U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [Fee Required]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [No Fee Required]
For the transition period from------------to-------------
Commission file number 0-15927
COMPUTER POWER INC.
(Name of small business issuer in its charter)
New Jersey 22-1981869
(State or other jurisdiction of (I.R.S. Employer
Incorporation organization) Identification No.)
124 West Main Street, High Bridge, NJ 08829
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: 908-638-8000
Securities registered pursuant to Section 12 (b) of the Exchange act:
Title of each class Name of exchange on which
registered
None None
Name of each exchange on which registered
None
Securities registered pursuant to Section 12(g) of the Exchange Act:
Common Stock, par value $.01 per share
(Title of Class)
<PAGE>
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 __
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B not contained in this form, and no disclosure will be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year: $10,838,816
The aggregate market value of the voting stock held by non-affiliates computed
by reference to the price at which the stock was sold, or the average bid and
asked prices of such stock as of March 27, 1997: $279,275.
The number of shares outstanding of each of the issuer's classes of common
equity, as of March 27, 1997: 2,578,300 shares of Common Stock.
Transitional Small Business Disclosure Format (check one)
Yes_______ No X
<PAGE>
Part I
Item 1. Business
General
Computer Power Inc. (the "Company", or "Registrant") designs, manufactures,
markets and services products in three distinct market categories: Energy
efficient lighting, Power protection systems, and Emergency lighting. In order
to serve these markets, the Company is organized into two business units. The
Astralite business unit is focused on the energy efficient lighting market,
while the Power Protection business unit is concentrated on the power protection
market and emergency lighting market.
ENERGY EFFICIENT LIGHTING
The lighting retrofit market has been growing at a rapid rate, driven by
demands for energy conservation and related pollution reductions and cost
savings from numerous sources including the Federal Government, utility power
companies and consumers. Numerous enterprises, including both Fortune 500 and
small start-up companies, continue to enter the marketplace with various product
offerings, ranging from energy efficient lamp replacements to lighting dimmers
and controls. Furthermore, utility-sponsored energy management firms and
contractors (DSMs and ESCOs) have entered the marketplace offering complete
turnkey services to reduce energy consumption in commercial , industrial and
public facilities. Most recently the Environmental Protection Agency has
launched several major campaigns to promote energy efficient lighting products.
Utility power companies also continue to promote lighting retrofit and
conservation with various rebates and cash incentives.
Capitalizing on the growing demand for energy efficient lighting products and
the development of more powerful solid-state Light Emitting Diodes (LEDs) in
1993 the Registrant, under the brand name AstraLite, developed a 1.8-watt LED
illuminating light source to retrofit the high energy consuming standard
incandescent lamps used in Exit Signs. Since 1993, Astralite has expanded its
product line to include both LED retrofit kits and complete LED-based exit
signs.
LEDs, first developed in the 1960's, produce light by the excitation of
electrons in a P-N junction and use the same manufacturing process as
semiconductors. Since that time LED technology has increased in brightness and
useful life making them a viable alternative to incandescent applications in
color specific applications such as Exit Signs and Traffic Signals.
The key benefits of LEDs when used in Exit Signs is their 98% energy savings and
extremely long life as compared to the incandescent lamp. Required by code in
public buildings, there are an estimated 40-100 million Exit Signs in use today.
The EPA estimates that over $1 billion per year in energy savings could be
realized if the nation converts to this new solid-state lighting technology.
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POWER PROTECTION SYSTEMS
Power protection systems condition and supply electrical power to computers,
electronic equipment and lighting systems when utility power fails or is
contaminated. These systems serve as a temporary bridge between the termination
of utility power and the commencement of power from generators, the restoration
of utility power, or provide time for an orderly computer system shutdown
without damage or loss of data. Products are automatically activated and provide
electrical power to the protected equipment for periods of time ranging from 10
minutes to 8 hours.
The Company concentrates on three niches of the power protection market: 1)
Emergency Lighting, 2) Custom Products, and 3) Standard Products. The Company
maintains a broad product line from 280VA single-phase up to 100 KVA three-phase
systems, and maintains a patent, which expires in the year 2000 for an energy
efficient unit.
All power protection systems contain a battery, battery charger, DC(direct
current) to AC(alternating current) inverter, and an output transformer. These
components are housed in metal cabinets with meter panels, environmental filters
and air louvers. The complete unit can be mounted on the floor, wall, table or
desk.
The Company's main focus is the emergency lighting market, where it offers a
line of power protection devices( Lighting Inverters) which backup lighting
fixtures. Required by Fire Code, all public buildings must provide for a minimum
of 90 minutes of emergency lighting. This can be a accomplished via generator,
battery powered unit lights, or Inverters.
The Company's power protection equipment can be divided into four
sub-categories: 1) Double conversion, on-line uninterruptible power systems
(UPS), 2) Ferroresonant, on-line uninterruptible systems (UPS), 3) Fast transfer
backup power systems, and 4) Standard transfer backup power systems.
The most significant difference among the four categories of power protection
systems is the market they serve and the speed at which auxiliary power is
supplied when utility power fails. The responsiveness of the system in terms of
supplying power determines the specific use or application of the system.
Double conversion, on-line systems continuously supply perfect sine wave power
to the protected load. No interruption in power occurs during the transfer from
utility power to emergency power, completely protecting the load from power
disturbances or outages. Ferroresonant on-line systems also supply uninterrupted
power, but unlike double conversion systems, there is a slight voltage and
frequency modulation during the transfer. Fast transfer systems are used
primarily for emergency lighting applications involving HID lights. HID lights
require this type of system to continue uninterrupted illumination upon loss of
utility power. In the case of standard transfer systems there is a delay of 50
to 100 milliseconds which is compatible with powering incandescent and
fluorescent emergency lighting.
As a result of the differences in transfer speed and modulation,
double-conversion and Ferroresonant on-line UPS systems are generally used to
supply auxiliary power and line conditioning to computers and sensitive
electronics in which any loss of power might damage the equipment or cause
errors and data losses. Backup power systems, having the slowest transfer speed,
are used primarily for emergency lighting systems in which the momentary loss of
power does not effect the equipment or its performance in any meaningful way.
Both double conversion and Ferroresonant on-line systems provide line
conditioning to filter and regulate utility power to clean sine wave. Backup
power systems generally offer little or no line conditioning.
PRODUCT PRICES AND REVENUES
The retail product price ranges are as follows: (a) energy efficient lighting
from $40 to $120; (b) power protection systems from $119 to more than $100,000;
(c) line conditioning equipment from $1,000 to $25,000; (d) battery chargers
from $1650 to $5000; and (e) emergency lighting equipment from $2,000 to
$90,000.
MANUFACTURING AND SUPPLY
The Company's manufacturing operations, are conducted at its High Bridge, New
Jersey facility. Manufacturing includes an order specific customized order
processing system for power protection products, and large quantity orders for
Astralite products. Production is scheduled on an historical sales basis as well
as for specific customer orders. To a limited extent, the Registrant purchases
fully assembled UPS systems from two sources for resale in its world-wide
distribution network. Subassemblies for the solid-state light emitting diode
retrofit kits are manufactured outside the United States with final assembly at
High Bridge.
The Company is a highly integrated manufacturer of power protection products and
accordingly, except for batteries, produces nearly all major components of its
products from raw materials. The Company also custom designs and fabricates
components such as chassis, transformers, cable connections, printed circuit
boards, cabinets and other devices. It assembles, inspects and tests its
products at various stages of assembly and each finished product undergoes a
complete test prior to shipment.
The Company generally purchases materials and supplies according to written
purchase orders. Blanket purchase orders are limited usually to larger usage
items at fixed prices for delivery and payment on specific dates ranging from
two months to one year.
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MAINTENANCE AND SERVICE
The Registrant offers warranties on all its products, including parts and labor,
that range from one year to twenty-five years prorated, depending upon product
type. Products sold by the Company but manufactured by others are covered by
Company and original manufacturer's standard warranty and service agreements.
For 1994, 1995 and 1996 the Registrant had field service expenses of
approximately $506,000, $502,000 and $589,000, respectively.
The Registrant performs service on products through its factory service center
at its New Jersey factory or at customer locations. These services may be
performed pursuant to a written service contract or upon specific order at
various rates. Service on its products sold abroad are usually handled by its
foreign distributors.
SALES AND MARKETING
The Company markets its Astralite products directly through a select group of
500 lighting and electrical distributors who focus on energy conservation and
long-life lighting. Marketing efforts are directed to plant and facility
managers, and energy managers responsible for industrial, commercial, and public
buildings such as schools, hospitals, and shopping malls. Astralite maintains
sales offices in York, PA, Chicago, IL, Houston, TX, and San Francisco, CA. In
addition, certain Astralite products are sold to original equipment
manufacturers.
Astralite products are usually discounted to distributors from 20% to 37%,
depending on the product and quantity sold. No one distributor accounted for
more than 3% of the Company's net sales for 1996.
The Company markets and sells its power protection and emergency lighting
products in the United States and abroad through a network of sales
representatives, distributors, and exporters to end-users and original equipment
manufacturers. For domestic power protection and emergency lighting product
sales, the Company utilizes electrical wholesale distributors and approximately
40 sales representative companies. In the overseas market, the Company relies on
approximately 15 distributor/representative companies and approximately 10
exporters to sell its products. In addition, the Registrant makes sales directly
to individual end-users and original equipment manufacturers on certain
products. No one distributor, representative or original equipment manufacturer
accounted for more than 8% of the Company's net sales for 1996.
The Registrant's relationship with its sales representatives is usually governed
by a written contract, terminable on 30 days notice. The contract provides for
exclusive territorial and product representation and commissions payable to
representatives on their sales from 3% up to 20% depending on terms and
conditions. The sales representatives do not purchase for their own account and
generally will represent other manufacturers but not on competing products. The
top 10 representatives accounted for an estimated 18% of the Company's net sales
for 1996.
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CUSTOMERS
The Registrant sells its products to numerous customers, ranging in size from
small companies to large Fortune 500 corporations. Its customers are end-users,
original equipment manufacturers, system integrators, and distributors. Many of
the Company's customers are repeat purchasers. None of the Company's customers
represent more than 7% of revenues in 1995 and 8% of revenues in 1996. The
Company's Astralite and UPS businesses are generally not seasonal, however, the
emergency lighting business (approximately 30% of net sales) parallels
construction industry cycles.
INTERNATIONAL OPERATIONS
The Registrant's international activities are an important portion of its
business. Approximately 4%, 8% and 6% of its net sales for 1994, 1995 and 1996
respectively, are attributable to sales of its products outside the continental
United States.
BACKLOG
As of December 31, 1996 the Registrant's backlog was approximately $1,715,000 as
compared with a backlog of approximately $1,660,000 as of December 31, 1995. No
single customer represents more than 16% and 28% of such total backlog for
December 31, 1996 and December 31, 1995, respectively. Backlog figures generally
include written purchase orders and are for products only and not for services.
Most orders are generally subject to cancellation. However, in certain cases,
particularly in regard to orders for custom products, there are penalty
provisions for cancellations.
ENGINEERING
The Registrant maintains an engineering staff whose functions include the
improvement of existing products, modification of products to meet customer
needs and the engineering, research and development of new products and
applications. There are presently nine individuals employed at the Registrant's
High Bridge, New Jersey location. Engineering and research and development
expenses were approximately $328,000 in 1994 and $438,000 in 1995, and $290,000
in 1996.
The Registrant intends to continue its research and development activities and
considers these efforts vital to its future business and prospects. It
anticipates significant expansion of such efforts primarily directed toward the
development of new energy savings products and applications, the improvement of
existing products, and cost reductions. New energy savings products include
retrofit products for a variety of applications.
COMPETITION
In all its product lines, the Company faces intense competition from numerous
domestic and foreign manufacturers of varying sizes, including large Japanese
and European companies. In the Registrant's opinion, companies with which it
competes are American Power Conversion, Sola, Exide, Deltec, Best Energy
Systems, Dualite, Lithonia, ProLight and many other companies.
The degree of competition and the particular competitor may vary depending on
the product line/model and application involved. Accordingly, the Company will
compete with certain companies in the sales of its products for computers and
personal computers and with others in the emergency lighting or energy efficient
retrofit fields. For all its products, the Registrant generally competes on the
basis of price, product performance, features and delivery schedules. Service is
ordinarily not a factor. the Company generally endeavors to position and sell
its products at equal prices to its competitors. Many of its competitors,
however, are owned by larger companies and have greater financial, technical and
marketing resources than the Registrant.
GOVERNMENT REGULATION
The Registrant has not experienced and does not anticipate any material effect
of existing or probable government regulations on its business.
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Item 2. Property and Facilities
The Registrant leases from Roger Love (a director and consultant to the
Registrant) and Doris Love a building of approximately 60,000 square feet in
High Bridge, New Jersey for its manufacturing facilities and executive offices
expiring December 31, 1999. Annual rent over the remaining term of the lease is
$237,000 per year. The Registrant is also responsible for local property taxes,
insurance premiums, and other related expenses. At the end of the lease term the
Registrant has the option to either purchase the building or to renew the lease
for an additional ten (10) years at no increase in rent.
Item 3. Legal Proceedings
To the best of its knowledge, there are no material legal proceeding to which
the Registrant is a party or to which its property is subject.
Item 4. Submission of Matters to a Vote of Shareholders
No matters were submitted during 1996. However, on January 6, 1997, the
Registrant submitted four proposals to its shareholders. These proposals, each
of which was approved by the shareholders, were the election of directors, the
approval of the 1996 Stock Option Plan, the amendment to the certificate of
incorporation to increase the authorized shares to 12,000,000 from 5,000,000,
and the appointment of Arthur Andersen, LLP as independent auditors.
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Part II
Item 5. Market for the Registrant's Common Equity and Related Stockholder
Matters.
The principal market for the Registrant's shares of Common Stock, par value $.01
per share, is the over-the-counter market. The Registrant's Common Stock is
quoted on the NASD NON-NASDAQ OTC Bulletin Board with the symbol CUWR.
The high and low closing bid and asking prices concerning such securities, on a
quarterly basis, as furnished by the National Quotation Bureau for the period
beginning January 1, 1995 are as follows:
Common Stock (CUWR)
CALENDAR PERIOD HIGH BID LOW BID HIGH ASK LOW ASK
01/01/95 to 03/31/95 1 1/2 1/8 1 7/8 9/16
04/01/95 to 06/30/95 1 1/2 3/16 2 1/4 9/16
07/01/95 to 09/30/95 1 1/8 3/8 1 15/16 7/8
10/01/95 to 12/31/95 1 1/8 1/8 1 5/8 3/4
01/01/96 to 03/31/96 9/16 11/16 1 1/4 11/16
04/01/96 to 06/30/96 1 1/8 9/16 1 3/16 11/16
07/01/96 to 09/30/96 11/16 9/16 1 1/16 7/8
10/01/96 to 12/31/96 9/16 1/4 1 1/16 7/16
Quotations represent prices between dealers, do not include retail mark-ups,
markdowns or commissions and do not necessarily represent actual transactions.
The number of shareholders of record on March 20, 1997 was 130.
The Registrant has not paid any cash dividends on its Common Stock and does not
intend to do so in the near future.
Item 6. Management's Discussion and Analysis
REVENUES
Net sales from continuing operations totaled $10,839,000 in 1996 which is 17%
below the 1995 sales performance. The decline in 1996 sales compared to1995
resulted from increased competition and reduced utility rebate incentives which
impacted the Astralite retrofit business, and increased competition for UPS
products. Beginning in the fourth quarter, management took steps to increase
investment in engineering for new product development and to strengthen sales
and marketing support for distributors to meet competitive initiatives. In
September 1996, a new Astralite product sales office was opened in Houston,
Texas, and another office was opened in San Francisco, California during January
1997.
COST OF SALES
Cost of sales for 1996 of $9,600,000 included $1,150,000 of charges related to
inventory adjustments recorded during the second and third quarters of the year.
After removing the effects of inventory adjustments, cost of sales represents
about 77% of sales compared to 72% in 1995.
OPERATING AND OTHER EXPENSES
Selling expenses for 1996 were approximately $1,589,000, or about $362,000 below
1995. This represented about 14.5% of net sales for 1996, and 14.9% of net sales
for 1995. During the first half of 1996, the Company reduced its distribution
and promotion expenses which resulted in an overall cost reduction for the year.
As noted above, the Company began reinvesting in sales and marketing activities
during the fourth quarter of the year.
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General and administrative expenses were approximately $1,137,000 in 1996
compared to about $1,033,000 in 1995. Administrative expenses during 1996
included additional expenses for the replacement of certain key management
positions.
Interest expense for 1996 of approximately $404,000 was about 7% higher than the
1995 expense of $379,000. The outstanding debt levels for 1996 and 1995 were
substantial equivalent. Interest for 1996 included approximately $15,000 of cost
associated with the rescheduling of debt service.
LIQUIDITY AND CAPITAL RESOURCES
At December 31,1996 the Company's investment in Assets was about $3,300,000 or
$2,340,000 less than the $5,640,000 reported at December 31, 1995. The
significant components of the decrease are (1) a reduction in inventory of
$1,150,000 related to an adjustment of the carrying value recognized in the
second and third quarters of the year; (2) a decrease in accounts receivable of
$1,097,000 (before reserves) related to a lower level of fourth quarter sales in
1996 compared to 1995 ($610,000) and to a reduction in the number of days sales
outstanding ($487,000); and (3) a reduction in other long term assets of
$136,000 based upon the adoption of Statement of Financial Accounting Standards
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of." The significant components of the decrease in the
Company's Liabilities and Stockholders' Equity of $2,340,000 was comprised of:
(1) a loss for the year of $1,892,000; (2) a net reduction in debt of $265,000;
and (3) a reduction in accounts payable and deferred income of $183,000. The net
reduction in the Company's debt included repayments totaling $751,000 ($603,000
on revolving credit and inventory loans), partially offset by additions of
$486,000 ($420,000 from related parties).
The Company anticipates that borrowings available to it through its revolving
credit facility along with restructured debt service payments negotiated with
unsecured debtholders, and the issuance of notes to related parties during 1997
should be sufficient to cover operating cash requirements for the foreseeable
future.
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During the fourth quarter of 1996, the Company implemented programs to improve
profitability and cash flow through better management of inventory, purchasing
practices and manpower utilization. In addition, the Company's plan for 1997
includes four specific profit improvement programs. These programs include
investing in additional sales resources, establishing a cell manufacturing plan,
focusing on new product introductions, and establishing teams to implement
practices to lower manufacturing costs. Based on this plan, which was approved
by the Board of Directors, the Company obtained a commitment for an additional
$280,000 of financing from related parties of which $270,000 was received during
the first quarter of 1997.
Item 7.
Financial Statements
The information called for by this item appears at the end of this Form 10-KSB.
Item 8.
Changes In and Disagreements With Accountants On Accounting and Financial
Disclosure
None
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Item 9.
Directors and Executive Officers, Promoters and Control Persons, Compliance with
Section 16(a) of the Exchange Act
Certain information about directors, officers and other key personnel of the
Registrant is contained in the following table:
<TABLE>
<CAPTION>
Name Title Age
- ---- ----- ---
.
<S> <C> <C>
Lindsay Gillette Chairman of the Board 38
Hiro Hiranandani1 President & CEO 59
Peter Gillette2 Director 36
Richard Hobday Director 66
Roger Love Director 64
Kenneth Rind2 Director 61
Clarence Wilcox2 Director 66
Thomas Marren Vice President and CFO, Secretary 51
Leslie Listwa Vice President and GM Astralite 39
Richard Johnson Vice President MIS and Controller 50
</TABLE>
(1) Mr. Hiranandani's employment as President, Chief Executive Officer is
subject to an employment agreement. The term of this agreement is June 28, 1996
through December 31, 1998.
