-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, FJIsVN1hzjPcNLJE3zDVJKWfqxsmEoxB8UxhudSxIB44BmVFVJdbhPwWeJeF8QrK 3aI08HEgxbCQy1g3w981Pw== /in/edgar/work/0000319815-00-000012/0000319815-00-000012.txt : 20001116 0000319815-00-000012.hdr.sgml : 20001116 ACCESSION NUMBER: 0000319815-00-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MAXWELL TECHNOLOGIES INC CENTRAL INDEX KEY: 0000319815 STANDARD INDUSTRIAL CLASSIFICATION: [3571 ] IRS NUMBER: 952390133 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-15477 FILM NUMBER: 768837 BUSINESS ADDRESS: STREET 1: 9275 SKYPARK COURT STREET 2: SUITE 400 CITY: SAN DIEGO STATE: CA ZIP: 92123 BUSINESS PHONE: 8582795100 MAIL ADDRESS: STREET 1: 9244 BALBOA AVENUE STREET 2: . CITY: SAN DIEGO STATE: CA ZIP: 92123 FORMER COMPANY: FORMER CONFORMED NAME: MAXWELL LABORATORIES INC /DE/ DATE OF NAME CHANGE: 19920703 10-Q 1 0001.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q _X_ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarter Ended September 30, 2000 TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Transition Period From _____ to ____ Commission File Number 0-10964 MAXWELL TECHNOLOGIES, INC. (Exact name of registrant as specified in its charter) Delaware 95-2390133 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 9244 Balboa Avenue, San Diego, CA 92123 (Address of principal executive office) (Zip Code) Registrant's telephone number, including area code: (858) 279-5100 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- As of October 31, 2000, Registrant had only one class of common stock, of which there were 9,867,532 shares outstanding. MAXWELL TECHNOLOGIES, INC. INDEX TO QUARTERLY REPORT ON FORM 10-Q For the quarter ended September 30, 2000 Page ---- PART I Item 1. Condensed Consolidated Financial Statements 1 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 9 Item 3. Quantitative and Qualitative Disclosures About Market Risk 19 PART II Item 1. Legal Proceedings 19 Item 2. Changes in Securities and Use of Proceeds 19 Item 3. Defaults Upon Senior Securities 19 Item 4. Submission of Matters to a Vote of Security Holders 19 Item 5. Other Information 19 Item 6. Exhibits and Reports on Form 8-K 19 PART I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements MAXWELL TECHNOLOGIES, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands) September 30, December 31, 2000 1999 ------------ ----------- Assets (Unaudited) (Note) Current assets: Cash and cash equivalents $ 1,777 $ 4,100 Accounts receivable, net 30,182 26,134 Inventories 25,224 22,805 Prepaid expenses and other current assets 3,042 715 Deferred income taxes 18,673 14,894 Net assets of discontinued operations 1,483 6,927 -------- -------- Total current assets 80,381 75,575 Property, plant and equipment, net 22,769 18,848 Goodwill and other non-current assets 12,629 12,021 -------- -------- $115,779 $106,444 ======== ======== Liabilities and Stockholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 12,304 $ 14,267 Accrued employee compensation 7,731 5,402 Short-term borrowings 17,708 264 Current portion of long-term debt 21 24 -------- -------- Total current liabilities 37,764 19,957 Long-term debt, excluding current portion 172 186 Minority interest 5,624 1,885 Commitments and contingencies Stockholders' equity: Common stock 986 957 Additional paid-in capital 81,013 78,378 Notes receivable from executives for stock purchases (900) -- Deferred compensation (27) (117) Retained earnings (deficit) (8,189) 5,375 Accumulated other comprehensive loss - foreign currency translation adjustments (664) (177) -------- -------- 72,219 84,416 -------- -------- $115,779 $106,444 ======== ========
Note: The Balance Sheet at December 31, 1999 has been derived from the audited financial statements as of that date. See notes to unaudited condensed consolidated financial statements. MAXWELL TECHNOLOGIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per share data) Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Sales $ 31,673 $42,614 $106,434 $121,129 Cost of sales 27,947 29,925 83,641 83,237 -------- -------- -------- -------- Gross profit 3,726 12,689 22,793 37,892 Operating expenses: Selling, general and administrative 8,520 10,026 26,617 26,898 Research and development 2,759 1,847 7,126 5,797 Restructuring, acquisition and other charges 8,281 1,405 10,191 2,896 -------- -------- -------- -------- Total operating expenses 19,560 13,278 43,934 35,591 -------- -------- -------- -------- Operating income (loss) (15,834) (589) (21,141) 2,301 Interest expense (369) (37) (560) (236) Interest income and other, net (101) 55 (24) 544 -------- -------- -------- -------- Income (loss) before income taxes and minority interest (16,304) (571) (21,725) 2,609 Provision (credit) for income taxes (6,522) (6,401) (8,690) (6,121) Minority interest in net income (loss) of subsidiaries (94) (161) (289) 156 -------- -------- -------- -------- Income (loss) from continuing operations (9,688) 5,991 (12,746) 8,574 Discontinued operations, net of tax: Income (loss) from operations (526) (1,466) (2,268) 2,554 Credit for adjustment of estimated loss on disposal -- -- 1,450 -- -------- -------- -------- -------- (526) (1,466) (818) 2,554 -------- -------- -------- -------- Net income (loss) $(10,214) $ 4,525 $ (13,564) $ 11,128 ======== ======== ======== ======== Basic net income (loss) per share: Income (loss) from continuing operations $ (0.98) $ 0.63 $ (1.31) $ 0.90 Income (loss) from discontinued operations (0.05) (0.16) (0.08) 0.27 -------- -------- -------- -------- $ (1.03) $ 0.47 $ (1.39) $ 1.17 ======== ======== ======== ======== Diluted net income (loss) per share: Income (loss) from continuing operations $ (0.98) $ 0.62 $ (1.31) $ 0.87 Income (loss) from discontinued operations (0.05) (0.15) (0.08) 0.26 -------- -------- -------- -------- $ (1.03) $ 0.47 $ (1.39) $ 1.13 ======== ======== ======== ======== Shares used in computing: Basic net income (loss)per share 9,848 9,555 9,778 9,528 ======== ======== ======== ======== Diluted net income (loss)per share 9,848 9,838 9,778 9,863 ======== ======== ======== ========
See notes to unaudited condensed consolidated financial statements. MAXWELL TECHNOLOGIES, INC. UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) Nine Months Ended September 30, ---------------------- 2000 1999 -------- -------- Operating activities: Income (loss) from continuing operations $(12,746) $ 8,574 Adjustments to reconcile income (loss) from continuing operations to net cash used in operating activities: Depreciation and amortization 4,138 4,004 Non-cash restructuring, acquisition and other charges 7,731 1,491 Deferred compensation 90 149 Minority interest in net income (loss) of subsidiaries (351) 156 Changes in operating assets and liabilities, net (8,085) (19,227) -------- -------- Net cash used in operating activities (9,223) (4,853) Investing activities: Purchases of property and equipment (7,634) (6,420) Proceeds from sale of building -- 3,400 Purchase of businesses, net of cash acquired, including earn out payment (4,864) -- Proceeds from sale of businesses 3,600 -- -------- -------- Net cash used in investing activities (8,898) (3,020) Financing activities: Proceeds from short-term borrowings 19,262 1,657 Principal payments on long-term debt and short-term borrowings (1,835) (188) Proceeds from issuance of Company and subsidiary stock 1,700 1,719 Repurchase of Company and subsidiary stock -- (354) -------- -------- Net cash provided by financing activities 19,127 2,834 Net cash provided by (used in) discontinued operations (3,248) 1,965 Effect of exchange rate changes on cash and cash equivalents (81) (161) -------- -------- Decrease in cash and cash equivalents (2,323) (3,235) Cash and cash equivalents at beginning of period 4,100 12,811 -------- -------- Cash and cash equivalents at end of period $ 1,777 $ 9,576 ======== ========
See notes to unaudited condensed consolidated financial statements. MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 1 - General Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies industry- leading capabilities in power and computing to develop and market power and computing systems, electronic components and services for customers in multiple industries, including telecommunications, e-commerce, consumer electronics, energy, transportation, space, defense, medical and bioprocessing. In November 1999, the Company's Board of Directors adopted a resolution to change the Company's fiscal year to a calendar year effective January 1, 2000. The Company previously reported results on a fiscal year of August 1 through July 31. In December 1999, the Company adopted a plan to restructure its operations (the "Restructuring Plan"). This Restructuring Plan (i) consolidates certain commercial business operations and improves their manufacturing and other operational capabilities, (ii) focuses the defense contracting business on pulsed power systems and computer-based analysis for government and national laboratories, (iii) focuses the application of PureBright(r) technology on bioprocessing, medical and consumer water markets, and (iv) provides for the sale of certain non-strategic business operations. The Restructuring Plan intends to make Maxwell a product-driven, profitable, high-growth company beginning with the fourth quarter of calendar year 2000. Since January 2000, the Restructuring Plan has included activities such as laying out new factories, recruiting additional talent into the Company, training personnel in demand flow manufacturing processes, and improving other aspects of operations, information management and financial controls. The Company has experienced a high level of change and has made significant progress since the beginning of the year in achieving the objectives of the Restructuring Plan on schedule. In October 2000, the Company completed its facilities and organizational consolidation program, which essentially completes the Company's Restructuring Plan. The accompanying unaudited condensed consolidated financial statements have been reclassified to present the financial position and results of operations of the continuing businesses of the Company. Businesses which the Company intends to sell or discontinue, and certain businesses sold or discontinued by the Company in prior periods, have been classified as discontinued operations in the accompanying unaudited condensed consolidated financial statements. The accompanying unaudited interim condensed consolidated financial statements contain all adjustments (consisting of normal recurring accruals) which are, in the opinion of management, necessary for a fair and accurate presentation of the Company's financial position at September 30, 2000 and its results of operations for the three and nine months ended September 30, 2000 and September 30, 1999. These interim financial statements should be read in conjunction with the Company's audited consolidated financial statements and notes thereto included in its Annual Report on Form 10-K for the five-month period from August 1, 1999 to December 31, 1999. Interim results are not necessarily indicative of those to be expected for the full year. The consolidated financial statements include the accounts of Maxwell Technologies, Inc. and its subsidiaries. All significant intercompany transactions and account balances are eliminated in consolidation. Note 2 - Acquisition 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. MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 2 - Acquisition (Continued) The total purchase price will be determined based upon the sales revenue of Gateworks in calendar year 2001. The closing date payment was based upon assumed 2001 sales of $7.5 million. The number of I-Bus/Phoenix, Inc. shares issued to the selling Gateworks shareholders will be adjusted in the first quarter of 2002 to reflect the final purchase price based upon actual Gateworks and I-Bus/Phoenix, Inc. 2001 sales revenue. For purchase accounting purposes, the closing date payment was valued at approximately $4.4 million, which was allocated as follows: ($0.1) million to the net liabilities acquired; $0.5 million to acquired in-process technology, which was charged to operations on the closing date and $4.0 million to goodwill and other intangible assets, which will be amortized over a period of five years. MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 3 - Inventories Inventories consist of the following (in thousands): September 30, December 31, 2000 1999 -------- -------- Finished products $ 4,872 $ 2,030 Work-in-process 5,593 4,779 Parts and raw materials 14,759 15,996 -------- -------- $ 25,224 $ 22,805 ======== ========
Note 4 - Credit Agreement In October 2000, the Company completed an amendment to its bank credit agreement (the "Amended Agreement"). The Amended Agreement provides for total maximum borrowings of $26 million through February 2001, with interest at the bank's reference rate plus 2%. Borrowings under the Amended Agreement are secured by the assets of the Company and its subsidiaries in the United States, as well as a pledge of two-thirds of the shares of the Company's subsidiaries outside of the United States. The Amended Agreement requires the Company to comply with certain financial covenants. The Company was in compliance with all such amended covenants at September 30, 2000. Outstanding borrowings under the Amended Agreement were $17.7 million at September 30, 2000, at a weighted average interest rate of 11.1%. Note 5 - Comprehensive Income (Loss) The Company reports and displays comprehensive income (loss) in accordance with Statement of Financial Accounting Standards No. 130, Reporting Comprehensive Income. The components of comprehensive income (loss) for the three and nine months ended September 30, 2000 and 1999 were as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Net income (loss) $(10,214) $ 4,525 $(13,596) $ 11,128 Foreign currency translation adjustments (68) (87) (487) (136) -------- -------- -------- -------- Comprehensive income (loss) $(10,282) $ 4,438 $(14,083) $ 10,992 ======== ======== ======== ========
MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 6 - Income (Loss) Per Share The Company reports basic and diluted income (loss) per share in accordance with Financial Accounting Standards Board Statement No. 128, Earnings Per Share ("Statement No. 128"). Basic 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, and convertible preferred shares outstanding at certain subsidiaries of the Company, assuming their conversion. The following table sets forth the computation of basic and diluted income (loss) per share (in thousands, except per share amounts). Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Basic: Income (loss) from continuing operations $ (9,688) $ 5,991 $(12,746) $ 8,574 Income (loss) from discontinued operations (526) (1,466) (818) 2,554 -------- -------- -------- -------- Net income (loss) $(10,214) $ 4,525 $(13,564) $ 11,128 ======== ======== ======== ======== Weighted average shares 9,848 9,555 9,778 9,528 ======== ======== ======== ======== Basic net income (loss) per share: Income (loss) from continuing operations $ (0.98) $ 0.63 $ (1.31) $ 0.90 Income (loss) from discontinued operations (0.05) (0.16) (0.08) 0.27 -------- -------- -------- -------- Basic net income (loss) per share $ (1.03) $ 0.47 $ (1.39) $ 1.17 ======== ======== ======== ======== Diluted: Income (loss) from continuing operations $ (9,688) $ 5,991 $(12,746) $ 8,574 Income (loss) allocated to minority interest in majority-owned subsidiaries (19) (32) (58) (19) -------- -------- -------- -------- Income (loss) from continuing operations available to common shareholders, as adjusted (9,707) 5,959 (12,804) 8,555 Income (loss) from discontinued operations (526) (1,466) (818) 2,554 -------- -------- -------- -------- Net income (loss), as adjusted $(10,233) $ 4,493 $(13,622) $ 11,109 ======== ======== ======== ======== Weighted average shares 9,848 9,555 9,778 9,528 Effect of dilutive stock options and other securities -- 283 -- 335 -------- -------- -------- -------- Weighted average shares, as adjusted 9,848 9,838 9,778 9,863 ======== ======== ======== ======== Diluted net income (loss) per share: Income (loss) from continuing operations $ (0.98) $ 0.62 $ (1.31) $ 0.87 Income (loss) from discontinued operations (0.05) (0.15) (0.08) 0.26 -------- -------- -------- -------- Diluted net income (loss) per share $ (1.03) $ 0.47 $ (1.39) $ 1.13 ======== ======== ======== ========
Note 7 - Business Segments Maxwell evaluates the performance of its business segments and allocates resources based on a measure of segment operating profit (loss), excluding restructuring, acquisition and other charges. Maxwell does not evaluate segment performance on amounts provided for restructuring, acquisition and other charges, or on items of income or expense below operating profit (loss). Accordingly, such items are not segregated by operating segment. MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 7 - Business Segments (Continued) The following table sets forth sales and operating income (loss) data for each of the Company's four business segments as defined by the Company under the guidelines of Financial Accounting Standards Board Statement No. 131, Disclosures About Segments of an Enterprise and Related Information (in thousands). Three Months Ended Nine Months Ended September 30, September 30, ------------------ ------------------ 2000 1999 2000 1999 -------- -------- -------- -------- Sales: Power and Computing Systems $ 13,146 $ 21,964 $ 48,000 $ 58,964 Electronic Components 8,525 7,110 26,905 23,171 Government Systems 9,800 10,723 30,576 32,622 Sterilization and Purification Systems 202 2,817 953 6,372 -------- -------- -------- -------- Consolidated total $ 31,673 $ 42,614 $106,434 $121,129 ======== ======== ======== ======== Operating profit (loss): Power and Computing Systems $ (4,350) $ 1,931 $ (2,500) $ 4,892 Electronic Components (1,632) (2,372) (4,052) (4,467) Government Systems 715 606 2,433 3,945 Sterilization and Purification Systems (902) 1,201 (2,955) 918 -------- -------- -------- -------- Total segment operating profit (loss) (6,169) 1,366 (7,074) 5,288 Corporate expenses, including total restructuring, acquisition and other charges (9,665) (1,955) (14,067) (2,987) -------- -------- -------- -------- Consolidated total $(15,834) $ (589) $(21,141) $ 2,301 ======== ======== ======== ========
Note 8 - Restructuring and Other Related Charges In connection with the Restructuring Plan, the Company has undertaken various actions to consolidate its facilities and reduce the cost structure of the Company. As a result, the Company recorded restructuring and other related charges in the nine months ended September 30, 2000 of approximately $9.7 million, including $7.8 million in the third quarter. Such charges were determined in accordance with Staff Accounting Bulletin No. 100, Restructuring and Impairment Charges, and Emerging Issues Task Force No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exitan Activity (including Certain Costs Incurred in a Restructuring). These charges include severance costs related to a reduction in workforce, the closure and combination of certain facilities, and the write-off of certain non-performing operating assets, including goodwill balances of $4.8 million related to a previous acquisition. The Company has essentially completed its Restructuring Plan and has finalized the consolidation and integration of its operations and related facilities. Accordingly, the Company does not expect to record additional restructuring related charges. MAXWELL TECHNOLOGIES, INC. NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Restructuring and Other Related Charges (Continued) The following table summarizes the restructuring and other related charges recorded by the Company in connection with the Restructuring Plan (in thousands). Three Months Ended Nine Months Ended September 30, 2000 September 30, 2000 ------------------ ------------------ Write-down of abandoned operating assets and impaired assets $1,483 $2,423 Severance costs for involuntary employee terminations 421 740 Costs to exit certain contractual and lease obligations 661 935 Moving and other costs related to consolidation of facilities 408 785 Write-off of impaired goodwill and other intangible assets 4,808 4,808 ------------------ ------------------ $7,781 $9,691 ================== ==================
