maintenance of nuclear power, enrichment,
reprocessing, research or heavy water production facilities.
2.02
Loan
Documents and Loan Authorization Agreement
. (a) Each Loan Document and this Agreement have been duly executed
and delivered on behalf of Borrower, and each such Loan Document and this
Agreement are and will continue to be a legal and valid obligation of Borrower,
enforceable against it in accordance with its terms.
(b) Borrower
shall comply with all of the terms and conditions of the Loan Documents, this
Agreement and the Loan Authorization Agreement.
2.03
Export-Related
Borrowing Base Certificates and Export Orders
. In order to receive Credit Accommodations under the Loan
Facility, Borrower shall have delivered to Lender an Export-Related Borrowing
Base Certificate as frequently as required by Lender but at least within the
past thirty (30) calendar days and a copy of the Export Order(s) (or, for
Revolving Loan Facilities, if permitted by Lender, a written summary of the
Export Orders) against which Borrower is requesting Credit Accommodations. If
Lender permits summaries of Export Orders, Borrower shall also deliver promptly
to Lender copies of any Export Orders requested by Lender. In addition, so long
as there are any Credit Accommodations outstanding under the Loan Facility,
Borrower shall deliver to Lender at least once each month no later than the
twentieth (20th) day of such month or more frequently as required by the Loan
Documents, an Export-Related Borrowing Base Certificate.
2.04
Exclusions
from the Export-Related Borrowing Base
.
In determining the Export-Related Borrowing Base, Borrower shall exclude
therefrom Inventory which is not Eligible Export-Related Inventory and Accounts
Receivable which are not Eligible Export-Related Accounts Receivable. Borrower
shall promptly, but in any event within five (5) Business Days, notify Lender
(a) if any then existing Export-Related Inventory no longer constitutes
Eligible Export-Related Inventory or (b) of any event or circumstance which to
Borrower’s knowledge would cause Lender to consider any then existing
Export-Related Accounts Receivable as no longer constituting an Eligible
Export-Related Accounts Receivable.
2.05
Financial
Statements
. Borrower shall deliver
to Lender the financial statements required to be delivered by Borrower in
accordance with Section 11 of the Loan Authorization Agreement.
2.06
Schedules,
Reports and Other Statements
.
Borrower shall submit to Lender in writing each month (a) an Inventory
schedule for the preceding month and (b) an Accounts Receivable aging report
for the preceding month detailing the terms of the amounts due from each Buyer.
Borrower shall also furnish to Lender promptly upon request such information,
reports,
12
contracts, invoices and
other data concerning the Collateral as Lender may from time to time specify.
2.07
Additional
Security or Payment
. (a) Borrower
shall at all times ensure that the Export-Related Borrowing Base equals or
exceeds the Credit Accommodation Amount. If informed by Lender or if Borrower
otherwise has actual knowledge that the Export-Related Borrowing Base is at any
time less than the Credit Accommodation Amount, Borrower shall, within five (5)
Business Days, either (i) furnish additional Collateral to Lender, in form and
amount satisfactory to Lender and Ex-Im Bank or (ii) pay to Lender an amount
equal to the difference between the Credit Accommodation Amount and the
Export-Related Borrowing Base.
(b) For
purposes of this Agreement, in determining the Export-Related Borrowing Base
there shall be deducted from the Export-Related Borrowing Base (i) an amount
equal to twenty-five percent (25%) of the outstanding face amount of Commercial
Letters of Credit and Standby Letters of Credit and (ii) one hundred percent
(100%) of the face amount of Warranty Letters of Credit less the amount of cash
collateral held by Lender to secure Warranty Letters of Credit.
(c) Unless
otherwise approved in writing by Ex-Im Bank, for Revolving Loan Facilities
(other than Transaction Specific Revolving Loan Facilities), Borrower shall at
all times ensure that the outstanding principal balance of the Credit
Accommodations that is supported by Export-Related Inventory does not exceed
sixty percent (60%) of the sum of the total outstanding principal balance of
the Disbursements and the undrawn face amount of all outstanding Commercial
Letters of Credit. If informed by Lender or if Borrower otherwise has actual
knowledge that the outstanding principal balance of the Credit Accommodations
that is supported by Inventory exceeds sixty percent (60%) of the sum of the
total outstanding principal balance of the Disbursements and the undrawn face
amount of all outstanding Commercial Letters of Credit, Borrower shall, within
five (5) Business Days, either (i) furnish additional non-Inventory Collateral
to Lender, in form and amount satisfactory to Lender and Ex-Im Bank, or (ii)
pay down the applicable portion of the Credit Accommodations so that the above
described ratio is not exceeded.
2.08
Continued
Security Interest
. Borrower shall
not change (a) its name or identity in any manner, (b) the location of its
principal place of business, (c) the location of any of the Collateral or (d)
the location of any of the books or records related to the Collateral, in each
instance without giving thirty (30) days prior written notice thereof to Lender
and taking all actions deemed necessary or appropriate by Lender to
continuously protect and perfect Lender’s Liens upon the Collateral.
2.09
Inspection
of Collateral
. Borrower shall
permit the representatives of Lender and Ex-Im Bank to make at any time during
normal business hours inspections of the Collateral and of Borrower’s
facilities, activities, and books and records, and shall cause its officers and
employees to give full cooperation and assistance in connection therewith.
2.10
General
Intangibles
. Borrower represents
and warrants that it owns, or is licensed to use, all General Intangibles
necessary to conduct its business as currently conducted except where the
13
failure of Borrower to
own or license such General Intangibles could not reasonably be expected to
have a Material Adverse Effect.
2.11
Notice
of Certain Events
. Borrower shall
promptly, but in any event within five (5) Business Days, notify Lender in
writing of the occurrence of any of the following:
(a) Borrower
or any Guarantor (i) applies for, consents to or suffers the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
similar fiduciary of itself or of all or a substantial part of its property or
calls a meeting of its creditors, (ii) admits in writing its inability, or is
generally unable, to pay its debts as they become due or ceases operations of
its present business, (iii) makes a general assignment for the benefit of
creditors, (iv) commences a voluntary case under any state or federal
bankruptcy laws (as now or hereafter in effect), (v) is adjudicated as bankrupt
or insolvent, (vi) files a petition seeking to take advantage of any other law
providing for the relief of debtors, (vii) acquiesces to, or fails to have
dismissed within thirty (30) days, any petition filed against it in any
involuntary case under such bankruptcy laws, or (vii) takes any action for the
purpose of effecting any of the foregoing;
(b) any
Lien in any of the Collateral, granted or intended by the Loan Documents to be
granted to Lender, ceases to be a valid, enforceable, perfected, first priority
Lien (or a lesser priority if expressly permitted pursuant to Section 6 of the
Loan Authorization Agreement) subject only to Permitted Liens;
(c) the
issuance of any levy, assessment, attachment, seizure or Lien, other than a
Permitted Lien, against any of the Collateral which is not stayed or lifted
within thirty (30) calendar days;
(d) any
proceeding is commenced by or against Borrower or any Guarantor for the
liquidation of its assets or dissolution;
(e) any
litigation is filed against Borrower or any Guarantor which has had or could
reasonably be expected to have a Material Adverse Effect and such litigation is
not withdrawn or dismissed within thirty (30) calendar days of the filing thereof;
(f) any
default or event of default under the Loan Documents;
(g) any
failure to comply with any terms of the Loan Authorization Agreement;
(h) any
material provision of any Loan Document or this Agreement for any reason ceases
to be valid, binding and enforceable in accordance with its terms;
(i) any
event which has had or could reasonably be expected to have a Material Adverse
Effect; or
(j) the
Credit Accommodation Amount exceeds the applicable Export-Related Borrowing
Base.