(2) Member of the Audit Committee
All directors hold office until the next annual meeting of shareholders or until
their successors are elected and qualify. Executive officers hold office until
their successors are chosen and qualify, subject to earlier removal by the Board
of Directors.
Lindsay Gillette has been a Director since 1994. He was elected Chairman,
President and Chief Executive Officer in 1994 and became Chairman in June, 1996.
Mr. Gillette has also been a Managing Director of Computers and Controls Ltd., a
Trinidad & Tobago corporation since 1982. Mr. Gillette is also a Director of
Cableview Limited, Body Works Fitness & Aerobics Limited, Favorite Foods, Ltd.,
National Maintenance Training & Security Company Ltd., and NIHERST. Mr. Gillette
is a graduate of McMaster University with a bachelor's degree in Civil
Engineering.
Hiro Hiranandani became President, Chief Executive Officer and a Director of the
Company in June of 1996. From 1977 to 1994, Mr. Hiranandani held various
management positions with Pitney Bowes, Inc. He most recently was President of
Worldwide Mailing Systems operations of Pitney Bowes. Mr. Hiranandani holds a
bachelor's degree in electrical engineering from the University of Missouri, a
master's degree in electrical engineering from Purdue University, and a master's
degree in business administration from the University of Bridgeport. He is also
Director of Smart Serv on line, Inc.
Peter Gillette has been a Director of the Company since 1994. He also has been
Technical Director of Computers and Controls Ltd., since 1983. He is also a
Director of Cableview Limited, Body Works Fitness & Aerobics Limited, Pelinja
Holdings Limited, Chaguaramas Development Authority, Tourism and Industrial
Company and Trinidad & Tobago Free Trade Zones. Mr. Gillette holds a bachelor's
degree in civil engineering from Cornell University.
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Richard Hobday has been a Director of the Company since December 1996. He is an
independent consultant. In 1988, he retired as a partner with Arthur Young & Co.
(Ernest & Young) accountants. Mr. Hobday is a Director of Ready Mix (West
Indies) Ltd., Trinidad Contractors Ltd., and Los Cuevos Resorts Ltd.
Roger Love was a founder of the Company in 1967. He has served as a Director
from 1972 to the present. From 1972 to 1994 Mr. Love was President of the
Company. He currently is a consultant, including a consultant to the Company.
Kenneth Rind has been a Director since 1995. Dr. Rind is Chairman of Oxford
Venture Corporation, an independent venture capital management company which he
co-founded in 1981. From 1976 to 1981, Dr. Rind was a principal at Xerox
Development Corporation responsible for acquisitions and venture capital
investments. From 1970 to 1976, he was Vice-President of Corporate Finance at
Oppenheimer & Co., and managed its venture capital and high technology corporate
finance activities. He is a Director of Medical Sterilization, Inc., Alpha
Technologies Group, Inc., Vasomedical, Inc., and VTX Electronics Corporation and
several private companies. Dr. Rind received a bachelor's degree in chemistry
from Cornell University and a doctorate in nuclear chemistry from Columbia
University.
Clarence Wilcox has been a Director of the Company since 1994. He also has been
Chairman and Managing Director of Wilcox Enterprises Limited since 1978. Since
1993 he has been Chairman and Managing Director of Guymar Caribbean Limited. Mr.
Wilcox is a Deputy Chairman and Director of GTM Life Insurance Co. of Trinidad &
Tobago, and a Director of General Packaging Limited and Ready Mix (west Indies)
Ltd.
Thomas Marren joined the Company in September 1996. Prior to joining the Company
Mr. Marren held various financial positions at Engelhard Corporation,
Allied-Signal and Deloitte Haskins and Sells (Deloitte & Touche). He holds a
bachelor's degree in accounting from Upsala College, a master's degree in
business administration from Monmouth University, and is a member of the New
Jersey Society of Certified Public Accountants.
Leslie Listwa joined the Company in 1991 as Director of Sales and Marketing. He
was instrumental in the start-up of the Astralite operations and assumed his
present position in July of 1996. Prior to joining the Company Mr. Listwa held
various key engineering and marketing positions at RCA Americom, Dranetz
Technologies, and Ariel Corporation. Mr. Listwa holds a bachelor's degree in
electrical engineering from Pratt Institute, and a master's degree in business
administration from Pace University.
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Richard Johnson joined the Company in October 1996. Prior to joining the Company
Mr. Johnson held various financial positions at Metallurgical Industries, Inc.,
and Metem Corporation. Mr. Johnson holds a bachelor's degree in marketing from
Syracuse University, a master's degree in business administration from Farleigh
Dickinson University, and a juris doctor from Seton Hall University Law School.
Mr. Johnson is also a member of the New Jersey Society of Certified Public
Accountants.
Lindsay Gillette and Peter Gillette are brothers. No person who was a director,
officer, of beneficial owner of more than ten percent of any class of equity
securities of the Registrant failed to file on a timely basis, reports required
by Section 16 (a) during the fiscal year ended December 31, 1996.
BALANCE OF PAGE INTENTIONALLY LEFT BLANK
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Item 10. Executive Compensation
The annual and long-term compensation for services performed in all Company
related capacities for the fiscal years ended December 31, 1994, 1995, and 1996
of those persons who were, at December 31, 1996, the President and Chief
Executive Officer, and other Officers of the Company follows:
SUMMARY COMPENSATION TABLE
Annual Compensation
Name and Salary7 Bonus
Position Year ($'s) ($'s)
Hiro Hiranandani1 1996 $ 49,418
President & CEO
Leslie Listwa2 1996 $ 80,066 $ 5,655
VP & GM Astralite 1995 $ 80,000 $ 27,000
Bradley Kies2,3 1996 $ 90,021 $5,000
VP Operations 1995 $ 80,000
Louis Massad3 1996 $104,500
VP Finance 1995 $ 75,500
1994 $ 72,500
Lindsay Gillette4 1995 $ 46,646
President & CEO 1995 $ 93,670 $ 49,150
1994 $ 10,000
Thomas Marren5 1996 $ 18,750
VP & CFO
Richard Johnson6 1996 $ 17,250
VP MIS & Controller
- --------
(1) Appointed President & CEO June 28, 1996.
(2) Beginning January 1, 1995.
(3) Resigned effective December 31, 1996
(4) Resigned as President & CEO June 28, 1996. Remained Chairman of the Board of
Directors.
(5) Started September 16, 1996, replaced Mr. Massad.
(6) Started October 1, 1996
(7) Salary for Mr. Kies and Mr. Massad included accumulated vacation pay.
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Stock Option Plan
Under the Registrant's pre-1996 incentive stock option plan, options to purchase
a maximum of 500,000 shares of the Registrant's Common Stock could be granted to
officers and other key employees. The plan terminated on April 1, 1996, and was
replaced by the 1996 plan (the "Plan") which was approved by Shareholders on
January 6, 1997. The terms and condition of both plans are essentially the same,
with options granted under the Plan intended to qualify as incentive stock
options as defined in Section 422A of the Internal Revenue Code of 1954, as
amended by the Tax Reform Act of 1986.
As of December 31, 1996, 233,000 shares of the pre-1996 stock option plan were
outstanding, with 148,000 shares of authorized but unissued shares set aside for
earned shares. On January 6, 1997, 195,000 shares were issued under the Plan.
The Plan is administered by the Board of Directors which approves the persons
that are to receive options, the number of shares that may be purchased under
each option, and the exercise price. In the event an option holder voluntarily
terminates employment, any unexercised options terminate immediately except in
cases where the termination was not for cause, the option holder dies, or the
option holder is disabled. The maximum terms of any option is ten years and the
option price per share may not be less than the fair market value of the
Registrant's shares on the date the option is granted. However, options granted
to persons owning more than 10% of the voting shares may not have a term in
excess of five years and the option price may not be less than 110% of fair
market value.
The aggregate fair market value of the shares of the Registrant's Common Stock
(determined at the time the option is granted) with respect to which incentive
stock options are exercisable for the first time by such option holder during
any calendar year (under all such Plans) may not exceed $100,000. Options may be
granted within ten years from the effective date of the Plan.
Options granted under the Plan are not transferable other than by will or by the
laws of descent and distribution. Options granted under the Plan are protected
by antidilution provisions increasing the number of shares issuable thereunder
and reducing the exercise price of such options, under certain conditions. The
Plan will terminate on January 5, 2007, or on such earlier date as the Board of
Directors may determine. Any options outstanding at the termination date will
remain outstanding until it expires or is exercised in full, whichever occurs
first.
Option Grants in the Last Fiscal Year
There were no grants of stock options pursuant to the Registrant's Plan during
the fiscal year ended December 31, 1996. Stock appreciation rights are not
granted under the Plan.
14
<PAGE>
Aggregated Option Fiscal Year End Values
(There were no exercises in 1996)
(a) (b) (c)
Number of unexercised Options Value of unexercised In-the-
at Year-end(#) Exercisable/ Money Options at Year-end(#)
Name unexercisable Exercisable/unexercisable
Leslie Listwa 20,000/0 0/0
Leslie Listwa 24,000/36,000 0/0
Bradley Kies 16,000/0 0/0
Long-term incentive plan awards
The Registrant does not have a long-term incentive plan, other than the
Incentive Stock Option Plan.
Item 11. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth as of March 20, 1997, those persons including any
"group" who is known to the Registrant to be beneficial owners of more than five
percent (5%) of the Company's common stock as well as the stock ownership of
directors and executive officers. The Company's common stock is the only equity
or voting security outstanding.
Name and Address of Amount and Nature of Percent of
Beneficial Owner Beneficial Ownership1 Class
Roger Love2 461,1992 17.7%
124 W. Main St
High Bridge, NJ 08829
Mantilla Ltd. 490,0003 18.8%
P.O. Box 173, Road Town
Tortola, B.V.I
RMC Ltd. 510,0003 19.6%
Tumpuna Road
Guanapo, Trinidad, WI
Leslie Listwa 40,000 1.5%
124 W. Main Street
High Bridge, NJ 08829
All directors and officers
as a group3 501,199 21.9%
(1) Except as otherwise set forth herein, all shares are beneficially owned, and
the sole voting and investment power is held by the persons named. Does not give
effect to common stock reserved under the Registrant's Incentive Stock Option
Plan. (2) Roger Love has deposited his shares in a voting trust, the trustee of
which is Mr. Lindsay Gillette, a director of the Company. (3) Lindsay Gillette,
Chairman of the Board and Peter Gillette, a director, may be considered
affiliates of Mantilla, Ltd. and Lindsay Gillette an affiliate of Ready Mix
(West Indies), Ltd.
15
<PAGE>
Item 12. Certain Relationships and Related Transactions
The Company owns a 20% interest in Retrofit, Ltd. ("Retrofit"), of Trinidad,
West Indies. Retrofit was established to manufacture components for the Company.
In 1996, it began manufacturing LED sub-assemblies for the Company's Astralite
business unit. The Company's entire investment in Retrofit consisted of a
license of its patented LED retrofit technology. This investment is carried at
no value. The majority interest in Retrofit is owned by certain related parties
including Messrs Lindsay Gillette and Peter Gillette, directors of the Company.
During 1996, the Company purchased approximately $310,000 of material from
Retrofit.
The Company leases its principal office and manufacturing facilities from Roger
Love and Doris Love under a written lease agreement expiring December 31, 1999.
The Company has the option to purchase the building on December 31, 1999 at the
then fair market value by payment of 15% cash and the balance payable on a 30
year mortgage bearing interest at the 30 year treasury bond rate. If the option
is not exercised, the Company is obligated to renew the lease for an additional
10 year term without rent escalation. The annual rental is $237,000 per year
with the Company being responsible for property taxes, insurance, and other
related expenses. During 1995 and 1996, the Company recorded $237,000 as rental
expense per year.
As of December 31, 1996, the Company owed Roger Love $20,925 under a consulting
and non-competition arrangement with the Company that expires December 1997. The
terms of the arrangement call for the payment of $25,000 for services of up to
50 business days during the last year of the agreement.
On June 28, 1996, Mr Hiro Hiranandani, a director of the Company, and a company
controlled by Messrs Lindsay Gillette and Peter Gillette, directors of the
Company, loaned the Company $300,000 in exchange for term notes, due July 1,
1999, bearing interest at 9-1/2% per annum, payable quarterly. In addition,
these investors received a total of 300,000 stock subscription warrants, with an
exercise price of $1.00 per share, exercisable from July 1, 1998 through July 1,
2000. Further, as part of the compensation package for Mr Hiranandani, the new
President and Chief Executive Officer, 377,999 stock subscription warrants were
issued at prices ranging from $.33 to $.40 per share, with exercise periods
ranging from June 1, 1996 through June 1, 2006. The Board of Directors repriced
these stock subscription warrants to $.25 per share on February 13, 1997.
On June 28, 1996, a director, through an affiliated entity, restructured several
notes payable into a $415,000 note payable in three years bearing interest at
9-1/2% per annum. The entity also received 100,000 stock subscription warrants
with an exercise price of $1.00 per share exercisable beginning July 1, 1998
through July 1, 2001. The Board of Directors repriced these stock subscription
warrants to $.25 per share on February 13, 1997.
As of December 31, 1996, the Company had outstanding principal and interest
payable under its various note agreements with related parties and entities
totaling $871,000 and stock subscription warrants outstanding as discussed above
totaling 777,999. In addition, the Company owed Retrofit $181,000 for materials
purchased in the ordinary course of business.
During the first quarter of 1997, the Company obtained additional financing from
a related party and a related entity totaling $280,000. The debt is payable on
February 1, 1998 and if the Company is unable to repay the obligation when due
it is automatically extended for a period of one year and stock subscription
warrants will be issued. The stock subscription warrants will have terms and
conditions equivalent to the currently outstanding obligations and will be
priced at the then existing market value.
16
<PAGE>
PART IV.
Item 13. Exhibit and Reports on Form 8-K:
a) None.
b) The following documents are filed as a part of this report:
1. and 2. Financial Statements:
Index to Consolidated Financial Statements
* Report of Independent Public Accountant.
Consolidated Balance Sheets as of December 31, 1996 and 1995.
Consolidated Statements of Operations for the years ended December 31, 1996,
1995, and 1994. Consolidated Statements of Shareholders Equity for the years
ended December 31, 1996, 1995, and 1994. Consolidated Statements of Cash flows
for the years ended December 31, 1996, 1995, and 1994.
* Notes to Consolidated Financial Statements.
3. Exhibits: The following list of exhibits are incorporated by reference from
the Registrant's Registration Statements on Form S-1 and S-8 filed under the
Securities Act of 1933, as amended, it Registration Statement filed under the
Securities Exchange Act of 1934, as amended, on Form 8-A and its Annual Report
on Form 10-K dated December 31, 1986.
1.1-Form of Underwriting Agreement
1.2-Form of Underwriter's Selling Agreement
3.1-Articles of Incorporation, as amended
3.2-By-Laws of Registrant, as amended
4.1-Specimen Common Stock Certificate of Registrant
4.2-Specimen Common Purchase Warrant
4.3-Form of Underwriter's Unit Purchase Option between Registrant and
Underwriter
4.4-Form of Warrant Agreement between Registrant and Warrant Agent, as amended
5.0-Opinion of Rapaport and Cascone
10.1-Form of Authorized Sales Representative Agreement between Registrant and
its representatives
10.2-Form of Distributor Sales Agreement between Registrant and its distributors
10.3-Joint Venture Agreement between Registrant and Data Power Dear, C.A.
10.4-Joint Venture Agreement between Registrant and Brig. T.S. Grewal, dated
October 16, 1985
10.5-Joint Venture Agreement between Registrant and Crotan Electronics, Ltd.,
dated November 5, 1986
10.6-Exchange of Stock between Registrant and Roger Love and Doris Love, dated
April 28, 1983
10.7-Real Estate Lease between and among the Registrant and Roger Love and Doris
Love, dated September 1, 1983
17
<PAGE>
10.8-Real Estate Lease between and among the Registrant and Roger Love and Doris
Love, dated January 1, 1985, and amendment
10.9-Real Estate Lease between Registrant and Jacques J. Hibbert, dated December
10, 1982
10.10-Promissory Note of Registrant issued to Roger Love, dated April 1, 1986
10.11-Promissory Note of Registrant issued to Doris Love, dated April 1, 1986
10.12-Loan Agreement between Registrant and Horizon Bank, N.A., dated March 28,
1986 and amendment dated May 1, 1986
10.13-Mortgage between and among New Jersey Economic Development Authority and
the Hunterdon County National Bank, dated July 1, 1978
10.14-Promissory Note of Roger Love and Doris Love to Horizon Bank, N.A., dated
March 28, 1986
10.15-Installment Sales Contract between and among Roger Love and Doris Love and
the New Jersey Economic Development Authority, dated July 1, 1978
10.16-Assignment of Sales Contract to Horizon Bank, N.A., dated March 28, 1986
10.17-Employment Agreement between Registrant and Roger Love, dated March 1,
1976
10.18- Employment Agreement between Registrant and J. Robert Hoeffler, dated May
1, 1986
10.19-Incentive Stock Option Plan of the Registrant, as amended, and Form of
Option Agreement
10.20-Supply Agreement between the Registrant and Superior Electric Company,
dated August 1, 1986
18
<PAGE>
The following list of exhibits are incorporated by reference from the
Registrant's Form 10-K for the fiscal year ended December 31, 1990:
2-Contract of Acquisition of Siltron Illumination, Inc.
99.1-Commitment letter of Chemical Bank, dated March 28, 1990
The following list of exhibits are incorporated by reference from the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1992:
10.21-Employment Agreement of Roger Love, dated January 1, 1992
10.22-Employment Agreement of Louis Massad. dated January 1, 1992
10.23-Consulting Agreement of Albert Lange, dated February 24, 1992
22.0-Subsidiaries of the Registrant.
The following list of exhibits are incorporated by reference from the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1993:
99.2-Commitment letter of Chemical Bank, dated March 29, 1993.
17.1-Letter of Resignation of Albert Lange from the Board of Directors, dated
September 18, 1993.
99.3-Notice of Default, dated December 16, 1993.
19
<PAGE>
The following list of exhibits are incorporated by reference from the
Registrant's Form 10-KSB for the fiscal year ended December 31, 1995:
10.24-$300,000 Convertible Debenture.
10.25-$700,000 Subordinated Note.
10.26-Consolidation and Modification of Lease Agreement.
10.27-Consulting and Non-Competitive Agreement with Roger Love.
10.28-Capitalization Agreement with Ready Mix (West Indies), Ltd.
The following list of exhibits are filed as part of this report:
10.29-Resignation of Lindsay Gillette;
10.30-Employment Agreement of Hiro R. Hiranandani dated June 28, 1996;
10.31-Resignation Letter of Louis Massad;
10.32-Warrants issued by Registrant to Kenneth Rind;
10.33-Debt Restructuring Agreement between Registrant and Roger Love;
10.34-Debt Restructuring Agreement between Registrant and Doris Love;
10.35-Debt Restructuring Agreement between Registrant and Ready Mix (West
Indies), Ltd. - Convertible Debenture;
20
<PAGE>
10.36-Debt Restructuring Agreement between Registrant and Ready Mix (West
Indies), Ltd. - Subordinated Note;
10.37-Debt Restructuring Agreement between Registrant and SouthernTech, Ltd.;
10.38-Debt Restructuring Agreement between Registrant and SouthernTech, Ltd.;
10.39-Warrants issued by Registrant to SouthernTech, Ltd.;
10.40-Promissory Note between Registrant and Darby & Darby;
10.41-Promissory Note between Registrant and Hiro R. Hiranandani;
10.42-Promissory Note between Registrant and SouthernTech, Ltd.;
10.43-Extension of Warrants previously issued by Registrant to Rosenthal &
Rosenthal;
10.44-Warrants issued by Registrant to Hiro R. Hiranandani;
10.45-Warrants issued by Registrant to Albert Roth;
10.46-Lease Modification Agreement between Registrant and Roger Love and Doris
Love;
10.47-NOT USED;
10.48-Debt Restructuring Agreement between Registrant and Hiro Hiranandani;
10.49-Promissory Note between Registrant and SouthernTech, Ltd.