Of the total restructuring and other related charges, approximately $1.9 million is included in accrued liabilities at September 30, 2000. In addition, in September 2000, the Company recorded a charge of $0.5 million related to the write-off of in-process technology acquired in connection with the acquisition of Gateworks (Note 2). Note 9 - Discontinued Operations In November 1999, the Company adopted a plan to divest its high voltage wound film capacitors, high voltage power supplies and time card and job cost accounting software businesses. As a result, in December 1999, the Company recorded certain provisions for estimated losses on the sale of the discontinued businesses. In the first quarter of this year, the Company sold the high voltage wound film capacitors and high voltage power supplies businesses for cash of $3.5 million, approximately the book value of the net assets sold as of that date. In addition, the buyer assumed certain liabilities of the businesses, including a long-term lease for the facility thebusinesses occupied, which extended through 2006, with annual rent of approximately $0.5 million. In the nine months ended September 30, 2000, provisions for estimated losses on the sale of the discontinued businesses were reduced by $1.4 million, net of tax, to reflect revised estimates of losses to be incurred upon disposition. Operating results of the discontinued operations are separately shown, net of tax, in the accompanying condensed consolidated statements of operations. The businesses included in discontinued operations had sales aggregating $1.1 million and $6.5 million for the three months ended September 30, 2000 and 1999, respectively, and $4.7 and $19.2 million for the nine months ended September 30, 2000 and 1999, respectively. These amounts are not included in net sales in the accompanying condensed consolidated statements of operations. Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview Maxwell Technologies, Inc. ("Maxwell" or the "Company") applies industry- leading capabilities in power and computing to develop and market power and computing systems, electronic components and services for customers in multiple industries, including telecommunications, e-commerce, consumer electronics, energy, transportation, space, defense, medical and bioprocessing. In November 1999, the Company's Board of Directors adopted a resolution to change the Company's fiscal year to a calendar year effective January 1, 2000. The Company previously reported results on a fiscal year of August 1 through July 31. In December 1999, the Company adopted a plan to restructure its operations (the "Restructuring Plan"). This Restructuring Plan (i) consolidates certain commercial business operations and improves their manufacturing and other operational capabilities, (ii) focuses the defense contracting business on pulsed power systems and computer-based analysis for government and national laboratories, (iii) focuses the application of PureBright technology on bioprocessing, medical and consumer water markets, and (iv) provides for the sale of certain non-strategic business operations. The Restructuring Plan intends to make Maxwell a product-driven, profitable, high-growth company beginning with the fourth quarter of calendar year 2000. Since January 2000, the Restructuring Plan has included activities such as laying out new factories, recruiting additional talent into the Company, training personnel in demand flow manufacturing processes, and improving other aspects of operations, information management and financial controls. The Company has experienced a high level of change and has made significant progress since the beginning of the year in achieving the objectives of the Restructuring Plan on schedule. In October 2000, the Company completed its facilities and organizational consolidation program, which essentially completes the Company's Restructuring Plan. As part of the Restructuring Plan, the Company combined its industrial computer business and its power quality business. The Company also combined three components businesses - PowerCache ultracapacitors, electromagnetic interference ("EMI") filters and other ceramic capacitor products and radiation-hardened microelectronics - into a commercial, high-reliability electronic components group. The Company has focused its defense contracting business on pulsed power systems and computer-based analysis for government and national laboratories. Maxwell's PurePulse Technologies subsidiary is concentrating on significant opportunities in the application of PureBright technology to pathogen inactivation in medical and bioprocessing markets and to consumer water applications. Finally, the Company initiated the sale of its businesses involving high voltage wound film capacitors, high voltage power supplies and time card and job cost accounting software. On February 29, 2000, the Company sold the high voltage wound film capacitors and high voltage power supplies businesses for cash of $3.5 million, approximately the book value of the net assets sold as of that date. In addition, the buyer assumed certain liabilities of the businesses, including a long-term lease for the facility the businesses occupied, which extended through 2006 with annual rent of approximately $0.5 million. The Company generates revenue from the sale of commercial products and from performing contract research and other projects for the United States governmentand other customers. From time to time, the Company also generates revenue fromlicensing technology and other rights to strategic partners. Sales and marketing for the Company's products in the United States, and for industrial computers in Europe, are handled directly by the Company. Elsewhere, the Company utilizes sales representatives and distributors to assist in the marketing of its products. The Company conducts marketing programs intended to position and promote its products and services, including trade shows, seminars, advertising, public relations, distribution of product literature and web sites on the Internet. The Company's ability to maintain and grow its sales depends on a variety of factors including its ability to maintain its competitive position in areas such as technology, performance, price, brand identity, quality, reliability, distribution, customer service and support. The Company's sales growth also depends on its ability to continue to introduce new products that respond to technological change and market demand in a timely manner. The Company's operating expenses are substantially impacted by selling, general and administrative activities and by research and development activities. Selling expenses are primarily driven by (i) sales volume, with respect to sales force expenses and commission expenses; (ii) the extent of market research activities for new product design efforts; (iii) advertising andtrade show activities, and (iv) the number of new products launched in the period. General and administrative expenses primarily include costs associated with the Company's administrative employees, facilities and functions. The Company incurs expenses in foreign countries primarily in the functional currencies of such locations. As a result of the Company's international operations, the United States dollar amount of its revenue and expenses is impacted by changes in foreign currency exchange rates. Business Segments In accordance with the requirements and guidelines of Statement of Financial Accounting Standards No. 131, Disclosure About Segments of an Enterprise and Related Information ("Statement No. 131"), Maxwell's operations have been classified into business segments. In connection with the Company's Restructuring Plan, the Company has integrated its businesses into new operatingdivisions. Accordingly, the Company has defined four new reporting segments as follows (prior period segment information has been restated to conform to the new segmentation): - - Power and Computing Systems As part of its Restructuring Plan, the Company integrated its I-Bus, Inc. and Phoenix Power Systems, Inc. subsidiaries ("I-Bus/Phoenix"). The new I-Bus/Phoenix operation expands the industrial computer product line of I-Bus, Inc. with power quality products and broadens the global reach of the power quality products. As part of the Restructuring Plan, the Company has combined the San Diego operations of these two subsidiaries into a single facility in San Diego. The new San Diego facility has been designed for highly-efficient manufacturing, with improved processes, improved personnel training and more disciplined cost control practices. The Company designs, manufactures and supplies standard, custom and semi-custom industrial computer modules, platforms and fully-integrated systems to original equipment manufacturers ("OEMs") on a worldwide basis. The I-Bus/Phoenix industrial computer product line ranges from enclosures, CPU boards and backplanes to fully-integrated and highly-customized computer systems. The acquisition of Gateworks Corporation in September 2000 added enhanced capabilities in CompactPCI computer architecture, the industry standard for servers that support telecommunications, internet infrastructure and other mission critical applied computing solutions requiring high availability. The Company intends to introduce enhanced ISA/PCI and CompactPCI product lines in the fourth quarter of 2000. The I-Bus/Phoenix power quality products consist of power distribution units, power conditioners and inverters, uninterruptible power supplies ("UPS") and other power protection products. These products are designed and engineered by the Company for customer applications primarily in the medical and telecommunications markets. - - Electronic Components The Restructuring Plan organized a high-reliability electronic components group (the "Electronic Components Group") within the Company by combining its PowerCache ultracapacitor business, its Sierra-KD EMI filter and ceramic capacitor business, its Space Electronics, Inc. high-reliability and radiation-hardened microelectronics business and its Tekna Seal glass-to-metal seal business. The Company has integrated the PowerCache ultracapacitor business and the microelectronic components business into one new manufacturing site in San Diego, while the EMI filters and ceramic capacitors are manufactured at the Company's redesigned facility in Carson City, Nevada. Both facilities were designed for highly-efficient manufacturing, with improved processes, improved personnel training and more disciplined cost control practices. The Electronic Components Group designs, manufactures and sells the following high-reliability electronic components based on the Company's core competencies in power and computing: PowerCache Ultracapacitors: PowerCache ultracapacitors provide bursts of power when a rapid injection of energy is required for an application. The PowerCache ultracapacitor is scaleable, in that it can be manufactured in a broad range of shapes and sizes. Currently, the Company is developing ultracapacitors from sub-matchbook size to cells measuring 2" x 2" x 6", while maintaining the same high energy storage per unit volume. PowerCache ultracapacitors can also be linked together in modules to supply higher power for applications such as automotive and power supply systems. EMI Filters: Ceramic capacitor filters absorb the electromagnetic fields and signals generated by electronic devices which interfere with and disrupt the functioning of other electronic devices, including implantable medical devices such as pacemakers and defibrillators, and aerospace guidance and communications systems. These products block EMI from entering an electronic device at the opening used by, for example, power leads or sensors. Radiation-Hardened Microelectronics: Radiation-hardened microelectronic components and assemblies primarily for the space market, including integrated circuits and multi-chip modules, are designed and adapted for space flight and other high-reliability applications. In the space market, these products are used in satellites which experience extreme environmental conditions, often in radiation-intense orbits. Glass-to-Metal Seals: Hermetic glass-to-metal seals are designed and manufactured for industrial and automotive applications. - - Government Systems Through its Systems Division, Maxwell is engaged in a variety of research and development programs in pulsed power, pulsed power systems design and construction, and weapons effects simulation. These services are primarily supplied to the United States government and its agencies, including the Air Force and the Defense Threat Reduction Agency. The Systems Division also provides systems and services to national laboratories and industrial and defense companies. The Systems Division typically performs research and development under contracts that allow the Company to apply developed technology in commercial markets. - - Sterilization and Purification Systems The Company's PurePulse Technologies, Inc. subsidiary ("PurePulse") applies PureBright intense broad spectrum pulsed light technology to kill viruses and other microorganisms in water, blood plasma and other biopharmaceutical and medical products, and on medical product packaging material. As part of the Restructuring Plan, PurePulse will pursue PureBright applications in the medical, biopharmaceutical and consumer water markets. Other PureBright applications involving food and food packaging, industrial water applications and niche markets in medical packaging, as well as applications involving the CoolPure(r) pulsed electric field technology, will be de-emphasized and possibly sold or licensed. Results of Operations The following discussion provides a comparison of current results of operations for the three and nine months ended September 30, 2000 to the comparable three and nine months ended September 30, 1999, and to the sequentially prior quarter for the three months ended June 30, 2000. The following table sets forth, for the periods indicated, selected operating data for the Company, expressed as a percentage of sales. Three Months Ended Nine Months Ended ---------------------------- September 30, Sept. 30 June 30 Sept. 30 ------------------ 2000 2000 1999 2000 1999 -------- -------- -------- -------- -------- Sales 100.0% 100.0% 100.0% 100.0% 100.0% Cost of sales 88.2 74.3 70.2 78.6 68.7 -------- -------- -------- -------- -------- Gross profit 11.8 25.7 29.8 21.4 31.3 Operating expenses: Selling, general and administrative 26.9 23.6 23.5 25.0 22.2 Research and development 8.7 6.0 4.3 6.7 4.8 Restructuring, acquisition and other charges 26.2 3.7 3.3 9.6 2.4 -------- -------- -------- -------- -------- Total operating expenses 61.8 33.3 31.1 41.3 29.4 -------- -------- -------- -------- -------- Operating income (loss) (50.0) (7.6) (1.3) (19.9) 1.9 Interest expense (1.2) (0.3) (0.1) (0.5) (0.2) Interest income and other, net (0.3) 0.1 0.1 -- 0.5 -------- -------- -------- -------- -------- Income (loss) before income taxes and minority interest (51.5) (7.8) (1.3) (20.4) 2.2 Provision (credit) for income taxes (20.6) (3.1) (15.0) (8.1) (5.0) Minority interest in net income (loss) of subsidiaries (0.3) (0.2) (0.4) (0.3) 0.1 -------- -------- -------- -------- -------- Income (loss) from continuing operations (30.6) (4.5) 14.1 (12.0) 7.1 Income (loss) from discontinued operations (1.7) (0.5) (3.5) (0.8) 2.1 -------- -------- -------- -------- -------- Net income (loss) (32.3)% (5.0)% 10.6% (12.8)% 9.2%
The following table sets forth sales, gross profit and gross profit as a percentage of sales for each of the Company's business segments. Three Months Ended Nine Months Ended ------------------------- September 30, Sept. 30 June 30 Sept. 30 ------------------ 2000 2000 1999 2000 1999 -------- -------- -------- -------- -------- Power and Computing Systems: Sales $ 13,146 $ 17,368 $ 21,964 $ 48,000 $ 58,964 Gross profit (loss) (160) 4,663 6,700 9,628 18,409 Gross profit (loss) as a percentage of sales n/a 26.8% 30.5% 20.1% 31.2% Electronic Components: Sales $ 8,525 $ 9,717 $ 7,110 $ 26,905 $ 23,171 Gross profit 1,934 2,976 1,041 7,289 6,093 Gross profit as a percentage of sales 22.7% 30.6% 14.6% 27.1% 26.3% Government Systems: Sales $ 9,800 $ 10,021 $ 10,723 $ 30,576 $ 32,622 Gross profit 1,956 2,196 2,604 6,324 9,370 Gross profit as a percentage of sales 20.0% 21.9% 24.3% 20.7% 28.7% Sterilization and Purification Systems: Sales $ 202 $ 395 $ 2,718 $ 953 $ 6,372 Gross profit (loss) (4) (206) 2,344 (448) 4,020 Gross profit (loss) as a percentage of sales n/a n/a 83.2% n/a 63.1% Consolidated: Sales $ 31,673 $ 37,501 $ 42,614 $106,434 $121,129 Gross profit 3,726 9,629 12,689 22,793 37,892 Gross profit as a percentage of sales 11.8% 25.7% 29.8% 21.4% 31.3%
Sales Sales for the three months ended September 30, 2000 were $31.7 million, reflecting a $10.9 million, or 25.7%, decrease from sales of $42.6 million for the three months ended September 30, 1999. Total sales for the current quarter also decreased $6.2 million, or 15.5%, from total sales of $37.5 million for the three months ended June 30, 2000. For the nine months ended September 30, 2000, sales were $106.4 million, or $14.7 million and 12.1% less than sales of $121.1 million in the comparable nine-month period of the prior year. The decrease in current period sales from the prior year periods and from the three months ended June 30, 2000 is primarily the result of the conclusion of a major supply agreement in the Company's Power and Computing Systems segment during the current quarter and the phase out of certain marginal product lines in the current year. The major supply agreement contributed sales of $1.2 million and $8.4 million, respectively, in the three and nine months ended September 30, 2000, compared to sales of $7.5 million and $17.1 million, respectively, in the three and nine months ended September 30, 1999. In addition, sales in the three and nine months ended September 30, 1999 included contributions from licensing and strategic transactions of $2.8 million and $5.7 million, respectively, which contributed no sales revenue in the current year periods. Excluding sales from the major supply agreement and from licensing and strategic transactions, sales in the three months ended September 30, 2000 were $30.5 million, compared to sales of $32.3 million for the three months ended September 30, 1999 and sales in the nine months ended September 30, 2000 were $98.0 million, compared to sales of $98.3 million for the nine months ended September 30, 1999. Sales in each of the Company's business segments are discussed below. Power and Computing Systems. For the three months ended September 30, 2000, sales in the Power and Computing Systems segment decreased $8.8 million, or 40.1%, to $13.1 million from sales of $21.9 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, sales in this segment decreased $11.0 million, or 18.6%, to $48.0 million, from sales of $59.0 million for the comparable nine-month period of the prior year. The decrease in revenues in the three and nine-month periods is primarily attributable to a decline in revenues from the Company's supply agreement with Siemens ElectroCom L.P. and the United States Postal Service, which concluded in the current quarter and was winding down during the current fiscal year. This supply agreement contributed sales of $1.2 million and $8.4 million, respectively, in the three and nine months ended September 30, 2000, compared to sales of $7.5 million and $17.1 million, respectively, in the three and nine months ended September 30, 1999. Excluding sales from this supply agreement, sales for this segment in the three months ended September 30, 2000 were $11.9 million, or 17.4% less than sales of $14.4 million for the three months ended September 30, 1999; and, sales in the nine months ended September 30, 2000 were $39.6 million, or 5.5% less than sales of $41.9 million for the nine months ended September 30, 1999. Excluding the major supply agreement, sales decreased in this segment during the current period due primarily to the phase out of certain marginal product lines. Third quarter sales in the Power and Computing Systems segment decreased by $4.2 million, or 24.3%, from the three months ended June 30, 2000, reflecting $2.3 million in reduced revenue from the major supply agreement and reduced revenue related to the product line phase-outs mentioned above. The Company expects sales in this segment to increase beginning in the fourth quarter of this year, reflecting the contribution from the acquisition of Gateworks, completed in September 2000, as well as the contribution from new products which will be introduced beginning in the fourth quarter. Electronic Components. For the three months ended September 30, 2000, sales in the Electronic Components segment increased $1.4 million, or 19.9%, to $8.5 million from $7.1 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, sales in this segment increased $3.7 million, or 16.1%, to $26.9 million from $23.2 million for the comparable nine- month period of the prior year. The increase in both the three-month and nine- month periods is primarily attributable to increased sales in the