COMPUTER POWER INC. & SUBSIDIARY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
of the
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ending September 30, 1998
Commission File No. 0-15927
COMPUTER POWER INC.
(Exact name of small business issuer as specified in its Charter)
New Jersey 22-1981869
(State or other jurisdiction of (IRS Employer Identification Number)
incorporation or organization)
124 West Main Street, High Bridge, New Jersey 08829
(Address of principal or executive office) (Zip Code)
(908) 638-8000
(Issuer's telephone number, including area code)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the prior twelve 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 ninety (90) days. YES
[X]; NO [ ]
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date prior to filing, as of October 25,
1998, Registrant had 2,602,700 shares of its Common Stock, par value $0.01 per
share, outstanding.
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COMPUTER POWER INC. & SUBSIDIARY
INDEX
Part I Basis of Presentation of Financial Statements........................3
BALANCE SHEETS
As of September 30, 1998 and December 31, 1997....................4
STATEMENTS OF OPERATIONS
For the three and nine months ended September 30, 1998 and 1997...5
STATEMENTS OF CASH FLOWS
For the three and nine months ended September 30, 1998 and 1997...6
NOTES TO FINANCIAL STATEMENTS..............................................7
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION.....................9
Part II Other Information..................................................11
Exhibit............................................................11
Signatures..................................................................12
2
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COMPUTER POWER INC. & SUBSIDIARY
PART I - FINANCIAL INFORMATION
BASIS OF PRESENTATION OF FINANCIAL STATEMENTS
The financial statements set forth herein are unaudited for the three
and nine month periods ended September 30, 1998 and September 30, 1997 but, in
the opinion of the Company, all adjustments necessary to present fairly the
financial position and the results of operations for these periods have been
made.
The accompanying unaudited financial statements have been prepared in
accordance with the instructions to Form 10-QSB for quarterly reports under
Section 13 or 15(d) of the Securities Act of 1934, and therefore do not include
all information and footnotes necessary for fair presentation of financial
position, results of operations and cash flows in conformity with generally
accepted accounting principles.
The unaudited condensed financial statements contained in this Form
10-QSB should be read in conjunction with the consolidated financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1997.
3
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COMPUTER POWER INC. & SUBSIDIARY
COMPUTER POWER INC. & SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 1998 AND DECEMBER 31, 1997
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
ASSETS (Unaudited)
......................................................................................................
Current Assets
<S> <C> <C>
Cash and Cash Equivalents $ 54,662 $ 67,300
Accounts Receivable, less allowances of $176,009 at
September 30, 1998 and $179,778 at December 31, 1997 1,478,906 1,312,819
Inventories 807,933 1,018,098
Prepaid Expenses and Other Current Assets 15,036 45,204
------------------------------------
Total Current Assets 2,356,537 2,4443,421
PROPERTY, PLANT AND EQUIPMENT, at cost
Machinery, Equipment, and Furniture 1,174,487 1,128,797
Leasehold Improvements 333,274 333,274
-------------------------------------
1,507,761 1,462,071
Less: Accumulated Depreciation and Amortization (1,247,024) (1,199,725)
-------------------------------------
Net Property, Plant and Equipment 260,737 262,346
-------------------------------------
TOTAL ASSETS $ 2,617,274 $ 2,705,767
=====================================
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES
Notes and Other Debt Payable $ 2,390,395 $ 899,753
Current Maturities of Long Term Debt 698,610 60,000
Accounts Payable 1,000,986 1,158,435
Accrued Liabilities 1,170,207 981,427
----------------------------------
Total Current Liabilities 5,260,198 3,099,615
LONG TERM DEBT 301,390 2,235,000
----------------------------------
Total Liabilities 5,561,588 5,334,615
COMMITMENTS & CONTINGENCIES
SHAREHOLDERS' DEFICIT
Preferred Stock, par value $0.01 per share; 2,000,000 shares
authorized, none issued 0 0
Common Stock, par value $0.01 per share; 12,000,000 shares
authorized; 2,602,700 shares issued 26,027 26,027
Capital in Excess of Par 3,757,119 3,757,119
Accumulated Deficit (6,652,772) (6,337,306)
Treasury Stock, 24,400 shares, at cost (74,688) (74,688)
------------------------------------
Shareholders' Deficit (2,944,314) (2,628,848)
------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT $ 2,617,274 $ 2,705,767
====================================
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
4
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COMPUTER POWER INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1997 1998 1997
------- ------- ------ ------
<S> <C> <C> <C> <C>
NET SALES $ 2,145,559 $ 2,378,939 $ 6,224,023 $7,469,138
COST OF SALES 1,618,580 1,803,864 4,747,030 5,900,884
--------- -------- --------- ---------
GROSS PROFIT 526,979 575,075 1,476,993 1,568,254
OPERATING AND OTHER EXPENSES
Selling Expenses 207,664 264,858 707,156 927,090
General and Administrative Expenses 234,174 332,384 771,025 897,876
Interest Expense, net 105,913 107,382 314,279 285,816
--------- --------- -------- ---------
TOTAL OPERATING AND OTHER EXP. 547,751 704,624 1,792,460 2,110,782
NET (LOSS) $ (20,772) (129,549) $ (315,467) $ (542,528)
================================================================
EARNINGS PER SHARE AVAILABLE TO COMMON
SHAREHOLDERS (a):
Basic EPS-
Net loss $ (.01) $ (.05) $ (.12) $ (.21)
Weighted average common shares
outstanding 2,578,300 2,578,300 2,578,300 2,578,300
</TABLE>
(a) Diluted EPS is not presented for either period, as the effect would be
antidilutive.