21
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
COMPUTER POWER, INC.
By:/s/ Hiro R. Hiranandani
-----------------------------
Hiro R. Hiranandani, President
Dated: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
March 27, 1997
By:/s/ Hiro R. Hiranandani
- ---------------------------------
Hiro R. Hiranandani, President (CEO) and Director
/s/ Thomas E. Marren, Jr.
- ---------------------------------
Thomas E. Marren, Jr., Vice President and Chief Financial Officer, Secretary
/s/ Lindsay Gillette
- ---------------------------------
Lindsay Gillette, Chairman of the Board of Directors
/s/ Peter Gillette /s/ Clarence Wilcox
- --------------------------------- ----------------------------------
Peter Gillette, Director Clarence Wilcox, Director
/s/ Roger Love /s/ Kenneth Rind
- --------------------------------- ----------------------------------
Roger Love, Director Kenneth Rind, Director
/s/ Richard Hobday
- ---------------------------------
Richard Hobday, Director
22
<PAGE>
Computer Power Inc. And Subsidiary
Consolidated Financial Statements As Of December 31, 1996
Together With
Report Of Independent Public Accountants
23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computer Power Inc.:
We have audited the accompanying consolidated balance sheet of Computer Power
Inc. (a New Jersey corporation) and subsidiary as of December 31, 1996, and the
related consolidated statements of operations, changes in shareholders' deficit
and cash flows for each of the two years in the period ended December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computer Power Inc.
as of December 31, 1996, and the results of their operations and their cash
flows for each of the two years in the period ended December 31, 1996 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Roseland, New Jersey
March 26, 1997
24
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEET -- DECEMBER 31, 1996
ASSETS
<TABLE>
<CAPTION>
CURRENT ASSETS:
<S> <C>
Cash $68,519
Accounts receivable, less allowance of $253,956 for
doubtful accounts in 1996 (Note 2) 1,354,890
Inventories (Notes 1 and 2) 1,538,358
Prepaid expenses and other current assets 75,385
----------------
Total current assets 3,037,152
----------------
PROPERTY AND EQUIPMENT, at cost (Note 1):
Machinery, equipment, vehicles and furniture 1,070,377
Leasehold improvements 333,274
----------------
1,403,651
Less-Accumulated depreciation and amortization (1,140,168)
----------------
263,483
----------------
$3,300,635
================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES AND DEFERRED REVENUE:
Notes and other debt payable (Note 2) $874,240
Current maturities of long-term debt (Note 2) 257,146
Accounts payable 1,110,224
Accrued liabilities 888,048
Deferred revenue 372,683
----------------
Total current liabilities and deferred revenue 3,502,341
----------------
LONG-TERM DEBT (Note 2) 1,732,854
----------------
COMMITMENTS AND CONTINGENCIES (Note 5)
SHAREHOLDERS' DEFICIT (Notes 2 and 4):
Preferred stock, par value $.01 per share; 2,000,000 shares authorized; none
issued 0 Common stock, par value $.01 per share; 5,000,000 shares authorized;
2,602,700 shares outstanding 26,027
Capital in excess of par value 3,757,119
Accumulated deficit (5,643,018)
Treasury stock, 24,400 shares, at cost (74,688)
----------------
(1,934,560)
----------------
$3,300,635
================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of this balance sheet.
25
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
<S> <C> <C>
NET SALES $ 10,838,816 $13,063,017
COST OF SALES 9,600,397 9,394,524
------------ -----------
Gross profit 1,238,419 3,668,493
------------ -----------
OPERATING AND OTHER EXPENSES (Notes 2, 5 and 6):
Selling expenses 1,589,243 1,950,986
General and administrative expenses 1,137,294 1,033,393
Interest expense, net 403,533 378,776
------------ -----------
3,130,070 3,363,155
------------ -----------
Net (loss) income ($ 1,891,651) $ 305,338
============ ===========
NET (LOSS) INCOME PER SHARE (Note 1) ($ .73) $ .12
============ ===========
WEIGHTED AVERAGE SHARES OUTSTANDING (Note 1) 2,578,300 2,490,966
============ ===========
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
26
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
Capital in Total
Common Excess of Accumulated Treasury Shareholders'
Stock Par Value Deficit Stock Deficit
------------- --------------- ---------------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1994 $25,097 $3,797,349 ($4,056,705) ($151,188) ($385,447)
Exercise of stock
options (Note 4) 680 26,520 0 0 27,200
Reissuance of treasury
stock (25,000 shares) 250 (66,750) 0 76,500 10,000
Net income -- 1995 0 0 305,338 0 305,338
------------ ------------- --------------- ------------- ---------------
BALANCE, December 31, 1995 26,027 3,757,119 (3,751,367) (74,688) (42,909)
Net loss -- 1996 0 0 (1,891,651) 0 (1,891,651)
------------ ------------- --------------- ------------- ---------------
BALANCE, December 31, 1996 $26,027 $3,757,119 ($5,643,018) ($74,688) ($1,934,560)
============ ============= =============== ============= ===============
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
27
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------------- -----------------
CASH USED FOR OPERATING ACTIVITIES:
<S> <C> <C>
Net (loss) income ($1,891,651) $305,338
Adjustments to reconcile net income (loss) to
cash used for operating activities-
Depreciation and amortization 67,874 35,613
Writedown of assets 136,000 0
Provision for doubtful accounts 66,270 100,400
Changes in assets and liabilities-
Accounts receivable 992,632 (419,508)
Inventories 1,050,723 (689,281)
Prepaid expenses and other current assets 174,956 65,945
Other noncurrent assets 0 (122,875)
Accounts payable (795,795) 343,892
Accrued liabilities and deferred revenue 612,024 (57,100)
---------------- -----------------
Cash provided by (used for) operating activities 413,033 (437,576)
---------------- -----------------
CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES --
Capital expenditures (79,077) (67,938)
---------------- -----------------
Cash used for investing activities (79,077) (67,938)
---------------- -----------------
CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES:
Proceeds from issuance of new debt 485,558 13,861,663
Repayments of debt (750,995) (13,496,599)
Reissuance of treasury stock 0 10,000
Exercise of stock options 0 27,200
---------------- -----------------
Cash (used for) provided by financing activities (265,437) 402,264
---------------- -----------------
Increase (decrease) in cash 68,519 (103,250)
CASH, beginning of year 0 103,250
---------------- -----------------
CASH, end of year $68,519 $0
================ =================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Interest paid $268,968 $334,055
================ =================
</TABLE>
The accompanying notes to consolidated financial statements are an integral part
of these statements.
28
<PAGE>
COMPUTER POWER INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES:
Description of Business-
Computer Power Inc. designs, manufactures, markets, and services
products in three distinct market categories: energy efficient
lighting, power protection systems and emergency lighting.
Principles Of Consolidation-
The consolidated financial statements include the accounts of Computer
Power Inc. (the Company) and its wholly-owned subsidiary,
Uninterruptible Power Systems, Inc. All significant intercompany
balances and transactions have been eliminated in consolidation.
In addition, the Company owns a 20% interest in Retrofit, Ltd. under
the jurisdiction of Trinidad and Tobago, West Indies, which is carried
at no value.
Use of Estimates-
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Accounting for Impairment of Long-Lived Assets-
During 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets to be Disposed Of." SFAS No. 121
requires that if certain events or changes in circumstances indicate
that the carrying value of long-lived assets, identifiable intangibles
and goodwill may not by recoverable, an entity must estimate
undiscounted future cash flows expected to result from the use or sale
of the asset and record an impairment for the amount by which the
carrying value exceeds the discounted fair value. The adoption of this
standard has resulted in the write-off of $136,000 in patents in 1996.
29
<PAGE>
Inventories-
Inventories, which include material, labor and manufacturing overhead
costs, are stated at the lower of cost (first-in, first-out basis) or
market and consist of-
Raw material $679,085
Work in process 557,772
Finished goods 301,501
---------------
$1,538,358
===============
Property and Equipment-
Property and equipment are recorded at cost. Depreciation is recorded
primarily on a straight-line basis over estimated useful lives as
follows-
Vehicles 3 years
Computer equipment under capital leases 5 years
Furniture and fixtures 5-7 years
Machinery and equipment 5-10 years
Leasehold improvements are amortized over the life of the lease or
their estimated useful lives, whichever is shorter.
Deferred Revenue-
Sales are generally recorded upon shipments of products. Deferred
revenue represents goods shipped, billed and paid for by a customer who
has the right of return if the goods are not sold. In such cases the
Company recognizes revenue when that customer completes its sale.
Deferred revenue also includes customer advances.
Net (Loss) Income Per Share-
The weighted average number of shares used in computing net (loss)
income per share was 2,578,300 in 1996 and 2,490,966 in 1995. The stock
option grants and warrants to purchase common stock discussed in Note 4
have been excluded from this computation since their effect is either
immaterial or antidilutive.
Reclassifications-
Certain reclassifications have been made to the prior year's
consolidated financial statements to conform to the current year
presentation.
30
<PAGE>
(2) DEBT:
<TABLE>
<CAPTION>
At December 31, 1996, notes payable and other current debt include
amounts due to related parties and other lenders as follows-
Subordinated, unsecured notes payable to an
<S> <C>
officer due October 31, 1997 bearing interest at 10% $52,000
Subordinated, unsecured demand note payable to
an officer, bearing interest at 8% 144,943
Subordinated, unsecured note bearing interest at 12%,
amortized in monthly installments of $3,998 15,640
Revolving credit agreement maturing December 31, 1997, bearing
interest at prime (8.5% at December 31, 1996) plus 3.5%, secured by
receivables, inventory, machinery and equipment 661,657
----------------
Total notes and other debt payable $874,420
================
Long-term debt consisted of the following at December 31, 1996-
Term loan, bearing interest at prime (8.5% at December 31, 1996) plus
3.5%, secured by receivables and inventory maturing in
monthly installments of $10,000 per month $275,000
Subordinated, unsecured notes to a related entity bearing
interest at 9.5%, with quarterly interest payments 565,000
Subordinated, unsecured notes payable to a director due July 1, 1999,
bearing interest at 9.5%, with quarterly interest payments 150,000
Subordinated note, due to Ready Mix Ltd. (RMC) a corporation organized and existing
under the jurisdiction of Tobago, bearing interest
at prime (8.5% at December 31, 1996) plus 4%, payable in monthly
700,000 installments of $19,444 plus interest from September 1997
Convertible debenture, due to RMC, bearing interest at 9.5%, payable
in monthly installments plus interest from July 1, 1997
until November 2000 300,000
----------------
1,990,000
Less- Current maturities 257,146
----------------
Long-term debt $1,732,854
================
</TABLE>
(a) The revolving credit agreement provides for maximum borrowings of
80% of eligible accounts receivable, as defined. The maximum
amount, including any amounts outstanding under the term loan, is
$2,000,000.
The aggregate maturities of long-term debt are as follows-
1997 $257,146
1998 485,198
1999 1,023,328
2000 224,328
31
<PAGE>
During the fourth quarter of 1996 and continuing into 1997, the Company
discussed the payments of debt service with all debtholders except for
the revolving credit and term loans. The Company was able to defer
certain of its debt service payments which at the end of 1996 would have
been due and payable in the amounts of $26,250 principal and $193,254
interest.
During the first quarter of 1997, the Company obtained additional
financing from a related party and a related entity totaling $280,000.
(3) INCOME TAXES:
A reconciliation of the consolidated provision for income taxes in the
accompanying statements of operations to that which would be computed at
the U. S. statutory rate is as follows-
<TABLE>
<CAPTION>
1996 1995
-------------- --------------
<S> <C> <C>
Tax (benefit) provision at statutory rate ($640,158) $104,000
Provision for valuation allowance or (utilization of
tax credits 640,158 (104,000)
-------------- --------------
Income tax provision recorded in the financial statements $0 $0
============== ==============
</TABLE>
Deferred income taxes are provided for temporary differences between the
financial reporting basis and the tax basis of the Company's assets and
liabilities. The components of the deferred tax asset at December 31,
1996 are as follows-
Reserve for slow moving inventory $124,000
Allowance for doubtful accounts 175,000
Depreciation 85,000
Accrued warranty costs 55,000
Accrued vacation 5,000
Operating loss carryforwards 2,114,000
----------------
2,558,000
Less- Valuation allowance (2,558,000)
----------------
Net deferred tax asset $0
================
In accordance with SFAS 109, the Company has evaluated its ability to
realize tax benefits associated with its temporary differences and
operating loss carryforwards. Based on its operating history, the Company
has provided a valuation allowance of 100% against the estimated tax
benefits associated with the operating loss carryforwards and other
temporary differences.
At December 31, 1996, the Company has operating loss carryforwards of
approximately $5,801,000 for income tax return purposes that are
available to offset future taxable income through 2009.
32
<PAGE>
(4) SHAREHOLDERS' EQUITY:
Stock Options-
Under the Company's pre-1996 stock option plan, options for the
purchase of up to 500,000 common shares could be granted to officers
and other key employees at prices no less than the fair market value of
the shares on the date of grant. The plan gave the Company the right to
repurchase the options at a price equal to the difference between the
exercise price and market price of the shares at the date the employee
elects to exercise the options. All options have a term of ten years
and are exercisable in equal installments over the five-year period
beginning from the date of grant. As of December 31, 1996, 148,000
shares of the Company's authorized but unissued common stock were
reserved for the potential issuance of stock options.
On January 6, 1997, the Company's stockholders approved a 1996 stock
option plan with the same terms and conditions as the pre-1996 plan. On
that date 195,000 options were granted at a price of $.25 per share.
A summary of the activity in options under the stock option plan is as follows-
<TABLE>
<CAPTION>
Shares Under Price
Option Per Share
------------------- -----------------
<S> <C> <C>
Outstanding at December 31, 1994
(Exercisable 170,600 shares) 362,000 $.40
Issued 25,000 .40
Exercised (68,000) .40
Expired (24,000) .40
-------------- ----------
Outstanding at December 31, 1995
(Exercisable 127,000 shares) 295,000 .40
Issued 0 0
Expired (62,000) .40
-------------- ----------
Outstanding at December 31, 1996
(Exercisable 148,000 shares) 233,000 $.40
============== ==========
</TABLE>
Warrants-
Pursuant to Board of Directors' minutes dated June 21, 1996, 778,000
warrants to purchase shares of the Company's common stock were granted
to two members of the Board of Directors at varying prices ranting from
$.33 to $1.00. In addition, at the same meeting 25,000 warrants to
purchase shares of the Company's common stock were granted to an
outside shareholder for consulting services at an exercise price of
$1.00. On February 13, 1997, all warrants issued subsequent and
including June 1, 1996 were repriced to $.25 per share. As of December
31, 1996 and 1995 total warrants outstanding were 1,083,000 and
280,000, respectively. A total of 250,000 warrants will expire in 1997
as follows: 150,000 in November 1997 and 100,000 in December 1997. The
warrants granted in 1996 have expiration dates ranging from the year
2001 through 2006.
33
<PAGE>
The Company maintains an Incentive Stock Option Plan (the "Plan") which
reserves shares of the Company's common stock for issuance to Company
officers, key employees and other eligible persons as determined by the
Board of Directors, In 1996, the Company adopted the disclosure only
provisions of Statement of Financial Accounting Standards (SFAS) No.
123, "Accounting for Stock Based Compensation." In 1996 and 1995, no
options were granted but 43,000 and 91,000 previously granted options,
respectively, vested. In addition, the Company granted 802,999 warrants
on June 28, 1996. These warrants become exercisable ratably beginning
at the date of grant and ending on various dates from July 1, 2001
through July 1, 2006. Had compensation expense for the warrants and the
options which vested in 1996 and 1995 under the Company's plan been
determined based on the fair value at the grant date in 1994,
commensurate with the provisions of SFAS No. 123, the Company's net
income and loss and earnings per share for 1996 and 1995, respectively,
would have been reduced to the pro forma amounts indicated below-
1996 1995
----------------- -------------
Net income-
As reported ($1,891,000) $305,000
Pro forma (2,143,000) 293,000
Earnings per share-
As reported ($0.73) $0.12
Pro forma (0.83) 0.12
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option pricing model with the following
weighted average assumptions for vestings in 1996 and 1995: dividend
yield of 0%; expected volatility of 88%; risk-free interest rate of
7.84% and expected lives of 10 years.
The prices of the options granted pursuant to the Plan will not be less
than 100% of the fair market value of the shares on the date of grant.
No award will be exercisable after 10 years from the date of grant.
Grants will vest at the rate of 20% per year starting the year after
the original grant date.
(5) COMMITMENTS AND CONTINGENCIES:
The Company rents its office and plant facilities from its former
principal shareholders under a noncancellable operating lease expiring in
1999. Property taxes, insurance and other related expenses are paid by
the Company. Upon the expiration of the lease in 1999, the Company has
the option to purchase the facilities. If the Company does not exercise
its option, it will be obligated to renew the lease for an additional ten
years.
The minimum annual rentals under the terms of the lease were as follows
as of December 31, 1996-
1997 $237,000
1998 237,000
1999 237,000
Rental expense amounted to $237,000 and $237,000 in 1996 and 1995,
respectively.
34
<PAGE>
(6) BENEFIT PLAN:
The Company maintains a 401(k) plan which covers all eligible employees.
Participants may elect to contribute up to 20% of their annual
compensation, as defined, not to exceed the applicable limitations under
the Internal Revenue Code. The Company provides a matching contribution
of 25% of participant contributions, up to a maximum of 8% of the
participant's compensation. Total 401(k) expense was $21,000 and $28,000
for the years ended December 31, 1996 and 1995, respectively.
(7) SUBSEQUENT EVENTS:
On January 6, 1997, the Company's Shareholders authorized an increase in
the authorized shares of common stock from 5,000,000 to 12,000,000.
35
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of June 26, 1996 between Computer Power,
Inc., a New Jersey corporation (the "Company"), and Hiro Hiranandani (the
"Executive").
W I T N E S S E T H :
WHEREAS, the Company and the Executive desire that he shall be
employed by the Company as President, Chief Executive Officer of the Company,
upon the terms and conditions hereinafter set forth
NOW, THEREFORE, in consideration of the premise and other good
and valuable consideration, receipt of which is hereby acknowledged, the parties
covenant and agree as follows:
1. Term of Employment.
(a) The Company shall employ the Executive and the Executive
accepts employment by the Company on the terms and conditions herein contained
for a period commencing on the date hereof, and ending on December 31, 1998 (the
"Employment Period").
1
<PAGE>
2. Duties
(a) The Executive shall serve as the President, Chief Executive
Officer of the Company, and shall perform such services and duties for the
Company as may be reasonably assigned or delegated to him by the Board of
Directors of the Company consistent with his position as President, Chief
Executive Officer. The Executive shall be the primary management officer of the
Company, reporting only to the Board of Directors. In addition, the Executive
shall be appointed a Director of the Company upon execution and delivery of this
Agreement to serve until the next Annual Meeting of Shareholders. Thereafter, so
long as this Agreement shall be in effect the Company shall nominate the
Executive to the Board of Directors to be voted upon by the shareholders at each
Annual Meeting.
(b) The Executive shall exert substantially his full business
time and best efforts in the promotion of the Company's interests.
3. Compensation.
(a) As compensation for his services hereunder, the Company shall
pay the Executive during the Employment Period a salary at the rate of One
Hundred Thousand Dollars ($100,000) per annum, payable in accordance with the
Company's customary payroll procedures for executive employees, subject to all
applicable tax and payroll deductions.