2.12
Insurance
. Borrower will at all times carry property,
liability and other insurance, with insurers acceptable to Lender, in such form
and amounts, and with such deductibles and other
14
provisions, as Lender
shall require, and Borrower will provide evidence of such insurance to Lender,
so that Lender is satisfied that such insurance is, at all times, in full force
and effect. Each property insurance policy shall name Lender as loss payee and
shall contain a lender’s loss payable endorsement in form acceptable to Lender
and each liability insurance policy shall name Lender as an additional insured.
All policies of insurance shall provide that they may not be cancelled or
changed without at least ten (10) days’ prior written notice to Lender and
shall otherwise be in form and substance satisfactory to Lender. Borrower will
promptly deliver to Lender copies of all reports made to insurance companies.
2.13
Taxes
. Borrower has timely filed all tax returns
and reports required by applicable law, has timely paid all applicable taxes,
assessments, deposits and contributions owing by Borrower and will timely pay
all such items in the future as they became due and payable. Borrower may,
however, defer payment of any contested taxes; provided, that Borrower (a) in
good faith contests Borrower’s obligation to pay such taxes by appropriate
proceedings promptly and diligently instituted and conducted; (b) notifies
Lender in writing of the commencement of, and any material development in, the
proceedings; (c) posts bonds or takes any other steps required to keep the
contested taxes from becoming a Lien upon any of the Collateral; and (d)
maintains adequate reserves therefor in conformity with GAAP.
2.14
Compliance
with Laws
. Borrower represents and
warrants that it has complied in all material respects with all provisions of
all applicable laws and regulations, including those relating to Borrower’s
ownership of real or personal property, the conduct and licensing of Borrower’s
business, the payment and withholding of taxes, ERISA and other employee
matters, safety and environmental matters.
2.15
Negative
Covenants
. Without the prior
written consent of Ex-Im Bank and Lender, Borrower shall not (a) merge, consolidate
or otherwise combine with any other Person; (b) acquire all or
substantially all of the assets or capital stock of any other Person; (c) sell,
lease, transfer, convey, assign or otherwise dispose of any of its assets,
except for the sale of Inventory in the ordinary course of business and the
disposition of obsolete equipment in the ordinary course of business; (d)
create any Lien on the Collateral except for Permitted Liens; (e) make any
material changes in its organizational structure or identity; or (f) enter into
any agreement to do any of the foregoing.
2.16
Reborrowings
and Repayment Terms
. (a) If the
Loan Facility is a Revolving Loan Facility, provided that Borrower is not in
default under any of the Loan Documents, Borrower may borrow, repay and
reborrow amounts under the Loan Facility until the close of business on the
Final Disbursement Date. Unless the Revolving Loan Facility is renewed or
extended by Lender with the consent of Ex-Im Bank, Borrower shall pay in full
the outstanding Loan Facility Obligations and all accrued and unpaid interest
thereon no later than the first Business Day after the Final Disbursement Date.
(b) If
the Loan Facility is a Transaction Specific Loan Facility, Borrower shall,
within two (2) Business Days of the receipt thereof, pay to Lender (for
application against the outstanding Loan Facility Obligations and accrued and
unpaid interest thereon) all checks, drafts, cash and other remittances it may
receive in payment or on account of the Export-Related Accounts Receivable or
any other Collateral, in precisely the form received (except for the
15
endorsement of
Borrower where necessary). Pending such deposit, Borrower shall hold such
amounts in trust for Lender separate and apart and shall not commingle any such
items of payment with any of its other funds or property.
2.17
Cross
Default
. Borrower shall be deemed
in default under the Loan Facility if Borrower fails to pay when due any amount
payable to Lender under any loan or other credit accommodations to Borrower
whether or not guaranteed by Ex-Im Bank.
2.18
Munitions
List
. If any of the Items are
articles, services, or related technical data that are listed on the United
States Munitions List (part 121 of title 22 of the Code of Federal Regulations),
Borrower shall send a written notice promptly, but in any event within five (5)
Business Days, of Borrower learning thereof to Lender describing the Items(s)
and the corresponding invoice amount.
2.19
Suspension
and Debarment, etc.
On the date of
this Agreement neither Borrower nor its Principals are (a) debarred, suspended,
proposed for debarment with a final determination still pending, declared
ineligible or voluntarily excluded (as such terms are defined under any of the
Debarment Regulations referred to below) from participating in procurement or
nonprocurement transactions with any United States federal government
department or agency pursuant to any of the Debarment Regulations or (b)
indicted, convicted or had a civil judgment rendered against Borrower or any of
its Principals for any of the offenses listed in any of the Debarment
Regulations. Unless authorized by Ex-Im Bank, Borrower will not knowingly enter
into any transactions in connection with the Items with any person who is debarred,
suspended, declared ineligible or voluntarily excluded from participation in
procurement or nonprocurement transactions with any United States federal
government department or agency pursuant to any of the Debarment Regulations.
Borrower will provide immediate written notice to Lender if at any time it
learns that the certification set forth in this Section 2.19 was erroneous when
made or has become erroneous by reason of changed circumstances.
ARTICLE
III
RIGHTS AND REMEDIES
3.01
Indemnification
. Upon Ex-Im Bank’s payment of a Claim to
Lender in connection with the Loan Facility pursuant to the Master Guarantee
Agreement, Ex-Im Bank may assume all rights and remedies of Lender under the
Loan Documents and may enforce any such rights or remedies against Borrower,
the Collateral and any Guarantors. Borrower shall hold Ex-Im Bank and Lender
harmless from and indemnify them against any and all liabilities, damages,
claims, costs and losses incurred or suffered by either of them resulting from
(a) any materially incorrect certification or statement knowingly made by
Borrower or its agent to Ex-Im Bank or Lender in connection with the Loan
Facility, this Agreement, the Loan Authorization Agreement or any other Loan
Documents or (b) any material breach by Borrower of the terms and conditions of
this Agreement, the Loan Authorization Agreement or any of the other Loan
Documents. Borrower also acknowledges that any statement, certification or
representation made by Borrower in connection with the Loan Facility is subject
to the penalties provided in Article 18 U.S.C. Section 1001.