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
5
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COMPUTER POWER INC. & SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1997
(UNAUDITED)
<TABLE>
<CAPTION>
September 30,
1998 1997
CASH PROVIDED BY (USED FOR) OPERATING ACTIVITIES:
<S> <C> <C>
Net Loss $ (315,466) $ (542,528)
Adjustments to reconcile net loss to cash used for operating activities
Depreciation & Amortization 47,299 42,674
Changes in Current Assets and Liabilities
Accounts Receivable (166,087) (147,332)
Inventories 210,165 320,377
Prepaid Expenses and Other Current Assets 30,168 44,342
Accounts Payable (157,449) 87,919
Accrued Liabilities 188,780 (96,350)
-------------------------------
Cash (Used for) Operating Activities (162,590) (290,898)
CASH (USED FOR) INVESTING ACTIVITIES:
Capital Expenditures ( 45,690) (56,885)
--------------------------------
Cash (Used for) Investing Activities ( 45,690) (56,885)
CASH PROVIDED (USED FOR) BY FINANCING ACTIVITIES:
Proceeds from Issuance of Debt 255,642 467,609
Repayment of Debt (60,000) (104,636)
-----------------------------
Cash Provided by Financing Activities 195,642 362,973
-----------------------------
(DECREASE) INCREASE IN CASH & CASH EQUIVALENTS (12,638) 15,190
CASH & CASH EQUIVALENTS, beginning of period 67,300 68,519
-----------------------------
CASH & CASH EQUIVALENTS, end of period $ 54,662 $ 83,709
===============================
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Income Taxes Paid $ 0 $ 0
Interest Paid $ 113,720 $ 113,247
</TABLE>
The accompanying notes to the consolidated financial statements
are an integral part of these financial statements.
6
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COMPUTER POWER INC. & SUBSIDIARY
NOTES TO FINANCIAL STATEMENTS
Note 1: The financial information for the three and nine month periods ended
September 30, 1998 are unaudited but in the opinion of the Company, all
adjustments necessary to present fairly the financial position and the
results of operations for these periods have been made. Reference
should be made to the notes to the financial statements included in the
Company's Form 10-KSB for the year ended December 31, 1997 for a
description of significant accounting policies, commitments and other
pertinent financial information.
Note 2: Inventories, which include material, labor and manufacturing
overhead costs, are stated at the lower of cost (on a first in, first
out basis) or market.
Note 3: At September 30, 1998 and December 31, 1997, notes payable and
current debt included amounts due to related parties and other lenders
as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1998 1997
Revolvingcredit agreement due January 31, 1999, bearing interest at
prime plus 3.5% on the first $500,000 and 3%
<S> <C> <C>
on any additional balance inclusive of the term loan $ 932,826 $ 752,184
Subordinated, unsecured notes to a related entity due
July 1, 1999 bearing interest at 9.5%, with
quarterly interest payments 565,000 0
Term loan, due January 31, 1999 with monthly installments of
$5,000 per month bearing interest at prime plus 3.5%
for the first $500,000 and prime plus 3% on any additional
balance inclusive of the revolving credit agreement 315,000 0
Subordinated, unsecured note payable to a related entity due
February 1, 1998, bearing interest at 10% 250,000 0
Subordinated, unsecured notes to a related entity due
July 1, 1999 bearing interest at 9.5%, with
quarterly interest payments 150,000 0
Su bordinated, unsecured demand note, bearing interest at 8% 96,569 96,569
Subordinated, unsecured note payable due October 31,1997
bearing interest at 10%, with quarterly interest payments 32,000 32,000
Subordinated, unsecured note payable to a director due
February 1, 1998, bearing interest at 10% 30,000 0
Subordinated, unsecured note payable to a director due
October 31, 1997 bearing interest at 10% 19,000 19,000
----------------------------------
Total Notes and Other Debt Payable $ 2,390,395 $ 899,753
-------------------------------------
Long-term debt consists of the following at September 30,1998 and December 31,
1997:
September 30, December 31,
1998 1997
Subordinated note, due August 1, 2000 bearing interest
at prime plus 4%, payable monthly $ 700,000 $ 700,000
Subordinated, unsecured notes to a related entity due
July 1, 1999 bearing interest at 9.5%, with
quarterly interest payments 0 565,000
Convertible debenture, due November 2000 bearing
interest at 9.5%, payable monthly 300,000 300,000
Subordinated, unsecured notes to a related entity due
July 1, 1999 bearing interest at 9.5%, with
quarterly interest payments 0 0
</TABLE>
7
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COMPUTER POWER INC. & SUBSIDIARY
<TABLE>
<CAPTION>
Term loan, due January 31, 1999 with monthly installment of $5,000
per month bearing interest at prime plus 3.5% for the first
$500,000 and plus 3% on any additional
<S> <C> <C>
balance inclusive of the revolving credit agreement 0 300,000
Subordinated, unsecured note payable to a related
entity due February 1, 1998, bearing interest at 10%,
with quarterly interest payments 0 250,000
Subordinated, unsecured note payable to a director due
July 1, 1999, bearing interest at 9.5%,
with quarterly interest payments 0 150,000
Subordinated, unsecured note payable to a director due
February 1, 1998, bearing interest at 10%, with
quarterly interest payments 0 30,000
--------------------------------
Total Long Term Debt 1,000,000 2,295,000
Less: Current Portion 698,610 60,000
--------------------------------
Net Long Term Debt $ 301,390 $2,235,000
================================
</TABLE>
The Company has a revolving credit agreement and a term loan with an
asset based lender. The revolving agreement provides for a maximum
borrowing of 85% of eligible accounts receivable, as defined. The total
amount of revolving credit and term loan borrowing is capped at
$2,000,000.