2
<PAGE>
(b) In the event the Company receives a capital infusion at least
of $1,000,000, by way of term debt (other than asset backed financing) or equity
or any combination thereof on terms acceptable to the Board of Directors of the
Company, prior to December 31, 1996, the salary payable to Executive from
January 1, 1997 through the end of the Employment Period shall be increased to
the rate of One Hundred and Twenty Thousand Dollars ($120,000) per annum. In the
event such capital infusion is at least $2,000,000 prior to December 31, 1996,
the salary so payable shall be One Hundred and Forty Thousand Dollars ($140,000)
per annum commencing January 1, 1997. In the event the Company receives such
capital infusion of at least $1,000,000 after January 1, 1997, the salary
payable to Executive shall increase to the rate of One Hundred and Twenty
Thousand Dollars ($120,000) effective on the date such capital infusion is made
and, if the Company receives a capital infusion of at least $2,000,000 after
January 1, 1997, the salary payable to Executive shall increase to One Hundred
and Forty Thousand Dollars ($140,000) commencing on the date the Company
receives such capital infusion.
3
<PAGE>
(c) Upon the execution and delivery of this Agreement, the
Company agrees to issue to Executive Warrants having a ten year term to purchase
377,999 shares of Common Stock of the Company, 125,999 shares of which shall be
exercisable immediately at $.33 per share, 125,999 shares of which shall be
exercisable on April 30, 1997 at $.40 per share (if Executive shall be employed
by the Company as President and Chief Executive Officer at such date) and
126,001 shares on April 30, 1998 at $.40 per share (if Executive shall be
employed by the Company as President and Chief Executive Officer at such date).
In the event the Company adopts a Qualified Incentive Stock Option Plan, or
issues additional warrants not related to new capital infusion described above
in 3(b) the Company agrees that through the Employment Period it will grant
Executive options, at the same time and at the same terms issued to other
employees, in such amounts such that Executive shall maintain equity ownership
or the right to equity ownership, including the right to acquire common stock
through options and warrants, of at least 10% of the total outstanding equity on
a fully diluted basis. In addition, if during the Employment Period, Company
issues additional equity, the Executive shall have the right to participate on
the same terms as at that time being then offered, up to 10% of such issuance.
4
<PAGE>
(d) The Company will further reimburse the Executive for all
expenses incurred by him in the performance of his duties hereunder which, if
not in the ordinary course of business and consistent with Company policy, have
been approved by the Company by an executive officer of the Company other than
Executive, or by the Board of Directors, prior to expenditure. Such expenses
will be so reimbursed on presentation of properly itemized charges and invoices
or receipts therefor consistent with normal Company policies and procedures for
officers of the Company.
(e) The Executive shall be entitled to participate in all
employee benefit plans of the Company which are available to executive employees
as of the date of this Agreement and such other plans or modifications of
existing plans as any may become effective during the Employment Period, all
consistent with Company policies and practices, generally applied. In addition,
the Executive shall be entitled to the same benefits, including use of a company
fleet car and use of company housing facilities, granted Executive's immediate
predecessor as President, Chief Executive Officer of the Company as well as
payment, by the Company, of premiums for health insurance provided Executive by
Pitney Bowes. Executive shall also be entitled to an annual medical physical to
be paid by the Company. All such payments to Executive shall be grossed-up to
give effect to any applicable federal or state income taxes payable by Executive
in respect of any such benefit in the event a final determination is made by the
Internal Revenue Service or state taxing authority that income taxes are due
thereon.
5
<PAGE>
(f) The Executive shall be entitled to take vacations consistent
with Company policy. Unused vacation days may not be accumulated year to year
and no additional compensation shall be paid for unused vacation time.
(g) In the event of the Executive's disability (as hereinafter
defined) or death, the Executive or his estate shall receive his salary pursuant
to subsection 3(a) above for a period of three months. (For the purpose of this
Section 3(g), the date the disability occurred shall be the expiration of the
sixty day period referred to below). No further or additional salary or
compensation shall be due the Executive or his estate, except as may otherwise
be payable under such Company benefit plans in which the Executive shall be
participating at that time. For the purpose of this Agreement, disability shall
mean the inability of the Executive to render substantially all of the material
and/or primary services of the character contemplated by this Agreement by
reason of physical or mental conditions due to illness, accident or mental or
physical incapacity or infirmity continuing for more than sixty (60) consecutive
days. In the event of a dispute, the matter shall be referred to a physician
mutually acceptable to the Company and the Executive.
6
<PAGE>
(h) Executive shall be entitled to an annual bonus for the
calendar years 1997 and 1998 calculated as follows and payable at time of
completion of the year-end audit and calculated in accordance with generally
accepted accounting principals ("GAAP"), with only such changes from the
accounting procedures used in connection with the 1995 audit as required by
GAAP:
(i) In the event the Company achieves a pre-tax profit of
$500,000 or more in calendar year 1997, the bonus payable to
Executive shall equal $25,000 plus five (5%) percent of the
pre-tax profit in excess of $500,000;
(ii) In the event the Company achieves a pre-tax profit of
$1,000,000 or more in calendar year 1998, the bonus payable to
Executive shall equal $35,000 plus five (5%) percent of the
pre-tax profit in excess of $1,000,000.
(i) The Executive shall be entitled to indemnification to
the fullest extent permitted by New Jersey corporate law.
7
<PAGE>
4. Rights Under Other Plans and Programs.
No provision of this Agreement is intended, nor shall it be
construed, to reduce or in any way restrict, any benefit to which the Executive
may be entitled under any other agreement, plan or program of the Company or its
subsidiaries or affiliates providing benefits for the Executive. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any plan or program of the Company shall be payable in accordance with the
terms of such plan or program.
5. Termination of Agreement.
(a) The Company may terminate the employment of the Executive
hereunder:
(i) for "cause", if the Executive has failed to
substantially comply in a material way with his material
covenants and obligations under this Agreement and such failure
continues unabated for a period of thirty (30) days after the
Executive's receipt of written notice from the Company specifying
the exact details of such alleged failure or if the Executive has
been convicted of a felony or a crime involving moral turpitude
or in the case of proven dishonesty against the Company or if
Executive shall otherwise be culpable in respect of any act of
gross negligence in the performance of his duties which in the
judgment of at least five out of six members of the Board of
Directors of the Company (other than Executive) makes it not in
the best interest of the Company that Executive continue in the
Company's employ; or
(ii) if the Executive becomes disabled (as defined in
Section 3(g) above); or
8
<PAGE>
(iii) if the Executive dies. In the event of any termination
under this Section 5(a), the Company shall pay to the Executive
or his estate all accrued salary through the date of such
termination and such other benefits consistent with the terms and
provisions of benefit plans in which the Executive is then
participating. In addition, in the case of termination due to
disability or death, the Company shall pay the Executive or his
estate all amounts required under Section 3(g) above.
(b) The Company may also terminate the employment of Executive
hereunder without cause, in which case the Executive shall be entitled to all
accrued salary through Employment Period, such other benefits consistent with
the terms and provisions of benefit plans in which the Executive is then
participating through the Employment Period and a severance payment, payable on
December 31, 1998, equal to six (6) months of the annual base compensation
payable under Section 3 hereof, subject to normal withholding. Additionally, the
Executive shall have all warrants and stock options theretofore granted to the
Executive vested as of the date of such termination.
(c) Executive may terminate this Agreement in the event the
Company breeches any of its obligations hereunder, and, in the case of such
termination, Executive shall receive the severance pay referred to in this
Agreement. Additionally, the Executive shall have all warrants and stock options
theretofore granted to the Executive vested as of the date of such termination.
9
<PAGE>
(d) In the unlikely event the Executive decides to terminate his
employment and the Company has not breached its obligations hereunder, the
Executive shall not be entitled to any salary or bonus after the date of such
termination, shall not receive any severance, but shall remain obligated under
only Section 7 for six (6) months and shall be freed from all other obligations
and liabilities under this Agreement. Additionally, the Executive shall have all
warrants and stock options theretofore granted to the Executive vested as of the
date of such termination.
6. Disclosure of Information
The Executive agrees that, during the Employment Period and
thereafter, he shall hold and keep confidential any trade secrets, customer
lists and pricing or other confidential information, or any inventions,
discoveries, improvements, products, whether patentable practices, methods or
not, directly or indirectly useful in relating to the business of the Company as
conducted by it from time to time, as to which the Executive shall at any time
during the Employment Period become informed, and he shall not directly or
indirectly disclose any such information to any person, firm or corporation or
use the same except in connection with the business and affairs of the Company.
The foregoing prohibition shall not apply to the extent such information,
knowledge or data (a) was publicly known at the time of disclosure to the
Executive, (b) become publicly known or available thereafter other than by any
means in violation of this Agreement, or (c) is required to be disclosed by the
Executive as a matter of law or pursuant to any court or regulatory order.
10
<PAGE>
7. Competition.
During the Employment Period and then for a period of six (6)
months thereafter if Executive is paid the severance pay as provided in this
Agreement, the Executive agrees that he will not, without the consent of the
Company, compete with the Company, directly or indirectly or participate as a
director, officer, employee, agent, representative, consultant or otherwise as a
stockholder, partner or joint venturer, or have any direct or indirect financial
interest, including, without limitation, the interest of a creditor in any form,
in any business directly or indirectly engaged in any business which is in
competition with the Company. The ownership by the Executive of publicly traded
stock of any corporation conducting such competing business, provided the
Executive and his associates (as such term is defined in Regulation 14A
promulgated under the Securities Exchange Act of 1934 as in effect on the date
hereof) collectively, do not own more than an aggregate of 5% of the stock of
such corporation, shall not be deemed a violation of this Section 7. In
addition, during the Employment Period, and for a period of six (6) months
thereafter, Executive shall not make any offer of employment to any person
employed by the Company during the Employment Period.
8. Remedies.
The Company and the Executive agree that remedies at law in the
nature of monetary damages may not be adequate to protect or compensate the
Company for violations by the Executive or breaches by him of his obligations
under Section 7 of this Agreement and therefore specifically agree that an
action at equity by way of injunction or similar relief is proper and
appropriate.
11
<PAGE>
9. Representations and Warranties
The Executive represents and warrants to the Company that he is
free to enter into this Agreement, become an officer and employee of the Company
and to carry out his duties and responsibilities as herein contemplated and is
under no contrary contractual limitation, contractual obligation or prohibition.
The Executive further indemnifies and holds harmless the Company from any costs,
damages and fees, including legal fees, which may result from his breach of the
foregoing representation and warranty.
10. Assignment; Successors.
All of the terms of this Agreement, whether so expressed or not,
shall be binding upon the respective heirs, personal representatives, successors
and assigns of the parties hereto and shall inure to the benefit of and be
enforceable by the parties hereto and their respective heirs, personal
representatives, successors and assigns; provided, however, that this Agreement
shall not be assigned by either party hereto except as set forth herein,
provided, further, that nothing herein shall be construed so as to prevent,
prohibit or limit in any way, the change in control, sale, merger or other
business combination of the Company and any such action or similar action shall
not be deemed an assignment of this Agreement by the Company nor shall it
relieve the Company or its successors or assigns from its obligations to
Executive under this Agreement.
11. Notices.
All notices, request, demands and other communications hereunder
must be in writing and shall be deemed to have been duly given if personally
12
<PAGE>
delivered, sent by a recognized overnight courier service, or if mailed by First
Class, certified mail, return receipt requested, postage and certification or
registry fees prepaid, and addressed as follows:
(a) If to Executive: Hiro Hiranandani
(b) If to Company: Computer Power, Inc.
124 West Main Street
High Bridge, New Jersey 08829
Attn: Chairman of the
Board of Directors with a
copy to the Chief Financial
Officer
With a Copy to: James P. Jalil, Esq.
Shustak Jalil Sanders & Heller
545 Madison Avenue
New York, New York 10022
Either party by notice in writing mailed to the other may change the name and
address to which notices, requests, demands and other communications shall be
mailed.
12. Miscellaneous.
(a) This Agreement shall be construed and enforced in accordance
with, and governed by, the laws of the State of New Jersey. The parties hereby
irrevocably consent to the exclusive jurisdiction of the Courts of the State of
New Jersey and of the Federal Court located in such state in connection with any
action or proceeding arising out of or relating to this Agreement. This
Agreement embodies the entire agreement and understanding between the Company
and the Executive and supersedes all prior agreements and understandings
relating to the subject matter hereof, and this Agreement may not be modified or
amended or any term or provision thereof waived or discharged except in writing
signed by the party against whom such amendment, modification, waiver or
discharge is sought to be enforced. The headings of this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
thereof. This Agreement may be executed in several counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
13
<PAGE>
(b) The parties agree that, prior to resorting to court,
unresolved disputes under this Agreement shall initially be referred by either
party to non-binding mediation before a mutually agreed upon mediator.
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement as of the day and year first above written.
/s/ Hiro Hiranandani
---------------------------
Hiro Hiranandani
COMPUTER POWER, INC.
/s/ Lindsay Gillette
By:-------------------------
Lindsay Gillette, Chairman
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
To Purchase 30,000 Shares of Common Stock of
Computer Power, Inc., a New Jersey Corporation
(the "Company")
DATE OF INITIAL ISSUANCE: February 1, 1996
THIS CERTIFIES THAT, for value received, Kenneth Rind or registered
assigns (hereinafter called the "Holder") is entitled to purchase from the
Company during the Term of this Warrant at the times provided for herein, the
number of shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") as specified herein, at the Warrant Price (as hereinafter
defined), payable in the manner specified herein. The conversion of this Warrant
shall be subject to the provisions, limitations and restrictions herein
contained.
SECTION 1. Definitions.
Common Stock - shall mean and include the Company's authorized Common
Stock, par value $.01 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets of
the Company without limit to amount or percentage.
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
1
<PAGE>
Term of this Warrant - shall mean the period beginning on January 1,
1996 and ending on December 31, 2005.
Warrant Price - is defined in Section 2.1 hereof.
Warrant Rights - the rights of the Holder to purchase shares of Common
Stock upon conversion of this Warrant, which rights shall not relate to shares
of Common Stock already purchased pursuant to this Warrant.
Warrant Shares - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the conversion hereof.
SECTION 2. Conversion of Warrant.
2.1. Right to Convert Warrant. The Holder hereof shall have the right
to convert this Warrant, subject to adjustment as provided in Section 5, as
follows: up to one-third of the aggregate Warrant Shares convertible under this
Warrant shall be convertible as of the date of this Warrant; an additional
one-third of the Warrant Shares convertible under this Warrant shall be
convertible as of January 1, 1997, if Kenneth Rind is a Director of the Company
on said date; the balance of Warrant Shares convertible under this Warrant shall
be convertible as of January 1, 1998, if Kenneth Rind is a Director of the
Company on said date; provided, however, that in the event of i) an acquisition
of the Company or the business of the Company by an unrelated third party,
whether by acquisition of more than 50% of the voting securities, merger, sale
of all or substantially all the assets of the Company or otherwise, or ii) the
death of Kenneth Rind, the Holder shall have the right to convert this Warrant,
in whole or in part, at any time at or prior to the expiration of the Term of
this Warrant notwithstanding the vesting provisions set forth above.
The Warrant Price shall be $.40 per share subject to adjustment as
provided in Section 5 and shall be paid as set forth below.
2
<PAGE>
2.2. Procedure for Conversion of Warrant. The registered holder hereof
shall convert this Warrant by the surrender of this Warrant and the Notice of
Conversion form attached hereto duly executed at the office of the Company at
124 West Main Street, High Bridge, New Jersey 08829 (or such other office or
agency of the Company as it may designate by notice in writing to the registered
holder hereof at the address of such holder appearing on the books of the
Company), into shares of Warrant Shares as provided in this Section 2. Upon
exercise of this conversion right, the holder hereof shall be entitled to
receive that number of shares of Warrant Stock of the Company equal to the
quotient obtained by dividing [(A-B)(X)] by (A), where:
A = the Fair Market Value (as defined below) of one share of Warrant
Shares on the date of conversion of this Warrant.
B = the Warrant Price for one share of Warrant Shares under this
Warrant.
X = the number of shares of Warrant Shares as to which this Warrant is
being converted.
If the above calculation results in a negative number, then no shares
of Warrant Shares shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Shares shall mean:
a) if the conversion right is being exercised after the occurrence of an
initial public offering of common stock of the Company ("Common
Stock") in connection with which the Warrant Shares were converted
into Common Stock in accordance with the Company's Restated Articles
of Incorporation (as amended and restated from time to time and
including all designations of rights and preferences of preferred
stock, the "Articles"), the price of a share of Common Stock as
reported by the NASDAQ National Market System (or equivalent
recognized source of quotations) on the basis of the last reported
sale price or, if there is no such reported sale on the date of
conversion of this Warrant, on the basis of the average of closing bid
and asked quotations as so reported; or
3
<PAGE>
b) in all other cases, the fair value as determined in good faith by the
Company's Board of Directors.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Shares determined in accordance with the foregoing.
2.3. Transfer and Restriction Legend. This Warrant is freely
transferable by the Holder, except as trasferability may be limited by federal
and state securities laws. Each certificate for Warrant Shares shall bear the
following legend (and any additional legend required by (i) any applicable state
securities laws and (ii) any securities exchange upon which such Warrant Shares
may, at the time of such exercise, be listed) on the face thereof unless at the
time of exercise such Warrant Shares shall be registered under the Securities
Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE STATE
SECURITIES LAWS OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
4
<PAGE>
SECTION 3. Covenants as to Common Stock. The Company covenants and
agrees that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the issue
of this Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of this Warrant. The Company further covenants and agrees that the
Company will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company further
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the conversion of this Warrant require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered upon conversion,
then the Company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and so long as the
Common Stock issuable upon the conversion of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion of this
Warrant.
SECTION 4. Ownership.
4.1 Register; Transfer or Exchange of Warrants. The Company shall keep
at its office maintained in High Bridge, New Jersey a register in which the
Company shall provide for the registration of Warrants and for the registration
of transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
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<PAGE>
4.2. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 4.
4.3. Transfer and Replacement. This Warrant and all rights hereunder
are subject to applicable federal and state securities laws, transferable in
whole or in part upon the books of the Company by the Holder hereof in person or
by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder, an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 4, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
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SECTION 5. Adjustment of Warrant Price and Number of Shares of Common
Stock or Warrants.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for conversion shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock.
In the event the Company shall, at any time or from time to
time, issue or sell any shares of Common Stock or rights, warrants or securities
convertible into Common Stock (any such sale or issuance, being herein called a
"Change of Shares"), then, and thereafter upon each further Change of Shares,
the Warrant Price in effect immediately prior to such Change of Shares shall be
changed to a price (including any applicable fraction of a cent) equal to the
lowest of (i) the per share consideration receivable by the Company on account
of such Change of Shares, (ii) the lowest then current exercise or conversion
price on any Warrants or convertible securities, or (iii) the Warrant Price
determined by multiplying the Warrant Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of shares
of Common Stock outstanding immediately prior to the issuance of such additional
shares and the denominator of which shall be the sum of the number of shares of
Common Stock outstanding immediately after the issuance of such additional
shares (assuming full exercise, conversion or subscription of all rights,
warrants or securities convertible into Common Stock). Such adjustment shall be
made successively whenever such and issuance is made.
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In case the Corporation shall at any time or from time to time, issue
or sell shares of capital stock (other than Common Stock), or warrants, rights
to subscribe or securities convertible into capital stock (excluding those
referred to above), then in each such case the Warrant Price shall be adjusted
so the same shall equal the lowest of (i) the per share consideration receivable
by the Company on account of such issuance or sale, (ii) the lowest then current
exercise or conversion price on any Warrants or convertible securities, or (iii)
the price determined by multiplying the Warrant Price in effect immediately
prior to the date of such distribution by a fraction the numerator of which
shall be the current market price per share (determined pursuant to Section 5(g)
below) of the Common Stock on the record date mentioned below multiplied by the
total number of shares of Common Stock then outstanding, less than the fair
market value (as determined by the Board of Directors of the Company in good
faith) of the capital stock, subscription rights, assets or evidence of
indebtedness so distributed and the denominator shall be such current market
price per share of Common Stock multiplied by the total number of shares of
Common Stock then outstanding. Such adjustment shall become effective
retroactively immediately after the record date for the determination of
stockholders entitled to receive such distribution.