16
3.02
Liens
. Borrower agrees that any and all Liens
granted by it to Lender are also hereby granted to Ex-Im Bank to secure
Borrower’s obligation, however arising, to reimburse Ex-Im Bank for any
payments made by Ex-Im Bank pursuant to the Master Guarantee Agreement. Lender
is authorized to apply the proceeds of, and recoveries from, any property
subject to such Liens to the satisfaction of Loan Facility Obligations in accordance
with the terms of any agreement between Lender and Ex-Im Bank.
ARTICLE
IV
MISCELLANEOUS
4.01
Governing
Law
. This Agreement and the Loan
Authorization Agreement and the obligations arising under this Agreement and
the Loan Authorization Agreement shall be governed by, and construed in
accordance with, the law of the state governing the Loan Documents.
4.02
Notification
. All notices required by this Agreement shall
be given in the manner and to the parties provided for in the Loan Agreement.
4.03
Partial
Invalidity
. If at any time any of
the provisions of this Agreement becomes illegal, invalid or unenforceable in
any respect under the law of any jurisdiction, neither the legality, the
validity nor the enforceability of the remaining provisions hereof shall in any
way be affected or impaired.
4.04
Waiver
of Jury Trial
. BORROWER HEREBY
KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WANES ANY AND ALL RIGHTS IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY ACTION, SUIT, PROCEEDING OR OTHER LITIGATION
BROUGHT TO RESOLVE ANY DISPUTE ARISING UNDER, ARISING OUT OF OR IN CONNECTION
WITH THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT, ANY LOAN DOCUMENT, OR
ANY OTHER AGREEMENT, DOCUMENT OR INSTRUMENT EXECUTED OR DELIVERED IN CONNECTION
HEREWITH OR THEREWITH OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS
(WHETHER VERBAL OR WRITTEN), OR ACTIONS OR OMMISSIONS OF LENDER, EX-IM BANK, OR
ANY OTHER PERSON, RELATING TO THIS AGREEMENT, THE LOAN AUTHORIZATION AGREEMENT
OR ANY OTHER LOAN DOCUMENT.
17
IN
WITNESS WHEREOF, Borrower has caused this Agreement to be duly executed as of
the 4th day of February, 2004.
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MAXWELL TECHNOLOGIES, INC.
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By:
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(Signature)
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Name:
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(Print
or Type)
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Title:
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(Print
or Type)
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ACKNOWLEDGED:
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SILICON VALLEY BANK
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By:
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(Signature)
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Name:
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(Print
or Type)
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Title:
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(Print
or Type)
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18
ANNEXES:
Annex A - Loan Authorization Agreement or Loan Authorization Notice
19
INTELLECTUAL
PROPERTY SECURITY AGREEMENT
This
Intellectual Property Security Agreement is entered into as of February 4, 2004
by and between SILICON VALLEY BANK (“Secured Party”) and Maxwell Technologies,
Inc. (“Grantor”).
RECITALS
A. Secured
Party and Grantor are entering into that certain Loan and Security Agreement by
dated of even date herewith (as the same may be amended, modified or
supplemented from time to time, the “Loan Agreement”; capitalized terms used
herein which are not defined, have the meanings set forth in the Loan
Agreement).
B. Pursuant
to the terms of the Loan Agreement, Grantor has granted to Secured Party a
security interest in all of Grantor’s right, title and interest, whether
presently existing or hereafter acquired, in, to all Intellectual Property and
all other Collateral.
NOW,
THEREFORE, as collateral security for the payment and performance when due of
all of the Obligations, Grantor hereby grants, represents, warrants, covenants
and agrees as follows:
AGREEMENT
1.
Grant
of Security Interest
. To secure all
of the Obligations, Grantor grants and pledges to Secured Party a security
interest in all of Grantor’s right, title and interest in, to and under its
Intellectual Property (as defined in the Loan Agreement), including without
limitation the following:
(a) All
of present and future United States registered copyrights and copyright registrations,
including, without limitation, the registered copyrights, maskworks, software,
computer programs and other works of authorship subject to United States
copyright protection listed in
Exhibit A-1
to this Agreement (and
including all of the exclusive rights afforded a copyright registrant in the
United States under 17 U.S.C. §106 and any exclusive rights which may in the
future arise by act of Congress or otherwise) and all present and future
applications for copyright registrations (including applications for copyright
registrations of derivative works and compilations) (collectively, the
“Registered Copyrights”), and any and all royalties, payments, and other
amounts payable to Grantor in connection with the Registered Copyrights,
together with all renewals and extensions of the Registered Copyrights, the
right to recover for all past, present, and future infringements of the
Registered Copyrights, and all computer programs, computer databases, computer
program flow diagrams, source codes, object codes and all tangible property
embodying or incorporating the Registered Copyrights, and all other rights of
every kind whatsoever accruing thereunder or pertaining thereto.
(b) All
present and future copyrights, maskworks, software, computer programs and other
works of authorship subject to (or capable of becoming subject to) United
States copyright protection which are not registered in the United States
Copyright Office (the “Unregistered Copyrights”), whether now owned or
hereafter acquired, including without
limitation the
Unregistered Copyrights listed in
Exhibit A-2
to this Agreement, and any
and all royalties, payments, and other amounts payable to Grantor in connection
with the Unregistered Copyrights, together with all renewals and extensions of
the Unregistered Copyrights, the right to recover for all past, present, and
future infringements of the Unregistered Copyrights, and all computer programs,
computer databases, computer program flow diagrams, source codes, object codes
and all tangible property embodying or incorporating the Unregistered
Copyrights, and all other rights of every kind whatsoever accruing thereunder
or pertaining thereto. The Registered
Copyrights and the Unregistered Copyrights collectively are referred to herein
as the “Copyrights.”
(c) All
right, title and interest in and to any and all present and future license
agreements with respect to the Copyrights.
(d) All
present and future accounts, accounts receivable, royalties, and other rights
to payment arising from, in connection with or relating to the Copyrights.