Except for the revolving credit agreement and the term loan, the
Company has obtained a deferral on its accumulated unpaid debt service
through year end 1998. The Company continues to accrue interest on the
deferred debt and its interest.
Note 4. At September 30, 1998 the Company had 1,899,079 stock subscription
warrants and 351,000 stock options outstanding. The stock
subscription warrants and stock options are exercisable at various
prices, ranging from $0.125 to $0.40 per share. The exercise period
for the warrants ranges from June 1, 1996, through June 1, 2006.
The stock options were issued under an approved stock option plan
at market prices at the time of issue. At June 30, 1998, no warrants
or options were determined to be common stock equivalents because
the average market price was lower than the exercise price of the
warrants and options. During the first quarter of 1998 the Company
determined that 966,079 warrants had to be issued in exchange for
the deferral of debt service through year end 1998.
Note 5. The Company determined that the cost of the warrants that were
issued in exchange for the deferral of debt service referenced in Note
4 was not material.
Note 6. The Company owns a 20% interest in Retrofit, Ltd. ("Retrofit"), of
Trinidad, West Indies. Retrofit began manufacturing LED sub-assemblies
for the Company's Astralite business unit in 1996. The Company's entire
investment 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 a related party.
8
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COMPUTER POWER INC. & SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND OPERATING RESULTS
1. GENERAL COMMENTS
The Company recorded a loss of $21,000 for the quarter ended September 30, 1998,
or ($.01) per share compared to a loss of $130,000 or ($.05) per share for the
quarter ended September 30, 1997. Sales for the third quarter of 1998 were
approximately $233,000 lower than the third quarter of 1997. However, the
Company was able to more than offset this decline with cost reduction actions
taken in the past 15 months.
For the nine month period ended September 30, 1998 the Company recorded a loss
of $315,000, or ($.12) per share compared to a loss of $543,000 or ($.21) per
share for the nine months ended September 30, 1997. Sales revenue for the nine
month period ended September 30, 1998 was approximately $1,245,000 lower than
for the nine month period ended September 30, 1997, however the Company has
shown less of a loss because of the previously mentioned cost reduction actions.
2. REVENUES
For the three month period ended September 30, 1998 net sales were approximately
$2,146,000, or approximately 10% below the third quarter of 1997. Net Sales for
the Astralite division were down 11% compared to the same period last year. The
decrease was primarily due to a UL code change that occurred in August of 1997,
requiring a brighter light which caused the Company to discontinue the
manufacture of its LED Retrofit Kit. In the third quarter of 1998 the Astralite
division participated in a utility company energy conservation rebate program
with sales totaling approximately $263,000. The Company does not expect this
program to last beyond the fourth quarter of 1998, but will continue to search
for similar programs. The Power Protection Division sales were approximately 6%
below last year's sales mainly due to the planned phase out of the
non-profitable UPS business which decreased by approximately 47% compared to the
same quarter last year.
For the nine month period ended September 30, 1998 net sales were $6,224,000 or
approximately 16% below the nine month period ended September 30, 1997. Net
Sales for the Astralite division were down approximately 31% compared to the
same period last year mainly due to unfavorable Retrofit Kit sales. Although the
Company introduced a new universal UL approved product during the first quarter
of 1998, product sales continue below last year. The Power Protection Division
sales were below last year's sales mainly due to the planned phase out of the
non-profitable UPS business.
3. COST OF SALES
Cost of sales for the third quarter 1998 of $1,619,000 was approximately 75% of
net sales compared to 79% for the same period last year. The Company has
continued to manage its variable costs, primarily material and direct labor, at
improved levels with respect to sales
Cost of sales for the nine months ended September 1998 of $4,747,000 was
approximately 76% of net sales compared to approximately 79% for the same period
last year. The Company has continued to manage its variable costs, primarily
material at improved levels with respect to sales. Research and development
activities, which were approximately $306,000 for the nine month period ended
September 30, 1998 and approximately $375,000 for the same period in 1997,
remained constant as a percentage of sales.