The provisions of this Section 5 shall not operate to increase the
Warrant Price or reduce the number of shares of Common Stock purchasable upon
the conversion of any Warrant.
(b) The Company may elect, upon any adjustment of the Warrant
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
conversion of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
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(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by converting such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon conversion of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Warrant. The foregoing provisions
shall similarly apply to successive reclassification, capital reorganizations
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
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(d) After each adjustment of the Warrant Price pursuant to
this Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
any Assistant Secretary, of the Company setting forth: (i) the Warrant Price as
so adjusted, (ii) the number of shares of Common Stock purchasable upon
conversion of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the following shall
also be applicable:
(A) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by
or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made
unless such adjustment would require a decrease of a least $.0001 in
such price; provided that any adjustments which by reason of this
clause (B) are not required to be made at the time of and together with
the next subsequent adjustment which, together with any adjustment(s)
so carried forward, shall require an increase or decrease of at least
$.0001 in the Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common Stock,
the Company shall concurrently therewith grant to each Registered Holder as of
the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon conversion (assuming, for purposes of this section 5 (f),
that exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 5.
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(g) For the purpose of any computation under this Section 5
the current market price per share of Common Stock on any date shall be deemed
to be the lower of (i) the closing price on the record date for determining the
holders of Warrants entitled to receive any adjustment or any computation or
(ii) average of the daily closing prices for 30 consecutive business days
commencing 45 business days before the day in question. The closing price for
each day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the American Stock Exchange or,
if the Common Stock is not listed or admitted to trading on such exchange, on
the principal national securities exchange on which the Common Stock is listed
or admitted to trading or, if not listed or admitted to trading on any national
securities and exchange, the average of the closing bid and asked prices as
reported by the National Association of Securities Dealers Automated Quotation
System, or if not so reported, the average of the closing bid and asked prices
as furnished by any firm acting at that time as a market maker in the Common
Stock selected from time to time by the Company for this purpose.
SECTION 6. Notice of Extraordinary Dividends. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be converted, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is converted prior to such record
date. The provisions of this Section 6 shall not apply to distributions made in
connection with transactions covered by Section 5.
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SECTION 7. Fractional Shares. Fractional shares shall not be issued
upon the conversion of this Warrant but in any case where the Holder would,
except for the provisions of this Section 7, be entitled under the terms hereof
to receive a fractional share upon the conversion of this Warrant, the Company
shall, upon the conversion of this Warrant, pay a sum in cash equal to the
excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company).
SECTION 8. Registration Rights; Etc.
8.1. Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon conversion of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
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"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. Company Registration; Demand Registration.
(a) Notice of Registration. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt
of the written notice from the Company described in clause (i) above,
except as set forth in Section 8.2(b) below.
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(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
8.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 8.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 8.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
of the Registrable Securities which would otherwise be underwritten pursuant
hereto provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, such person
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.3 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
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8.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in order to effect such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules or
regulations thereunder.
8.5 Indemnification.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold harmless
each Holder, each of its officers, directors and partners, and each party
controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
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Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based solely upon written information furnished
to the Company by such Holder or underwriter, as the case may be, and stated to
be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document solely in reliance upon and in conformity with written
information furnished to the Company by such Holder or Other Shareholder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders and Other Shareholders hereunder shall be limited to
an amount equal to the proceeds to each such Holder or Other Shareholder of
securities sold as contemplated herein.
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(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
8.6 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
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8.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, at any time after it has
become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
SECTION 9. Notices. Any notice or other document required or permitted
to be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the Capitalization Agreement or to such other
address as shall have been furnished to the Company in writing by the Holder or
the Company at 124 West Main Street, High Bridge, New Jersey 08829 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
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SECTION 10. No Rights as Stockholder; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 11. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Jersey.
SECTION 12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this 1st day of February 1996.
COMPUTER POWER, INC.
By:-------------------------
President
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[FORM NOTICE OF CONVERSION]
TO BE EXECUTED BY THE REGISTERED HOLDER IF
SUCH HOLDER DESIRES TO CONVERT THE WARRANT
To------------:
The undersigned hereby irrevocably elects to convert the Warrant to
purchase ------- shares of Common Stock issuable upon the conversion of such
Warrant and requests that Certificate for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- --------------------------------------------------------------------------------
(Please insert number of shares exercised)
- --------------------------------------------------------------------------------
Please insert Warrant Price Paid
- --------------------------------------------------------------------------------
(Please specify whether payment is in cash or Debentures)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
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(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated:-----------------, ----.
[HOLDER]
By-----------------------
21
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
To Purchase 100,000 Shares of Common Stock of
Computer Power, Inc., a New Jersey Corporation
(the "Company")
DATE OF INITIAL ISSUANCE: June 28, 1996
THIS CERTIFIES THAT, for value received, Southerntech, Inc. or
registered assigns (hereinafter called the "Holder") is entitled to purchase
from the Company during the Term of this Warrant at the times provided for
herein, the number of shares of Common Stock, par value $.01 per share, of the
Company (the "Common Stock") as specified herein, at the Warrant Price (as
hereinafter defined), payable in the manner specified herein. The conversion of
this Warrant shall be subject to the provisions, limitations and restrictions
herein contained.
SECTION 1. Definitions.
Common Stock - shall mean and include the Company's authorized Common
Stock, par value $.01 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets of
the Company without limit to amount or percentage.
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
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Term of this Warrant - shall mean the period beginning on July 1, 1998
and ending on July 1, 2001
Warrant Price - is defined in Section 2.1 hereof.
Warrant Rights - the rights of the Holder to purchase shares of Common
Stock upon conversion of this Warrant, which rights shall not relate to shares
of Common Stock already purchased pursuant to this Warrant.
Warrant Shares - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the conversion hereof.
SECTION 2. Conversion of Warrant.
2.1. Right to Exercise Warrant. At any time and from time to time
during the term of this Warrant, the Holder hereof shall have the right to
convert this Warrant, in whole or part(s) to purchase up to the number of shares
of Common Stock set forth on the cover page hereof, subject to adjustment as
provided in Section 5.
The Warrant Price shall be $1.00 per share subject to adjustment as
provided in Section 5 and shall be paid either in cash or by presentation for
surrender, cancellation and redemption of a principal amount and accrued
interest of a Note of the Company dated the date hereof, equal to the aggregate
Warrant Price, or as set forth below.
2.2. Procedure for Cashless Conversion of Warrant. The registered
holder hereof shall convert this Warrant by the surrender of this Warrant and
the Notice of Conversion form attached hereto duly executed at the office of the
Company at 124 West Main Street, High Bridge, New Jersey 08829 (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company), into shares of Warrant Shares as provided in this Section 2. Upon
exercise of this conversion right, the holder hereof shall be entitled to
receive that number of shares of Warrant Stock of the Company equal to the
quotient obtained by dividing [(A-B)(X)] by (A), where:
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A = the Fair Market Value (as defined below) of one share of
Warrant Shares on the date of conversion of this Warrant.
B = the Warrant Price for one share of Warrant Shares under this
Warrant.
X = the number of shares of Warrant Shares as to which this Warrant
is being converted.
If the above calculation results in a negative number, then no shares
of Warrant Shares shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Shares shall mean:
a) if the conversion right is being exercised after the occurrence
of an initial public offering of common stock of the Company
("Common Stock") in connection with which the Warrant Shares were
converted into Common Stock in accordance with the Company's
Restated Articles of Incorporation (as amended and restated from
time to time and including all designations of rights and
preferences of preferred stock, the "Articles"), the price of a
share of Common Stock as reported by the NASDAQ National Market
System (or equivalent recognized source of quotations) on the
basis of the last reported sale price or, if there is no such
reported sale on the date of conversion of this Warrant, on the
basis of the average of closing bid and asked quotations as so
reported; or
b) in all other cases, the fair value as determined in good faith by
the Company's Board of Directors.
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Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Shares determined in accordance with the foregoing.
2.3. Transfer and Restriction Legend. This Warrant is freely
transferable by the Holder, except as transferability may be limited by federal
and state securities laws. Each certificate for Warrant Shares shall bear the
following legend (and any additional legend required by (i) any applicable state
securities laws and (ii) any securities exchange upon which such Warrant Shares
may, at the time of such exercise, be listed) on the face thereof unless at the
time of exercise such Warrant Shares shall be registered under the Securities
Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and
agrees that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the issue
of this Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of this Warrant. The Company further covenants and agrees that the
Company will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company further
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covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the conversion of this Warrant require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered upon conversion,
then the Company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and so long as the
Common Stock issuable upon the conversion of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion of this
Warrant.
SECTION 4. Ownership.
4.1 Register; Transfer or Exchange of Warrants. The Company shall keep
at its office maintained in High Bridge, New Jersey a register in which the
Company shall provide for the registration of Warrants and for the registration
of transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
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4.2. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 4.
4.3. Transfer and Replacement. This Warrant and all rights hereunder
are subject to applicable federal and state securities laws, transferable in
whole or in part upon the books of the Company by the Holder hereof in person or
by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder, an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 4, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
SECTION 5. Adjustment of Warrant Price and Number of Shares of Common
Stock or Warrants.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
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stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for conversion shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock.
(b) The Company may elect, upon any adjustment of the Warrant Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
conversion of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
(c) In case of any reclassification, capital reorganization or other
change of outstanding shares of Common Stock, or in case of any consolidation or
merger of the Company with or into another corporation (other than a
consolidation or merger in which the Company is the continuing corporation and
which does not result in any reclassification, capital reorganization or other
change of outstanding shares of Common Stock), or in case of any sale or
conveyance to another corporation of the property of the Company as, or
substantially as, an entirety (other than a sale/leaseback, mortgage or other
financing transaction), the Company shall cause effective provision to be made
so that each holder of a Warrant then outstanding shall have the right
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thereafter, by converting such Warrant, to purchase the kind and number of
shares of stock or other securities or property (including cash) receivable upon
such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance by a holder of the number of shares of Common Stock
that might have been purchased upon conversion of such Warrant immediately prior
to such reclassification, capital reorganization or other change, consolidation,
merger, sale or conveyance. Any such provision shall include provision for
adjustments that shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The Company shall not effect any
such consolidation, merger or sale unless prior to or simultaneously with the
consummation thereof the successor (if other than the Company) resulting from
such consolidation or merger of the corporation purchasing assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Company, the obligation to deliver to the holder of each
Warrant such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holders may be entitled to purchase and the other
obligations under this Warrant. The foregoing provisions shall similarly apply
to successive reclassification, capital reorganizations and other changes of
outstanding shares of Common Stock and to successive consolidations, mergers,
sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to this Section
5, the Company will promptly prepare a certificate signed by the President, and
by the Treasurer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, of the Company setting forth: (i) the Warrant Price as so adjusted,
(ii) the number of shares of Common Stock purchasable upon conversion of each
Warrant after such adjustment, and, if the Company shall have elected to adjust
the number of Warrants, the number of Warrants to which the registered holder of
each Warrant shall then be entitled.
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(e) For purposes of Section 5(a) and 5(b) hereof, the following shall
also be applicable:
(A) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by
or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made
unless such adjustment would require a decrease of a least $.0001 in
such price; provided that any adjustments which by reason of this
clause (B) are not required to be made at the time of and together with
the next subsequent adjustment which, together with any adjustment(s)
so carried forward, shall require an increase or decrease of at least
$.0001 in the Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common Stock,
the Company shall concurrently therewith grant to each Registered Holder as of
the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon conversion (assuming, for purposes of this section 5 (f),
that exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 5.
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SECTION 6. Notice of Extraordinary Dividends. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be converted, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is converted prior to such record
date. The provisions of this Section 6 shall not apply to distributions made in
connection with transactions covered by Section 5.
SECTION 7. Fractional Shares. Fractional shares shall not be issued
upon the conversion of this Warrant but in any case where the Holder would,
except for the provisions of this Section 7, be entitled under the terms hereof
to receive a fractional share upon the conversion of this Warrant, the Company
shall, upon the conversion of this Warrant, pay a sum in cash equal to the
excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company).
SECTION 8. Registration Rights; Etc.
8.1. Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon conversion of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
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"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. Company Registration.
(a) Notice of Registration. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
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(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt
of the written notice from the Company described in clause (i) above,
except as set forth in Section 8.2(b) below.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
8.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 8.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 8.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
of the Registrable Securities which would otherwise be underwritten pursuant
hereto provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
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If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, such person
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.3 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in order to effect such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules or
regulations thereunder.
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8.5 Indemnification.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold harmless
each Holder, each of its officers, directors and partners, and each party
controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based solely upon written information furnished
to the Company by such Holder or underwriter, as the case may be, and stated to
be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
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each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document solely in reliance upon and in conformity with written
information furnished to the Company by such Holder or Other Shareholder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders and Other Shareholders hereunder shall be limited to
an amount equal to the proceeds to each such Holder or Other Shareholder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
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herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
8.6 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, at any time after it has
become subject to such reporting requirements; and
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(c) So long as the Holder owns any Registrable Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
SECTION 9. Notices. Any notice or other document required or permitted
to be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the records of the Company or to such other
address as shall have been furnished to the Company in writing by the Holder or
the Company at 124 West Main Street, High Bridge, New Jersey 08829 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. No Rights as Stockholder; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
17
<PAGE>
SECTION 11. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Jersey.
SECTION 12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this day of June 1996.
COMPUTER POWER, INC.
By:---------------------------
President
18
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[FORM NOTICE OF CONVERSION]
To be executed by the registered holder if
such holder desires to convert the Warrant
To------------:
The undersigned hereby irrevocably elects to convert the Warrant to
purchase ------- shares of Common Stock issuable upon the conversion of such
Warrant and requests that Certificate for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- --------------------------------------------------------------------------------
(Please insert number of shares exercised)
- --------------------------------------------------------------------------------
Please insert Warrant Price Paid
- --------------------------------------------------------------------------------
(Please specify whether payment is in cash or Notes)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
19
<PAGE>
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated:----------------, ----.
[HOLDER]
By---------------------------
20
NOTE
$150,000 High Bridge, New Jersey
June 28, 1996
Computer Power Inc., a corporation duly organized and existing
under the laws of the State of New Jersey (herein called the "Company"), for
value received, hereby promises to pay to the order of Hiro Hiranandani or
registered assigns the principal amount of One Hundred and Fifty Thousand
($150,000) Dollars on July 1, 1999 in such coin or currency of the United States
of America as at the time of payment shall be legal tender for public and
private debts, at the principal office of the Company, in High Bridge, State of
New Jersey, and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) at said office, in like coin or currency, on the unpaid
portion of said principal amount from the date hereof, quarterly on the first
day of October, January, April and July in each year, commencing on October 1,
1996, at the rate of nine and one-half (9.5%) percent per annum until such
unpaid portion of such principal amount shall have become due and payable and at
the rate fourteen per centum (14%) per annum thereafter and, so far as may be
lawful, on any overdue installment of interest at the rate of fourteen per
centum (14%) per annum.
ss.1. Exchanges and Transfers of the Note.
ss.1.1. Register; Transfer or Exchange of Notes. The Company shall keep
at its office or agency maintained in High
1
<PAGE>
Bridge, New Jersey a register in which the Company shall provide for the
registration of Notes and for the registration of transfer of Notes. The Holder
of any Note may, at its option and either in person or by duly authorized
attorney, surrender the same for registration of transfer or exchange at such
office and, without expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Note or Notes, dated as of the date to which
interest has been paid on the Note or Notes so surrendered, each in the
principal amount of $10,000 or any integral multiple thereof, for the same
aggregate unpaid principal amount as the Note or Notes so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Note so made and delivered in exchange for any
Note shall in all other respects be in the same form and have the same terms as
the Note so surrendered for transfer or exchange.
ss.1.2. Loss, Theft, Destruction or Mutilation of Notes. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Note and, in the case of any such loss, theft
or destruction, upon receipt of an indemnity bond in such reasonable amount as
the Company may determine (or if such Note is held by the original Holder, of an
unsecured indemnity agreement reasonably satisfactory to the Company) or, in the
case of any such mutilation, upon surrender an cancellation of such Note, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Note, a new Note of like tender and unpaid principal amount and dated
as of the date to which interest has been paid on the Note so lost, stolen,
destroyed or mutilated.
2
<PAGE>
ss.1.3. Registered Holders. The Company may deem and treat the person
in whose name any Note is registered as the absolute owner and holder of such
Note for the purpose of receiving payment of the principal of and interest on
such Note and for the purpose of any notices, waivers or consents thereunder,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Payments with respect to any Note shall be made only
to the registered Holder thereof.
ss.2. Surrender of the Note.
ss.2.1. Surrender of Notes. The Company may, as a condition of payment
of all or any of the principal of, and interest on, this Note, in whole or in
part, require the holder to present this Note for notation of such payment and,
if this Note be paid in full, require the surrender hereof.
ss.3. Covenants.
ss.3.1. To Pay Principal and Interest. The Company covenants and agrees
that so long as this Note shall be outstanding it will comply with the
following:
ss.3.2. Maintenance of Company Office. The Company will maintain an
office in High Bridge, New Jersey, in its current facility where notices,
presentations and demands to or upon the Company in respect of the Note may be
given or made.
ss.3.3. To Keep Books. The Company will, and will cause any
subsidiaries, to keep proper books of record and account in which full, true and
correct entries will be made of its transactions in accordance with generally
accepted accounting principles.
ss.3.4. Payment of Taxes; Corporate Existence; Maintenance of
Properties. The Company will, and will cause each of its subsidiaries to,
3
<PAGE>
1 pay and discharge promptly or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon it income or profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien or change upon its property; provided, however, that
neither the Company nor any subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such subsidiary, as the case may be, shall have set aside
on its books reserves (provided for and segregated to the extent required by
generally accepted provided, however, that neither the Company nor any
subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company or such
subsidiary, as the case may be, shall have set aside on its books reserves
(provided for and segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto;
2 maintain and keep or cause to be maintained and kept its properties
in good repair, working order and condition, and from time to time make or cause
to be made all needful and proper repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
property and advantageously conducted at all times.