(e) All
patents, patent applications and like protections including, without limitation,
improvements, divisions, continuations, renewals, reissues, extensions and
continuations-in-part of the same, including without limitation the patents and
patent applications set forth on
Exhibit B
attached hereto
(collectively, the “Patents”);
(f) All
trademark and servicemark rights, whether registered or not, applications to
register and registrations of the same and like protections, and the entire
goodwill of the business of Grantor connected with and symbolized by such
trademarks, including without limitation those set forth on
Exhibit C
attached hereto (collectively, the “Trademarks”);
(g) Any
and all claims for damages by way of past, present and future infringements of any
of the rights included above, with the right, but not the obligation, to sue
for and collect such damages for said use or infringement of the rights
identified above;
(h) All
licenses or other rights to use any of the Copyrights, Patents or Trademarks, and
all license fees and royalties arising from such use to the extent permitted by
such license or rights;
(i) All
amendments, extensions, renewals and extensions of any of the Copyrights, Trademarks
or Patents; and
(j) All proceeds and products of the foregoing,
including without limitation all payments under insurance or any indemnity or
warranty payable in respect of any of the foregoing, and all license royalties
and proceeds of infringement suits, and all rights corresponding to the
foregoing throughout the world and all re-issues, divisions continuations,
renewals, extensions and continuations-in-part of the foregoing.
2.
Loan
Agreement
. This security interest
is granted in conjunction with the security interest granted to Secured Party
under the Loan Agreement. The rights
and remedies of Secured Party with respect to the security interest granted
hereby are in addition to those set forth in the Loan Agreement and the other
Loan Documents, and those which are now or hereafter available to Secured Party
as a matter of law or equity. Each
right, power and remedy of Secured Party
2
provided for herein or in
the Loan Agreement or any of the other Loan Documents, or now or hereafter
existing at law or in equity shall be cumulative and concurrent and shall be in
addition to every right, power or remedy provided for herein and the exercise
by Secured Party of any one or more of the rights, powers or remedies provided
for in this Agreement, the Loan Agreement or any of the other Loan Documents,
or now or hereafter existing at law or in equity, shall not preclude the
simultaneous or later exercise by any person, including Secured Party, of any
or all other rights, powers or remedies.
3.
Covenants
and Warranties
. Grantor represents,
warrants, covenants and agrees as follows:
(a) Grantor
has no present maskworks, software, computer programs and other works of authorship
registered with the United States Copyright Office except as disclosed on Exhibit
A-1 hereto.
(b) Grantor
shall undertake all reasonable measures to cause its employees, agents and independent
contractors to assign to Grantor all rights of authorship to any copyrighted
material in which Grantor has or may subsequently acquire any right or
interest.
(c) Grantor
shall promptly advise Secured Party of any Trademark, Patent or Copyright not
specified in this Agreement, which is hereafter acquired by Grantor.
(d) Grantor
shall not register any maskworks, software, computer programs or other works of
authorship subject to United States copyright protection with the United States
Copyright Office without first complying with the following: (i) providing
Secured Party with written notice thereof simultaneously with the filing of
such application for registration, (ii) providing Secured Party with a
copy of the application for any such registration and (iii) executing and
filing such other instruments, and taking such further actions as Secured Party
may reasonably request from time to time to perfect or continue the perfection
of Secured Party’s interest in the Collateral, including without limitation the
filing with the United States Copyright Office, simultaneously with the filing
by Grantor of the application for any such registration, of a copy of this
Agreement or a Supplement hereto in form acceptable to Secured Party
identifying the maskworks, software, computer programs or other works of
authorship being registered and confirming the grant of a security interest
therein in favor of Secured Party.
4.
General
. If any action relating to this Agreement is
brought by either party hereto against the other party, the prevailing party
shall be entitled to recover reasonable attorneys fees, costs and
disbursements. This Agreement may be
amended only by a written instrument signed by both parties hereto. To the extent that any provision of this
Agreement conflicts with any provision of the Loan Agreement, the provision
giving Secured Party greater rights or remedies shall govern, it being
understood that the purpose of this Agreement is to add to, and not detract
from, the rights granted to Secured Party under the Loan Agreement. This Agreement, the Loan Agreement, and the
other Loan Documents comprise the entire agreement of the parties with respect
to the matters addressed in this Agreement.
This Agreement shall be governed by the laws of the State of California,
without regard for choice of law provisions.
Grantor and Secured Party consent to the nonexclusive jurisdiction of
any state or federal court located in Santa Clara County, California.
3
5.
WAIVER OF
RIGHT TO JURY TRIAL
. SECURED
PARTY AND GRANTOR EACH HEREBY WAIVE THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR
PROCEEDING BASED UPON, ARISING OUT OF, OR IN ANY WAY RELATING TO: (I) THIS
AGREEMENT; OR (II) ANY OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN
SECURED PARTY AND GRANTOR; OR (III) ANY CONDUCT, ACTS OR OMISSIONS OF SECURED
PARTY OR GRANTOR OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS OR ANY OTHER PERSONS AFFILIATED WITH SECURED PARTY OR GRANTOR; IN
EACH OF THE FOREGOING CASES, WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
IN
WITNESS WHEREOF, the parties have cause this Intellectual Property Security
Agreement to be duly executed by its officers thereunto duly authorized as of
the first date written above.
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Address of Grantor:
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Grantor:
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9244 Balboa Avenue
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Maxwell Technologies, Inc.
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SanDiego,CA 92123
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By:
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Title:
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Name:
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Address of Secured Party:
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Secured Party:
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3003 Tasman Drive
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SILICON VALLEY BANK
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Santa Clara, California 95054
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By:
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Title:
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4
EXHIBIT A-1
REGISTERED
COPYRIGHTS
(including copyrights that are the subject of an application for registration)
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Description
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Registration/
Application
Number
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Registration/
Application
Date
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NONE
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EXHIBIT A-2
UNREGISTERED
COPYRIGHTS
NONE
2
EXHIBIT B
PATENTS
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Description
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Registration/
Application
Number
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Registration/
Application
Date
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See Attached Patent Listing
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3
EXHIBIT C
TRADEMARKS
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Description
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Registration/
Application
Number
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Registration/
Application
Date
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4
Confirmation re
Closing Documents
February 4, 2004
To: Silicon
Valley Bank
Ladies and Gentlemen:
Concurrently,
we are signing and submitting to you a Loan and Security Agreement (the “Loan
Agreement”), and we and our affiliates are signing and submitting to you other
related documents and agreements (with the Loan Agreement, collectively, the
“Loan Documents”).
In
order to save time in the closing process, your attorneys sent the signature
copies of the Loan Documents to us by email, and we then printed them and had
them signed.
This
will confirm that we have not made any changes in any of the Loan Documents and
that they were signed as they were submitted to us.
Sincerely,
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Maxwell Technologies, Inc.
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By
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Name
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5
[SVB
SECURITIES LOGO]
Securities
Account Control Agreement
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Customer:
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Maxwell Technologies. Inc.
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Creditor:
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Silicon Valley Bank
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Date:
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February 4, 2004
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This Securities Account
Control Agreement entered into as of the above date (this “Agreement”) is among
SVB Securities, A Division of Alliant Partners (“SVBS”), Banc of America
BrokerDealer Services, a division of Banc of America Securities LLC (“BA-BDS”
or “Clearing Broker”), the Customer identified above (“Customer”), and the
Creditor identified above (“Creditor”).