4. OPERATING AND OTHER EXPENSES
Selling expenses were approximately $208,000 (approximately 10% of sales) for
the third quarter of 1998 versus approximately $265,000 (approximately 11% of
sales) for the same period in 1997. With the anticipated decrease in sales, the
Company reduced its costs in 1998 as compared to the same period in 1997.
Selling expenses were approximately $707,000 (approximately 11% of sales) for
the nine month period ended September 30, 1998 compared to approximately
$927,000 (approximately 12% of sales) for the nine month period ended September
30, 1997.
General and administrative expenses were approximately $234,000 in the third
quarter 1998 compared to $332,000 in the same quarter in 1997 due primarily to
reduction in personnel costs compared to the third quarter last year.
9
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COMPUTER POWER INC. & SUBSIDIARY
General and administrative expenses were approximately $771,000 for the nine
month period ended September 30, 1998 compared to approximately $898,000 for the
nine month period ended September 30, 1997. The main areas of reduction were (1)
personnel,( 2)
inspection fees, and( 3) supplies as compared to the first nine months of 1997.
Interest expense for the third quarter of 1998 was $106,000 compared to $107,000
for the same quarter in 1997.
Interest expense for the first nine months of 1998 was $314,000 compared to
$286,000 for the same nine month period in 1997. The increase primarily resulted
from an increase in the level of debt outstanding.
5. LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company's investment in Total Assets was
approximately $2,617,000 or $88,000 less than the $2,706,000 reported at
December 31, 1997. The components of this change consisted of: (1) Inventory
decreased by $210,000 as management initiated better controls (2) Cash and
Prepaid Expenses and Other Current Assets decreased by $44,000, which components
were partially offset by ( 3) an increase of approximately $166,000 in Accounts
Receivable. At September 30, 1998, the Company's Liabilities and Stockholders'
Equity decreased by approximately $88,000 and was comprised of: (1) a loss for
the nine months of approximately 315,000, (2) a decrease in Accounts Payable of
approximately $157,000 which was partially offset by (3) an increase in debt of
approximately $196,000 and, (4) an increase in Accrued Liabilities and Deferred
Interest of approximately $188,000.
The Company has two raw material suppliers, one of which is a related party,
that provide extended terms. As of September 30, 1998 these vendors were owed a
total of approximately $306,000 of which approximately $248,000 was outstanding
as a result of those terms.
The Company is currently negotiating with the landlord, a related party, for a
revision of the building lease terms including a reduction in rent as a result
of reducing the space that the Company currently occupies at the High Bridge
location. Presently, the Company is making payments based upon a rent reduction
proposal that outlines certain terms and conditions that must be satisfied in
order to amend the present lease agreement. However, the Company does not have a
waiver of default in writing with respect to past due contractual amounts
outstanding which total about $40,000 as of September 30, 1998. Should the
landlord decide to terminate discussions and institute actions under default
provisions and the Company were unable to satisfy the obligations then due, it
would result in a default of the Company's asset based lending agreements.
The Company anticipates that borrowing available to it through its revolving
credit agreement and term loan facilities along with the negotiated deferral of
debt service for the year (see notes 4 & 5 to the financial statements) should
be sufficient to cover operating cash requirements during 1998. In addition, the
Company has obtained a commitment from a major stockholder to supplement working
capital should the need arise in 1998.
There were 2,578,300 weighted average common shares outstanding in each period.
For the three month periods ended September 30, 1998, and 1997, respectively,
the effects of options and warrants were not considered when calculating fully
diluted earnings per share, since the results would have been anti-dilutive.
The Company continues to review and evaluate the Year 2000 issue as it relates
to its internal computer and electronic systems and third party computers and
electronic systems as well as those of its vendors. The Company expects to incur
internal staff costs as well as other expenses related to these issues. The
Company will replace its computer software and hardware equipment in the fourth
quarter of 1998 and the first quarter of 1999. This investment will be
capitalized and depreciated. The cost of compliance and its effect on future
results of operations is not anticipated to be material in any given year.
10
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COMPUTER POWER INC. & SUBSIDIARY
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS:
None
ITEM 2. CHANGE IN SECURITIES:
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES:
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS:
None
ITEM 5. OTHER INFORMATION:
Mr. Hiro Hiranandani resigned from the Board of Directors and as President
and Chief Executive Officer for personal reasons. Mr. John M. Perry was
appointed President, Chief Executive Officer and Director. Prior to this
appointment, Mr. Perry was Executive Vice President at Proformix, a developer
and manufacturer of computer peripherals and a marketer of specialty software.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K:
a) Exhibits: (1) Employment Agreement, dated as of October 1, 1998,
by and between the Company and John M. Perry,
appointing Mr. Perry the President and Chief
Executive Officer of the Company.
