CEO Employment Contract

EXHIBIT 10.16


MAXWELL LABORATORIES INC.
CHIEF EXECUTIVE OFFICER
EMPLOYMENT CONTRACT


This Employment Contract (the "Agreement") is made as of this 25th day of March, 1996, between MAXWELL LABORATORIES INC. ("Company") and MR. KENNETH POTASHNER ("Executive"). The parties agree with each other as follows:


1. TERM OF EMPLOYMENT. Subject to the terms and conditions set forth in this Agreement, the Company hereby agrees to employ Executive for the period commencing on the Commencement Date (as hereinafter defined) and ending July 31, 1998, unless earlier terminated pursuant to Section 4 below. The "Commencement Date" shall mean the earliest of (a) April 26, 1996, (b) three business days after the date Executive's Conner/Seagate stock options scheduled to vest on or about April 25, 1996 in fact vest and (c) as soon as practicable after Executive and Company agree to additional financial arrangements to compensate Executive for his loss of the vesting of any stock options which would have vested had Executive stayed with his current employer until April 25, 1996. This Agreement may be extended for an additional one (1) year term after the end of this initial term if the parties hereto mutually agree in writing to such extension.


2. DUTIES OF EXECUTIVE.


(a) Executive shall serve as the Chief Executive Officer of the
Company and serve in such other and/or additional positions as the
Company shall determine. In such capacity Executive shall report to the
Company's Board of Directors and Executive shall perform the duties and
render the services on behalf of the Company associated with the
positions he shall hold as set forth from time to time in resolutions of,
or other directives issued by, the Company's Board of Directors or
authorized delegate of the Board.


(b) Executive agrees to perform such duties and render such
services to the best of his ability, devoting thereto his entire
professional time, attention and energy exclusively to the business and
affairs of the Company and its affiliates, as its business and affairs now
exist and as they hereafter may be changed, and shall not during the term
of his employment hereunder be engaged in any other business activity,
whether or not such business activity is pursued for gain or profit;
PROVIDED, HOWEVER, that Executive may, after July 31, 1996 for so long as
such service does not interfere with Executive's duties hereunder, serve on
the Board of Directors of an unaffiliated company which is not


in the same or related area of business as the Company and its subsidiaries
and is otherwise acceptable to the Company's Board of Directors. The
foregoing shall not be construed as preventing Executive from investing his
assets in such form or manner as will not require any significant services
on his part in the operation of the affairs of the businesses or entities
in which such investments are made; provided, however, that Executive shall
not invest in any business competitive with the Company or any of its
affiliates or otherwise contrary to the policies from time to time adopted
by the Company.


(c) Executive shall be elected to serve on the Company's Board of
Directors.


3. COMPENSATION OF EXECUTIVE. As compensation for the services performed under this Agreement:


(a) BASE SALARY. Executive shall be paid a base salary at the annual
rate of $400,000, payable in installments consistent with the Company's
payroll practices. The base salary shall be reviewed annually by the
Board or its Compensation Committee and any increase shall be effective
as of the date determined appropriate by the Board or its Compensation
Committee.


(b) ANNUAL BONUS. Executive shall be entitled to an annual bonus
which shall be determined by the Board in its discretion, but subject to
the following:


(1) In the case of the remaining portion of the fiscal year of
the Company (which shall be for the period from the Commencement Date
through July 31, 1996), the Board will set non-financial objectives on or
before May 1, 1996, and the amount of the bonus will range from $0 to a
maximum amount of $100,000 (with a target bonus of $100,000) depending on
the Board's determination of Executive's success in meeting such
objectives. Such bonus shall be paid on or before August 31, 1996.


(2) In the case of the first full year bonus (which shall be for
the period from August 1, 1996 through July 31, 1997), the Board will set
non-financial business objectives on or before August 31, 1996, and the
amount of the bonus will range from a minimum guaranteed amount of $200,000
to a maximum amount of $400,000 (with a target bonus of $400,000) depending
on the Board's determination of Executive's success in meeting such
objectives. Such first full year bonus shall be paid on or before August
31, 1997.