Recitals
A. Customer
has established a securities account or securities accounts (“Account”) with
and/or through SVBS and BA-BDS pursuant to a SVB Securities Client Agreement
(“Client Agreement”). The account number and title for the Account (or
Accounts) are identified in
Exhibit A
to this Agreement. SVBS acts as
the introducing broker. BA-BDS acts as the clearing broker. Both SVBS and
Clearing Broker are securities intermediaries pursuant to Article 8 of the
California Uniform Commercial Code (“CUCC”). Customer maintains in the Account
securities, financial assets and other investment property as defined under
Article 8 and 9 of the CUCC (collectively, the “Securities”).
B. Pursuant
to a security agreement or similar agreement identified in
Exhibit A
hereto (the
“Security Agreement”), Customer has granted to Creditor a security interest in
certain personal property of Customer, including without limitation (i) the
Account; (ii) the Securities, (iii) all dividends and distributions, whether
payable in cash, securities, or other property, in respect of the Securities,
(iv) all of Customer’s rights in respect of the Securities and Account, and
(iv) all products, proceeds and revenues of and from any of the foregoing
personal property in sections (i) through (iv) (collectively, the
“Collateral”).
C.
SVBS, Clearing Broker, Customer and Creditor are entering into this Agreement
in order to perfect Creditor’s security interest in the Collateral and the
Account by means of control pursuant to Article 8 of the CUCC.
Agreement
The
parties hereto hereby agree as follows:
1.
Defined
Terms
. All terms used in this Agreement which are defined in the CUCC but
are not otherwise defined herein shall have the meanings assigned to such terms
in the CUCC, as in effect as of the date of this Agreement. While in the
Account, all property credited to the Securities will be treated as financial
assets under Article 8 of the CUCC. By this
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SVBS Form Dated September 15, 2002
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1
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Agreement, Customer
grants to Creditor “control” over the Securities within the meaning of Section
8106 of the CUCC.
2.
The
Securities
. SVBS and Clearing Broker represent to Creditor that, on behalf
of Customer, Customer maintains the Securities in the Account.
3.
Acknowledgement
of Security Interest
. SVBS and Clearing Broker hereby acknowledge the
security interest granted in the Collateral to Creditor by Customer. Creditor
hereby acknowledges the security interest granted in the Collateral to SVBS and
Clearing Broker by Customer pursuant to the Client Agreement.
4.
Other
Control Agreements
. SVBS represents and warrants that, other than any
account control agreement listed in
Exhibit A
hereto, SVBS has executed no
other account control agreement with any other party and SVBS is not presently
obligated to accept any entitlement order from any person other than the
Customer with respect to the Collateral. Clearing Broker represents and
warrants that, other than any account control agreement listed in
Exhibit A
hereto, Clearing Broker has executed no other account control agreement with
any other party and Clearing Broker is not presently obligated to accept any
entitlement order from any person other than the Customer with respect to the
Collateral.
5.
Future
Control Agreements
. Customer covenants and agrees that it will not enter an
account control agreement with any other party without Creditor’s prior written
consent. SVBS agrees that it will not enter into a control agreement with any
other party with respect to the Account without Creditor’s prior written
consent. Clearing Broker agrees that it will not enter into a control agreement
with any other party with respect to the Account without Creditor’s prior
written consent.
6.
Limitation
on SVBS’ and Clearing Broker’s Rights in the Collateral
. SVBS and Clearing
Broker will not attempt to assert control and does not claim and will not
accept any security or other interest in any part of the Collateral, and SVBS
and Clearing Broker will not exercise, enforce or attempt to enforce on their
own behalves any right of setoff against the Collateral, or otherwise charge or
deduct from the Collateral on SVBS’ or Clearing Broker’s behalves any amount
whatsoever, other than for: security interests, liens, encumbrances, claims or
rights of setoff for the payment of any amounts owed by Customer to SVBS and/or
Clearing Broker arising in connection with SVBS’ and Clearing Broker’s
customary fees and commissions pursuant to their agreement with Customer or for
the payment for financial assets and securities purchased for the Account (the
“Account Claims”). Customer and Creditor hereby acknowledge that any security
interests, liens, encumbrances, claims or rights of setoff for the payment of
any amounts owed by Customer to SVBS and Clearing Broker arising in connection
with the Account Claims shall at all times be prior to the rights of Creditor
in the Collateral and Securities whether or not Creditor sends to SVBS a Notice
of Exclusive Control described below.
7.
Agreement
for Control
.
(a) SVBS
and Clearing Broker will comply with all entitlement orders (including requests
to withdraw Collateral from the Account) originated by Customer with respect to
the
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SVBS Form Dated September 15, 2002
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2
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Collateral, or any
portion of the Collateral, without further consent by Creditor until such time
as SVBS receives from Creditor (in accordance with Section 17 below) a written
notice to SVBS that Creditor is thereby exercising exclusive control over the
Account (a “Notice of Exclusive Control.”). The Notice of Exclusive Control
must be in the form set forth in
Exhibit B
hereto. SVBS or Clearing Broker
have no obligation whatsoever to confirm that Creditor is entitled to send a
Notice of Exclusive Control in connection with the Account or that the
Creditor’s representative who signs any Notice of Exclusive Control is
authorized to do so. SVBS and Clearing Broker (upon instruction from SVBS)
will, upon SVBS’ receipt of such Notice of Exclusive Control, proceed in
accordance with the remainder of this Section 7 even if Creditor’s instructions
are contrary to any instructions or demands that Customer may give to SVBS or
Clearing Broker. After SVBS receives a Notice of Exclusive Control and has had
reasonable opportunity to comply with it, but no later than two (2) Business
Days (“Business Days” means days which SVBS is open to the public for business
and are measured in 24 hour increments) after receipt of the Notice of
Exclusive Control (in accordance with Section 17 below), SVBS and Customer
agree that SVBS and Clearing Broker will: (i) cease complying with entitlement
orders or other directions concerning the Account and Collateral that are
originated by Customer or its representatives until such time as SVBS receives
a written notice from Creditor rescinding the Notice of Exclusive Control; and
(ii) comply with the entitlement orders and instructions provided to SVBS by
Creditor without investigating: the reason for any action taken by Creditor;
the amount of any obligations of Customer to Creditor; the validity of any of
Creditor’s agreements with Customer; or the existence of any defaults under
such agreements.