(2) First Amendment to Employment Agreement, dated as
of October 1, 1998, by and between the Company and
John M. Perry.
b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K,
announcing that on September 1, 1998 the Company dismissed its
independent accountants, Arthur Andersen, LLP and engaged Rosenberg
Rich Baker Berman & Company of Bridgewater, New Jersey, to audit the
financial statements for the fiscal year ending December 31, 1998.
11
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COMPUTER POWER INC. & SUBSIDIARY
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this Form 10-QSB to be signed on its
behalf by the undersigned thereunto duly authorized.
COMPUTER POWER, INC.
By:__s/John M. Perry_______________________________
Date: November 12, 1998 John M.Perry, President & Chief Executive Officer
By:___s/Thomas E. Marren, Jr.______________________
Date: November 12, 1998 Thomas E. Marren,Jr., V.P & Chief FinancialOfficer
12
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COMPUTER POWER INC. & SUBSIDIARY
EXHIBIT NO. 1
JOHN PERRY EMPLOYMENT AGREEMENT
AGREEMENT made as of the 1st day of October, 1998, by and between John
M. Perry, residing at 30 Spring Hill Road, Annandale, New Jersey 08801
(hereinafter referred to as "Perry") and Computer Power, Inc., a New Jersey
corporation, having its principal offices located at 124 West Main Street, High
Bridge, New Jersey 08829 (hereinafter referred to as the "Company").
B A C K G R O U N D :
WHEREAS, the Company is engaged in the design, manufacture, marketing
and servicing of products in the energy efficient lighting industry, power
protection systems and emergency lighting fields and is in need of a President
and Chief Executive Officer to lead the Company's management team and direct the
Company to increase revenues and return it to profitability; and
WHEREAS, the Company has chosen Perry to serve as its President and
Chief Executive Officer for the Company and to join its Board of Directors; and
WHEREAS, the Company and Perry desire to set forth in this Agreement
all of the terms and provisions that shall govern, among other things, Perry's
relationship, duties and compensation in his service to the Company.
NOW, THEREFORE, it is mutually agreed by and between the parties hereto
as follows:
ARTICLE I
EMPLOYMENT
Subject to and upon the terms and conditions of this Agreement, the
Company hereby appoints Perry as the President and Chief Executive Officer of
the Company and Perry hereby accepts such appointment to be employed in such
capacity for the Company. In this capacity, Perry will report directly to the
Company's Board of Directors. The Company shall cause Perry to be appointed to a
current vacancy on the Board of Directors of the Company simultaneous to the
execution and delivery of this Agreement.
ARTICLE II
DUTIES
(A) Perry shall, during the term of his employment with the Company,
and subject to the direction and control of the Board of Directors, perform such
duties and functions related to the position of President and Chief Executive
Officer as he may be called upon to perform by the Company's Board of Directors
during the term of this Agreement.
(B) Perry agrees to devote all of his business time and best efforts to
the performance of his duties for the Company during the term of this Agreement.
1
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COMPUTER POWER INC. & SUBSIDIARY
(C) Perry shall perform, in conjunction with the Company's Senior
Management, to the best of his ability the following services and duties for the
Company (by way of example, and not by way of limitation):
(i) Those duties attendent to the position of President and
Chief Executive Officer with the Company for which he is hired;
(ii) Reorganize the Company's current management and
professional advisors, includiung without limitation the power to terminate any
such existing members or advisors and appoint new members and advisors as Perry,
in his sole discretion, deems appropriate in order to construct a new management
team capable of attaining Perry's objectives for the Company;
(iii) Formulation of the Company's business plans and
implementation of such plans, including any restructuring initiatives, subject
to the direction of the Board of Directors.
(iv) Promotion of the relationships of the Company with its
employees, customers, suppliers and others in the business community.
(D) Perry shall be based at the Company's headquarters located in High
Bridge, New Jersey, and shall undertake such occasional travel, within or
without the United States as is or may be reasonably necessary in the interests
of the Company.
ARTICLE III
COMPENSATION
(A) Commencing with the commencement date hereof, the Company shall pay
to Perry a salary at the rate of $110,000 per annum, during the period
commencing upon the date hereof and terminating on December 31, 1999 (the "Base
Salary") which shall be payable in such installments as are utilized by the
Company to pay its senior management personnel. The Company shall increase the
Base Salary of Perry by ten (10%) percent during the fiscal year, commencing
January 1, 2000 and terminating on December 31, 2000, in the event the Company
earns operating profits in an amount no less than $25,000 for the fiscal year
ending December 31, 1999; thereafter, the Company shall increase the base salary
of Perry by 10% during the fiscal year, commencing January 1, 2001 and
terminating on December 31, 2001 in the event the Company earns operating
profits in an amount no less than $300,000 for the fiscal year ending December
31, 2000.