4
<PAGE>
ss.3.5. To Insure. The Company will, and will cause each of its
subsidiaries to maintain insurance in such extent and against such hazards and
liabilities as is commonly maintained by companies similarly situated.
ss.3.6. Sale, Merger or Consolidation by Company. The Company will not
sell, lease, transfer or otherwise dispose of any substantial part of its
properties and assets or consolidate with or merge into any person or permit any
person to merge into it.
ss.4. Events of Default.
ss.4.1. Events of Default. If one or more of the following events,
herein called Events of Default, shall happen for any reason whatsoever and
whether such happening shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court of any order, rule or regulation of any
administrative or governmental body) and be continuing:
(a) Default shall be made in the payment of the principal of any Note
dated the date hereof, when and as the same shall become due and payable,whether
at maturity or at a date fixed for prepayment or by acceleration or otherwise;
or
(b) Default shall be made in the payment of any installment of interest
on any Note dated the date hereof according to its tenor when and as the same
shall become due and payable and such default shall continue for a period of 10
days; or
(c) Default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Company contained in this
Note; or
(d) The Company shall be adjudicated a bankrupt or insolvent, or shall
consent to the appointment of a receiver, trustee or liquidator of itself or of
any material part of its property, or shall admit in writing its inability to
pay its debts generally as they come due, or shall make a general assignment for
the benefit of creditors, or shall file a voluntary petition or an answer
seeking reorganization or arrangement in a proceeding under any bankruptcy law
(as now or hereafter in effect) or an answer admitting the material allegations
of a petition filed against the Company in any such proceeding, or shall, by
voluntary petition, answer or consent, seek relief under the provisions of any
other now existing or future bankruptcy or other similar law providing for the
reorganization or winding up of corporations, or the Company or its directors or
majority stockholders shall take action looking to the dissolution or
liquidation of the Company; or
5
<PAGE>
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of the Company, a
receiver, trustee or liquidator of the Company or of any material part of its
property, and such receiver, trustee or liquidator shall not have been removed
or discharged within 90 days thereafter, or any material part of the property of
the Company shall, in any judicial proceeding, be sequestered and shall not be
returned to the possession of the Company within 90 days thereafter; or
(f) A petition against the Company in a proceeding under any bankruptcy
law (as now or hereinafter in effect) shall be filed and shall not be dismissed
within 30 days after such filing, or, in case the approval of such petition by a
court of competent jurisdiction is required, shall be filed and approved by such
a court as properly filed and such approval shall not be withdrawn or the
proceeding dismissed within 30 days thereafter, or if, under the provisions of
any other similar law providing for reorganization or winding up of corporations
and which may apply to the Company, any court of competent jurisdiction, custody
or control of the Company or of any material part of its property and such
jurisdiction, custody or control shall not be relinquished or terminated within
30 days thereafter; or
(h) The Company shall (x) be declared in default in the payment of
principal or interest on any evidence of indebtedness for money borrowed (other
than the Notes) and such default shall continue for more than the period of
grace, if any, therein specified, unless such default shall have been cured or
waived prior to such indebtedness becoming or being declared to be due and
payable prior to its stated maturity, or (y) default shall continue for more
than the period of grace, if any, therein specified, or (y) default in the
performance or observance of any other term, condition or agreement contained in
any such evidence of indebtedness for money borrowed or in any agreement
relating thereto if as a result of such default such evidence of indebtedness is
declared to be due and payable prior to its stated maturity;
then, in any such event, any registered holder or holders of this Note may
declare this Note to be immediately due and payable and upon such declaration
the same shall become and be immediately due and payable, together with accrued
interest thereon, anything in this Note to the contrary notwithstanding.
6
<PAGE>
ss.4.2. Suits for Enforcement. In case any one or more of the Events of
Default specified in ss.4.1 shall happen and be continuing, the Holder of this
Note may, pursuant to the provisions of ss.4.1, declare this Note to be
immediately due and payable, may proceed to protect and enforce its rights by
suit in equity, action at law and/or by other appropriate proceeding, whether
for the specific performance (to the extent permitted by law) of any covenant or
agreement contained in this Note, or in aid of the exercise of any power granted
in this Note, or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable right of holder of this Note. If, pursuant to the
provisions of ss.4.1 or of this ss.4.2, the holder of this Note shall demand
payment thereof or take any action in respect of a default or an Event of
Default, the Company will forthwith give written notice, addressed as provided
in ss.1.2, to the other Holders of Notes dated the date hereof, specifying such
action and the nature of the default or Event of Default. Nothing contained in
this ss.4.2 or in ss.4.1 shall in any manner impair that absolute and
unconditional right of each holder of a Note to receive payment of the principal
of and interest, on such Note when the same shall become due and payable in
accordance with the terms thereof, and to institute suit for the enforcement of
such payment.
ss.4.3. Remedies Cumulative. No remedy herein conferred upon the Holder
of this Note is intended to be exclusive of any other remedy, and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
ss.4.4. Remedies Not Waived. No course of dealing between the Company
and any Holder of this Note shall operate as a waiver of any right of such
holder hereunder or under such Note, and no delay on the part of such holder in
exercising any right hereunder or thereunder shall so operate.
ss.5. Costs of Collection. In case of a default in the payment of any
principal of or interest on this Note, the Company will pay to the holder hereof
such further amount as shall be sufficient to cover the costs and expenses of
collection, including (without limitation) reasonable attorneys' fees.
7
<PAGE>
ss.6. Legend. Each Note shall bear the following legend: The Securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, or registered or qualified under the "blue sky" laws of
any State. The securities may not be pledged, hypothecated, assigned, sold or
transferred unless registered under that Act and registered or qualified under
the blue sky laws as may be applicable or unless, in the opinion of counsel
reasonably satisfactory to the Company, exemptions from such laws are available.
ss.7. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
This Note may only be assigned by the Holder to affiliates of the Holder.
ss.8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New Jersey.
ss.9. Notice. Any notice pursuant to this Note shall be made by
registered or ------ certified mail:
If to the holder at the address shown on the register maintained by the
Company pursuant to ss.1.2 of this Note.
If to the Company:
124 West Main Street
High Bridge, New Jersey 08829
ss.10. Headings. The headings of the sections and subsections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
8
<PAGE>
IN WITNESS WHEREOF, Computer Power Inc. has caused this Note
to be signed in its corporate name by one of its officers thereunto duly
authorized and this Note to be dated as of the day and year first above written.
COMPUTER POWER INC.
By:---------------------
NOTE
$150,000 High Bridge, New Jersey
June 28, 1996
Computer Power Inc., a corporation duly organized and existing
under the laws of the State of New Jersey (herein called the "Company"), for
value received, hereby promises to pay to the order of Southerntech, Inc. or
registered assigns the principal amount of One Hundred and Fifty Thousand
($150,000) Dollars on July 1, 1999 in such coin or currency of the United States
of America as at the time of payment shall be legal tender for public and
private debts, at the principal office of the Company, in High Bridge, State of
New Jersey, and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) at said office, in like coin or currency, on the unpaid
portion of said principal amount from the date hereof, quarterly on the first
day of October, January, April and July in each year, commencing on October 1,
1996, at the rate of nine and one-half (9.5%) percent per annum until such
unpaid portion of such principal amount shall have become due and payable and at
the rate fourteen per centum (14%) per annum thereafter and, so far as may be
lawful, on any overdue installment of interest at the rate of fourteen per
centum (14%) per annum.
ss.1. Exchanges and Transfers of the Note.
ss.1.1. Register; Transfer or Exchange of Notes. The Company shall keep
at its office or agency maintained in High
1
<PAGE>
Bridge, New Jersey a register in which the Company shall provide for the
registration of Notes and for the registration of transfer of Notes. The Holder
of any Note may, at its option and either in person or by duly authorized
attorney, surrender the same for registration of transfer or exchange at such
office and, without expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Note or Notes, dated as of the date to which
interest has been paid on the Note or Notes so surrendered, each in the
principal amount of $10,000 or any integral multiple thereof, for the same
aggregate unpaid principal amount as the Note or Notes so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Note so made and delivered in exchange for any
Note shall in all other respects be in the same form and have the same terms as
the Note so surrendered for transfer or exchange.
ss.1.2. Loss, Theft, Destruction or Mutilation of Notes. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Note and, in the case of any such loss, theft
or destruction, upon receipt of an indemnity bond in such reasonable amount as
the Company may determine (or if such Note is held by the original Holder, of an
unsecured indemnity agreement reasonably satisfactory to the Company) or, in the
case of any such mutilation, upon surrender an cancellation of such Note, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Note, a new Note of like tender and unpaid principal amount and dated
as of the date to which interest has been paid on the Note so lost, stolen,
destroyed or mutilated.
2
<PAGE>
ss.1.3. Registered Holders. The Company may deem and treat the person
in whose name any Note is registered as the absolute owner and holder of such
Note for the purpose of receiving payment of the principal of and interest on
such Note and for the purpose of any notices, waivers or consents thereunder,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Payments with respect to any Note shall be made only
to the registered Holder thereof.
ss.2. Surrender of the Note.
ss.2.1. Surrender of Notes. The Company may, as a condition of payment
of all or any of the principal of, and interest on, this Note, in whole or in
part, require the holder to present this Note for notation of such payment and,
if this Note be paid in full, require the surrender hereof.
ss.3. Covenants.
ss.3.1. To Pay Principal and Interest. The Company covenants and agrees
that so long as this Note shall be outstanding it will comply with the
following:
ss.3.2. Maintenance of Company Office. The Company will maintain an
office in High Bridge, New Jersey, in its current facility where notices,
presentations and demands to or upon the Company in respect of the Note may be
given or made.
ss.3.3. To Keep Books. The Company will, and will cause any
subsidiaries, to keep proper books of record and account in which full, true and
correct entries will be made of its transactions in accordance with generally
accepted accounting principles.
ss.3.4. Payment of Taxes; Corporate Existence; Maintenance of
Properties. The Company will, and will cause each of its subsidiaries to,
3
<PAGE>
1 pay and discharge promptly or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon it income or profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien or change upon its property; provided, however, that
neither the Company nor any subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such subsidiary, as the case may be, shall have set aside
on its books reserves (provided for and segregated to the extent required by
generally accepted provided, however, that neither the Company nor any
subsidiary shall be required to pay any such tax, assessment, charge, levy or
claim if the amount, applicability or validity thereof shall currently be
contested in good faith by appropriate proceedings and if the Company or such
subsidiary, as the case may be, shall have set aside on its books reserves
(provided for and segregated to the extent required by generally accepted
accounting principles) deemed by it adequate with respect thereto;
2 maintain and keep or cause to be maintained and kept its properties
in good repair, working order and condition, and from time to time make or cause
to be made all needful and proper repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
property and advantageously conducted at all times.
4
<PAGE>
ss.3.5. To Insure. The Company will, and will cause each of its
subsidiaries to maintain insurance in such extent and against such hazards and
liabilities as is commonly maintained by companies similarly situated.
ss.3.6. Sale, Merger or Consolidation by Company. The Company will not
sell, lease, transfer or otherwise dispose of any substantial part of its
properties and assets or consolidate with or merge into any person or permit any
person to merge into it.
ss.4. Events of Default.
ss.4.1. Events of Default. If one or more of the following events,
herein called Events of Default, shall happen for any reason whatsoever and
whether such happening shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court of any order, rule or regulation of any
administrative or governmental body) and be continuing:
(a) Default shall be made in the payment of the principal of any Note
dated the date hereof, when and as the same shall become due and payable,whether
at maturity or at a date fixed for prepayment or by acceleration or otherwise;
or
(b) Default shall be made in the payment of any installment of interest
on any Note dated the date hereof according to its tenor when and as the same
shall become due and payable and such default shall continue for a period of 10
days; or
(c) Default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Company contained in this
Note; or
(d) The Company shall be adjudicated a bankrupt or insolvent, or shall
consent to the appointment of a receiver, trustee or liquidator of itself or of
any material part of its property, or shall admit in writing its inability to
pay its debts generally as they come due, or shall make a general assignment for
the benefit of creditors, or shall file a voluntary petition or an answer
seeking reorganization or arrangement in a proceeding under any bankruptcy law
(as now or hereafter in effect) or an answer admitting the material allegations
of a petition filed against the Company in any such proceeding, or shall, by
voluntary petition, answer or consent, seek relief under the provisions of any
other now existing or future bankruptcy or other similar law providing for the
reorganization or winding up of corporations, or the Company or its directors or
majority stockholders shall take action looking to the dissolution or
liquidation of the Company; or
5
<PAGE>
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of the Company, a
receiver, trustee or liquidator of the Company or of any material part of its
property, and such receiver, trustee or liquidator shall not have been removed
or discharged within 90 days thereafter, or any material part of the property of
the Company shall, in any judicial proceeding, be sequestered and shall not be
returned to the possession of the Company within 90 days thereafter; or
(f) A petition against the Company in a proceeding under any bankruptcy
law (as now or hereinafter in effect) shall be filed and shall not be dismissed
within 30 days after such filing, or, in case the approval of such petition by a
court of competent jurisdiction is required, shall be filed and approved by such
a court as properly filed and such approval shall not be withdrawn or the
proceeding dismissed within 30 days thereafter, or if, under the provisions of
any other similar law providing for reorganization or winding up of corporations
and which may apply to the Company, any court of competent jurisdiction, custody
or control of the Company or of any material part of its property and such
jurisdiction, custody or control shall not be relinquished or terminated within
30 days thereafter; or
(h) The Company shall (x) be declared in default in the payment of
principal or interest on any evidence of indebtedness for money borrowed (other
than the Notes) and such default shall continue for more than the period of
grace, if any, therein specified, unless such default shall have been cured or
waived prior to such indebtedness becoming or being declared to be due and
payable prior to its stated maturity, or (y) default shall continue for more
than the period of grace, if any, therein specified, or (y) default in the
performance or observance of any other term, condition or agreement contained in
any such evidence of indebtedness for money borrowed or in any agreement
relating thereto if as a result of such default such evidence of indebtedness is
declared to be due and payable prior to its stated maturity;
then, in any such event, any registered holder or holders of this Note may
declare this Note to be immediately due and payable and upon such declaration
the same shall become and be immediately due and payable, together with accrued
interest thereon, anything in this Note to the contrary notwithstanding.
6
<PAGE>
ss.4.2. Suits for Enforcement. In case any one or more of the Events of
Default specified in ss.4.1 shall happen and be continuing, the Holder of this
Note may, pursuant to the provisions of ss.4.1, declare this Note to be
immediately due and payable, may proceed to protect and enforce its rights by
suit in equity, action at law and/or by other appropriate proceeding, whether
for the specific performance (to the extent permitted by law) of any covenant or
agreement contained in this Note, or in aid of the exercise of any power granted
in this Note, or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable right of holder of this Note. If, pursuant to the
provisions of ss.4.1 or of this ss.4.2, the holder of this Note shall demand
payment thereof or take any action in respect of a default or an Event of
Default, the Company will forthwith give written notice, addressed as provided
in ss.1.2, to the other Holders of Notes dated the date hereof, specifying such
action and the nature of the default or Event of Default. Nothing contained in
this ss.4.2 or in ss.4.1 shall in any manner impair that absolute and
unconditional right of each holder of a Note to receive payment of the principal
of and interest, on such Note when the same shall become due and payable in
accordance with the terms thereof, and to institute suit for the enforcement of
such payment.
ss.4.3. Remedies Cumulative. No remedy herein conferred upon the Holder
of this Note is intended to be exclusive of any other remedy, and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
ss.4.4. Remedies Not Waived. No course of dealing between the Company
and any Holder of this Note shall operate as a waiver of any right of such
holder hereunder or under such Note, and no delay on the part of such holder in
exercising any right hereunder or thereunder shall so operate.
ss.5. Costs of Collection. In case of a default in the payment of any
principal of or interest on this Note, the Company will pay to the holder hereof
such further amount as shall be sufficient to cover the costs and expenses of
collection, including (without limitation) reasonable attorneys' fees.
7
<PAGE>
ss.6. Legend. Each Note shall bear the following legend: The Securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, or registered or qualified under the "blue sky" laws of
any State. The securities may not be pledged, hypothecated, assigned, sold or
transferred unless registered under that Act and registered or qualified under
the blue sky laws as may be applicable or unless, in the opinion of counsel
reasonably satisfactory to the Company, exemptions from such laws are available.
ss.7. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
This Note may only be assigned by the Holder to affiliates of the Holder.
ss.8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New Jersey.
ss.9. Notice. Any notice pursuant to this Note shall be made by
registered or ------ certified mail:
If to the holder at the address shown on the register maintained by the
Company pursuant to ss.1.2 of this Note.
If to the Company:
124 West Main Street
High Bridge, New Jersey 08829
ss.10. Headings. The headings of the sections and subsections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
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IN WITNESS WHEREOF, Computer Power Inc. has caused this Note
to be signed in its corporate name by one of its officers thereunto duly
authorized and this Note to be dated as of the day and year first above written.
COMPUTER POWER INC.
By:---------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
To Purchase 150,000 Shares of Common Stock of
Computer Power, Inc., a New Jersey Corporation
(the "Company")
DATE OF INITIAL ISSUANCE: June 28, 1996
THIS CERTIFIES THAT, for value received, Hiro Hiranandani or registered
assigns (hereinafter called the "Holder") is entitled to purchase from the
Company during the Term of this Warrant at the times provided for herein, the
number of shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") as specified herein, at the Warrant Price (as hereinafter
defined), payable in the manner specified herein. The conversion of this Warrant
shall be subject to the provisions, limitations and restrictions herein
contained.
SECTION 1. Definitions.
Common Stock - shall mean and include the Company's authorized Common
Stock, par value $.01 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets of
the Company without limit to amount or percentage.
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
Term of this Warrant - shall mean the period beginning on July 1, 1998
and ending on July 1, 2001
Warrant Price - is defined in Section 2.1 hereof.
Warrant Rights - the rights of the Holder to purchase shares of Common
Stock upon conversion of this Warrant, which rights shall not relate to shares
of Common Stock already purchased pursuant to this Warrant.
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Warrant Shares - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the conversion hereof.
SECTION 2. Conversion of Warrant.
2.1. Right to Exercise Warrant. At any time and from time to time
during the term of this Warrant, the Holder hereof shall have the right to
convert this Warrant, in whole or part(s) to purchase up to the number of shares
of Common Stock set forth on the cover page hereof, subject to adjustment as
provided in Section 5.
The Warrant Price shall be $1.00 per share subject to adjustment as
provided in Section 5 and shall be paid either in cash or by presentation for
surrender, cancellation and redemption of a principal amount and accrued
interest of a Note of the Company dated the date hereof, equal to the aggregate
Warrant Price, or as set forth below.
2.2. Procedure for Cashless Conversion of Warrant. The registered
holder hereof shall convert this Warrant by the surrender of this Warrant and
the Notice of Conversion form attached hereto duly executed at the office of the
Company at 124 West Main Street, High Bridge, New Jersey 08829 (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company), into shares of Warrant Shares as provided in this Section 2. Upon
exercise of this conversion right, the holder hereof shall be entitled to
receive that number of shares of Warrant Stock of the Company equal to the
quotient obtained by dividing [(A-B)(X)] by (A), where:
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A = the Fair Market Value (as defined below) of one share of
Warrant Shares on the date of conversion of this Warrant.
B = the Warrant Price for one share of Warrant Shares under
this Warrant.
X = the number of shares of Warrant Shares as to which this
Warrant is being converted.
If the above calculation results in a negative number, then no shares
of Warrant Shares shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Shares shall mean:
a) if the conversion right is being exercised after the occurrence
of an initial public offering of common stock of the Company
("Common Stock") in connection with which the Warrant Shares were
converted into Common Stock in accordance with the Company's
Restated Articles of Incorporation (as amended and restated from
time to time and including all designations of rights and
preferences of preferred stock, the "Articles"), the price of a
share of Common Stock as reported by the NASDAQ National Market
System (or equivalent recognized source of quotations) on the
basis of the last reported sale price or, if there is no such
reported sale on the date of conversion of this Warrant, on the
basis of the average of closing bid and asked quotations as so
reported; or
b) in all other cases, the fair value as determined in good faith by
the Company's Board of Directors.
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Shares determined in accordance with the foregoing.
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2.3. Transfer and Restriction Legend. This Warrant is freely
transferable by the Holder, except as transferability may be limited by federal
and state securities laws. Each certificate for Warrant Shares shall bear the
following legend (and any additional legend required by (i) any applicable state
securities laws and (ii) any securities exchange upon which such Warrant Shares
may, at the time of such exercise, be listed) on the face thereof unless at the
time of exercise such Warrant Shares shall be registered under the Securities
Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and
agrees that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the issue
of this Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of this Warrant. The Company further covenants and agrees that the
Company will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company further
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the conversion of this Warrant require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered upon conversion,
then the Company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and so long as the
Common Stock issuable upon the conversion of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion of this
Warrant.
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SECTION 4. Ownership.
4.1 Register; Transfer or Exchange of Warrants. The Company shall keep
at its office maintained in High Bridge, New Jersey a register in which the
Company shall provide for the registration of Warrants and for the registration
of transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
4.2. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 4.