(b) Notwithstanding
the foregoing, Creditor agrees that upon receipt of Creditor’s Notice of
Exclusive Control, SVBS and Clearing Broker may take all steps necessary to
satisfy or settle any Account Claims, may respond as required pursuant to the
terms of any other account control agreement with respect to which SVBS
believes it previously received a Notice of Exclusive Control or similar
notice, and may respond as required by law to any court or government order,
writ or other legal process received by SVBS or Clearing Broker. Creditor also
agrees that, before SVBS’ receipt of Creditor’s Notice of Exclusive Control,
SVBS and Clearing Broker may be required to and may respond to (i) Notices of Exclusive
Control or similar notices sent to SVBS by other parties and (ii) a writ or
other similar legal process served on SVBS or Clearing Broker in connection
with the Account and Collateral. SVBS and Clearing Broker agree to use good
faith efforts to promptly notify Creditor if any other party delivers to SVBS a
notice of exclusive control or any party other than Creditor or SVBS asserts a
claim against the Collateral by means of a writ or other similar legal process,
but failure to provide such notice does not constitute a breach of this
Agreement. Customer expressly agrees that SVBS, Clearing Broker and Creditor
may act in accordance with the terms of this Section 7.
8.
Customer
Waiver and Authorization
. Customer hereby waives any rights that Customer
may have under the Client Agreement to the extent such rights are inconsistent
with the provisions of this Agreement, and hereby authorizes SVBS and Clearing
Broker to comply with all instructions and entitlement orders delivered by
Creditor to SVBS in accordance with the terms of this Agreement.
9.
Amendments
to and Termination of Client Agreement
. SVBS, Clearing Broker and Customer
shall not amend, supplement or otherwise modify the Client Agreement insofar as
it pertains to the Collateral without prior written notice to Creditor.
Customer may not terminate
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SVBS Form Dated September 15, 2002
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the Client Agreement
insofar as it pertains to the Collateral without consent of Creditor. SVBS and
Clearing Broker agree to use good faith efforts to notify Creditor if SVBS or
Clearing Broker terminate the Client Agreement, but SVBS’ or Clearing Broker’s
failure to notify Creditor shall not be a breach of this Agreement.
10.
Termination
of this Agreement
. Creditor may terminate this Agreement by giving SVBS and
Customer written notice of termination; provided that, by giving such notice,
Creditor acknowledges that it will thereby be confirming that, as of the
termination date, it will no longer have a perfected security interest in the
Account and Securities in the Collateral which is perfected by control via this
Agreement, although Creditor may continue to have a perfected security interest
in the Account by other means. SVBS and Clearing Broker may terminate this
Agreement by giving Creditor and Customer 30 days prior written notice of
termination (unless a shorter notice period is mandated by applicable law).
Customer may only terminate this Agreement with the written consent of
Creditor; provided that, by giving such notice with Creditor’s written consent,
both Customer and Creditor acknowledge that they will thereby be confirming
that, as of the termination date, Creditor will no longer have a perfected
security interest in the Collateral which is perfected by control pursuant to
this Agreement, although Creditor may continue to have a perfected security
interest in the Collateral by other means.
11.
Delivery
of Account Statements
. SVBS and Clearing Broker are hereby authorized by
Customer and agree to send to Creditor at its address for notices set forth
below Creditor’s signature block at the end of this Agreement, concurrently
with the sending thereof to Customer, duplicate copies of any and all monthly
statements or reports issued or sent to Customer with respect to the Collateral
and the Account. Until this Agreement is terminated, Customer authorizes SVBS
to disclose to Creditor at Creditor’s request any information concerning
Customer’s Account and the Securities in the Account, including but not limited
to the identity of any other party with which Customer and SVBS and Clearing
Broker have executed account control agreements or similar agreements.
12.
Responsibility
of SVBS. Clearing Broker and Creditor
. This Agreement does not create any
obligation or duty on the part of SVBS, Clearing Broker or Creditor other than
those expressly set forth herein.
13.
No
Waiver
. Any forbearance or failure or delay by SVBS, Clearing Broker or
Creditor in exercising any right hereunder shall not be deemed a waiver thereof
and any single or partial exercise of any right shall not preclude the further
exercise thereof.
14.
Amendments
.
This Agreement and all exhibits attached hereto may be amended only in writing signed
by all parties hereto.
15.
Governing
Law
. Notwithstanding the terms of any other agreement, the parties hereto
agree that this Agreement shall be governed under and in accordance with the
laws of the State of California. All parties hereto each submit to the
exclusive jurisdiction of the State and Federal courts in Santa Clara County,
California.
16.
Integration
Provision
. This Agreement constitutes the entire agreement among SVBS,
Clearing Broker, Customer and Creditor with respect to Creditor’s control over the
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SVBS Form Dated September 15, 2002
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Collateral and
Securities and matters specifically set forth herein, and all prior
communications, whether verbal or written, between any of the parties hereto
with respect to the subject matter hereof shall be of no further effect or
evidentiary value.
17.
Notices
.
(a) Any
notice, other than a Notice of Exclusive Control, or other communication
provided for or allowed hereunder shall be in writing and shall be considered
to have been validly given (a) when actually received by the recipient at the
address or facsimile number, if delivered personally (whether by messenger, air
courier service or otherwise) or sent by facsimile to the address or facsimile
number identified below the signature of the applicable party’s signature below
and addressed to the addressee identified below the signature of the applicable
party’s signature below; or (b) 72 hours after being deposited in the United
States mail, registered or certified, postage prepaid, return receipt
requested, if sent to the address and addressee as set forth below the
signature of the applicable party hereto. The addresses to which notices or
other communications are to be given may be changed from time to time by notice
served as provided herein.
(b) A
Notice of Exclusive Control shall be in writing, must be in the form set forth
in
Exhibit B
hereto, must be delivered to the address listed below SVBS’
signature block at the end of this Agreement, must be delivered to SVBS via
hand delivery, messenger, overnight delivery or facsimile and shall be
considered to have been validly given when actually received,
except
that a facsimile will be considered to have been validly given only when
acknowledged in writing by SVBS (SVBS agrees that it will use its good faith
effort to promptly acknowledge receipt of such facsimile). Creditor
acknowledges that SVBS may not be able to respond to a Notice of Exclusive
Control pursuant to section 7 above, and Creditor agrees that SVBS will not be
held liable for any failure to respond to a Notice of Exclusive Control, if the
Creditor does not deliver the Notice of Exclusive Control as set forth in this
Section 17 or to the address listed below SVBS’ signature block at the end of
this Agreement.
18.