radiation- hardened microelectronics product lines of this segment. Increased sales in the segment's glass-to-metal seals product lines also contributed to total increased sales in the three and nine months ended September 30, 2000. These increases were partially offset by decreases in revenue received from technology licenses and other collaborative agreements of $0.1 million and $0.9 million in the three and nine months ended September 30, 2000, respectively. Third quarter sales in the Electronic Components segment decreased by $1.2 million, or 12.3%, from sales in the three months ended June 30, 2000. This decrease was primarily related to a reduced revenue contribution from the EMI filter and ceramic capacitor product lines of this segment resulting from certain remodeling efforts which took place in the related manufacturing facility, temporarily reducing the capacity of the facility during the current period. The remodeling has been completed and the facility now has increased capacity to deliver products beginning in the fourth quarter of the current fiscal year. Government Systems. For the three months ended September 30, 2000, sales in the Government Systems segment decreased $0.9 million, or 8.6%, to $9.8 million from $10.7 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, sales in this segment also decreased $2.0 million, or 6.3%, to $30.6 million from $32.6 million for the comparable nine- month period of the prior year. Third quarter sales in the Government Systems segment decreased by $0.2 million, or 2.2%, over the three months ended June 30, 2000. The decrease in revenues is primarily attributable to the wind-down or completion of several Government programs. The Company has won follow-on or replacement contracts for several of these programs, however work under the new programs is still ramping up. These and other contracts with the Department of Defense are subject to such increases and decreases, as well as periodic changes in Government funding provisions. Sterilization and Purification Systems. For the three months ended September 30, 2000, sales in the Sterilization and Purification Systems segment decreased $2.6 million, or 92.8%, to $0.2 million from $2.8 million for the third quarter of last year. For the nine months ended September 30, 2000, sales in this segment decreased $5.4 million, or 85.0%, to $1.0 million from $6.4 million for the first nine months of the prior year. During the three and nine months ended September 30, 1999, revenues in this business segment included $2.6 million and $4.8 million, respectively, from licensing and rights fees received from strategic partners. The revenues in the current fiscal year do not include any such licensing and rights fees. The Company has redefined its product strategy and market focus and, as a result, revenue contribution from license fees will not continue at historical levels. This segment is not expected to contribute significant revenues in the near term future. Gross Profit In the three months ended September 30, 2000, the Company's gross profit was $3.7 million, or 11.8% of sales, compared to $12.7 million, or 29.8% of sales, in the three months ended September 30, 1999. In the nine months ended September 30, 2000, the Company's gross profit was $22.8 million, or 21.4% of sales, as compared to $37.9 million, or 31.3% of sales, in the nine months ended September 30, 1999. Gross profit and gross profit as a percentage of sales were negatively impacted in the three months ended September 30, 2000 by the reduced sales volume in the quarter, which was inadequate to fully absorb fixed manufacturing costs. In addition, gross profit in the current quarter was impacted by $2.1 million of adjustments to inventories and other costs of goods sold variances in the Phoenix Power product lines of the Company's Power and Computing Systems segment. The three and nine months ended September 30, 1999 also benefited from 100% gross margins associated with licensing and technology collaborations of $2.8 million and $5.7 million, respectively, which did not recur in the current year. On a sequential basis, quarterly gross profit at September 30, 2000 decreased $5.9 million, or 61.3%, to $3.7 million, or 11.8% of sales, from $9.6 million, or 25.7% of sales, for the three months ended June 30, 2000. The sequential decline in gross profit is also attributable to the reduced sales volume in the quarter and $2.1 million adjustment discussed above. Gross profit by business segment is discussed below. Power and Computing Systems. In the three months ended September 30, 2000, gross profit in the Power and Computing Systems segment decreased by $6.9 million, or 102%, to a loss of $(0.2) million from $6.7 million in the three months ended September 30, 1999. In the nine months ended September 30, 2000, gross profit decreased $8.8 million, or 47.7%, to $9.6 million from $18.4 million in the nine months ended September 30, 1999. As a percentage of sales, gross profit decreased to (1.2)% and 20.1% in the three and nine-month periods of the current year, as compared to 30.5% and 31.2% in the respective periods of the prior year. The decrease in gross profit is primarily attributable to the impact of reduced sales volume for this segment in the current year periods and the $2.1 million adjustment discussed above. In addition, this segment has experienced a change in product mix to include a higher proportion of lower- margin power protection and delivery systems, as compared to higher margin industrial computer solutions. The reduced gross profit in the current year also reflects costs incurred in the current year in connection with training personnel in improved manufacturing processes and certain write-offs of inventories deemed excess or obsolete. Electronic Components. In the three months ended September 30, 2000, gross profit in the Electronic Components segment increased by $0.9 million, or 85.8%, to $1.9 million from $1.0 million in the three months ended September 30, 1999. As a percentage of sales, gross profit improved to 22.7% in the current quarter from 14.6% in the three months ended September 30, 1999. The increase in gross profit for the current quarter is the result of increased sales volume and an improved cost structure, primarily in the segment's PowerCache product lines. The increase in gross profit as a percentage of sales also reflects the impact of the process and cost improvements in the PowerCache business. In its PowerCache ultracapacitor product line, the Company continues to make required infrastructure and other investments which impact gross profit at current sales volumes. Although gross margins have improved in the PowerCache business, such margins continue to reduce the overall gross margins for the Electronic Components segment. Gross margins will continue to be negatively impacted until full production volumes are reached and maintained. In the nine months ended September 30, 2000, gross profit increased to $7.3 million from $6.1 million in the nine months ended September 30, 1999. As a percentage of sales, gross profit increased in the nine-month period to 27.1% from 26.3%. Excluding the impact of a contribution from high-margin technology licenses and other collaborative agreements received in the prior year, gross profit as a percentage of sales increased by 3.7%. On a sequential basis, gross profit in the Electronic Components segment decreased from $3.0 million, or 30.6% of sales, in the three months ended June 30, 2000 to $1.9 million, or 22.7% of sales in the current quarter. The sequential decrease in gross profit is primarily attributable to the impact of a reduced sales volume in the current quarter, as discussed above. Government Systems. For the three months ended September 30, 2000, gross profit in the Government Systems segment decreased $0.6 million, or 24.9%, to $2.0 million from $2.6 million in the three months ended September 30, 1999. As a percentage of sales, gross profit decreased to 20.0% from 24.3% in the three- month period ended September 30, 1999. In the nine months ended September 30, 2000, gross profit decreased $3.1 million, or 67.5%, to $6.3 million from $9.4 million in the comparable period of the prior year. As a percentage of sales, gross profit decreased to 20.7% from 28.7% in the nine-month period ended September 30, 1999. The gross profit decrease is partially attributable to a decrease in sales in the current year period. In addition, gross profit in the prior year was much higher than normal for this segment as a result of the recovery of certain cost overruns and other expenses incurred in prior years. Gross profit in the current year has been consistently in the range of 20% of sales to 22% of sales and the Company expects future gross margins to remain near the levels achieved over the last three quarters. Sterilization and Purification Products. For the three months ended September 30, 2000, gross profit in the Sterilization and Purification Products segment decreased $2.3 million, or 100%, to approximately break-even from a gross profit of $2.3 million for the three months ended September 30, 1999. For the nine months ended September 30, 2000, gross profit decreased $4.4 million, or 111% to a loss of $0.4 million from gross profit of $4.0 million in the prior year. Gross profit in both the three and nine-months ended September 30, 1999 benefited from high-margin revenue from grants of licenses and rights, which the Company did not receive in the current year. Based on the Company's redefined product strategy and market focus for this segment, gross profit margins will likely continue to be negatively impacted in the near-term. Selling, General and Administrative Expenses In the three months ended September 30, 2000, the Company's selling, general and administrative expenses decreased $1.5 million, or 15.0%, to $8.5 million from $10.0 million in the three months ended September 30, 1999. Although the absolute amount of selling, general and administrative expenses has decreased, as a percentage of total sales these expenses increased to 26.9% in the three months ended September 30, 2000, from 23.5% in the three months ended September 30, 1999, due to a decrease in sales volumes. In the nine months ended September 30, 2000, the Company's selling, general and administrative expenses decreased $0.3 million, or 1.0%, to $26.6 million from $26.9 million in the nine months ended September 30, 1999. As a percentage of total sales, selling, general and administrative expenses increased to 25.0% in the nine months ended September 20, 2000, from 22.2% in the nine months ended September 30, 1999. On a sequential basis, selling, general and administrative expenses in the quarter ended September 30, 2000 decreased $0.7 million as compared to the $9.2 million, or 23.6% of sales incurred in the three-month period ended June 30, 2000. The Company is continuing to focus on opportunities to decrease its selling, general and administrative expenses. Research and Development Expenses The Company's research and development expenses reflect internally funded research and development programs. Costs associated with United States Government and other customer funded research and development contracts are included in cost of sales. The level of internally funded research and development expenses is affected from time to time by the Company's ability to obtain customer or grant funding to support a portion of its research and product development activities. Internally funded research and development expenses were $2.8 million and $7.1 million for the three and nine months ended September 30, 2000, as compared to $1.8 million and $5.8 million in the three and nine months ended September 30, 1999. The Company expects its level of spending in research and development to increase in future periods to accelerate new product introductions. Restructuring, Acquisition and Other Charges In connection with the Restructuring Plan, the Company has undertaken various actions to improve the cost structure of the Company. As a result, the Company recorded restructuring and other related charges in the three months ended September 30, 2000, June 30, 2000 and March 31, 2000 of $3.0 million, $1.4 million and $0.5 million, respectively, for total restructuring charges of $4.9 million for the nine months ended September 30, 2000. These charges include severance costs related to reductions in headcount, costs associated with the closure and combination of certain facilities and the write-off of non- performing operating assets. The Company has completed the facilities and organizational consolidation program started as part of its Restructuring Plan and does not expect to record any additional charges related to the Restructuring Plan. In the three months ended September 30, 2000, the Company also recorded a charge of $4.8 million to reduce the carrying value of goodwill related to its 1998 acquisition of Phoenix Power Systems, Inc. to an amount representative of the current fair value of that asset. Also, in the three months ended September 30, 2000, the Company recorded a charge of $0.5 million related to in-process technology acquired in connection with the Company's acquisition of Gateworks in September 2000. In the nine months ended September 30, 1999, the Company recorded approximately $1.5 million of direct acquisition costs for business combinations completed during the first quarter of 1999, which were accounted for using the pooling-of-interests method. In addition, in the three months ended September 30, 1999, the Company recorded charges aggregating $1.4 million related to revised estimates of costs to resolve certain environmental and legal contingencies which occurred in prior years and certain restructuring provisions related to reductions in the Company's administrative infrastructure in Europe. Interest Expense Interest expense increased to $0.4 million in the three months ended September 30, 2000 from $37,000 in the prior year and increased to $0.6 million for the nine months ended September 30, 2000 from $0.2 million for the nine months ended September 30, 1999. The increased interest expense relates to higher borrowing levels in the current year compared to the prior year. At September 30, 2000, the Company had $17.7 million outstanding under its bank line-of-credit. The Company expects borrowings, and related interest expense, to continue to increase for the remainder of the current year. Interest Income and Other, Net Interest income and other, net, consisting primarily of interest income, foreign currency transaction gains and losses and losses on the disposition of fixed assets, was $(101,000) and $55,000 in the three months ended September 30, 2000 and 1999, respectively. For the nine months ended September 30, 2000 and 1999, interest income and other, net, was $(24,000) and $544,000, respectively. Interest income has decreased reflecting lower average cash balances in the three and nine months ended September 30, 2000. Provision (Credit) for Income Taxes The provision (credit) for income taxes for the three and nine months ended September 30, 2000 reflects the Company's expected world-wide tax rate for the current fiscal year. For the three and nine months ended September 30, 1999, the Company's provision (credit) for income taxes included a credit of $5.9 million, representing the reversal of a valuation allowance provided in previous years against certain deferred tax benefits. Minority Interest in Net Income (Loss) of Subsidiaries Minority interest in net income (loss) of subsidiaries was $(94,000) for the three months ended September 30, 2000 and $(161,000) for the three months ended September 30, 1999. For the nine months ended September 30, 2000 and 1999, minority interest in net income (loss) of subsidiaries was $(289,000) and $156,000, respectively. The current period credit results from losses incurred by the Company's minority-owned subsidiaries. Income (Loss) from Continuing Operations As a result of the factors mentioned above, the income (loss) from continuing operations was $(9.7) million for the three months ended September 30, 2000, compared to $6.0 million for the three months ended September 30, 1999. In the nine months ended September 30, 2000 and 1999, the income (loss) from continuing operations was $(12.7) million and $8.6 million, respectively. Discontinued Operations In November 1999, the Company adopted a plan to divest its high voltage wound film capacitors, high voltage power supplies and time card and job cost accounting software businesses. On February 29, 2000, the Company sold the high voltage wound film capacitors and high voltage power supplies businesses for cash of $3.5 million, approximately the book value of the net assets sold as of that date. In addition, the buyer assumed certain liabilities of the businesses, including a long-term lease for the facility the businesses occupy, which extends through 2006 with annual rent of approximately $0.5 million. In December 1999, the Company recorded certain provisions for estimated losses on the sale of the discontinued businesses. In the three months ended June 30, 2000 and March 31, 2000, such provisions were reduced by $1.1 million and $0.3 million, respectively, net of tax, to reflect revised estimates of losses to be incurred. Total income (loss) from discontinued operations was $(0.5) million in the three months ended September 30, 2000, compared to $(1.4) million for the three months ended September 30, 1999 and $(0.2) million for the three months ended June 30, 2000. For the nine months ended September 30, 2000 and 1999, the total income (loss) from discontinued operations was $(0.8) million and $2.6 million, respectively. Liquidity and Capital Resources The Company has historically relied on a combination of cash on hand, internally generated funds, proceeds form sales of stock and bank borrowings to finance its working capital requirements and capital expenditures. In its fiscal year ended July 31, 1998, the Company received cash of $47.1 million in connection with a public offering of its stock. In addition, in each of its two most recent full fiscal years, the Company received approximately $2.9 million and $2.4 million, respectively, from the exercise of stock options and purchases under employee stock purchase plans. Cash used by operating activities in the nine months ended September 30, 2000 was approximately $9.2 million, as compared to $4.9 million in the nine months ended September 30, 1999. In the current period, the use of cash was primarily attributable to operating losses, cash restructuring expenses and certain increases in working capital. The Company's capital expenditures in the nine months ended September 30, 2000 and 1999 were $7.6 million and $6.4 million, respectively, and relate primarily to production and other capital assets needed to support growth in all of the Company's business units. The Company has ordered additional equipment for volume manufacturing of ultracapacitors and for the manufacture of EMI filter capacitors. In addition, the Company is incurring expenditures in connection with the design and construction of new facilities for its commercial divisions. The Company may also consider leasing facilities or manufacturing equipment or both or may satisfy high-volume manufacturing requirements through outsourcing or under licensing arrangements with third parties. If the Company decides to internally finance construction of additional facilities, a significant amount of capital may be required. In the three months ended September 30, 2000, the Company also used cash of $4.5 million in connection with the payment of an earn-out obligation related to a 1998 acquisition, and $500,000 of cash was paid in connection with the September 2000 acquisition of Gateworks. The Company believes that funds on-hand, together with cash generated from operations, cash expected to be received from the divestiture of certain businesses and funds available under its bank line-of-credit, will be sufficient to finance its operations and its capital expenditures, as well as finance remaining payments required in connection with its Restructuring Plan. In addition to addressing manufacturing requirements, the Company may also, from time-to-time, consider acquisitions of complementary businesses, products or technologies, which may require additional funding. Sources of additional funding for these purposes could include one or more of the following: cash and cash equivalents; cash flow from operations; borrowings under the existing bank line-of-credit; investments by strategic partners; and additional debt or equity financings. There can be no assurance that the Company will be able to obtain additional sources of financing on favorable terms, if at all, at such time or times as the Company may