(3) In the case of the second full year bonus (which shall be
for the year ending on July 31, 1998), the Board will set specific
financial and non-financial objectives on or before August 31, 1997, and
the amount of


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the bonus will range from $0 to a maximum amount of $400,000 (with a target
bonus of $400,000) depending on the Board's determination of Executive's
success in meeting such objectives. Such second full year bonus shall be
paid on or before August 31, 1998.


(c) EQUITY INCENTIVES. On the Commencement Date, Executive shall
receive (1) a grant of shares of the Company's common stock equal to 3.25%
of the number of the Company's common stock outstanding on the Commencement
Date (the "Grant Shares") and (2) options to purchase up to a like number
of shares of the Company's common stock (the "Options").


(1) GRANT SHARES. The Grant Shares shall be issued pursuant to
a Restricted Stock Agreement and shall be subject to forfeiture to the
Company. One hundred percent of the Grant Shares shall initially be
subject to the forfeiture restriction. Thereafter, the Grant shares
held by Executive shall be released from the forfeiture restriction as
follows: twenty-five percent (25%) of the Grant Shares on the last
day of the month in which the one year anniversary of the Commencement
Date occurs and an additional 1/48th of the Grant Shares on the last
day of each month thereafter until all shares are released from the
forfeiture restrictions. During the time that Grant Shares are
subject to the forfeiture restrictions, such Grant Shares may not be
sold, encumbered or otherwise disposed of by Executive. The Grant
Shares shall contain a legend reflecting the forfeiture restrictions
and the Company may take such other steps as it deems reasonable to
assure compliance with the forfeiture restrictions. Executive shall
be entitled to receive and retain all dividends paid on the Grant
Shares regardless of the forfeiture restrictions through the date of
forfeiture (if any).


(2) THE OPTIONS. One-half of the Options shall be incentive
stock options to the maximum extent permitted by applicable law
(without adversely affecting the incentive stock option plan) and the
remainder of the Options shall be non-qualified stock options, in each
case subject to the Maxwell Laboratories, Inc. 1995 Stock Option Plan
and a stock option agreement issued thereunder (which will include
antidilution protection as set forth in the plan and in respect of
below market issuances of the Company's common stock (other than
management and director stock incentives)) and shall entitle Executive
to purchase from the Company at any time after vesting (as set out
below) but prior to March 1, 2006, the shares of the Company subject
thereto for an exercise price of the fair market value of the
Company's shares on the date


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of the grant of the Options. One-half of the Options shall be granted
on the Commencement Date and one-half of the Options shall be granted
on the six month anniversary of the Commencement Date.


The Options shall vest as follows: if Executive is employed with the
Company on the first anniversary of the Commencement Date, 25% of the
Options shall then become vested and fully exercisable on the last day
of the month in which such anniversary occurs; and an additional 1/48
of the Options shall become vested and fully exercisable on the last
day of each month thereafter so long as Executive remains employed
with the Company.


It is the current intention of the Company to provide further unspecified
stock incentives depending on Executive's performance; provided, however,
the Company shall be under no obligation to grant such further incentives.


(d) CERTAIN CHANGES OF CONTROL. In the event that (x) a Change of
Control (as hereinafter defined) occurs and (y) as a result thereof or in
contemplation thereof, without the consent of Executive nor at the behest
of Executive, either Executive's compensation or responsibilities are
reduced or the headquarters of the Company is moved to a location outside a
30 mile radius of the Company's existing headquarters, then:


(1) Immediately prior to the effective date of the Change of
Control, notwithstanding the vesting and forfeiture schedules set out in
subsection (c) above, all of the Options shall thereupon become fully
vested and all of the Grant Shares shall thereupon become free of any
forfeiture restrictions; and


(2) Immediately prior to the effective date of the Change of
Control, Executive shall receive a ...