Indemnification
and Hold Harmless of SVBS and Clearing Broker by Customer
. Customer hereby
agrees to indemnify and hold harmless SVBS and Clearing Broker, and their
respective affiliates and their respective directors, officers, agents and
employees (each, an “
Indemnified Person
”) against any and all claims,
causes of action, liabilities, lawsuits, demands and damages (each, a “Claim”)
asserted by Creditor or any other party, including without limitation, any and
all court costs and reasonable attorneys’ fees, in any way related to or
arising out of or in connection with this Agreement or any action taken or not
taken pursuant hereto, including any claims arising as a result of SVBS’ and
Clearing Broker’s adherence (or alleged failure of adherence) to the foregoing
instructions including, without limitation, Claims that allegedly result from
SVBS’ and/or Clearing Broker’s ceasing, based on this Agreement, to permit
withdrawals of or from the Collateral or resulting from SVBS’ and/or Clearing
Broker’s paying over or delivering all or any part of the Collateral pursuant
to the directions of Creditor;
provided
that no Indemnified Person shall
be entitled to be indemnified to the extent that such Claims arise from the
Indemnified Person’s own gross negligence or willful misconduct. Customer
agrees that SVBS and/or Clearing Broker shall not be liable for delays or
errors occurring by reason of circumstances beyond the control of SVBS or Clearing
Broker, including, without limitation, acts of civil, military, or banking
authorities, national emergencies, market
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SVBS Form Dated September 15, 2002
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disorder, labor
difficulties, fire, flood or other catastrophes, acts of God, terrorism, insurrection,
war, riots, failure of transportation or equipment, or failure of vendors,
communication or power supply. Clearing Broker shall have no responsibility or
liability under this Agreement to Customer for any acts or omissions by SVBS,
its officers, employees or agents; and SVBS shall have no responsibility or
liability under this Agreement to Customer for any acts or omissions by
Clearing Broker, its officers, employees or agents.
19.
Indemnification
and Hold Harmless of SVBS and Clearing Broker by Creditor
. Creditor hereby
agrees to indemnify Indemnified Persons against any and all Claims asserted by
Customer or any other party (including, without limitation, any and all court
costs and reasonable attorneys’ fees) arising directly out of SVBS’ and/or
Clearing Broker’s adherence or failure of adherence to Creditor’s instructions
in its Notice of Exclusive Control, including, without limitation, any Claim
that arises directly out of SVBS’ and/or Clearing Broker’s ceasing, based on
this Agreement, to permit withdrawals of or from the Collateral or resulting
from SVBS’ and/or Clearing Broker’s paying over or delivering all or any part
of the Collateral pursuant to Creditor’s instructions in its Notice of
Exclusive Control;
provided
, that no Indemnified Person shall be
entitled to be indemnified (a) to the extent that such Claim results from an
Indemnified Person’s gross negligence or willful misconduct; or (b) for any
special, indirect, consequential or punitive damages asserted by Customer if
the waiver in Section 21 of this Agreement is enforceable. Creditor agrees that
it will not hold Indemnified Persons liable for any Claim arising out of or
relating to any Indemnified Person’s performance or failure of performance
under this Agreement other than those Claims that result directly from the acts
or omissions of the Indemnified Person which are deemed gross negligence or
willful misconduct by a civil court or other similar judicial body. Clearing
Broker shall have no responsibility or liability under this Agreement to
Creditor for any acts or omissions by SVBS, its officers, employees or agents;
and SVBS shall have no responsibility or liability under this Agreement to
Creditor for any acts or omissions by Clearing Broker, its officers, employees
or agents.
20.
Jury
Trial Waiver
. CUSTOMER, CREDITOR, SVBS AND CLEARING BROKER EACH
WAIVE THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT
OF OR BASED UPON THIS AGREEMENT, OR ANY CONTEMPLATED TRANSACTION, INCLUDING
CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS WAIVER IS A MATERIAL
INDUCEMENT FOR ALL PARTIES TO ENTER INTO THIS AGREEMENT. EACH PARTY HAS
REVIEWED THIS WAIVER WITH ITS COUNSEL.
21.
Waiver
.
NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED IN THIS AGREEMENT OR
ANYWHERE ELSE, CUSTOMER WAIVES AND AGREES THAT IT SHALL NOT SEEK FROM SVBS,
CLEARING BROKER OR CREDITOR UNDER ANY THEORY OF LIABILITY (INCLUDING WITHOUT
LIMITATION ANY THEORY IN TORTS), ANY SPECIAL, INDIRECT, CONSEQUENTIAL OR
PUNITIVE DAMAGES.
22.
Unpaid
Account Claims
. Before Creditor exercises exclusive control over the
Account, SVBS and/or Clearing Broker may, in the ordinary course of business,
debit from the Account any unpaid Account Claims. After Creditor exercises
exclusive control over the Account, if (a) funds are not available in the
Account to pay SVBS and/or Clearing Broker for
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SVBS Form Dated September 15, 2002
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any Account Claims, and
(b) Customer fails to pay such Account Claims within fifteen (15) Business days
of SVBS’ and/or Clearing Broker’s written demand therefore, Creditor will pay
to SVBS and/or Clearing Broker, within ten (10) Business days of a written
demand by SVBS and/or Clearing Broker, any amounts owed for an Account Claim and
that is not paid in full by Customer up to the amount of the proceeds received
by Creditor from the Account.
23.
Attorneys’
Fees, Costs and Expenses
. In any action or proceeding between Customer and
SVBS, between Customer and Clearing Broker, between Creditor and SVBS, or
between Creditor and Clearing Broker, arising out of this Agreement, the
prevailing party will be entitled to recover its reasonable attorneys’ fees and
other costs and expenses incurred, in addition to any other relief to which it
may be entitled, whether or not a lawsuit is filed.
24.
No
Conflict
. To the extent that the terms or conditions of this Agreement are
inconsistent with the Client Agreement or any other document, instrument or
agreement between SVBS, Clearing Broker and Customer, the terms and conditions
of this Agreement shall prevail.
25.
Successors
.
The terms of this Agreement shall be binding upon, and shall inure to the
benefit of, the parties hereto and to each party’s respective successors or
heirs and personal representatives. The parties may assign this Agreement and
any rights under the Agreement only if that party’s successor or assign assume
all obligations under this Agreement.
26.
Counterparts
.
This Agreement may be executed in any number of counterparts and by different
parties on separate counterparts, each of which, when executed and delivered,
are an original, and all taken together, are one Agreement.
27.
Survival
.
Sections 15 and 18 through 25 shall survive the termination of this Agreement.
[The
rest of this page intentionally left blank.]
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SVBS Form Dated September 15, 2002
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IN
WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives as of the date first above written.
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CUSTOMER:
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Maxwell
Technologies, Inc.
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By
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Name:
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Title:
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Address for
Notices:
9244 Balboa
Avenue
San Diego, CA
92123
Telephone:
Facsimile:
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CREDITOR:
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Silicon
Valley Bank
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By
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Name:
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Title:
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Address for
Notices:
3003 Tasman Drive
Santa Clara, California 95054
Telephone:
Facsimile:
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SVBS:
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SVB SECURITIES
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By
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Name:
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Title:
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Operation
Manager
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Address for
Notices:
SVB Securities
3003 Tasman Drive
Mail Sort HG250
Santa Clara, CA 95054
Attn: Operations Manager
Telephone: 408-654-7256
Facsimile: 408-496-2407
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CLEARING BROKER:
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BANC OF
AMERICA SECURITIES LLC
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By
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Name:
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Title:
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SVBS Form Dated September 15, 2002
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SVB
Securities
Securities Account Control Agreement
Exhibit A
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1.