require such capital. Maxwell has a bank line-of-credit which was amended in October 2000 to provide maximum borrowings of $26.0 million. The Company had borrowings of $17.7 million outstanding under this agreement as of September 30, 2000. Inflation and Changes in Prices Generally, the Company has been able to increase prices to offset its inflation-related cost increases in its commercial businesses. A substantial portion of the Company's business with agencies of the United States government consists of cost-reimbursement contracts, which permit recovery of inflation costs. Fixed-price contracts with government and other customers typically include estimated costs for inflation in the contract price. Forward-Looking Statements To the extent that the above discussion goes beyond historical information and indicates results or developments which the Company plans or expects to achieve, these forward-looking statements are identified by the use of terms such as "expected," "anticipates," "believes," "plans" and the like. Readers are cautioned that such future results are uncertain and could be affected by a variety of factors that could cause actual results to differ from those expected, and such differences could be material. These factors include achievement of sales forecasts, completion of the Restructuring Plan within budget and on time and realizing forecasted improvements in gross margins and operating expenses. The Company undertakes no obligation to publicly release the result of any revisions to these forward-looking statements that may be made to reflect any future events or circumstances. Readers are referred to Item 1 of the Company's Annual Report on Form 10-K for the transition period from August 1 to December 31, 1999 for a discussion of certain of those factors. Item 3. Quantitative and Qualitative Disclosures About Market Risk The Company has not entered into or invested in any instruments that are subject to market risk. The Company's bank line-of-credit agreement bears interest at a rate that varies based on the bank's reference rate. As of September 30, 2000, the Company has approximately $17.7 million outstanding under its bank line-of- credit. The Company has foreign subsidiaries which conduct manufacturing and sales activities in foreign countries, specifically the United Kingdom, France and Germany. As a result, the Company's financial results could be significantly affected by factors such as changes in foreign currency exchange rates or weak economic conditions in the European markets that the Company serves. The operating results of the Company are exposed to changes in exchange rates between the United States dollar and the British pound, the French franc and the German mark. The Company does not currently hedge its foreign exchange risk, which is not significant at this time. PART II - OTHER INFORMATION Item 1. Legal Proceedings None. Item 2. Changes in Securities and Use of Proceeds None. Item 3. Defaults Upon Senior Securities None. Item 4. Submission of Matters to a Vote of Security Holders On September 15, 2000, the Company mailed a Consent Solicitation Statement to its shareholders seeking the approval of the shareholders by written consent in lieu of a meeting of a proposed amendment to the Company's 1995 Stock Option Plan to increase the number of shares authorized for issuance by 950,000. The consent solicitation process is on-going at the current date and the outcome has not yet been determined. Item 5. Other Information None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 Agreement and Plan of Reorganization among Gateworks Corporation, The Shareholders of Gateworks Corporation, I-Bus/Phoenix, Inc. and Maxwell Technologies, Inc. as of September 13, 2000. 10.2 PurePulse Technologies, Inc. 2000 Stock Option Plan 10.3 I-Bus/Phoenix, Inc. 2000 Stock Option Plan 27 Financial Data Schedule (b) Reports on Form 8-K None. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. MAXWELL TECHNOLOGIES, INC. November 14, 2000 /s/ Carlton J. Eibl ----------------- ------------------------------ Date Carlton J. Eibl, President and Chief Executive Officer November 14, 2000 /s/ Vickie L. Capps ----------------- ------------------------------ Date Vickie L. Capps, Vice President - Finance, Treasurer and Chief Financial Officer (Principal Financial and Accounting Officer) EX-10.1 2 0002.txt AGREEMENT AND PLAN OF REORGANIZATION AMONG GATEWORKS CORPORATION, THE SHAREHOLDERS OF GATEWORKS CORPORATION, I-BUS / PHOENIX, INC. AND MAXWELL TECHNOLOGIES, INC. AS OF SEPTEMBER 13, 2000 TABLE OF CONTENTS Page ARTICLE 1 TERMS OF THE MERGER 1 1.1 The Merger 1 1.2 Effective Date of the Merger 2 1.3 Articles of Incorporation of the Surviving Corporation 2 1.4 Board of Directors and Officers of the Surviving Corporation 2 1.5 Consideration; Cancellation of Company Common Stock 2 1.6 No Fractional Shares 3 1.7 Escrow 3 1.8 Exchange of Shares; Stock Transfer Books 3 1.9 Waiver of Dissenters' Rights 4 1.10 Securities Act Legend 4 ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE OF THE SHAREHOLDERS 4 2.1 Organization and Good Standing 4 2.2 Subsidiaries 5 2.3 Capital Structure of the Company 5 2.4 Authorization and Approvals 5 2.5 Financial Statements 5 2.6 Taxes 6 2.7 Transactions with Affiliates 7 2.8 Intellectual Property 7 2.9 Absence of Certain Changes 8 2.10 Contracts 10 2.11 Employees 10 2.12 Litigation 11 2.13 Environmental Matters 11 2.14 Employee Benefits 13 2.15 Bank Accounts 13 2.16 Brokers and Finders 13 ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER 13 3.1 Title to Shares 14 3.2 Authorization 14 3.3 No Violations 14 ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MAXWELL AND I-BUS 14 4.1 Organization and Power 14 4.2 Capital Structure of I-Bus 14 4.3 Authorization and Enforceability of Agreements 15 4.4 No Conflicts 15 4.5 Financial Statements and SEC Reports 15 4.6 Brokers and Finders 16 4.7 I-Bus Shares 16 ARTICLE 5 CLOSING 16 5.1 The Closing 16 5.2 Delivery of Documents 16 ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND RELATED AGREEMENTS; INDEMNIFICATION 17 6.1 General Liability Period 17 6.2 Indemnification by the Shareholders 18 6.3 Indemnification by Maxwell and I-Bus 18 6.4 Limitations on Recoverable Losses 18 6.5 Claims for Indemnification; Disputes 19 6.6 Exclusive Remedy 20 ARTICLE 7 POST-CLOSING COVENANTS 20 7.1 Relocation 20 7.2 Operating Committee 20 7.3 Incentive Equity Pool 20 7.4 Further Acts 21 ARTICLE 8 GENERAL PROVISIONS 22 8.1 Entire Agreement; Modifications; Waiver 22 8.2 Severability 22 8.3 Successors and Assigns 22 8.4 Counterparts 22 8.5 Governing Law 22 8.6 Notices 22 8.7 Expenses 23 8.8 Recovery of Litigation Costs 23 8.9 Publicity 23 8.10 Confidentiality 24 8.11 No Third Parties Benefitted 25 EXHIBIT INDEX Exhibit 1.5 Purchase Price Exhibit 1.7 Escrow Agreement Exhibit 5.2(d) Form of Noncompetition Agreement Exhibit 5.2(e) Form of Investment Letter Exhibit 5.2(f) Form of Put Agreement Exhibit A Agreement of Merger SCHEDULE INDEX Schedule 2.1 Organization and Good Standing Schedule 2.3 Capital Structure of the Company Schedule 2.4 Authorizations and Approvals Schedule 2.5 Financial Statements Schedule 2.6 Tax Matters Schedule 2.7 Transactions with Affiliates Schedule 2.8 Intellectual Property Schedule 2.9 Absence of Certain Changes Schedule 2.10 Contracts Schedule 2.11 Employees Schedule 2.12 Litigation Schedule 2.13 Environmental Matters Schedule 2.14 Employee Benefits Schedule 2.15 Bank Accounts Schedule 2.16 Brokers & Finders AGREEMENT AND PLAN OF REORGANIZATION THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is entered into as of September ____, 2000 by and among Gordon Edmonds, Ronald Eisworth, and Doug Hollingsworth (collectively, the "Shareholders") and Gateworks Corporation, a California corporation (the "Company"), on the one hand, and Maxwell Technologies, Inc., a Delaware corporation ("Maxwell") and its subsidiary, I-Bus/Phoenix, Inc., a California corporation ("I-Bus"), on the other hand. R E C I T A L S WHEREAS, the Shareholders own 100% of the issued and outstanding capital stock of the Company; WHEREAS, the parties intend that, subject to the terms and conditions hereinafter set forth, the Company be merged with and into I-Bus pursuant to this Agreement and the Agreement of Merger (the "Agreement of Merger") substantially in the form of Exhibit A attached hereto; WHEREAS, the parties hereto intend that this Agreement constitutes a Plan of Reorganization and the Merger hereunder qualifies under Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended (the "Code"); NOW, THEREFORE, in order to consummate the Merger and in consideration of the mutual representations, warranties and agreements contained herein, the parties hereto agree as follows: ARTICLE 1 TERMS OF THE MERGER 1.1 The Merger. Subject to the terms and conditions of this Agreement and the laws of the State of California, I-Bus, and the Company shall execute and file, among other things, the Agreement of Merger in the Office of the Secretary of State of the State of California (the "California Secretary of State") pursuant to which the separate existence of the Company shall cease and the Company shall be merged with and into I-Bus on the Closing Date, as defined herein (the "Merger"). I-Bus and the Company are sometimes collectively referred to as the "Constituent Corporations" and I-Bus is sometimes referred to as the "Surviving Corporation." 1.2 Effective Date of the Merger. The Merger shall become effective upon the filing of the Agreement of Merger and any other documents required by the General Corporation Law of the State of California (the "California Corporation Law") with the California Secretary of State in accordance with the California Corporation Law. If the California Secretary of State requires any changes in the Agreement of Merger as a condition to filing the Agreement of Merger, I-Bus, the Company and the Shareholders will execute necessary revisions incorporating such changes, provided such changes are not materially inconsistent with or result in any material changes in the terms of this Agreement or the Agreement of Merger. 1.3 Articles of Incorporation of the Surviving Corporation. Upon the effectiveness of the Merger and without any further action on the part of the Constituent Corporations, the Articles of Incorporation of I-Bus shall be and remain the Articles of Incorporation of the Surviving Corporation, and the Bylaws of I-Bus shall be the Bylaws of the Surviving Corporation. Such Articles of Incorporation and Bylaws may thereafter be altered, amended or repealed in accordance with the provisions thereof or applicable law. 1.4 Board of Directors and Officers of the Surviving Corporation. The officers and directors of I-Bus at the time of the effectiveness of the Merger shall be the officers and directors of the Surviving Corporation. 1.5 Consideration; Cancellation of Company Common Stock. (a) The aggregate consideration (the "Purchase Price") to be received by the Shareholders in connection with the Merger shall be one and one-quarter times (1.25x) the annual product revenue (excluding service revenue) of the business formerly operated by the Company in calendar year 2001, including products developed in collaboration with I-Bus and "sold" to I-Bus; provided, however, that if such annual product revenue (excluding service revenue) in calendar year 2001 is less than $15,000,000, then the aggregate consideration will equal one times (1.0x) such 2001 product revenue. The nature of the consideration, the timing of payment, methodology for computing product revenue, the methodology for computing the per share value of I-Bus common stock included in the payment of the Purchase Price, and certain adjustments to the Purchase Price are all as set forth on Exhibit 1.5. To the extent there is any inconsistency between the general terms of this Section 1.5(a) and the more specific terms of Exhibit 1.5, the terms of Exhibit 1.5 shall govern in all respects. (b) The consideration to be received by each Shareholder in connection with the Merger shall be the Purchase Price (as it may be determined from time to time in accordance with Exhibit 1.5) divided by the number of shares of Company Common Stock issued and outstanding upon filing of the Agreement of Merger, multiplied by the number of shares held of record by each such Shareholder at that time. In lieu of issuing fractional shares of I-Bus Common Stock, cash may be paid. Such consideration shall be paid in part following the Closing (the "Closing Payment") and the balance following the end of the calendar year 2001 (the "Final Payment"), each to be determined as provided in Exhibit 1.5. (c) By virtue of the Merger and without any action on the part of the holder thereof, each share of common stock of the Company ("Company Common Stock") issued and outstanding immediately prior to the filing of the Agreement of Merger shall be cancelled and all rights in respect thereof shall cease to be outstanding, excepting the right to be converted into Purchase Price upon surrender of certificates representing such shares to the Surviving Corporation. (d) The Closing Payment payable upon filing of the Agreement of Merger with the California Secretary of State shall be delivered to the Shareholders promptly upon receipt by the Surviving Corporation of a certificate evidencing ownership of Company Common Stock, accompanied by a stock power duly endorsed in blank, provided that the Closing Payment to be made upon surrender of such certificates shall not include those I-Bus Shares subject to the Escrow, as hereinafter defined. 1.6 No Fractional Shares. No fractional share of I-Bus Common Stock will be issued in the Merger, but, in lieu thereof, each holder of Company Common Stock who would otherwise be entitled to a fraction of a share of I-Bus Common Stock (after aggregating all fractional shares of I-Bus Common Stock to be received by such holder) will be entitled to receive from I-Bus an amount of cash (rounded to the nearest whole cent) equal to the product of (a) the fraction multiplied by (b) the then applicable per-share value of I-Bus Common Stock, as set forth on Exhibit 1.5. 1.7 Escrow. On the Closing Date, Maxwell, I-Bus and the Shareholders shall enter into an agreement with U.S. Bank and Trust National Association, as escrow agent (the "Escrow Agent") substantially in the form of Exhibit 1.7 hereto (the "Indemnification Escrow Agreement"). At the Closing Date, I-Bus shall deposit in escrow (the "Indemnification Escrow") a number of I-Bus Shares equal to 10% of the number of I-Bus Shares issuable to the Shareholders as a part of the Closing Payment as set forth on Exhibit 1.5 (the "Indemnification Escrow Shares"). In the event the Shareholders are required to indemnify the Maxwell Indemnitees (as defined in Section 6.2) pursuant to Article 6 of this Agreement, Maxwell or I-Bus may make a claim against the Indemnification Escrow Shares in accordance with the terms of the Indemnification Escrow Agreement; provided, however, that the number or value of the Indemnification Escrow Shares will not in any way limit the amount of the Shareholders' indemnification obligations pursuant to Article 6. The Indemnification Escrow Shares shall be released from the Indemnification Escrow on the first anniversary of the Closing Date in accordance with, and to the extent provided by, the Indemnification Escrow Agreement. 1.8 Exchange of Shares; Stock Transfer Books. Upon filing of the Agreement of Merger, each holder of an outstanding certificate or certificates theretofore representing shares of Company Common Stock shall be entitled, upon surrender of such certificate or certificates to the Surviving Corporation, to receive as a distribution in respect of each share represented by such certificate or certificates, the per share portion of the Closing Payment due on the Closing Date, less the Escrow, as further described on Exhibit 1.5. The cash payment shall be made by bank wire to the holders of record of Company Common Stock as shown on the certificate representing such Company Common Stock upon surrender to I-Bus, duly endorsed in blank for transfer. Upon filing of the Agreement of Merger there shall be no further registry of transfers on the records in respect of Company Common Stock outstanding immediately prior thereto. If, after the filing of the Agreement of Merger, certificates are presented to the Surviving Corporation, they shall be cancelled and exchanged for such cash payment and I-Bus Shares as provided herein. 1.9 Waiver of Dissenters' Rights. Each Shareholder represents and warrants to Maxwell and I-Bus that they are familiar with the provisions of the California Corporation Law providing dissenters' rights and allowing shareholders to receive in lieu of merger consideration fair value for their shares of Company Common Stock (as such term is used in the California Corporation Law). By executing this Agreement and by executing a written consent of shareholders to the Merger as a condition to the Closing under this Agreement, the Shareholders will irrevocably waive their dissenters' rights under the California Corporations Law. The Shareholders understand the consequences of this waiver and agree jointly and severally to hold Maxwell and I-Bus harmless from any claim arising after the date hereof related to the dissenters' rights provisions of Sections 1300 et. seq. of the California Corporations Code or rights of Company Shareholders arising thereunder. 1.10 Securities Act Legend. The I-Bus Shares issued in the Merger will not be registered under the Securities Act, and will therefore bear customary securities restrictive legends. ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS The Shareholders jointly and severally represent and warrant to Maxwell and I-Bus as follows: 2.1 Organization and Good Standing. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. Except as set forth on Schedule 2.1 attached hereto, the Company is duly qualified to transact business and is in good standing in every jurisdiction in which the character of its business makes such qualification necessary, except for where the failure to be so qualified would not have a material adverse effect on the Company or its business, assets, properties, prospects, financial condition or results of operations (a "Material Adverse Effect"), all of which jurisdictions are listed on Schedule 2.1. Except as set forth on Schedule 2.1, the Company has all necessary corporate power and authority to carry on its business as it is now being conducted, and to own or lease and operate its properties and assets. Complete, current and correct copies of the Articles of Incorporation and Bylaws of the Company, all as amended to date, stock ledgers, minute books and all other organizational documents of the Company have been made available to Maxwell. 2.2 Subsidiaries. The Company does not, directly or indirectly, own or control any interest or investment (whether equity or debt) in any corporation, partnership, limited liability company, joint venture, business organization, trust or other entity. 2.3 Capital Structure of the Company. The authorized capital stock of the Company consists of 1,000,000 shares of Company Common Stock of which 15,000 shares are issued and outstanding, and all of such shares are owned of record and beneficially as set forth on Schedule 2.3 attached hereto. All of the outstanding shares of capital stock of the Company have been duly authorized, validly issued and are fully paid and nonassessable. Except for any of the transactions contemplated pursuant to this Agreement and as set forth on Schedule 2.3, there are no options, warrants, convertible debt or securities, calls, agreements, arrangements, commitments, understandings or other rights to purchase any of the Company's capital stock or securities convertible into or exchangeable for any such capital stock. All of such shares have been issued in transactions exempt from registration under the Securities Act and any applicable state securities or Blue Sky laws. 2.4 Authorization and Approvals. The Company has all requisite corporate power and authority to enter into this Agreement and to perform its obligations hereunder. This Agreement has been duly and validly authorized by and approved by all requisite corporate action on the part of the Company. This Agreement has been duly executed and delivered by the Company and constitutes the legal, valid and binding obligation of the Company, enforceable in accordance with its terms. Except as set forth in Schedule 2.4 attached hereto, no further approvals or consents by, or filings with, any federal, state, municipal, foreign or other court or governmental or administrative body, agency or other third party is required in connection with the execution and delivery by the Company of this Agreement, or the consummation by the Company of the transactions contemplated hereby. 