(B) In order to induce Perry to accept the appointment as President and
Chief Executive Officer of the Company, the Company hereby grants to Perry the
right to purchase 250,000 shares of the common stock of the Company at a
purchase price of $.04 per share, or $10,000, which purchase and sale shall
occur simultaneous to the execution and delivery of this Agreement; upon receipt
of payment therefor, the Company shall cause a certificate or certificates
representing these shares to be issued to Perry as soon as practicable
thereafter; Perry acknowledges that the shares issued hereunder are deemed
2
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COMPUTER POWER INC. & SUBSIDIARY
"restricted" securities as that term is defined under Rule 144 promulgated under
the Securities Act of 1933, as amended, and may not be sold, transferred or
otherwise disposed of except in accordance with the registration requirements of
said Act and applicable State registration laws or pursuant to exemptions
therefrom, and; Perry further acknowledges that the certificate or certificates
representing the 250,000 common shares of the Company he shall receive shall
bear the appropriate restrictive legend evidencing their nature as restricted
securities. In addition to the stock incentive aware, the Company, as a further
inducement to Perry to enter into this Agreement, the Company hereby grants to
Perry stock options as follows:
(i) the Company hereby grants to Perry simultaneous to the
execution and delivery of this Agreement stock options to purchase 100,000
common shares of the Company at an exercise price equal to 85% of such common
stock's market value at December 31, 1999. This stock option shall fully vest as
of 5:00 PM Eastern Standard Time on December 31, 1999, unless this Agreement has
been terminated by the Company pursuant to Article IX(C) below ("For Cause");
(ii) the Company hereby grants to Perry simultaneous to the
execution and delivery of this Agreement stock options to purchase 100,000
common shares of the Company at an exercise price equal to 85% of such common
stock's market value at December 31, 2000. This stock option shall fully vest as
of 5:00 PM Eastern Standard Time on December 31, 1999, unless this Agreement has
been terminated by the Company pursuant to Article IX(C) below ("For Cause").
(iii) The stock options granted to Perry above are
"Nonqualified Options", as defined in the Company's existing stock option plan,
and each stock option may be exercisable by Perry from time to time, during the
ten year period following the time each such stock option identified in
subparagraphs (B)(i) and (ii) above has vested.
(iv) In the event and for whatever reason there are
insufficient shares available to accommodate the stock option grants identified
in subparagraphs (B)(i) and (ii) above, the Company shall utilize its best
efforts to cause its Board of Directors and shareholders to adopt a new stock
option plan to accommodate such grants of stock options to Perry;
(v) Perry shall exercise his right to purchase the Company
common shares underlying the restricted stock options by sending his check
representing payment of the exercise price to the Company which shall issue a
certificate or certificates representing the Company common shares so purchased
to Perry as soon as practicable following Perry's written notice of exercise:
Perry hereby acknowledges that unless the common shares underlying the subject
restricted stock options are registered under the Securities Act of 1933, as
amended, any certificate he receives pursuant to his exercise shall contain a
legend describing such common shares as "restricted" securities and therefore
subject to the resale restrictions delineated under said Act unless they are
registered under the Act and applicable State securities laws.
3
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
(vi) All of the restricted stock options that fully vest for
the benefit of Perry under this Article III (B) shall not be canceled or
terminated following any termination of Perry's employment with the Company
except in the case of his termination pursuant to Article IX(C) below.
(C) Perry shall be entitled to receive reimbursement for all his
expenses incurred during the course of his performance of his duties under this
Agreement upon the delivery to the Company of receipts for any such expenses,
provided, however, that such expenses qualify as a deduction by the business
from income under the Internal Revenue Code of 1986, as amended.
(D) The Company shall deduct from Perry's compensation all federal,
state and local taxes which it may now or may hereafter be required to deduct.
ARTICLE IV
BENEFITS
(A) During the term hereof, the Company shall provide to Perry and his
family participation in the medical insurance coverage currently available in
the Company's existing medical benefits plan.
(B) Perry shall participate in any 401K and/or other retirement plan as
may be adopted by the Company from time to time.
(C) The Company shall provide full directors and officers liability
insurance coverage to Perry throughout the term of this Agreement upon terms and
conditions mutually satisfactory to the parties; notwithstanding any coverage
supplied by such errors and omissions policy then in effect, the Company hereby
agrees to indemnify Perry and hold him harmless from and against any claims or
liabilities of any nature whatsoever arising out of or in connection with
Perry's performance of the terms of this Agreement; by this indemnification, the
Company acknowledges that it shall provide to Perry all legal defense costs for
any lawsuits, proceedings, arbitrations, hearings involving Perry which shall
include the full payment of all legal fees and costs of any attorneys,
arbitrators or representatives of Perry's choosing, upon demand; the Company's
agreement to pay such legal fees, claims and costs is absolute provided,
however, that Perry shall reimburse the Company for any legal fees, claims and
costs paid by the Company on his behalf in the event a court of competent
jurisdiction finds that an act or acts, including any failure to act by Perry
and for which the Company has paid any legal fees, claims or costs, was found to
constitute fraud or intentional wrongdoing on Perry's part.
(F) For each year of the term hereof, Perry shall be entitled to three
weeks paid vacation.