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Account
Title and Number:
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Account
Title:_________________________________
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Account
Number:
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2.
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“Security
Agreement” (This section to be completed by
Creditor
):
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Loan and Security Agreement dated on or about the
date hereof (as the same may be amended from time to time).
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3.
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Account
Control Agreements Previously Executed by SVB Securities and Clearing Broker
with other Parties Asserting an Interest in the Account (This Section to be
completed by
SVBS
):
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SVBS Form Dated September 15, 2002
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SVB
Securities
Securities Account Control Agreement
Exhibit B
Notice of Exclusive Control
To: SVB
Securities (“SVBS”)
From: (“Creditor”) _______________________
Re: (“Customer”) __________________________
Date: ________________________
Pursuant to the
Securities Account Control Agreement dated _______________ (“Agreement”)
entered among SVBS, Clearing Broker (as defined in the Agreement) Customer and
Creditor, Creditor hereby notifies SVBS of Creditor’s exercise of Creditor’s
rights under the Agreement and directs SVBS to cease complying with trading
instructions or any entitlement orders originated by Customer or its agents.
Creditor understands and
agrees that SVBS and Clearing Broker shall have no duty or obligation
whatsoever of any kind or character to determine the validity of Creditor’s
exercise of its rights under the Agreement or the certification above, to
determine if SVBS and/or Clearing Broker is/are obligated to take further
instructions from Customer, or to determine whether Creditor has a right to all
or part of the Collateral. Creditor hereby agrees to indemnify and hold
harmless SVBS and Clearing Broker, their respective affiliates, and their
respective directors, officers, employees and agents pursuant to the terms of
Section 19 of the Agreement.
Creditor agrees that upon
receipt of Creditor’s Notice of Exclusive Control, SVBS and Clearing Broker may
exercise their rights and remedies as permitted under the Agreement.
Creditor hereby certifies
that the person executing this Notice of Exclusive Control is an officer,
representative or agent of Creditor authorized to act on the behalf of Creditor
and to make the representations and agreements contained in this Notice of
Exclusive Control.
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CREDITOR:
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By
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Title:
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ACKNOWLEDGED
BY:
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SVB SECURITIES
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(for
facsimile only)
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By:
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Name:
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Title:
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Date:
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Time:
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SVBS Form Dated September 15, 2002
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EXHIBIT 21.1
Subsidiaries
of Maxwell Technologies, Inc.
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ENTITY
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STATE/COUNTRY OF INCORPORATION
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Maxwell Technologies, Inc.
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California
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Maxwell Technologies SA
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Switzerland
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Maxwell Technologies Systems Division, Inc.
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California
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PurePulse Technologies, Inc.
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Delaware
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I-Bus/Phoenix, Inc.
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California
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Exhibit
23.1
INDEPENDENT AUDITORS’
CONSENT
We
consent to the incorporation by reference in Registration Statement Nos.
333-86686, 333-86688, 333-53278,
033-88634, 333-41632, 333-41634, 333-41670, 333-28459, 333-07831, 033-88638 and
033-88636 of Maxwell Technologies, Inc. on Form S-8 of our report dated
March 29, 2004 (which expresses an unqualified opinion and includes an
explanatory paragraph relating to the adoption of Statement of Financial
Accounting Standards No. 87, as amended), appearing in this Annual Report
on Form 10-K of Maxwell Technologies, Inc. for the year ended December 31, 2003.
DELOITTE & TOUCHE
LLP
San Diego,
California
March 29, 2004
EXHIBIT
23.2
CONSENT
OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We
consent to the incorporation by reference in the Registration Statements on Form
S-8 (Nos. 333-07831, 333-28459, 333-41632, 333-41634, 333-41670, 333-53278,
333-86686, 333-86688, 033-88634, 033-88636, and 033-88638) of Maxwell
Technologies, Inc. and subsidiaries of our report dated February 7, 2003, with
respect to the 2002 and 2001 consolidated financial statements and schedule of
Maxwell Technologies, Inc. and subsidiaries included in the Annual Report (Form
10-K) for the year ended December 31, 2003.
/s/ ERNST & YOUNG
LLP
San Diego,
California
March 24, 2004
EXHIBIT 31.1
SARBANES-OXLEY
SECTION 302(a) CERTIFICATION
I,
Richard D. Balanson, certify that:
1.
I have reviewed this annual report on Form 10-K of Maxwell Technologies, Inc.;
2. Based
on my knowledge, this report does not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements made, in
light of the circumstances under which such statements were made, not misleading
with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a.
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c.
Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over
financial reporting.
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Date: March 30, 2004
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/s/ Richard D. Balanson
Richard D. Balanson
President and Chief Executive Officer
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EXHIBIT 31.2
SARBANES-OXLEY
SECTION 302(a) CERTIFICATION
I,
Tesfaye Hailemichael, certify that:
1. I
have reviewed this annual report on Form 10-K of Maxwell Technologies, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report;
3.
Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of, and
for, the periods presented in this report;
4.
The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have:
a.
Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that
material information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b.
Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered
by this report based on such evaluation; and
c.
Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent
fiscal quarter (the registrant’s fourth fiscal quarter in the case of an
annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer(s) and I have disclosed, based on
our most recent evaluation of internal control over financial reporting, to the
registrant’s auditors and the audit committee of registrant’s board of
directors (or persons performing the equivalent functions):
a.
All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to
adversely affect the registrant’s ability to record, process, summarize and
report financial information; and
b.
Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over
financial reporting.
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Date: March 30, 2004
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/s/ Tesfaye Hailemichael
Tesfaye Hailemichael
Chief Financial Officer
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EXHIBIT 32
CERTIFICATION
OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
Pursuant
to
18 U.S.C. Section 1350,as
Adopted Pursuant to
906 of the Sarbanes-Oxley Act of 2002
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Solely
for the purposes of complying with 18 U.S.C. Section 1350, as adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, we the undersigned Chief
Executive Officer and Chief Financial Officer of Maxwell Technologies, Inc.
certify that, to the best of our knowledge, the Annual Report of Maxwell
Technologies, Inc. on Form 10-K for the fiscal year ended December 31, 2003
fully complies with the requirements of Section 13(a) of the Securities Exchange
Act of 1934 and that information contained in such Annual Report on Form 10-K
fairly presents in all material respects, the financial condition and results of
operations of Maxwell Technologies, Inc.
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Date: March 30, 2004
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/s/ Richard D. Balanson
Richard D. Balanson
President and Chief Executive Officer
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/s/ Tesfaye Hailemichael
Tesfaye Hailemichael
Chief Financial Officer
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