2.5 Financial Statements. The Company has delivered to Maxwell and I-Bus, true and complete copies of (i) the unaudited balance sheet of the Company as of August 31, 2000 (the "Interim Balance Sheet"), and the related statement of profit and loss for the period January 1, 2000 to August 31, 2000 (collectively, the "Interim Financial Statements") and (ii) the unaudited financial statements of the Company for the fiscal years ended December 31, 1998 and 1999 (including, without limitation, the related balance sheets and statements of profit and loss) (collectively, with the Interim Financial Statements, the "Financial Statements"). Except as expressly set forth or disclosed in Schedule 2.5 attached hereto, the Financial Statements (i) present fairly in all material respects the financial position and results of operations of the Company as of and for the periods reflected therein, (ii) were prepared in accordance with income tax accounting principles and (iii) disclose all material liabilities, including contingent and/or unmatured liabilities as of the dates thereof. The Accounts Receivable shown on the Financial Statements (net of any reserves) are valid and collectible in the ordinary course of business of the Company, without recourse to legal action, and are not contested or disputed by the account debtor. All inventories reflected in the Financial Statements or acquired since the date of the Interim Financial Statements, are in good condition and are currently usable or salable in the category in which they are inventoried, in the ordinary course of business of the Company. Except as disclosed in the Interim Financial Statements or on Schedule 2.5 attached hereto, the Company has no material liabilities, whether known or unknown, absolute, accrued, contingent or otherwise, except liabilities incurred after August 31, 2000 in the ordinary course of business consistent with past practice and not in violation of this Agreement. 2.6 Taxes. (a) Except as set forth on Schedule 2.6, the Company has timely filed all Tax Returns that are required to be filed by the Company with respect to the activities of the Company for any period ending on or before the Closing Date, which Tax Returns are true, correct and complete in all material respects, and the Company has paid within the time and in the manner prescribed by law all Taxes shown thereon to be due. All Taxes attributable to all taxable periods ending on or before the date thereof, to the extent not required to be previously paid, have been fully and adequately reserved for (as taxes payable or as accrued taxes) on the Financial Statements (as defined in Section 2.5). (b) No Tax assessment or deficiency which has not been paid or for which an adequate reserve has not been set aside, has been made or proposed against the Company, nor are any of the Tax Returns now being or, to the best knowledge of the Company and the Shareholders, threatened to be examined or audited, and no consents waiving or extending any applicable statutes of limitations for the Tax Returns, or any Taxes required to be paid thereunder, have been filed. The Company has never been subject to a Tax audit by federal, state or local governmental authorities, nor has the Company ever received a statement of deficiencies with respect to any tax assessed against or agreed to by the Company. None of the assets of the Company are subject to any liens in respect of Taxes (other than for current taxes not yet due and payable). The Company is not a party to or bound by any Tax sharing, Tax indemnity or Tax allocation agreement or other similar arrangement. (c) The Company has collected all sales, use and value added Taxes required to be collected, and has remitted, or will remit on a timely basis, such amounts to the appropriate governmental authorities and has furnished properly completed exemption certificates for all exempt transactions. (d) The Company has properly withheld income and social security or other similar Taxes and paid payroll Taxes with respect to all persons properly characterized as employees for federal, state or local Tax purposes. (e) Effective as of the date of incorporation, the Company duly and timely filed with the IRS a properly completed and executed election to be treated as an "S" corporation. From and after such date, the Company has been duly qualified as, and satisfied all requirements of, an "S" corporation as defined in the Code and for all applicable state income tax purposes. (f) The Company has delivered to Maxwell complete and correct copies of all state, local and foreign income or franchise Tax Returns filed by the Company for the three most recent taxable years for which such Tax Returns have been filed immediately preceding the date of this Agreement. Other than with respect to taxes shown on Tax Returns described in this clause, the Company is not subject to any tax imposed on net income in any jurisdiction or by any taxing authority. (g) For purposes of this Agreement, the following terms shall have the following meanings: (i) "Taxes" means any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, franchise, profits, license, withholding, payroll, employment, excise, severance, stamp, occupation, premium, real property, personal property, or windfall profit tax, custom duty or other tax, governmental fee or other like assessment or charge of any kind whatsoever, addition to tax or additional amount imposed by any governmental (whether federal, state, local or foreign) authority (a "Taxing Authority") responsible for the imposition of any such tax (domestic or foreign), but only if and to the extent attributable to periods (or partial periods) prior to and including the Closing Date, together with any interest and any penalty thereon. (ii) "Tax Return" means any return, report, information return, registration form or other document (including any related or supporting information) filed or required to be filed with any Taxing Authority in connection with the determination of any Tax or the administration of any laws, regulations or administrative requirements relating to any Tax. 2.7 Transactions with Affiliates. Except as set forth on Schedule 2.7 attached hereto, neither the Shareholders nor any member of their family (including in-laws) or Corporations or other entities in or for which a Shareholder or a member of his family holds an ownership or profits or interest of more than 1% or performs management duties (including service as a Director) (collectively, "Affiliates"), (i) has engaged or benefitted from any transaction with the Company, (ii) has any interest, directly or indirectly, in any lease, contract, license, lien, encumbrance, loan or other agreement to which the Company is a party or any interest (other than as a shareholder) in any properties or assets of the Company or (iii) has any interest in any competitor, supplier or customer of the Company. 2.8 Intellectual Property. (a) Schedule 2.8 attached hereto contains a complete and correct list of all patents, patent applications, trade names, trademarks or service marks or applications for registration therefore, and copyrights (collectively, "Intellectual Property"), including all contracts, agreements and licenses relating thereto owned by the Company or in which it has any rights. Except as disclosed on Schedule 2.8, the Company has not granted any licenses with respect to any of its respective Intellectual Property. Except as set forth on Schedule 2.8, the Company has not received any notice of, nor to the knowledge of the Company and the Shareholders do any grounds exist for, any claim of infringement or other conflict or claimed conflict with respect to the rights of others arising from or relating to the use of Intellectual Property which could reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. The Company and the Shareholders have no knowledge of any infringement of the Intellectual Property by any third party. The Company is the sole and legal owner of the Intellectual Property in the countries indicated on Schedule 2.8 and in all other jurisdictions in which the Company uses, has used or plans to use any Intellectual Property and, as of the date hereof, neither the Company nor the Shareholders has knowledge of any claim by any other person that such other person is the legal owner of such. The Intellectual Property confers upon the Company all rights necessary or desirable for the conduct of its business as now conducted and as presently proposed to be conducted. (b) Except as set forth on Schedule 2.8, the Company has valid and enforceable contracts with every employee, consultant and/or contractor of the Company which vests with the Company all rights in any invention, copyright and/or trade secret which relates to the business of the Company to the fullest extent permitted by law and also protects the trade secrets and/or proprietary information of the Company to the fullest extent permitted by law. (c) No infringement, illicit copying, misappropriation or violation of any third party intellectual property rights has or would reasonably be expected to occur with respect to the Company's use of the intellectual property rights embodied in the Intellectual Property. (d) Except for licenses to use software disclosed as Contracts on Schedule 2.10, there are no other material agreements requiring the Company to make payments or provide any consideration for, or restricting the Company's right to use, any intellectual property rights of third parties. (e) Except as set forth on Schedule 2.8 and except for claims that would have been covered by insurance policies carried by the Company on the Closing Date had the claim arisen during the applicable policy period, the software and hardware products of the Company (i) meet in all material respects all the functional specifications for which they were designed or programmed, (ii) to the best knowledge of the Company, are free from significant bugs, defects or errors, viruses, worms, bombs, traps or other code designed to or having the effect of interrupting normal processing, corrupt data or render the software or hardware products unusable and (iii) in the case of software, have been maintained on media and hardware that are free from material defects. 2.9 Absence of Certain Changes. Except as set forth in Schedule 2.9 attached hereto, and except for the transactions specifically contemplated under this Agreement, since August 31, 2000, the Company has conducted its business in the ordinary course consistent with past practice, and there has not been: (a) Any declaration, setting aside or payment of any dividend or other distribution or payment (whether in cash, stock or property) with respect to the capital stock of the Company, or any redemption, purchase or other acquisition of any of the securities of the Company, or any other payment to any stockholder of the Company in its capacity as a stockholder; (b) Any transaction involving the Company not in the ordinary course of business, including any sale of properties or assets (other than inventory in the ordinary course); (c) To the best knowledge of the Company and the Shareholders, any material adverse change in the prospects, results of the operations, liabilities, financial condition or business of the Company; (d) Any loan or advance by the Company to any person, except normal travel advances or other reasonable expense advances to officers or employees of the Company and normal trade terms extended to customers; (e) Any indebtedness for borrowed money incurred by the Company or any commitment to incur indebtedness for borrowed money entered into by the Company, or any loans made or agreed to be made by the Company other than as set forth on Schedule 2.9; (f) Any capital expenditures or commitments to make capital expenditures materially in excess of the amount budgeted for the current fiscal year, and a copy of such budget has been made available to Maxwell and I-Bus; (g) Any material change in the Company's lines of business or management practices and procedures; (h) Any damage, destruction or loss, whether or not covered by insurance, which has had or may have a Material Adverse Effect on the Company; (i) Except in the ordinary course of business of the Company and consistent with past practices, any payment, satisfaction, discharge or cancellation of any debt or claim of, or owed to, the Company; (j) Any mortgage, pledge or subjection to lien, charge or encumbrance of any kind on any of the Company's properties or assets, or any assumption of, or taking any properties or assets subject to, any liability; (k) Any amendment, modification or termination of any material contract or agreement to which the Company is a party or pursuant to which its properties or assets may be bound; (l) Any sale or granting to any party or parties of any license, franchise, option or other right of any nature whatsoever with respect to the Company's business or termination of any such rights; (m) Any increase in, or commitment to increase, the direct or indirect compensation payable or to become payable to any officer or director of the Company, its employees, or to any of its Affiliates, or any commitment to make severance, bonus or special payments to any of such parties, upon a change in ownership or management of the Company or upon termination of such parties; (n) Any settlement of any material litigation or entry of any judgment against the Company with a value of $50,000 or more (which judgment has not been stayed or satisfied); (o) Any alteration in the manner of keeping the books, accounts or records of the Company or in the manner of preparing the Financial Statements, or in the accounting practices of the Company, or any revaluation of assets; or (p) Any agreement, whether in writing or otherwise, to take any action described in this subsections (a)-(o) of this Section 2.9. 2.10 Contracts. Schedule 2.10 attached hereto contains a complete and correct list of all contracts, commitments, obligations or agreements of the Company, whether written or oral (the "Contracts"): (i) pursuant to which the Company leases real or personal property, (ii) pursuant to which the Company will make or receive payments in excess of $5,000 per annum, (iii) regarding financing for the Company, (iv) with Affiliates, (v) with consultants or independent contractors, (vi) resulting in the creation of any lien or security interest (including lease notifications) or (vii) otherwise material to the business of the Company. Each of the Contracts is in full force and effect and is the legal, valid and binding obligation of the Company and, to the knowledge of the Company and the Shareholders, of the other parties thereto, enforceable in accordance with its terms. Other than as set forth on Schedule 2.10, to the knowledge of the Company and the Shareholders, no event has occurred which would constitute a default (or any event which, with the giving of notice or lapse of time or both, would constitute a default) under any term or provision of any of the Contracts and thereby allow a party thereto to terminate and/or claim damages therefor. The Company is not a party to any Contract that restricts it from carrying on its business or any part thereof, or from competing in any line of business with any person, corporation or entity. 2.11 Employees. Schedule 2.11 attached hereto contains a complete and correct list of all of the Company's employees ("Employees"), which includes the job position and compensation payable to each of the Employees. Except to the extent set forth in Schedule 2.11: (a) The Company is in compliance with all laws, statutes, ordinances, rules, regulations, orders and other requirements relating to the employment of labor, including without limitation Title VII of the federal Civil Rights Act of 1964, the federal Age Discrimination in Employment Act of 1967, the federal Americans with Disabilities Act, the federal Employee Retirement Income Security Act of 1974 ("ERISA"), and any and all provisions thereof relating to wages, hours, collective bargaining and the payment of social security and similar Taxes, except where the failure to be in compliance would not have a Material Adverse Effect; (b) There is no pending or, to the best knowledge of the Company and the Shareholders, threatened charge, complaint, allegation, application or other process or claim against the Company before any federal, territorial, state or local or other governmental or administrative agency or other entity relating to employment matters; (c) No employees of the Company are covered by any collective bargaining agreement, nor, to the best knowledge of the Company and the Shareholders, is there any effort being made by any union to organize the Company's employees; and (d) No person performing services for the Company has, to the best knowledge of the Company and the Shareholders, been improperly classified as an independent contractor or leased employee for purposes of employee benefits, withholding obligations or overtime wage obligations. 2.12 Litigation. Except as set forth in Schedule 2.12 attached hereto, there is no pending or, to the best knowledge of the Company and the Shareholders, threatened, action, suit, arbitration, proceeding, investigation or inquiry before any court or governmental or administrative body or agency, or any private arbitration tribunal, against, relating to or affecting the Company or any director, officer or employee of the Company in his or her capacity as such, or the assets, properties or business of the Company, or the transactions contemplated by this Agreement, an adverse decision or finding in which could have a Material Adverse Effect; nor to the best knowledge of the Company and the Shareholders, are there any facts or circumstances which could reasonably lead to or provide the basis for any such threatened action, suit, arbitration proceeding, investigation or inquiry. There is not in effect any order, judgment or decree of any court or governmental or administrative body or agency enjoining, barring, suspending, prohibiting or otherwise limiting the Company or any officer, director or employee of the Company from conducting or engaging in any aspect of the ompany's business, or requiring the Company or any officer, director or employee of the Company to take certain action with respect to any aspect of the Company's business. 