4
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
ARTICLE V
NON-DISCLOSURE
Perry shall not, at any time during or after the termination of his
employment hereunder except when acting on behalf of and with the authorization
of the Company, make use of or disclose to any person, corporation, or other
entity, for any purpose whatsoever, any trade secret or other confidential
information concerning the Company's business, finances, proposed and current
services and pricing, and any information relating to the Company's business
(collectively referred to as the "Proprietary Information"). For the purposes of
this Agreement, trade secrets and confidential information shall mean
information disclosed to Perry or known by him as a consequence of his
employment by the Company, whether or not pursuant to this Agreement, and not
generally known in the industry, concerning the business, finances, methods,
operations, marketing information, pricing and information relating to proposed
expansion of the Company or the Company's business plans. Perry acknowledges
that trade secrets and other items of confidential information, as they may
exist from time to time, are valuable and unique assets of the Company, and that
disclosure of any such information would cause substantial injury to the
Company. The foregoing is intended to be confirmatory of the common law of the
State of New Jersey relating to trade secrets and confidential information.
ARTICLE VI
RESTRICTIVE COVENANT
(A) In the event of the voluntary termination of employment with the
Company or Perry's discharge in accordance with Article IX paragraph (C), Perry
agrees that he will not, for a period of two years following such termination,
directly or indirectly enter into or become associated with or engage in any
other business (whether as a partner, officer, director, shareholder, employee,
consultant, or otherwise), which business is primarily involved in the power
protection/emergency lighting industry during the term of this Agreement in the
same geographical areas where the Company markets its products.
(B) If any court shall hold that the duration of non-competition or any
other restriction contained in this Article VI is unenforceable, it is our
intention that same shall not thereby be terminated but shall be deemed amended
to delete therefrom such provision or portion adjudicated to be invalid or
unenforceable or in the alternative such judicially substituted term may be
substituted therefor.
5
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
ARTICLE VII
TERM
This Agreement shall commence upon the date hereof, and shall terminate
as of 5:00 PM Eastern Standard Time on December 31, 2001 (the "Initial Term");
this Agreement may be extended for an additional period upon the mutual
agreement between the Company and Perry.
ARTICLE VIII
DISABILITY DURING TERM
In the event that Perry becomes totally disabled so that he is unable
or prevented from performing any one or all of his usual duties hereunder for a
period of four (4) consecutive months then, and in that event, the Company shall
continue to compensate him and he shall receive his Base Salary as provided
under Article III of this Agreement for such four consecutive month period
commencing from the date of such total disability and continuing during the
applicable period: the aforesaid obligations of the Company shall not extend
beyond the Initial Term or beyond any Renewal Term of this Agreement. The
obligation of the Company to make the aforesaid payments shall be modified and
reduced and the Company shall receive a credit for all disability insurance
payments which Perry may receive or to which he may become entitled.
ARTICLE IX
TERMINATION
The Company may terminate this Agreement:
(A) Upon the death of Perry during the term hereof, except that Perry's
legal representatives, successors, assigns and heirs shall have those rights and
interests as otherwise provided in this Agreement.
(B) Subject to the terms of Article VIII herein, upon written notice
from the Company to Perry, if Perry becomes totally disabled and as a result of
such total disability, has been prevented from and unable to perform all of his
duties hereunder for a consecutive period of four (4) months.
(C) If Perry engaged in fraud or intentional wrongdoing as determined
by a court of competent jurisdiction ("For Cause").
(D) If the Company undergoes a change of control or other
reorganization and the Company's successor refuses or fails to assume all of the
responsibilities of the Company under this Agreement, then upon ninety (90) days
written notice to Perry, the Company may terminate this Agreement, provided,
however, the Company shall pay to Perry the severance benefits set forth in
Article XVII below.
6
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
(E) The Company shall have the option, in its sole and absolute
discretion, to terminate this Agreement on ninety (90) days' written notice to
Perry in the event the Company does not earn operating profits in an amount
equal to or greater than $25,000 for the fiscal year ending December 31, 1999.
In the event the Company chooses to exercise this option to terminate the
Agreement, it must send its written notice exercising its power to terminate
this Agreement to Perry no later than March 31, 2000.
ARTICLE X
TERMINATION OF PRIOR AGREEMENTS
This Agreement sets forth the entire agreement between the parties and
supersedes all prior agreements between the parties, whether oral or written,
without prejudice to Perry's right to all accrued compensation prior to the
effective date of this Agreement.
ARTICLE XI
SEVERABILITY
If any provision of this Agreement shall be held invalid and
unenforceable, the remainder of this Agreement shall remain in full force and
effect. If any provision is held invalid or unenforceable with respect to
particular circumstances, it shall remain in full force and effect in all other
circumstances.
ARTICLE XII
NOTICE
All notices required to be given under the terms of this Agreement
shall be in writing and shall be deemed to have been duly given only if
delivered to the addressee in person or mailed by certified mail, return receipt
requested, to the address as included in the Company's records or to any other
address as the party to receive the notice shall advise by due notice given in
accordance with this paragraph.