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4.3. Transfer and Replacement. This Warrant and all rights hereunder
are subject to applicable federal and state securities laws, transferable in
whole or in part upon the books of the Company by the Holder hereof in person or
by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder, an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 4, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
SECTION 5. Adjustment of Warrant Price and Number of Shares of Common
Stock or Warrants.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
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number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for conversion shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock.
(b) The Company may elect, upon any adjustment of the Warrant Price
hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
conversion of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by converting such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
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consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon conversion of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Warrant. The foregoing provisions
shall similarly apply to successive reclassification, capital reorganizations
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to this Section
5, the Company will promptly prepare a certificate signed by the President, and
by the Treasurer or an Assistant Treasurer or the Secretary or any Assistant
Secretary, of the Company setting forth: (i) the Warrant Price as so adjusted,
(ii) the number of shares of Common Stock purchasable upon conversion of each
Warrant after such adjustment, and, if the Company shall have elected to adjust
the number of Warrants, the number of Warrants to which the registered holder of
each Warrant shall then be entitled.
(e) For purposes of Section 5(a) and 5(b) hereof, the following shall
also be applicable:
(A) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by
or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
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(B) No adjustment of the Warrant Price shall be made
unless such adjustment would require a decrease of a least $.0001 in
such price; provided that any adjustments which by reason of this
clause (B) are not required to be made at the time of and together with
the next subsequent adjustment which, together with any adjustment(s)
so carried forward, shall require an increase or decrease of at least
$.0001 in the Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common Stock,
the Company shall concurrently therewith grant to each Registered Holder as of
the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon conversion (assuming, for purposes of this section 5 (f),
that exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 5.
SECTION 6. Notice of Extraordinary Dividends. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be converted, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is converted prior to such record
date. The provisions of this Section 6 shall not apply to distributions made in
connection with transactions covered by Section 5.
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SECTION 7. Fractional Shares. Fractional shares shall not be issued
upon the conversion of this Warrant but in any case where the Holder would,
except for the provisions of this Section 7, be entitled under the terms hereof
to receive a fractional share upon the conversion of this Warrant, the Company
shall, upon the conversion of this Warrant, pay a sum in cash equal to the
excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company).
SECTION 8. Registration Rights; Etc.
8.1. Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon conversion of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
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"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. Company Registration.
(a) Notice of Registration. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt
of the written notice from the Company described in clause (i) above,
except as set forth in Section 8.2(b) below.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
8.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 8.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
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Notwithstanding any other provision of this Section 8.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
of the Registrable Securities which would otherwise be underwritten pursuant
hereto provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, such person
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.3 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
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(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in order to effect such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules or
regulations thereunder.
8.5 Indemnification.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold harmless
each Holder, each of its officers, directors and partners, and each party
controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based solely upon written information furnished
to the Company by such Holder or underwriter, as the case may be, and stated to
be specifically for use therein.
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(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document solely in reliance upon and in conformity with written
information furnished to the Company by such Holder or Other Shareholder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders and Other Shareholders hereunder shall be limited to
an amount equal to the proceeds to each such Holder or Other Shareholder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
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8.6 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, at any time after it has
become subject to such reporting requirements; and
(c) So long as the Holder owns any Registrable Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
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SECTION 9. Notices. Any notice or other document required or permitted
to be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the records of the Company or to such other
address as shall have been furnished to the Company in writing by the Holder or
the Company at 124 West Main Street, High Bridge, New Jersey 08829 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. No Rights as Stockholder; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
SECTION 11. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Jersey.
SECTION 12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this day of June 1996.
COMPUTER POWER, INC.
By:----------------------------
President
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[FORM NOTICE OF CONVERSION]
To be executed by the registered holder if
such holder desires to convert the Warrant
To------------:
The undersigned hereby irrevocably elects to convert the Warrant to
purchase ------- shares of Common Stock issuable upon the conversion of such
Warrant and requests that Certificate for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- --------------------------------------------------------------------------------
(Please insert number of shares exercised)
- --------------------------------------------------------------------------------
Please insert Warrant Price Paid
- --------------------------------------------------------------------------------
(Please specify whether payment is in cash or Notes)
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
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<PAGE>
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated:----------------, ----.
[HOLDER]
By---------------------------
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER
SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE AVAILABILITY OF AN
EXEMPTION FROM REGISTRATION UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
STOCK SUBSCRIPTION WARRANT
To Purchase 25,000 Shares of Common Stock of
Computer Power, Inc., a New Jersey Corporation
(the "Company")
DATE OF INITIAL ISSUANCE: June 28, 1996
THIS CERTIFIES THAT, for value received, Albert Roth or registered
assigns (hereinafter called the "Holder") is entitled to purchase from the
Company during the Term of this Warrant at the times provided for herein, the
number of shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") as specified herein, at the Warrant Price (as hereinafter
defined), payable in the manner specified herein. The conversion of this Warrant
shall be subject to the provisions, limitations and restrictions herein
contained.
SECTION 1. Definitions.
Common Stock - shall mean and include the Company's authorized Common
Stock, par value $.01 per share, as constituted at the date hereof, and shall
also include any capital stock of any class of the Company hereafter authorized
which has the right to participate in the distribution of earnings and assets of
the Company without limit to amount or percentage.
Securities Act - the Securities Act of 1933, as amended, and the rules
and regulations promulgated thereunder.
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Term of this Warrant - shall mean the period beginning on July 1, 1998
and ending on July 1, 2001
Warrant Price - is defined in Section 2.1 hereof.
Warrant Rights - the rights of the Holder to purchase shares of Common
Stock upon conversion of this Warrant, which rights shall not relate to shares
of Common Stock already purchased pursuant to this Warrant.
Warrant Shares - shares of Common Stock purchased or purchasable by the
Holder of this Warrant upon the conversion hereof.
SECTION 2. Conversion of Warrant.
2.1. Right to Exercise Warrant. At any time and from time to time
during the term of this Warrant, the Holder hereof shall have the right to
convert this Warrant, in whole or part(s) to purchase up to the number of shares
of Common Stock set forth on the cover page hereof, subject to adjustment as
provided in Section 5.
The Warrant Price shall be $1.00 per share subject to adjustment as
provided in Section 5 and shall be paid either in cash or by presentation for
surrender, cancellation and redemption of a principal amount and accrued
interest of a Note of the Company dated the date hereof, equal to the aggregate
Warrant Price, or as set forth below.
2.2. Procedure for Cashless Conversion of Warrant. The registered
holder hereof shall convert this Warrant by the surrender of this Warrant and
the Notice of Conversion form attached hereto duly executed at the office of the
Company at 124 West Main Street, High Bridge, New Jersey 08829 (or such other
office or agency of the Company as it may designate by notice in writing to the
registered holder hereof at the address of such holder appearing on the books of
the Company), into shares of Warrant Shares as provided in this Section 2. Upon
exercise of this conversion right, the holder hereof shall be entitled to
receive that number of shares of Warrant Stock of the Company equal to the
quotient obtained by dividing [(A-B)(X)] by (A), where:
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A = the Fair Market Value (as defined below) of one share of
Warrant Shares on the date of conversion of this Warrant.
B = the Warrant Price for one share of Warrant Shares under
this Warrant.
X = the number of shares of Warrant Shares as to which this
Warrant is being converted.
If the above calculation results in a negative number, then no shares
of Warrant Shares shall be issued or issuable upon conversion of this Warrant.
"Fair Market Value" of a share of Warrant Shares shall mean:
a) if the conversion right is being exercised after the occurrence
of an initial public offering of common stock of the Company
("Common Stock") in connection with which the Warrant Shares were
converted into Common Stock in accordance with the Company's
Restated Articles of Incorporation (as amended and restated from
time to time and including all designations of rights and
preferences of preferred stock, the "Articles"), the price of a
share of Common Stock as reported by the NASDAQ National Market
System (or equivalent recognized source of quotations) on the
basis of the last reported sale price or, if there is no such
reported sale on the date of conversion of this Warrant, on the
basis of the average of closing bid and asked quotations as so
reported; or
b) in all other cases, the fair value as determined in good faith by
the Company's Board of Directors.
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<PAGE>
Upon conversion of this Warrant in accordance with this Section 2, the
registered holder hereof shall be entitled to receive a certificate for the
number of shares of Warrant Shares determined in accordance with the foregoing.
2.3. Transfer and Restriction Legend. This Warrant is freely
transferable by the Holder, except as transferability may be limited by federal
and state securities laws. Each certificate for Warrant Shares shall bear the
following legend (and any additional legend required by (i) any applicable state
securities laws and (ii) any securities exchange upon which such Warrant Shares
may, at the time of such exercise, be listed) on the face thereof unless at the
time of exercise such Warrant Shares shall be registered under the Securities
Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN THE ABSENCE
OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR THE
AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS."
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution under a registration statement of the securities
represented thereby) shall also bear such legend unless, in the opinion of
counsel for the holder thereof (which counsel shall be reasonably satisfactory
to counsel for the Company) the securities represented thereby are not, at such
time, required by law to bear such legend.
SECTION 3. Covenants as to Common Stock. The Company covenants and
agrees that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance and receipt by the
Company of the Warrant Price, be validly issued, fully paid and nonassessable,
and free from all taxes, liens and charges with respect to the issue thereof.
The Company further covenants and agrees that it will pay when due and payable
any and all federal and state taxes which may be payable in respect of the issue
of this Warrant, or any Common Stock or certificates therefor issuable upon the
exercise of this Warrant. The Company further covenants and agrees that the
4
<PAGE>
Company will at all times have authorized and reserved, free from preemptive
rights, a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant. The Company further
covenants and agrees that if any shares of capital stock to be reserved for the
purpose of the issuance of shares upon the conversion of this Warrant require
registration with or approval of any governmental authority under any federal or
state law before such shares may be validly issued or delivered upon conversion,
then the Company will in good faith and as expeditiously as possible endeavor to
secure such registration or approval, as the case may be. If and so long as the
Common Stock issuable upon the conversion of this Warrant is listed on any
national securities exchange, the Company will, if permitted by the rules of
such exchange, list and keep listed on such exchange, upon official notice of
issuance, all shares of such Common Stock issuable upon conversion of this
Warrant.
SECTION 4. Ownership.
4.1 Register; Transfer or Exchange of Warrants. The Company shall keep
at its office maintained in High Bridge, New Jersey a register in which the
Company shall provide for the registration of Warrants and for the registration
of transfer of Warrants. The Holder of any Warrant may, at its option and either
in person or by duly authorized attorney, surrender the same for registration of
transfer or exchange at such office and, without expense to such Holder (other
than transfer taxes, if any), receive in exchange therefor a new Warrant or
Warrants, dated as of the date to which transfer is effectuated, for the same
aggregate amount of shares as the Warrant or Warrants so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Warrant so made and delivered in exchange for
any Warrant shall in all other respects be in the same form and have the same
terms as the Warrant so surrendered for transfer or exchange.
5
<PAGE>
4.2. Ownership of This Warrant. The Company may deem and treat the
person in whose name this Warrant is registered as the holder and owner hereof
(notwithstanding any notations of ownership or writing hereon made by anyone
other than the Company) for all purposes and shall not be affected by any notice
to the contrary until presentation of this Warrant for registration of transfer
as provided in this Section 4.
4.3. Transfer and Replacement. This Warrant and all rights hereunder
are subject to applicable federal and state securities laws, transferable in
whole or in part upon the books of the Company by the Holder hereof in person or
by duly authorized attorney, and a new Warrant or Warrants, of the same tenor as
this Warrant but registered in the name of the transferee or transferees shall
be made and delivered by the Company upon surrender of this Warrant duly
endorsed. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder, an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Section 4, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly canceled by the Company upon the surrender hereof in connection with
any transfer or replacement. Except as otherwise provided above, in the case of
the loss, theft or destruction of a Warrant, the Company shall pay all expenses,
taxes and other charges payable in connection with any transfer or replacement
of this Warrant, other than stock transfer taxes (if any) payable in connection
with a transfer of this Warrant, which shall be payable by the Holder.
SECTION 5. Adjustment of Warrant Price and Number of Shares of Common
Stock or Warrants.
(a) In case the Company shall (i) pay a dividend or make a
distribution in shares of its capital stock (whether shares of Common Stock or
of capital stock of any other class) or distribute evidences of indebtedness or
assets, (ii) sub-divide its outstanding shares of Common Stock (iii) combine its
outstanding shares of Common Stock into a smaller number of shares, or (iv)
6
<PAGE>
issue by reclassification of its shares of Common Stock any shares of capital
stock of the Company, the conversion privilege and Warrant Price in effect
immediately prior to such action shall be adjusted so that the holders of any
Warrants thereafter surrendered for exercise shall be entitled to receive the
number of shares of capital stock of the Company which he or she would have
owned immediately following such action had such Warrant been exercised
immediately prior thereto. An adjustment made pursuant to this subsection (a)
shall become effective retroactively immediately after the record date in the
case of a dividend or distribution and shall become effective immediately after
the effective date in the case of a subdivision, combination or
reclassification. If, as a result of an adjustment made pursuant to this
subsection (a), the holder of any shares of this Warrant thereafter surrendered
for conversion shall become entitled to receive shares of two or more classes of
capital stock of the Company, the Board of Directors (whose reasonable
determination shall be made in good faith) shall determine the allocation of the
adjusted conversion price between or among shares of such classes of capital
stock.
(b) The Company may elect, upon any adjustment of the Warrant
Price hereunder, to adjust the number of Warrants outstanding, in lieu of the
adjustment in the number of shares of Common Stock purchasable upon the
conversion of each Warrant as hereinabove provided, so that each Warrant
outstanding after such adjustment shall represent the right to purchase one
share of Common Stock. Each Warrant held of record prior to such adjustment of
the number of Warrants shall become that number of Warrants (calculated to the
nearest tenth) determined by multiplying the number one by a fraction, the
numerator of which shall be the Warrant Price in effect immediately prior to
such adjustment and the denominator of which shall be the Warrant Price in
effect immediately after such adjustment.
7
<PAGE>
(c) In case of any reclassification, capital reorganization or
other change of outstanding shares of Common Stock, or in case of any
consolidation or merger of the Company with or into another corporation (other
than a consolidation or merger in which the Company is the continuing
corporation and which does not result in any reclassification, capital
reorganization or other change of outstanding shares of Common Stock), or in
case of any sale or conveyance to another corporation of the property of the
Company as, or substantially as, an entirety (other than a sale/leaseback,
mortgage or other financing transaction), the Company shall cause effective
provision to be made so that each holder of a Warrant then outstanding shall
have the right thereafter, by converting such Warrant, to purchase the kind and
number of shares of stock or other securities or property (including cash)
receivable upon such reclassification, capital reorganization or other change,
consolidation, merger, sale or conveyance by a holder of the number of shares of
Common Stock that might have been purchased upon conversion of such Warrant
immediately prior to such reclassification, capital reorganization or other
change, consolidation, merger, sale or conveyance. Any such provision shall
include provision for adjustments that shall be as nearly equivalent as may be
practicable to the adjustments provided for in this Section 5. The Company shall
not effect any such consolidation, merger or sale unless prior to or
simultaneously with the consummation thereof the successor (if other than the
Company) resulting from such consolidation or merger of the corporation
purchasing assets or other appropriate corporation or entity shall assume, by
written instrument executed and delivered to the Company, the obligation to
deliver to the holder of each Warrant such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holders may be entitled to
purchase and the other obligations under this Warrant. The foregoing provisions
shall similarly apply to successive reclassification, capital reorganizations
and other changes of outstanding shares of Common Stock and to successive
consolidations, mergers, sales or conveyances.
(d) After each adjustment of the Warrant Price pursuant to
this Section 5, the Company will promptly prepare a certificate signed by the
President, and by the Treasurer or an Assistant Treasurer or the Secretary or
any Assistant Secretary, of the Company setting forth: (i) the Warrant Price as
so adjusted, (ii) the number of shares of Common Stock purchasable upon
conversion of each Warrant after such adjustment, and, if the Company shall have
elected to adjust the number of Warrants, the number of Warrants to which the
registered holder of each Warrant shall then be entitled.
8
<PAGE>
(e) For purposes of Section 5(a) and 5(b) hereof, the
following shall also be applicable:
(A) The number of shares of Common Stock outstanding
at any given time shall include shares of Common Stock owned or held by
or for the account of the Company and the sale or issuance of such
treasury shares or the distribution of any such treasury shares shall
not be considered a Change of Shares for purposes of said sections.
(B) No adjustment of the Warrant Price shall be made
unless such adjustment would require a decrease of a least $.0001 in
such price; provided that any adjustments which by reason of this
clause (B) are not required to be made at the time of and together with
the next subsequent adjustment which, together with any adjustment(s)
so carried forward, shall require an increase or decrease of at least
$.0001 in the Warrant Price then in effect hereunder.
(f) If and whenever the Company shall grant to all holders of
Common Stock, as such, rights or warrants to subscribe for or to purchase, or
any options for the purchase of, Common Stock or securities convertible into or
exchangeable for carrying a right, warrant or option to purchase Common Stock,
the Company shall concurrently therewith grant to each Registered Holder as of
the record date for such transaction of the Warrants then outstanding, the
rights, warrants or options to which each Registered Holder would have been
entitled if, on the record date used to determine the stockholders entitled to
the rights, warrants or options being granted by the Company, the Registered
Holder were the holder of record of the number or whole shares of Common Stock
then issuable upon conversion (assuming, for purposes of this section 5 (f),
that exercise of Warrants is permissible during periods prior to the Warrant
Exercise Date) of his Warrants. Such grant by the Company to the holders of the
Warrants shall be in lieu of any adjustment which otherwise might be called for
pursuant to this Section 5.
9
<PAGE>
SECTION 6. Notice of Extraordinary Dividends. If the Board of Directors
of the Company shall declare any dividend or other distribution on its Common
Stock except out of earned surplus or by way of a stock dividend payable in
shares of its Common Stock, the Company shall mail notice thereof to the Holder
hereof not less than fifteen (15) days prior to the record date fixed for
determining shareholders entitled to participate in such dividend or other
distribution, and the Holder hereof shall not participate in such dividend or
other distribution unless this Warrant may be converted, in whole or in part,
pursuant to Section 2.1 of this Warrant, and is converted prior to such record
date. The provisions of this Section 6 shall not apply to distributions made in
connection with transactions covered by Section 5.
SECTION 7. Fractional Shares. Fractional shares shall not be issued
upon the conversion of this Warrant but in any case where the Holder would,
except for the provisions of this Section 7, be entitled under the terms hereof
to receive a fractional share upon the conversion of this Warrant, the Company
shall, upon the conversion of this Warrant, pay a sum in cash equal to the
excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company).
SECTION 8. Registration Rights; Etc.
8.1. Certain Definitions. As used in this Section 8, the following
terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Registrable Securities" shall mean this Warrant or the Warrant Shares
issued or issuable upon conversion of this Warrant.
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in compliance with Section 8.2 hereof other than Selling Expenses, including,
without limitation, all registration and filing fees, printing expenses, fees
and disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but excluding the compensation of regular employees of the
Company, which shall be paid in any event by the Company).
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<PAGE>
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities, all fees and
disbursements of counsel for any Holder and any blue sky fees and expenses
excluded from the definition of "Registration Expenses".
"Holder" shall mean any holder of outstanding Warrant Shares or
Registrable Securities which (except for purposes of determining "Holders" under
Section 8.6 hereof) have not been sold to the public.
"Other Shareholders" shall mean holders of securities of the Company
who are entitled by contract with the Company to have securities included in a
registration of the Company's securities.
8.2. Company Registration.
(a) Notice of Registration. If the Company shall determine to register
any of its securities either for its own account or the account of a security
holder or holders exercising their respective demand registration rights, other
than a registration relating solely to employee benefit plans, or a registration
relating solely to a Commission Rule 145 transaction, or a registration on any
registration form which does not permit secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof (which shall
include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
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(ii) include in such registration (and any related qualification under
blue sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request
or requests, made by any Holder within fifteen (15) days after receipt
of the written notice from the Company described in clause (i) above,
except as set forth in Section 8.2(b) below.