2.13 Environmental Matters. (a) The Company is in compliance with Environmental Laws and the Company has obtained and is in compliance with all necessary permits, licenses, approvals and authorizations required under applicable Environmental Laws, except for such noncompliance which would not have, or could not reasonably be expected to have, singly or in the aggregate, a Material Adverse Effect. (b) The Company has not, and to the knowledge of the Company and the Shareholders, no third party has, released Hazardous Materials at, from, on, in, to or under the any of the properties or assets owned, leased or operated (or formerly owned or operated) by the Company and there are no underground storage tanks, polychlorinated biphenyl-containing equipment or asbestos-containing material at any of the properties or assets owned, leased or operated (or formerly owned or operated) by the Company. (c) There are no past, pending or, to the knowledge of the Company or the Shareholders, threatened, claims, notices of violation, investigations, litigation, administrative proceedings, orders, judgments against Company relating to Hazardous Materials, Environmental Laws or relating to any other location where Hazardous Materials from Company have been transported, stored, handled, disposed, treated or have otherwise come to be located ("Environmental Claims") and neither the Company nor any of the Shareholders is aware of any facts, events, conditions or circumstances which could reasonably be expected to form the basis of any Environmental Claims against the Company. (d) The Company is not a potentially responsible party with respect to any federal, state or local environmental clean-up site or with respect to investigations or corrective actions under any Environmental Law. (e) The Company has not received notice of any alleged, actual or potential responsibility, inquiry, investigation, claim or administrative or judicial proceeding regarding any release, transportation or dispoal of Hazardous Material by the Company or any violation of or non-compliance by the Company with the conditions of any permit required under any Environmental Law or the provisions of any Environmental Law. For purposes of this Agreement, the following terms shall have the following meanings: "Environmental Law" means any and all federal, state, local, provincial and foreign, civil and criminal laws, statutes, rules, ordinances, codes, regulations, permits relating to the protection of health and the environment, worker health and safety and or governing the use, handling, storage, discharge or disposal of Hazardous Materials, including but not limited to the Comprehensive Environmental Response, Compensation and Liability Act, 42 USC ?9601 et. seq., the Resource Conservation and Recovery Act, 42 USC ?6901 et. seq., the Occupational Health and Safety Act, 29 USC ?651 et. seq. and the state and local analogues thereto, all as amended or superseded from time to time. "Hazardous Material" means petroleum and petroleum products, radioactive materials, asbestos-containing materials, radon, lead-based paint, polychlorinated biphenyls, pesticides and any other chemicals, substances, wastes or materials defined, listed or regulated by any Environmental Law. 2.14 Employee Benefits. Except as disclosed on Schedule 2.14 attached hereto, the Company is not a party to any employment agreement with any officer or employee. Except as specified on Schedule 2.14, the Company does not maintain any bonus, incentive compensation, deferred compensation, profit sharing, severance, salary continuation, or consulting plan or arrangement with or for the benefit of any officer or employee or for the benefit of any group of officers or employees. Except as described on Schedule 2.14, the Company does not have, and has never had, maintained or contributed to any "401(k)," profit sharing, savings, retirement (including health and life insurance enefits provided after retirement) or pension plan that constitutes an "employee benefit plan," as defined in Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA") or that is intended to qualify for favorable income tax treatment under Section 401(a) of the Internal Revenue Code. Except as set forth on Schedule 2.14, the Company does not maintain any plan that provides (or will provide) medical or death benefits to one or more former employees (including retirees) beyond their retirement or other termination of service, other than benefits that are required to be provided pursuant to federal or state law continuation coverage or conversion rights. With respect to each employee benefit plan or each employee welfare plan, the Company has not incurred liabilities as a result of any failure to comply with any applicable provision of ERISA, the Internal Revenue Code, any other applicable law, or any provision of such plan. The Company has performed, in all material respects, all of its obligations under each such plan required to be performed by it as of the date hereof. 2.15 Bank Accounts. Attached hereto as Schedule 2.15 is a complete and correct list of the names and locations of all banks, trust companies, savings and loan associations and other financial institutions at which the Company maintains safe deposit boxes or accounts of any nature and the account numbers of all such accounts. 2.16 Brokers and Finders. Neither the Shareholders nor the Company has engaged or authorized any broker, finder, investment banker, financial advisor or other third party to act on behalf of the Shareholders or the Company, directly or indirectly, as a broker, finder, investment banker, financial advisor or in any other like capacity in connection with this Agreement, the transactions contemplated hereby, or the sale, merger, financing or capitalization of the Company or has consented to or acquiesced in anyone so acting, and neither the Shareholders nor the Company knows of any claim for compensation from any such broker, finder, investment banker, financial advisor or other third party for so or resulting from the closing of the transaction contemplated hereby or of any basis for such a claim. ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER Each Shareholder, severally and not jointly, represents and warrants to Maxwell and I-Bus with respect to such Shareholder's Company Common Stock and each agreement, document and instrument executed by such Shareholder as follows: 3.1 Title to Shares. Such Shareholder is the record and beneficial owner of the shares of Company Common Stock set forth opposite such Shareholder's name on Schedule 2.3, free and clear of any liens, encumbrances, security interests, restrictions or claims whatsoever, and has full power and authority to convey such shares in accordance with the terms of this Agreement. 3.2 Authorization. This Agreement has been duly executed and delivered by such Shareholder and constitutes the legal, valid and binding obligations of such Shareholder, enforceable in accordance with its terms. 3.3 No Violations. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will (i) violate, or be in conflict with, or constitute a default (or other event which, with the giving of notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any lease, license, promissory note, contract, agreement, mortgage, deed of trust or other instrument or document to which such Shareholder is a party or by which such Shareholder or any of his or her properties or assets may be bound, (ii) violate any order, writ, injunction, decree, law, statute, rule or regulation of any court or governmental authority applicable to such Shareholder or any of his properties or assets or (iii) give rise to a declaration or imposition of any claim, lien, charge, security interest or encumbrance of any nature whatsoever upon the shares of Company Common Stock held by such Shareholder or upon any of the assets of the Company. ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF MAXWELL AND I-BUS Maxwell and I-Bus jointly and severally represent and warrant to the Shareholders as follows: 4.1 Organization and Power. Maxwell and I-Bus are each corporations duly organized, validly existing and in good standing under the laws of their state of organization, and each has all requisite corporate power and authority to own, lease and operate its properties, and to carry on its business, as such is now being conducted. 4.2 Capital Structure of I-Bus. The authorized capital stock of I-Bus consists of 30,000,000 shares of common stock, $.01 par value, of which 15,270,591 shares are issued and outstanding on the date of this Agreement. Except for any of the transactions contemplated pursuant to this Agreement, and for outstanding stock options covering 832,416 I-Bus Shares, there are no outstanding options, warrants, convertible debt or securities, calls, agreements, arrangements, commitments, understandings or other rights to purchase any of I-Bus's capital stock, or securities convertible into or exchangeable for any such capital stock. All of the outstanding shares of capital stock of I-Bus have been duly authorized, validly issued and are fully paid and nonassessable. 4.3 Authorization and Enforceability of Agreements. Maxwell and I-Bus each have all requisite corporate power and authority to enter into this Agreement and to perform their respective obligations hereunder. This Agreement has been duly and validly authorized by and approved by all requisite corporate action on the part of Maxwell and I-Bus. This Agreement has been duly executed and delivered by Maxwell and I-Bus, and constitutes the legal, valid and binding obligation of Maxwell and I-Bus enforceable in accordance with its terms. Except for securities law filings required by reason of the Stock Purchase, no further approvals or consents by, or filings with, any federal, state, municipal, foreign or other court or governmental or administrative body, agency or other third party is required in connection with the execution and delivery by Maxwell and I-Bus of this Agreement or the consummation by Maxwell or I-Bus of the transactions contemplated hereby, except for those which, if not obtained, would not have a material adverse impact on the ability of I-Bus to perform its business as currently conducted or the ability of I-Bus to execute and deliver this Agreement, or to consummate the transactions contemplated hereby. 4.4 No Conflicts. Neither the execution and delivery of this Agreement, nor the consummation of the transactions contemplated hereby will (a) violate any provisions of the charter or Bylaws of Maxwell or I-Bus, (b) violate, or be in conflict with, or constitute a default (or other event which, with the giving of notice or lapse of time or both, would constitute a default) under, or give rise to any right of termination, cancellation or acceleration under any of the terms, conditions or provisions of any material lease, license, promissory note, contract, agreement, mortgage, deed of trust or other instrument or document to which Maxwell or I-Bus is a party or by which Maxwell or I-Bus or any of its properties or assets may be bound, (c) violate any order, writ, injunction, decree, law, statute, rule or regulation of any court or governmental authority applicable to Maxwell or I-Bus or any of its properties or assets or (d) give rise to a declaration or imposition of any claim, lien, charge, security interest or encumbrance of any nature whatsoever upon any of the assets of Maxwell's or I-Bus' businesses. 4.5 Financial Statements and SEC Reports. Maxwell has delivered to the Shareholders copies of (i) its Annual Report on Form 10-K for the fiscal year ended December 31, 1999, and (ii) all other reports, statements and registration statements filed or required to be filed by it with the SEC since December 31, 1999 (the documents referred to in clauses (i) and (ii) being hereinafter referred to as the "Maxwell SEC Reports"). As of their respective dates, the Maxwell SEC Reports did not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading. The financial statements (including any related notes) of Maxwell included in the Maxwell SEC Reports were prepared in conformity with GAAP applied on a consistent basis, and present fairly in all material respects the consolidated financial position, results of operations and cash flows of Maxwell and its consolidated subsidiaries as of the date and for the periods indicated, subject, in the case of unaudited interim consolidated financial statements, to condensation, the absence of certain notes thereto and normal year-end adjustments. 4.6 Brokers and Finders. Neither Maxwell nor I-Bus has engaged or authorized any broker, finder, investment banker, financial advisor or other third party to act on their behalf, directly or indirectly, as a broker, finder, investment banker, financial advisor or in any other like capacity in connection with this Agreement or the transactions contemplated hereby, or consented to or acquiesced in anyone so acting, and neither Maxwell nor I-Bus knows of any claim for compensation from any such broker, finder, investment banker, financial advisor or other third party for so acting or resulting from the closing of the transaction contemplated hereby or of any basis for such a claim. 4.7 I-Bus Shares. The I-Bus Shares to be issued and delivered pursuant to this Agreement will, on delivery of certificates therefor in accordance with the terms hereof, be duly authorized, validly issued, fully paid and nonassessable. ARTICLE 5 CLOSING 5.1 The Closing. At the consummation of the Merger (referred to herein as the "Closing"), each of the parties shall take all such action and deliver all such documents, instruments, certificates and other items as may be required, under this Agreement or otherwise, in order to perform or fulfill all covenants, conditions and agreements on its part to be performed or fulfilled at or prior to the date of such Merger consummation (referred to herein as the "Closing Date") and to cause all conditions precedent to the other parties' obligations under this Agreement to be satisfied in full. 5.2 Delivery of Documents. At the Closing, the parties shall execute and deliver the following documents: (a) Consents. The Company shall deliver copies of all consents or approvals of any governmental authority or of any person in any contractual relationship with the Company necessary for the consummation of the transactions contemplated hereby. (b) Company Board and Shareholder Approval. The Company shall deliver a certified copy of the resolutions adopted by the Company's Board of Directors and the Shareholders authorizing and approving this Agreement and the transactions contemplated herein and therein. (c) Offer Letters. I-Bus and the Shareholders shall sign Offer Letters regarding the Shareholders' employment with I-Bus. (d) Noncompetition Agreements. Maxwell and I-Bus shall receive from each of the Shareholders a signed Noncompetition Agreement in the form of Exhibit 5.2(d) (the "Noncompetition Agreement") effective as of the filing of the Agreement of Merger. (e) Investment Letter. Maxwell and I-Bus shall receive from each Shareholder a signed Investment Letter in the form of Exhibit 5.2(e). (f) Put Agreement. I-Bus and each of the Shareholders shall have entered into the Put Agreement in the form of Exhibit 5.2(f) (the " Put Agreement"). (g) Indemnification Escrow Agreement. The Shareholders and I-Bus shall execute and deliver the Indemnification Escrow Agreement. (h) I-Bus and Maxwell Board Approval. Maxwell and I-Bus shall deliver to the Company and the Shareholders a certified copy of the resolutions adopted by the Board of Directors of I-Bus and Maxwell authorizing and approving this Agreement and the transactions contemplated herein. (i) Merger Documents. An Agreement of Merger or other documents required to effect the Merger shall have been filed with the California Secretary of State. (j) Cash. Maxwell or I-Bus shall wire the $500,000 cash portion of the Closing Payment to the Shareholders. (k) Other Matters. The parties shall deliver such additional certificates, agreements and the other documents as the other may reasonably request. ARTICLE 6 SURVIVAL OF REPRESENTATIONS, WARRANTIES, COVENANTS AND RELATED AGREEMENTS; INDEMNIFICATION 6.1 General Liability Period. The warranties, representations, covenants and agreements made by the Company and the Shareholders on the one hand, or by Maxwell and I-Bus, on the other hand, in this Agreement, or in any document, certificate, schedule or instrument delivered in connection herewith shall survive the Closing and shall continue in effect, notwithstanding any investigation by or on behalf of Maxwell, I-Bus, the Company or the Shareholders, for twelve months (the "General Liability Period") following the Closing Date; provided that (a) the representations and warranties set forth in Sections 2.1-2.4, 2.6, 3.1, 3.2, 3.3, 4.1, 4.2 and 4.3 and (b) the agreements and covenants made by the parties hereunder shall survive the Closing indefinitely. 6.2 Indemnification by the ShareholdersThe Shareholders, jointly and severally, shall indemnify and hold harmless, Maxwell and I-Bus and the officers, directors, agents, affiliates and representatives of Maxwell and I-Bus or any of them (the "Maxwell Indemnitees") from and against, and shall reimburse the Maxwell Indemnitees on demand for any loss, liability, damage or expense that the Maxwell Indemnitees shall incur or suffer, but subject at all times to Section 6.4 hereof (collectively, "Maxwell's Recoverable Losses"), arising out of or resulting from any misrepresentation by the Shareholders or breach by the Shareholders of any (i) representation or warranty contained in Article 2 hereof, (ii) agreement or covenant under or pursuant to this Agreement, or (iii) document, certificate, schedule or instrument delivered by or on behalf of the Company or the Shareholders pursuant hereto (collectively with respect to which a claim for Maxwell's Recoverable Losses is made by the Maxwell Indemnitees during the General Liability Period hereinafter referred to as a "Shareholders Agreement Breach"); provided that no Shareholder need indemnify the Maxwell Indemnitees for the breach by the other Shareholder of the representations and warranties set forth in Article 3 or the separate Noncompetition Agreement or Investment Letter delivered by the other Shareholder. Each Shareholder, severally and not jointly, agrees to indemnify and hold harmless the Maxwell Indemnitees from and against Maxwell Recoverable Losses arising out of or resulting from a breach by such Shareholder of the representations and warranties set forth in Article 3 (collectively with respect to which a claim for Maxwell's Recoverable Losses is made by the Maxwell Indemnitees during the General Liability Period hereinafter shall also be referred to as a "Shareholders Agreement Breach"). 6.3 Indemnification by Maxwell and I-Bus. Maxwell and I-Bus shall indemnify and hold harmless the Shareholders from and against, and shall reimburse the Shareholders for any loss, liability, damage or expense, including reasonable attorneys' fees and cost of investigation incurred as a result thereof, that the Shareholders shall incur or suffer (collectively, the "Shareholders' Recoverable Losses") resulting from any misrepresentation or breach by Maxwell or I-Bus of any (i) representation or warranty contained in Article 4 hereof, (ii) agreement or covenant under or pursuant to this Agreement or (iii) document, certificate, schedule or instrument delivered by or on behalf of Maxwell or I-Bus in connection herewith (collectively with respect to which a claim for the Shareholders' Recoverable Losses is made by the Shareholders during the General Liability Period hereinafter referred to as a "Maxwell/I-Bus Agreement Breach"). 6.4 Limitations on Recoverable Losses. Notwithstanding anything to the contrary, express or implied, set forth herein, claims for payment of Maxwell's Recoverable Losses in respect of a Shareholders Agreement Breach (i) may be made only with respect to claims arising during the General Liability Period (except with respect to breaches of the representations and warranties specified in the proviso to Section 6.1 and the covenants and agreements contained in this Agreement which shall not be so limited), (ii) must be made by giving the written Claim Notice (as defined in Section 6.5(a) hereof) to the Shareholders, (iii) except for breaches by the Shareholders or any of them (a) of any representations and warranties set forth in Article 3, (b) of any representation and warranty set forth in Sections 2.1-2.4 and 2.6, or (c) of the covenants and agreements herein set forth, may be made only to the extent that the aggregate amount of Maxwell's Recoverable Losses for Shareholders Agreement Breaches exceeds $50,000, in which case all Maxwell's Recoverable Losses for Shareholders Agreement Breaches which are covered by clauses (i) and (ii) herein above shall be paid by the Shareholders, and (iv) shall not exceed the greater of $5 million or 50% of the Purchase Price. Notwithstanding anything to the contrary, express or implied, set forth herein, claims for payment of the Shareholders' Recoverable Losses in respect of a Maxwell/I-Bus Agreement Breach (x) may be made only with respect to claims arising during the General Liability Period (except with respect to breaches of the representations and warranties specified in the proviso to Section 6.1 and the covenants and agreements contained in this Agreement which shall not be so limited) and (y) must be made, if at all, by giving a written Claim Notice to Maxwell and I-Bus. 6.5 Claims for Indemnification; Disputes. (a) Claims for Indemnification. Any party hereto (individually or with others, collectively, the "Indemnitee") shall give the Shareholders, or Maxwell and I-Bus, as the case may be (the "Indemnitor"), written notice (the "Claim Notice") of any claim (including the receipt of any demand) or the commencement of any action with respect to which indemnity may be sought by the Indemnitee (individually, a "Claim" and collectively, the "Claims"); provided, however, that if the Indemnitee fails to give such Claim Notice in a materially correct form prior to the expiration of the General Liability Period (except with respect to breaches of the representations and warranties specified in the proviso to Section 6.1 and the covenants and agreements contained in this Agreement, which shall not be so limited), all rights of the Indemnitee to assert any such Claims for a Maxwell/I-Bus Agreement Breach, a Shareholders Purchase Agreement Breach shall terminate and be forever waived. The Claim Notice shall include a description of the grounds upon which the Claim for indemnification is being made. The right of the Indemnitee to indemnification for a Claim shall be deemed to be accepted by the Indemnitor unless, within 45 days after the Indemnitor's receipt of the Claim Notice, the Indemnitor shall notify the Indemnitee in writing that it objects to the right of the Indemnitee to indemnification with respect to the Claim. (b) Control of Litigation; Mutual Cooperation. If a Claim is based upon a claim asserted by a third party against the Indemnitee (a "Third Party Claim") and the Indemnitor denies liability for the Claim hereunder, the Indemnitee shall be entitled to control the defense of the Third Party Claim, including, without limitation, the employment of counsel and the right to settle the Third Party Claim without any participation by or consent from the Indemnitor. All fees and expenses of counsel retained by the Indemnitee to defend such Third Party Claim, expert witness fees and other costs incurred in such action, shall be payable by the Indemnitee defending such Third Party Claim; provided, however, that if such Third Party Claim results in a Recoverable Loss for which the Indemnitor, notwithstanding any denial of liability, is found to be liable hereunder, such reasonable fees and expenses of counsel, expert witness fees and other reasonable costs incurred in such action shall be deemed to be included in such Recoverable Loss and payable by the Indemnitor to the extent and under the limitations provided in this Article 6. The Indemnitee shall act in good faith and no settlement of the Third Party Claim may be agreed to without the written consents of the Indemnitor and the Indemnitee, which consents shall not be unreasonably withheld. The party controlling the defense of the Third Party Claim shall deliver, or cause to be delivered, to the other party copies of all correspondence, pleading, motions, briefs, appeals or other written statements relating to or submitted in connection with the defense of the Third Party Claim, and timely notices of, and the right to participate in (as an observer), any hearing or other court proceeding relating to the Third Party Claim. 