ARTICLE XIII
BENEFIT
This Agreement shall inure to, and shall be binding upon, the parties
hereto, the successors and assigns of the Company, and the heirs and personal
representatives of Perry.
7
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
ARTICLE XIV
WAIVER
The waiver by either party of any breach or violation of any provision
of this Agreement shall not operate or be construed as a waiver of any
subsequent breach of construction and validity.
ARTICLE XV
GOVERNING LAW
This Agreement has been negotiated and executed in the State of New
Jersey which law shall govern its construction and validity.
ARTICLE XVI
JURISDICTION
Any or all actions or proceedings which may be brought by the Company
or Perry under this Agreement shall be brought in courts having a situs within
the State of New Jersey and Perry hereby consents to the jurisdiction of any
local, state or federal court located within the State of New Jersey.
ARTICLE XVII
SEVERANCE BENEFITS
In the event that (a) the Company terminates this Agreement for reasons
other than those set forth in Article IX, paragraph (A) (B) or (C), or (b) the
Company undergoes a change of control or other reorganization and the Company's
successor refuses or fails to assume all of the responsibilities of the Company
under this Agreement, upon any such termination of Perry's employment as a
result thereof, the Company shall provide the following severance benefits to
Perry:
1. The Company shall pay to Perry a severance payment in an amount
equal to the greater of (i) the aggregate amount of Perry's Base Salary that
would have been payable to Perry through the initial or any renewed term of this
Agreement during which the termination occurred, or (ii) the aggregate of
Perry's monthly Base Salary for each year or part thereof that Perry was subject
to the provisions of this Agreement during the initial and any renewed term(s)
hereof;
8
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
2. To the extent permissible under applicable laws, the Company shall
maintain its medical/health coverage for the benefit of Perry and his family for
a period of four (4) months following termination of employment for those
reasons identified in this Article XIII.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement and affixed their hands and seals the day and year first above
written.
COMPANY:
COMPUTER POWER, INC.
By: s/Lindsay Gillette
Lindsay Gillette
Chairman of the Board
of Directors
s/John M. Perry
John M. Perry
9
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
EXHIBIT NO. 2
FIRST AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT to that Employment Agreement, dated October 1, 1998, by
and between John M. Perry, as Employee, and Computer Power, Inc., as Employer or
Company, is made this 27th day of October 1998.
The parties to the above referenced Employment Agreement do hereby
amend said Agreement as follows:
A. Article XVIII(1) shall be amended by deleting said
paragraph in its entirety and by substituting in lieu thereof
the following new paragraph:
1. The Company shall pay to Perry a lump-sum
severance payment in the amount of $75,000, payable
no later than the closing of any transaction pursuant
to which a Change of Control.
B. The Company and Perry hereby ratify and confirm all of the
other terms and provisions of the Employment Agreement not
expressly modified or amended by this FIRST AMENDMENT TO
EMPLOYMENT AGREEMENT.
IN WITNESS WHEREOF, the Company and Perry have executed and delivered
this FIRST AMENDMENT TO EMPLOYMENT AGREEMENT as of the day, month and year first
above written.
Company:
Computer Power, Inc.
By: s/Lindsay Gillette
Lindsay Gillette
Chairman of the Board
of Directors
s/ John M. Perry
John M. Perry
President & CEO
1
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
SECURITIES ANDEXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 1998
COMPUTER POWER INC.
(Exact name of registrant as specified in its charter)
New Jersey 0-15927 22-1981869
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File No.) Identification No.)
Registrant's telephone number, including area code 908-638-8000
1
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
Item 4 CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS.
On September 1, 1998, the company dismissed its independent
accountants, Arthur Andersen, LLP and engaged a new independent accountant,
Rosenberg Rich Baker Berman & Company, to audit the financial statements for the
fiscal year ended December 31, 1998. The decision to change accountants was
approved by the company's board directors.
The reports on the financial statements of the company for the past two
years AND THE SUBSEQUENT INTERIM PERIOD THROUGH September 1, 1998, the date of
dismissal, do not contain any adverse opinion or disclaimers of opinion, nor
were they qualified or modified as to uncertainty, audit scope, or accounting
principles and there were no disagreements or reportable events with the former
accountant.
This change in the company's accountants was due to the registrant's
desire to reduce cost. There were no disagreements with Arthur Andersen, LLP on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
September 9, 1998 By:
/s/Thomas E Marren Jr
President
2
<PAGE>
COMPUTER POWER INC. & SUBSIDIARY
ARTHUR
ANDERSON
Arthur Anderson LLP
101 Eisenhower Parkway
Roseland, NJ 07068-1099
973 403 6100
September 9, 1998
Office of the Chief Accountant
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Sir/Madam:
We have read Item 4 included in the Form 8-K dated September 9, 1998 of Computer
Power Inc. Filed with the Securities and Exchange Commission and are in
agreement with the statements contained therein.
Very truly yours,
s/Arthur Anderson LLP
ARTHUR ANDERSEN LLP
Copy to:
Mr. Thomas Marren
Chief Financial Officer
Computer Power Inc.
3
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