(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as part of the written notice given pursuant to Section
8.2(a)(i). In such event, the right of any Holder to registration pursuant to
Section 8.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company,
directors and officers and the Other Shareholders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for underwriting by the
Company.
Notwithstanding any other provision of this Section 8.2, if the
underwriter determines that marketing factors require a limitation on the number
of shares to be underwritten, the underwriter may (subject to the allocation
priority set forth below) exclude from such registration and underwriting some
of the Registrable Securities which would otherwise be underwritten pursuant
hereto provided, however, that in no event shall the Registrable Securities
underwritten pursuant hereto constitute less than one-third of such offering.
The Company shall so advise all holders of securities requesting registration,
and the number of shares of securities that are entitled to be included in the
registration and underwriting shall be allocated in the following manner. The
number of shares that may be included in the registration and underwriting on
behalf of such Holders, directors and officers and Other Shareholders shall be
allocated among such Holders, directors and officers and other Shareholders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities and other securities which they had requested to be included in such
registration at the time of filing the registration statement.
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If any Holder of Registrable Securities or any officer, director or
Other Shareholder disapproves of the terms of any such underwriting, such person
may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
8.3 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification and
compliance by the Company pursuant to Section 8.2 hereof. All Selling Expenses
shall be borne by the holders of the securities so registered pro rata on the
basis of the number of their shares so registered.
8.4 Registration Procedures. In the case of each registration effected
by the Company pursuant to this Section 8, the Company will keep each Holder
advised in writing as to the initiation of each registration and as to the
completion thereof. The Company will, at its expense:
(a) keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs;
(b) furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request; and
(c) use its best efforts to register or qualify the Registrable
Securities under the securities laws or blue-sky laws of such jurisdictions as
any Holder may request; provided, however, that the Company shall not be
obligated to register or qualify such Registrable Securities in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in order to effect such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act or applicable rules or
regulations thereunder.
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8.5 Indemnification.
(a) The Company, with respect to each registration, qualification and
compliance effected pursuant to this Section 8, will indemnify and hold harmless
each Holder, each of its officers, directors and partners, and each party
controlling such Holder, and each underwriter, if any, and each party who
controls any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act or any rule or regulation thereunder applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors and partners, and each party controlling
such Holder, each such underwriter and each party who controls any such
underwriter, for any legal and any other expenses incurred in connection with
investigating or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission based solely upon written information furnished
to the Company by such Holder or underwriter, as the case may be, and stated to
be specifically for use therein.
(b) Each Holder and Other Shareholder will, if Registrable Securities
held by such person are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify and hold
harmless the Company, each of its directors and officers and each underwriter,
if any, of the Company's securities covered by such a registration statement,
each party who controls the Company or such underwriter, each other such Holder
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and Other Shareholder and each of their respective officers, directors and
partners, and each party controlling such Holder or Other Shareholder, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company and such
Holders, Other Shareholders, directors, officers, partners, parties,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the extent,
that such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document solely in reliance upon and in conformity with written
information furnished to the Company by such Holder or Other Shareholder and
stated to be specifically for use therein; provided, however, that the
obligations of such Holders and Other Shareholders hereunder shall be limited to
an amount equal to the proceeds to each such Holder or Other Shareholder of
securities sold as contemplated herein.
(c) Each party entitled to indemnification under this Section 8.5 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense (unless the Indemnified Party shall have been
advised by counsel that actual or potential differing interests or defenses
15
<PAGE>
exist or may exist between the Indemnifying Party and the Indemnified Party, in
which case such expense shall be paid by the Indemnifying Party), and provided
further that the failure of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 8. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
8.6 Information by Holder. Each Holder of Registrable Securities, and
each Other Shareholder holding securities included in any registration, shall
furnish to the Company such information regarding such Holder or Other
Shareholder as the Company may reasonably request in writing and as shall be
reasonably required in connection with any registration, qualification or
compliance referred to in this Section 8.
8.7 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the first
registration under the Securities Act filed by the Company for an offering of
its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely manner
all reports and other documents required of the Company under the Securities Act
and the Securities Exchange Act of 1934, as amended, at any time after it has
become subject to such reporting requirements; and
16
<PAGE>
(c) So long as the Holder owns any Registrable Securities, furnish to
the Holder forthwith upon request a written statement by the Company as to its
compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement in connection with an offering of its Securities to the general
public), and of the Securities Act and the Securities Exchange Act of 1934, as
amended (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without registration.
SECTION 9. Notices. Any notice or other document required or permitted
to be given or delivered to the Holder or the Company shall be effected on the
seventh day following delivery to the United States Post Office, proper postage
prepaid, sent by certified or registered mail return receipt requested, or on
the day delivered by hand and receipted, or on the second business day after
delivery to a recognized overnight courier service, addressed to the Holder at
the address thereof specified in the records of the Company or to such other
address as shall have been furnished to the Company in writing by the Holder or
the Company at 124 West Main Street, High Bridge, New Jersey 08829 or to such
other address as shall have been furnished in writing to the Holder by the
Company.
SECTION 10. No Rights as Stockholder; Limitation of Liability. This
Warrant shall not entitle the Holder to any of the rights of a shareholder of
the Company. No provision hereof, in the absence of affirmative action by the
Holder to purchase shares of Common Stock, and no mere enumeration herein of the
rights or privileges of the Holder, shall give rise to any liability of the
Holder for the Warrant Price hereunder or as a shareholder of the Company,
whether such liability is asserted by the Company or by creditors of the
Company.
17
<PAGE>
SECTION 11. Law Governing. This Warrant shall be governed by, and
construed and enforced in accordance with, the laws of the State of New Jersey.
SECTION 12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer this day of June 1996.
COMPUTER POWER, INC.
By:---------------------------
President
18
<PAGE>
[FORM NOTICE OF CONVERSION]
To be executed by the registered holder if
such holder desires to convert the Warrant
To------------:
The undersigned hereby irrevocably elects to convert the Warrant to
purchase ------- shares of Common Stock issuable upon the conversion of such
Warrant and requests that Certificate for such shares be issued in the name of:
- --------------------------------------------------------------------------------
(Please print name and address)
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
- --------------------------------------------------------------------------------
(Please insert number of shares exercised)
- --------------------------------------------------------------------------------
Please insert Warrant Price Paid
If such number of Warrant shall not be all the Warrant evidenced by the
accompanying Warrant, a new Warrant for the balance remaining of such Warrant
shall be registered in the name of and delivered to:
- --------------------------------------------------------------------------------
(Please print name and address)
19
<PAGE>
- --------------------------------------------------------------------------------
(Please insert social security or other identifying number)
Dated:----------------, ----.
[HOLDER]
By---------------------------
NOTE
$415,000 High Bridge, New Jersey
June 28, 1996
Computer Power Inc., a corporation duly organized and existing under
the laws of the State of New Jersey (herein called the "Company"), for value
received, hereby promises to pay to the order of Southerntech, Inc. or
registered assigns the principal amount of Four Hundred and Fifteen Thousand
($415,000) Dollars on July 1, 1999 in such coin or currency of the United States
of America as at the time of payment shall be legal tender for public and
private debts, at the principal office of the Company, in High Bridge, State of
New Jersey, and to pay interest (computed on the basis of a 360-day year of
twelve 30-day months) at said office, in like coin or currency, on the unpaid
portion of said principal amount from the date hereof, quarterly on the first
day of October, January, April and July in each year, commencing on October 1,
1996, at the rate of nine and one-half (9.5%) percent per annum until such
unpaid portion of such principal amount shall have become due and payable and at
the rate fourteen per centum (14%) per annum thereafter and, so far as may be
lawful, on any overdue installment of interest at the rate of fourteen per
centum (14%) per annum.
ss.1. Exchanges and Transfers of the Note.
ss.1.1. Register; Transfer or Exchange of Notes. The Company shall keep
at its office or agency maintained in High
1
<PAGE>
Bridge, New Jersey a register in which the Company shall provide for the
registration of Notes and for the registration of transfer of Notes. The Holder
of any Note may, at its option and either in person or by duly authorized
attorney, surrender the same for registration of transfer or exchange at such
office and, without expense to such Holder (other than transfer taxes, if any),
receive in exchange therefor a new Note or Notes, dated as of the date to which
interest has been paid on the Note or Notes so surrendered, each in the
principal amount of $10,000 or any integral multiple thereof, for the same
aggregate unpaid principal amount as the Note or Notes so surrendered for
transfer or exchange and each registered in such name or names as may be
designated by such Holder. Every Note so made and delivered in exchange for any
Note shall in all other respects be in the same form and have the same terms as
the Note so surrendered for transfer or exchange.
ss.1.2. Loss, Theft, Destruction or Mutilation of Notes. Upon receipt
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Note and, in the case of any such loss, theft
or destruction, upon receipt of an indemnity bond in such reasonable amount as
the Company may determine (or if such Note is held by the original Holder, of an
unsecured indemnity agreement reasonably satisfactory to the Company) or, in the
case of any such mutilation, upon surrender an cancellation of such Note, the
Company will make and deliver, in lieu of such lost, stolen, destroyed or
mutilated Note, a new Note of like tender and unpaid principal amount and dated
as of the date to which interest has been paid on the Note so lost, stolen,
destroyed or mutilated.
2
<PAGE>
ss.1.3. Registered Holders. The Company may deem and treat the person
in whose name any Note is registered as the absolute owner and holder of such
Note for the purpose of receiving payment of the principal of and interest on
such Note and for the purpose of any notices, waivers or consents thereunder,
whether or not such Note shall be overdue, and the Company shall not be affected
by notice to the contrary. Payments with respect to any Note shall be made only
to the registered Holder thereof.
ss.2. Surrender of the Note.
ss.2.1. Surrender of Notes. The Company may, as a condition of payment
of all or any of the principal of, and interest on, this Note, in whole or in
part, require the holder to present this Note for notation of such payment and,
if this Note be paid in full, require the surrender hereof.
ss.3. Covenants.
ss.3.1. To Pay Principal and Interest. The Company covenants and agrees
that so long as this Note shall be outstanding it will comply with the
following:
3
<PAGE>
ss.3.2. Maintenance of Company Office. The Company will maintain an
office in High Bridge, New Jersey, in its current facility where notices,
presentations and demands to or upon the Company in respect of the Note may be
given or made.
ss.3.3. To Keep Books. The Company will, and will cause any
subsidiaries, to keep proper books of record and account in which full, true and
correct entries will be made of its transactions in accordance with generally
accepted accounting principles.
ss.3.4. Payment of Taxes; Corporate Existence; Maintenance of
Properties. The Company will, and will cause each of its subsidiaries to,
A. pay and discharge promptly or cause to be paid and discharged
promptly all taxes, assessments and governmental charges or levies imposed upon
it or upon it income or profits or upon any of its property, real, personal or
mixed, or upon any part thereof, before the same shall become in default, as
well as all lawful claims for labor, materials and supplies which, if unpaid,
might by law become a lien or change upon its property; provided, however, that
neither the Company nor any subsidiary shall be required to pay any such tax,
assessment, charge, levy or claim if the amount, applicability or validity
thereof shall currently be contested in good faith by appropriate proceedings
and if the Company or such subsidiary, as the case may be, shall have set aside
on its books reserves (provided for and segregated to the extent required by
generally accepted accounting principles) deemed by it adequate with respect
thereto;
B. maintain and keep or cause to be maintained and kept its properties
in good repair, working order and condition, and from time to time make or cause
to be made all needful and proper repairs, renewals, replacements and
improvements so that the business carried on in connection therewith may be
property and advantageously conducted at all times.
4
<PAGE>
ss.3.5. To Insure. The Company will, and will cause each of its
subsidiaries to maintain insurance in such extent and against such hazards and
liabilities as is commonly maintained by companies similarly situated.
ss.3.6. Sale, Merger or Consolidation by Company. The Company will not
sell, lease, transfer or otherwise dispose of any substantial part of its
properties and assets or consolidate with or merge into any person or permit any
person to merge into it.
ss.4. Events of Default.
ss.4.1. Events of Default. If one or more of the following events,
herein called Events of Default, shall happen for any reason whatsoever and
whether such happening shall be voluntary or involuntary or come about or be
effected by operation of law or pursuant to or in compliance with any judgment,
decree or order of any court of any order, rule or regulation of any
administrative or governmental body) and be continuing:
(a) Default shall be made in the payment of the principal of any Note
dated the date hereof, when and as the same shall become due and payable,whether
at maturity or at a date fixed for prepayment or by acceleration or otherwise;
or
(b) Default shall be made in the payment of any installment of interest
on any Note dated the date hereof according to its tenor when and as the same
shall become due and payable and such default shall continue for a period of 10
days; or
(c) Default shall be made in the due observance or performance of any
covenant, condition or agreement on the part of the Company contained in this
Note; or
(d) The Company shall be adjudicated a bankrupt or insolvent, or shall
consent to the appointment of a receiver, trustee or liquidator of itself or of
any material part of its property, or shall admit in writing its inability to
pay its debts generally as they come due, or shall make a general assignment for
the benefit of creditors, or shall file a voluntary petition or an answer
seeking reorganization or arrangement in a proceeding under any bankruptcy law
(as now or hereafter in effect) or an answer admitting the material allegations
of a petition filed against the Company in any such proceeding, or shall, by
voluntary petition, answer or consent, seek relief under the provisions of any
other now existing or future bankruptcy or other similar law providing for the
reorganization or winding up of corporations, or the Company or its directors or
majority stockholders shall take action looking to the dissolution or
liquidation of the Company; or
5
<PAGE>
(e) An order, judgment or decree shall be entered by any court of
competent jurisdiction appointing, without the consent of the Company, a
receiver, trustee or liquidator of the Company or of any material part of its
property, and such receiver, trustee or liquidator shall not have been removed
or discharged within 90 days thereafter, or any material part of the property of
the Company shall, in any judicial proceeding, be sequestered and shall not be
returned to the possession of the Company within 90 days thereafter; or
(f) A petition against the Company in a proceeding under any bankruptcy
law (as now or hereinafter in effect) shall be filed and shall not be dismissed
within 30 days after such filing, or, in case the approval of such petition by a
court of competent jurisdiction is required, shall be filed and approved by such
a court as properly filed and such approval shall not be withdrawn or the
proceeding dismissed within 30 days thereafter, or if, under the provisions of
any other similar law providing for reorganization or winding up of corporations
and which may apply to the Company, any court of competent jurisdiction, custody
or control of the Company or of any material part of its property and such
jurisdiction, custody or control shall not be relinquished or terminated within
30 days thereafter; or
(h) The Company shall (x) be declared in default in the payment of
principal or interest on any evidence of indebtedness for money borrowed (other
than the Notes) and such default shall continue for more than the period of
grace, if any, therein specified, unless such default shall have been cured or
waived prior to such indebtedness becoming or being declared to be due and
payable prior to its stated maturity, or (y) default shall continue for more
than the period of grace, if any, therein specified, or (y) default in the
performance or observance of any other term, condition or agreement contained in
any such evidence of indebtedness for money borrowed or in any agreement
relating thereto if as a result of such default such evidence of indebtedness is
declared to be due and payable prior to its stated maturity;
6
<PAGE>
then, in any such event, any registered holder or holders of this Note may
declare this Note to be immediately due and payable and upon such declaration
the same shall become and be immediately due and payable, together with accrued
interest thereon, anything in this Note to the contrary notwithstanding.
ss.4.2. Suits for Enforcement. In case any one or more of the Events of
Default specified in ss.4.1 shall happen and be continuing, the Holder of this
Note may, pursuant to the provisions of ss.4.1, declare this Note to be
immediately due and payable, may proceed to protect and enforce its rights by
suit in equity, action at law and/or by other appropriate proceeding, whether
for the specific performance (to the extent permitted by law) of any covenant or
agreement contained in this Note, or in aid of the exercise of any power granted
in this Note, or may proceed to enforce the payment of this Note or to enforce
any other legal or equitable right of holder of this Note. If, pursuant to the
provisions of ss.4.1 or of this ss.4.2, the holder of this Note shall demand
payment thereof or take any action in respect of a default or an Event of
Default, the Company will forthwith give written notice, addressed as provided
in ss.1.2, to the other Holders of Notes dated the date hereof, specifying such
action and the nature of the default or Event of Default. Nothing contained in
this ss.4.2 or in ss.4.1 shall in any manner impair that absolute and
unconditional right of each holder of a Note to receive payment of the principal
of and interest, on such Note when the same shall become due and payable in
accordance with the terms thereof, and to institute suit for the enforcement of
such payment.
ss.4.3. Remedies Cumulative. No remedy herein conferred upon the Holder
of this Note is intended to be exclusive of any other remedy, and each and every
such remedy shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter existing at law or in equity or by statute
or otherwise.
7
<PAGE>
ss.4.4. Remedies Not Waived. No course of dealing between the Company
and any Holder of this Note shall operate as a waiver of any right of such
holder hereunder or under such Note, and no delay on the part of such holder in
exercising any right hereunder or thereunder shall so operate.
ss.5. Costs of Collection. In case of a default in the payment of any
principal of or interest on this Note, the Company will pay to the holder hereof
such further amount as shall be sufficient to cover the costs and expenses of
collection, including (without limitation) reasonable attorneys' fees.
ss.6. Legend. Each Note shall bear the following legend: The Securities
represented by this certificate have not been registered under the Securities
Act of 1933, as amended, or registered or qualified under the "blue sky" laws of
any State. The securities may not be pledged, hypothecated, assigned, sold or
transferred unless registered under that Act and registered or qualified under
the blue sky laws as may be applicable or unless, in the opinion of counsel
reasonably satisfactory to the Company, exemptions from such laws are available.
ss.7. Covenants Bind Successors and Assigns. All the covenants,
stipulations, promises and agreements in this Note contained by or on behalf of
the Company shall bind its successors and assigns, whether so expressed or not.
This Note may only be assigned by the Holder to affiliates of the Holder.
8
<PAGE>
ss.8. Governing Law. This Note shall be governed by and construed in
accordance with the laws of the State of New Jersey.
ss.9. Notice. Any notice pursuant to this Note shall be made by
registered or certified mail:
If to the holder at the address shown on the register maintained by the
Company pursuant to ss.1.2 of this Note.
If to the Company:
124 West Main Street
High Bridge, New Jersey 08829
ss.10. Headings. The headings of the sections and subsections of this
Note are inserted for convenience only and do not constitute a part of this
Note.
9
<PAGE>
IN WITNESS WHEREOF, Computer Power Inc. has caused this Note to be
signed in its corporate name by one of its officers thereunto duly authorized
and this Note to be dated as of the day and year first above written.
COMPUTER POWER INC.
By:-------------------------
10
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000792986
<NAME> Computer Power, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 68,519
<SECURITIES> 0
<RECEIVABLES> 1,608,846
<ALLOWANCES> 253,956
<INVENTORY> 1,538,358
<CURRENT-ASSETS> 75,385
<PP&E> 1,403,651
<DEPRECIATION> 1,140,168
<TOTAL-ASSETS> 3,300,635
<CURRENT-LIABILITIES> 3,502,341
<BONDS> 1,732,854
0
0
<COMMON> 26,027
<OTHER-SE> (1,908,533)
<TOTAL-LIABILITY-AND-EQUITY> 2,300,635
<SALES> 10,838,816
<TOTAL-REVENUES> 10,838,816
<CGS> 9,600,397
<TOTAL-COSTS> 9,600,397
<OTHER-EXPENSES> 2,726,537
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 403,533
<INCOME-PRETAX> (1,891,651)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,891,651)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,891,651)
<EPS-PRIMARY> (.73)
<EPS-DILUTED> (.73)
</TABLE>