6.6 Exclusive Remedy. Except for issues arising under the Employment and Noncompetition Agreements and claims arising from fraud, the remedies provided in this Article 6 shall be the exclusive remedy for monetary damages (whether at law or in equity) arising out of or related to this Agreement or the transactions contemplated hereby. ARTICLE 7 POST-CLOSING COVENANTS 7.1 Relocation. Maxwell and I-Bus covenant not to move the Company's principal place of business to a location outside of San Luis Obispo County, California prior to March 31, 2002; provided that Maxwell and I-Bus may, as they in their reasonable judgment deem appropriate to further the development of the Company, establish additional business locations for the Company in any location or locations as long as none of the Shareholders are required to relocate outside of San Luis Obispo County without their express consent. 7.2 Operating Committee. Until the end of the first quarter of calendar year 2002, management of the operations formerly conducted by the Company (the "Company's Operations") will be directed by an operating committee comprised of Gordon Edmonds, Johni Chan (VP - Engineering and CTO of I-Bus) and James Baumker (VP - Finance of I-BUS), with the charter of coordinating the activities of the Company's operations with the strategic direction of I-Bus and to leverage efficiently the combined resources of the Company's operations and I-Bus with the absolute minimal redundancy of operating functions. This operating committee will report to John Werderman (President of I-Bus) as may be determined by Mr. Werderman. After such quarter, this management structure could be changed based on the best structure for the broader I-Bus enterprise. 7.3 Incentive Equity Pool. To assist in the hiring and retention of key employees into the operations formerly conducted by the Company, I-Bus agrees to create an equity incentive program promptly following the Closing, utilizing for this purpose, as necessary, existing available employee stock options, newly-authorized employee stock options and shares of restricted stock, in an aggregate number of shares of I-Bus common stock of 95,017 (representing 10%, fully diluted, of the I-Bus shares issued at Closing). I-Bus further agrees to supplement this incentive equity pool with 10%, fully diluted, of the I-Bus shares issued in the Final Payment (as defined in Exhibit 1.5). Options or shares of restricted stock shall be granted or issued, from time to time out of such available incentive equity pool by the Board of Directors (or a stock option committee thereof) of I-Bus based on recommendations by the Shareholders. The Board of Directors of I-Bus (or such committee) shall adhere to such recommendations unless, in the reasonable exercise of its business judgment, it concludes any such recommendation is inappropriate or not in the best interest of I-Bus. 7.4 Further Acts. (a) If, at any time after the Closing, any further action by any of the parties to this Agreement is necessary or desirable to carry out the purposes of this Agreement and/or to vest in I-Bus full title to all properties, assets and rights of the Company, such parties shall take all such necessary or desirable action or use such parties' best efforts to cause such action to be taken. (b) Maxwell and I-Bus agree that in the event either of them (or the Company) receives notice, whether orally or in writing, of any federal, state or local examination, claim, proposed adjustment or related matter with respect to any Tax Return for Taxes (the "Tax Controversies"), they shall timely notify the Shareholders. Failure of Maxwell or I-Bus to timely notify the Shareholders of any Tax Controversies shall not constitute a waiver of any rights of Maxwell or I-Bus with respect to the indemnification thereof by the Shareholders, but shall relieve the Shareholders of their indemnification obligation to the extent that such obligation is increased as the result of such failure to give timely notice. (c) After the Closing Date, each of the Shareholders shall: (i) assist Maxwell and I-Bus in preparing any Tax Returns not covered by (d) below for the Company for periods prior to the Closing Date and in preparing for any audits of, or disputes, contests or proceedings with, taxing authorities which relate to the Company for periods prior to the Closing Date; (ii) make available to Maxwell and I-Bus and to any taxing authority as reasonably requested all information, records and documents relating to tax liabilities which are attributable to the Company's business or the Company relating to periods beginning prior to the Closing Date. (iii) make him or herself available, without charge, as reasonably requested, in connection with tax disputes related to periods prior to the Closing Date; and (iv) keep confidential any Tax information except as may otherwise be necessary in connection with the filing of returns or claims for refund or in conducting any audit or other Tax proceeding. (d) The Shareholders shall prepare and file federal and state income and franchise Tax Returns for all periods up to the Closing Date and will submit such returns to Maxwell for review prior to filing. (e) Following the Closing and so long as (i) a Shareholder is employed by I-Bus and (ii) I-Bus is a majority-owned subsidiary of Maxwell with its stock not publicly traded, such Shareholder shall have access to and the right to inspect, during business hours and upon reasonable prior notice, the minute book and stock records of I-Bus. If either clause (i) or (ii) is no longer true, then the inspection rights of such Shareholder shall be as permitted by applicable law. ARTICLE 8 GENERAL PROVISIONS 8.1 Entire Agreement; Modifications; Waiver. This Agreement and the agreements ancillary hereto, supersede any and all agreements heretofore made, written or oral, relating to the subject matter hereof, and constitute the entire agreement of the parties relating to the subject matter hereof. This Agreement may be amended only by an instrument in writing signed by Maxwell and I-Bus on the one hand and the Company and the Shareholders on the other hand. Inspection of documents or the receipt of information pursuant to this Agreement shall not constitute a waiver of any representation, warranty, covenant or condition hereunder. No waiver shall be binding unless executed in writing by the party making such waiver. 8.2 Severability. If any clause or provision of this Agreement shall be held invalid or unenforceable by the final determination of a court of competent jurisdiction, and all appeals therefrom shall have failed or the time for such appeals shall have expired, such clause or provision shall be deemed eliminated from this Agreement, but the remaining provisions shall nevertheless be given full force and effect. 8.3 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of each of the parties hereto, and their respective successors and assigns. 8.4 Counterparts. This Agreement may be executed in several counterparts, each of which shall be deemed an original, and all of which together shall constitute one and the same instrument. 8.5 Governing Law. This Agreement shall be construed and interpreted in accordance with the internal substantive laws of the State of California. 8.6 Notices. All notices required or desired to be given hereunder shall be given in writing and signed by the party so giving notice, and shall be effective when personally delivered, one business day after transmission if sent by facsimile and appropriate confirmation is received, or five days after being deposited in the United States mail, as certified or registered mail, return receipt requested, first class postage and fees prepaid, addressed as set forth below. Any party from time to time may change such party's address for giving notice by giving notice thereof in the manner outlined above: If to Maxwell: Maxwell Technologies, Inc. 9275 Sky Park Court San Diego, California 92123 Attention: Donald M. Roberts, Esq. Facsimile: (858) 277-6754 If to the Company or the Shareholders: Gordon Edmonds 7631 Morro Road Atascadero, CA 93422 8.7 Expenses. Whether or not the Merger is consummated, each of the Shareholders (and not the Company) and Maxwell and I-Bus shall pay their own expenses (including outside legal and accounting fees) incident to this Agreement, filings and preparation of documents in connection with the issuance of the I-Bus Shares, and any other documents prepared in connection therewith and consummation of the Merger. 8.8 Recovery of Litigation Costs. If any legal action or arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled. 8.9 Publicity. Neither the Company nor the Shareholders nor any of their agents or affiliates, shall either directly or indirectly make any press release or other public communication with respect to the transaction contemplated hereby without the prior written consent of Maxwell and I-Bus, unless required by applicable law to make such a communication. 8.10 Confidentiality. From and after the date hereof, Maxwell, I-Bus, the Shareholders or the Company shall continue to be bound by, and observe the provisions of, the Confidentiality Agreement dated July 14, 2000, previously executed by each of them. 8.11 No Third Parties Benefitted. This Agreement is made and entered into for the sole protection and benefit of the parties hereto, their successors and assigns, and no other person or persons shall have any right or action under this Agreement. [The remainder of this page is intentionally left blank] IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. GATEWORKS CORPORATION By: /s/ Gordon Edmonds ------------------------------ Name: Gordon Edmonds Title: President SHAREHOLDERS: /s/ Gordon Edmonds ------------------------------ Gordon Edmonds /s/ R. Eisworth ------------------------------ Ronald Eisworth /s/ D.C. Hollingworth ------------------------------ Doug Hollingworth I-BUS/PHOENIX, INC. By: /s/ Donald M. Roberts ------------------------------ Name: Donald M. Roberts Title: Vice President MAXWELL TECHNOLOGIES, INC. By: /s/ Carlton J. Eibl ------------------------------ Name: Carlton J. Eibl Title: President and Chief Executive Officer EX-10.2 3 0003.txt I-BUS/PHOENIX INC. 2000 STOCK OPTION PLAN 1. Purpose. The 2000 Stock Option Plan (the "Plan") is intended to advance the interests of I-Bus/Phoenix Inc. (the "Company"), and its stockholders by encouraging and enabling selected "key employees" (as defined below) to acquire and retain a proprietary interest in the Company by ownership of its stock. For purposes of this Plan, the term "key employee" shall include employees of the Company, including employees who also serve as officers or directors of the Company, upon whose judgment, initiative and effort the Company is dependent for success in the conduct of its business. It is intended that the Plan provide the flexibility for the issuance of options which qualify as incentive stock options ("incentive stock options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and options which do not so qualify ("non-qualified stock options"). 2. Definitions. (a) "Affiliate" means Maxwell Technologies, Inc. and each corporation in which such entity owns, directly or indirectly, more than 50% of the voting equity interests. (b) "Agreement" means the agreement between the Company and the Optionee under which an option is granted, and setting forth the terms and conditions of the option and the Optionee's rights thereunder. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Committee (the members of which shall be appointed by the Board from among the directors of the Company) of the Board. If no such committee has been appointed by the Board, then the term "Committee" shall refer to the entire Board. (e) "Common Stock" means the Company's common stock. (f) "Date of Grant" means the date on which an option under the Plan is approved by the Committee. (g) "Option" means an option granted under the Plan. (h) "Optionee" means a person to whom an option, which has not expired, has been granted under the Plan. (i) "Successor" means the legal representative of the estate of the deceased Optionee or the person or persons who acquire the right to exercise an option by bequest or inheritance or by reason of the death of any Optionee. 3. Administration of the Plan. The Plan shall be administered by the Committee which shall report all action taken by it to the Board. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the number of shares and purchase price of Common Stock covered by each option, the individuals to whom and the time or times at which options shall be granted and the nature of each option granted under the Plan, i.e., whether the option will be an incentive stock option or a non-qualified stock option; to construe and interpret the Plan; to determine the terms and provisions of the respective Agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price, and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations of the Committee shall be conclusively binding for all purposes and upon all persons. 4. Common Stock Subject to Options. Unless amended in accordance with the provisions of Paragraph 11, and subject to adjustment under the provisions of Paragraph 7, the aggregate number of shares of the Company's Common Stock which may be issued upon the exercise of options granted under the Plan shall not exceed 450,000. The shares of Common Stock to be issued upon the exercise of options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such option but not purchased thereunder shall again be available for options to be granted under the Plan. 5. Participants. Options may be granted under the Plan to any person who, in the opinion of the Committee, is a key employee of the Company. 6. Terms and Conditions of Options. Any option granted under the Plan shall be evidenced by an Agreement executed by the Company and the Optionee and shall contain such terms and be in such form as the Committee may from time to time approve, subject to the following limitations and conditions: (a) Option Price. The option price per share with respect to each option shall be determined by the Committee but shall in no instance be less than 100% of the fair market value of a share of the Common Stock on the Date of Grant; provided that with respect to an option granted to an individual who, on the grant date, is the holder of stock representing more than 10% of the voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the option price for such option shall be no less than 110% of such fair market value. For the purposes hereof, fair market value shall be as determined by the Committee and such determination shall be binding upon the Company and upon the Optionee. The Committee may make such determination upon any factors which the Committee shall deem appropriate. (b) Period of Option. Except for earlier termination as provided in Subparagraphs (g) and (h) of this Paragraph 6, and in Subparagraph (b) of Paragraph 7, the expiration date of each option shall be fixed by the Committee, but, notwithstanding any provision of the Plan to the contrary, such expiration date shall not be more than ten years from the Date of Grant or, with respect to a 10% Holder, five years from the Date of Grant. (c) Vesting of Stockholder Rights. Neither an Optionee nor any Successor shall have any of the rights of a stockholder of the Company until the option with respect to the applicable shares shall have been duly exercised and the certificate evidencing such shares delivered to such Optionee or any Successor. (d) Exercise of Option. Each option shall be exercisable in such amounts and at such respective dates prior to the expiration of the option as provided in the Agreement; provided that for Optionees other than officers, directors or consultants of the Company options will become exercisable at a rate of no less than 20% per year over five (5) years from the date the Option is granted. An Option may not be exercised for a fraction of a share. (e) Payment of Option Price. Upon exercise of an option, the Optionee or Successor shall pay the option price by delivering to the Company, cash or a check payable to the Company in an amount equal to the option price. The Committee may, at its discretion exercised at the time of the exercise of an option, permit the payment of the option price in the following ways: (i) delivery by the Optionee or Successor of a stock certificate or certificates, duly endorsed for transfer to the Company, representing shares of Common Stock of the Company owned by the Optionee or Successor which have a fair market value on the date of exercise equal to the option price; or (ii) delivery by the Optionee or Successor of cash or a check payable to the Company and a stock certificate or certificates, duly endorsed for transfer to the Company, representing shares of Common Stock owned by the Optionee or Successor, which, when added to the amount of the cash or check, have a fair market value on the date of exercise equal to the option price. For the purposes hereof, fair market value shall be determined by the Committee and such determination shall be binding upon the Company and upon the Optionee or Successor. The Committee may make such determination in accordance, with Paragraph 6(a) hereof by substituting "date of exercise" for "Date of Grant" each time the latter appears therein and upon any other factors which the Committee shall deem appropriate. (f) Non-Transferability of Option. No option shall be transferable or assignable by an Optionee, otherwise than by will or the laws of descent and distribution and each option shall be exercisable during the Optionee's lifetime only by the Optionee. No option shall be pledged or hypothecated in any way and no option shall be subject to execution, attachment or similar process. (g) Termination of Employment. Upon termination of an Optionee's employment with the Company and all Affiliates other than by reason of the death of the Optionee, the option privileges of such Optionee shall be limited to the shares which were immediately purchasable by Optionee at the date of such termination and such option privilege shall expire unless exercised by Optionee within sixty (60) days after the date of such termination. The granting of an option to any person shall not alter in any way the Company's right to terminate such person's employment at any time for any reason, nor shall it confer upon the Optionee any rights or privileges except as specifically provided for in the Plan. (h) Death of Optionee. If an Optionee dies while in the employ of the Company or any Affiliate, the option privileges of said Optionee shall be limited to the shares which were immediately purchasable by such Optionee at the date of death and such option privileges shall expire unless exercised by said Optionee's Successor within one (1) year after the date of death. 7. Adjustments. (a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Board in the number, kind and exercise price of shares for the purchase of which options have theretofore been or may thereafter be granted under the Plan. (b) In the event that the Company shall determine to merge, consolidate or enter into any other reorganization with or into any other corporation, or in the event of any dissolution or liquidation of the Company, then in any such event, at the election of the Board, (i) appropriate adjustment shall be made by the Board in the number, kind and exercise price of shares for the purchase of which options have theretofore been and/or may thereafter be granted under the Plan; or (ii) the Plan and any options theretofore granted under the Plan shall terminate as of the date of such merger, consolidation, reorganization, dissolution or liquidation, provided that written notice of such event shall have been given to each Optionee not less than 30 days prior to the date of such event. Upon any election by the Board pursuant to the provisions of clause (ii) of this Subparagraph (b), each Optionee shall have the right during the period commencing on the date the notice referred to in said clause (ii) is given and concluding on the date of such merger, consolidation, reorganization, dissolution or liquidation, as the case may be, to exercise such Optionee's outstanding and unexercised stock options, including shares as to which such options would not otherwise have been exercisable by reason of an insufficient lapse of time. (c) All adjustments and determinations under this Paragraph 7 shall be made by the Board, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding and conclusive. 8. Dollar Limitation on Incentive Stock Options. The aggregate fair market value (determined as of the Date of Grant) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under the Plan and all other stock option plans of the Company or any Affiliate) shall not exceed $100,000. 9. Restrictions on Issuing Shares. The exercise of each option shall be subject to the condition that if at any time the Company shall determine in its discretion that (i) the satisfaction of withholding tax or other withholding liabilities, or (ii) the listing, registration or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or (iii) the consent or approval of any regulatory body, or (iv) the perfection of any exemption from any such withholding, listing, registration, qualification, consent or approval is necessary or desirable as a condition of, or in connection with, such exercise or the issuance, delivery or purchase of shares thereunder, then in any such event, such exercise shall not be effective unless such withholding, listing registration, qualification, consent, approval or exemption shall have been effected, obtained or perfected free of any conditions not acceptable to the Company. 10. Use of Proceeds. The proceeds received by the Company from the sale of its Common Stock pursuant to the exercise of options granted under the Plan shall be added to the Company's general funds and used for general corporate purposes. 11. Amendment, Suspension and Termination of the Plan. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable in order that the options granted thereunder may conform to any changes in the law or in any other respect which the Board may deem to be in the best interests of the Company; provided, however, that without approval by the stockholders of the Company representing a majority of the voting power, no such amendment shall (a) except pursuant to Paragraph 7, increase the maximum number of shares for which options may be granted under the Plan, (b) change the provisions of Subparagraph (a) of Paragraph 6 relating to the establishment of the option price, (c) change the provisions of Subparagraph (b) of Paragraph 6 relating to the expiration date of each option or (d) change the provisions of the second sentence of this Paragraph 11 relating to the term of this Plan. Unless the Plan shall theretofore have been terminated by the Board or as provided in Paragraph 12, the Plan shall terminate ten (10) years after the effective date of the Plan. No option may be granted during any suspension or after the termination of the Plan. Except as otherwise provided in the Plan, no amendment, suspension or termination of the Plan shall, without an Optionee's consent, alter or impair any of the right or obligations under any option theretofore granted to such Optionee under the Plan. 12. Effective Date of the Plan and Stockholder Approval. The effective date of the Plan shall be the date of its approval by the Board; provided, however, that in the event that stockholder approval of the Plan is not secured on or before the date which is twelve (12) months from the date of approval by the Board, the Plan shall thereupon terminate. Any options granted prior to the aforesaid stockholder approval being secured shall be subject to such approval being secured. 13. Information to Optionees. The Company shall provide to each Optionee not less frequently than annually, during the period such Optionee has one or more Options, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. I-BUS/PHOENIX INC. By: ---------------------------- Donald M. Roberts, Secretary Date: ---------------------------- EX-10.3 4 0004.txt PUREPULSE TECHNOLOGIES, INC. 2000 STOCK OPTION PLAN 1. Purpose. The 2000 Stock Option Plan (the "Plan") is intended to advance the interests of PurePulse technologies, Inc. (the "Company"), and its stockholders by encouraging and enabling selected "key employees" (as defined below) to acquire and retain a proprietary interest in the Company by ownership of its stock. For purposes of this Plan, the term "key employee" shall include employees of the Company, including employees who also serve as officers or directors of the Company, upon whose judgment, initiative and effort the Company is dependent for success in the conduct of its business. It is intended that the Plan provide the flexibility for the issuance of options which qualify as incentive stock options ("incentive stock options") within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), and options which do not so qualify ("non-qualified stock options"). 2. Definitions. (a) "Affiliate" means Maxwell Technologies, Inc. and each corporation in which such entity owns, directly or indirectly, more than 50% of the voting equity interests. (b) "Agreement" means the agreement between the Company and the Optionee under which an option is granted, and setting forth the terms and conditions of the option and the Optionee's rights thereunder. (c) "Board" means the Board of Directors of the Company. (d) "Committee" means the Stock Option Committee (the members of which shall be appointed by the Board from among the directors of the Company) of the Board. If no such committee has been appointed by the Board, then the term "Committee" shall refer to the entire Board. (e) "Common Stock" means the Company's common stock. (f) "Date of Grant" means the date on which an option under the Plan is approved by the Committee. (g) "Option" means an option granted under the Plan. (h) "Optionee" means a person to whom an option, which has not expired, has been granted under the Plan. (i) "Successor" means the legal representative of the estate of the deceased Optionee or the person or persons who acquire the right to exercise an option by bequest or inheritance or by reason of the death of any Optionee. 3. Administration of the Plan. The Plan shall be administered by the Committee which shall report all action taken by it to the Board. The Committee shall have full and final authority in its discretion, subject to the provisions of the Plan, to determine the number of shares and purchase price of Common Stock covered by each option, the individuals to whom and the time or times at which options shall be granted and the nature of each option granted under the Plan, i.e., whether the option will be an incentive stock option or a non-qualified stock option; to construe and interpret the Plan; to determine the terms and provisions of the respective Agreements, which need not be identical, including, but without limitation, terms covering the payment of the option price, and to make all other determinations and take all other actions deemed necessary or advisable for the proper administration of the Plan. All such actions and determinations of the Committee shall be conclusively binding for all purposes and upon all persons. 4. Common Stock Subject to Options. Unless amended in accordance with the provisions of Paragraph 11, and subject to adjustment under the provisions of Paragraph 7, the aggregate number of shares of the Company's Common Stock which may be issued upon the exercise of options granted under the Plan shall not exceed 1,000,000. The shares of Common Stock to be issued upon the exercise of options may be authorized but unissued shares, shares issued and reacquired by the Company or shares bought on the market for the purposes of the Plan. In the event any option shall, for any reason, terminate or expire or be surrendered without having been exercised in full, the shares subject to such option but not purchased thereunder shall again be available for options to be granted under the Plan. 5. Participants. Options may be granted under the Plan to any person who, in the opinion of the Committee, is a key employee of the Company. 6. Terms and Conditions of Options. Any option granted under the Plan shall be evidenced by an Agreement executed by the Company and the Optionee and shall contain such terms and be in such form as the Committee may from time to time approve, subject to the following limitations and conditions: (a) Option Price. The option price per share with respect to each option shall be determined by the Committee but shall in no instance be less than 100% of the fair market value of a share of the Common Stock on the Date of Grant; provided that with respect to an option granted to an individual who, on the grant date, is the holder of stock representing more than 10% of the voting equity of the Company or any Affiliate (hereinafter a "10% Holder"), the option price for such option shall be no less than 110% of such fair market value. For the purposes hereof, fair market value shall be as determined by the Committee and such determination shall be binding upon the Company and upon the Optionee. The Committee may make such determination upon any factors which the Committee shall deem appropriate. (b) Period of Option. Except for earlier termination as provided in Subparagraphs (g) and (h) of this Paragraph 6, and in Subparagraph (b) of Paragraph 7, the expiration date of each option shall be fixed by the Committee, but, notwithstanding any provision of the Plan to the contrary, such expiration date shall not be more than ten years from the Date of Grant or, with respect to a 10% Holder, five years from the Date of Grant. (c) Vesting of Stockholder Rights. Neither an Optionee nor any Successor shall have any of the rights of a stockholder of the Company until the option with respect to the applicable shares shall have been duly exercised and the certificate evidencing such shares delivered to such Optionee or any Successor. (d) Exercise of Option. Each option shall be exercisable in such amounts and at such respective dates prior to the expiration of the option as provided in the Agreement; provided that for Optionees other than officers, directors or consultants of the Company options will become exercisable at a rate of no less than 20% per year over five (5) years from the date the Option is granted. An Option may not be exercised for a fraction of a share. (e) Payment of Option Price. Upon exercise of an option, the Optionee or Successor shall pay the option price by delivering to the Company, cash or a check payable to the Company in an amount equal to the option price. The Committee may, at its discretion exercised at the time of the exercise of an option, permit the payment of the option price in the following ways: (i) delivery by the Optionee or Successor of a stock certificate or certificates, duly endorsed for transfer to the Company, representing shares of Common Stock of the Company owned by the Optionee or Successor which have a fair market value on the date of exercise equal to the option price; or (ii) delivery by the Optionee or Successor of cash or a check payable to the Company and a stock certificate or certificates, duly endorsed for transfer to the Company, representing shares of Common Stock owned by the Optionee or Successor, which, when added to the amount of the cash or check, have a fair market value on the date of exercise equal to the option price. For the purposes hereof, fair market value shall be determined by the Committee and such determination shall be binding upon the Company and upon the Optionee or Successor. The Committee may make such determination in accordance, with Paragraph 6(a) hereof by substituting "date of exercise" for "Date of Grant" each time the latter appears therein and upon any other factors which the Committee shall deem appropriate. (f) Non-Transferability of Option. No option shall be transferable orassignable by an Optionee, otherwise than by will or the laws of descent and distribution and each option shall be exercisable during the Optionee's lifetime only by the Optionee. No option shall be pledged or hypothecated in any way and no option shall be subject to execution, attachment or similar process. (g) Termination of Employment. Upon termination of an Optionee's employment with the Company and all Affiliates other than by reason of the death of the Optionee, the option privileges of such Optionee shall be limited to the shares which were immediately purchasable by Optionee at the date of such termination and such option privilege shall expire unless exercised by Optionee within sixty (60) days after the date of such termination. The granting of an option to any person shall not alter in any way the Company's right to terminate such person's employment at any time for any reason, nor shall it confer upon the Optionee any rights or privileges except as specifically provided for in the Plan. (h) Death of Optionee. If an Optionee dies while in the employ of the Company or any Affiliate, the option privileges of said Optionee shall be limited to the shares which were immediately purchasable by such Optionee at the date of death and such option privileges shall expire unless exercised by said Optionee's Successor within one (1) year after the date of death. 7. Adjustments. (a) In the event that the outstanding shares of Common Stock of the Company are hereafter increased or decreased or changed into or exchanged for a different number or kind of shares or other securities of the Company or of another corporation, by reason of a recapitalization, reclassification, stock split-up, combination of shares, dividend or other distribution payable in capital stock, appropriate adjustment shall be made by the Board in the number, kind and exercise price of shares for the purchase of which options have theretofore been or may thereafter be granted under the Plan. (b) In the event that the Company shall determine to merge, consolidate or enter into any other reorganization with or into any other corporation, or in the event of any dissolution or liquidation of the Company, then in any such event, at the election of the Board, (i) appropriate adjustment shall be made by the Board in the number, kind and exercise price of shares for the purchase of which options have theretofore been and/or may thereafter be granted under the Plan; or (ii) the Plan and any options theretofore granted under the Plan shall terminate as of the date of such merger, consolidation, reorganization, dissolution or liquidation, provided that written notice of such event shall have been given to each Optionee not less than 30 days prior to the date of such event. Upon any election by the Board pursuant to the provisions of clause (ii) of this Subparagraph (b), each Optionee shall have the right during the period commencing on the date the notice referred to in said clause (ii) is given and concluding on the date of such merger, consolidation, reorganization, dissolution or liquidation, as the case may be, to exercise such Optionee's outstanding and unexercised stock options, including shares as to which such options would not otherwise have been exercisable by reason of an insufficient lapse of time. (c) All adjustments and determinations under this Paragraph 7 shall be made by the Board, whose decisions as to what adjustments or determinations shall be made, and the extent thereof, shall be final, binding and conclusive. 8. Dollar Limitation on Incentive Stock Options. The aggregate fair market value (determined as of the Date of Grant) of the Common Stock with respect to which incentive stock options are exercisable for the first time by any individual during any calendar year (under the Plan and all other stock option plans of the Company or any Affiliate) shall not exceed $100,000. 9. Restrictions on Issuing Shares. The exercise of each option shall be subject to the condition that if at any time the Company shall determine in its discretion that (i) the satisfaction of withholding tax or other withholding liabilities, or (ii) the listing, registration or qualification of any shares otherwise deliverable upon such exercise upon any securities exchange or under any state or federal law, or (iii) the consent or approval of any regulatory body, or (iv) the perfection of any exemption from any such withholding, listing, registration, qualification, consent or approval is necessary or desirable as a condition of, or in connection with, such exercise or the issuance, delivery or purchase of shares thereunder, then in any such event, such exercise shall not be effective unless such withholding, listing registration, qualification, consent, approval or exemption shall have been effected, obtained or perfected free of any conditions not acceptable to the Company. 10. Use of Proceeds. The proceeds received by the Company from the sale of its Common Stock pursuant to the exercise of options granted under the Plan shall be added to the Company's general funds and used for general corporate purposes. 11. Amendment, Suspension and Termination of the Plan. The Board may at any time suspend or terminate the Plan or may amend it from time to time in such respects as the Board may deem advisable in order that the options granted thereunder may conform to any changes in the law or in any other respect which the Board may deem to be in the best interests of the Company; provided, however, that without approval by the stockholders of the Company representing a majority of the voting power, no such amendment shall (a) except pursuant to Paragraph 7, increase the maximum number of shares for which options may be granted under the Plan, (b) change the provisions of Subparagraph (a) of Paragraph 6 relating to the establishment of the option price, (c) change the provisions of Subparagraph (b) of Paragraph 6 relating to the expiration date of each option or (d) change the provisions of the second sentence of this Paragraph 11 relating to the term of this Plan. Unless the Plan shall theretofore have been terminated by the Board or as provided in Paragraph 12, the Plan shall terminate ten (10) years after the effective date of the Plan. No option may be granted during any suspension or after the termination of the Plan. Except as otherwise provided in the Plan, no amendment, suspension or termination of the Plan shall, without an Optionee's consent, alter or impair any of the right or obligations under any option theretofore granted to such Optionee under the Plan. 12. Effective Date of the Plan and Stockholder Approval. The effective date of the Plan shall be the date of its approval by the Board; provided, however, that in the event that stockholder approval of the Plan is not secured on or before the date which is twelve (12) months from the date of approval by the Board, the Plan shall thereupon terminate. Any options granted prior to the aforesaid stockholder approval being secured shall be subject to such approval being secured. 13. Information to Optionees. The Company shall provide to each Optionee not less frequently than annually, during the period such Optionee has one or more Options, copies of annual financial statements. The Company shall not be required to provide such statements to key employees whose duties in connection with the Company assure their access to equivalent information. PUREPULSE TECHNOLOGIES, INC. By: ---------------------------- Donald M. Roberts, Secretary Date: ---------------------------- EX-27 5 0005.txt ARTICLE 5 FINANCIAL DATA SCHEDULE FOR 3RD QUARTER 2000 10-Q
5 1000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 1,777 0 30,182 0 30,182 80,381 56,723 (33,954) 115,779 37,764 172 0 0 986 71,233 115,779 106,434 106,434 83,641 83,641 43,934 0 560 (21,725) (8,690) (12,746) (818) 0 0 (13,564) (1.39) (1.39) -----END PRIVACY-ENHANCED MESSAGE-----