-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LaWBAV/M6tzrErM5WZyzUxdWdYuq/P062R0bD+8Fix+RDFZG0hPwZWUDVAH2e/ii DAU3QUcLrYrvZYnpEGtukg== 0000808064-96-000016.txt : 19960917 0000808064-96-000016.hdr.sgml : 19960917 ACCESSION NUMBER: 0000808064-96-000016 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960731 FILED AS OF DATE: 19960916 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CHARTER POWER SYSTEMS INC CENTRAL INDEX KEY: 0000808064 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS ELECTRICAL MACHINERY, EQUIPMENT & SUPPLIES [3690] IRS NUMBER: 133314599 STATE OF INCORPORATION: DE FISCAL YEAR END: 0131 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09389 FILM NUMBER: 96630658 BUSINESS ADDRESS: STREET 1: 1400 UNION MEETING ROAD CITY: BLUE BELL STATE: PA ZIP: 19422 BUSINESS PHONE: 2156192700 MAIL ADDRESS: STREET 1: 1400 UNION MEETING ROAD CITY: BLUE BELL STATE: PA ZIP: 19422 10-Q 1 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarter ended July 31, 1996 Commission File No. 1-9389 CHARTER POWER SYSTEMS, INC. (Exact name of Registrant as specified in its charter) Delaware 13-3314599 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1400 Union Meeting Road Blue Bell, Pennsylvania 19422 (Address of principal executive office) (Zip Code) (215) 619-2700 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO_____ Number of shares of the Registrant's Common Stock outstanding on September 9, 1996: 6,309,644 1 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES INDEX PART I. FINANCIAL INFORMATION Page No. Item 1 - Financial Statements Consolidated Balance Sheets - July 31, 1996 and January 31, 1996.................... 3 Consolidated Statements of Income - Three and Six Months Ended July 31, 1996 and 1995............................................. 5 Consolidated Statements of Cash Flows - Six Months Ended July 31, 1996 and 1995............... 6 Notes to Consolidated Financial Statements............ 8 Report of Independent Accountants..................... 14 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations..... 15 PART II. OTHER INFORMATION 18 SIGNATURES 19 2 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Dollars in thousands) (Unaudited) July 31, January 31, 1996 1996 ---- ---- ASSETS Current assets: Cash and cash equivalents................. $ 1,219 $ 5,472 Restricted cash and cash equivalents...... 1,805 5,402 Accounts receivable, less allowance for doubtful accounts of $1,429 and $1,421, respectively................. 38,436 31,855 Inventories............................... 41,764 35,227 Deferred income taxes..................... 5,823 6,235 Other current assets...................... 2,965 1,367 -------- -------- Total current assets........... 92,012 85,558 Property, plant and equipment, net.............. 49,061 39,375 Intangible and other assets, net................ 5,481 3,287 Goodwill, net................................... 11,388 2,607 -------- -------- Total assets................... $157,942 $130,827 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt......... $ 1,241 $ 200 Accounts payable.......................... 21,710 19,008 Accrued liabilities....................... 13,555 13,513 Other current liabilities................. 3,504 2,535 -------- -------- Total current liabilities...... 40,010 35,256 Deferred income taxes........................... 3,338 2,750 Long-term debt.................................. 29,752 15,417 Other liabilities............................... 9,304 8,478 -------- -------- Total liabilities.............. 82,404 61,901 -------- -------- The accompanying notes are an integral part of these statements. 3 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (continued) (Dollars in thousands) (Unaudited) July 31, January 31, 1996 1996 ---- ---- Commitments and contingencies Stockholders' equity: Common stock, $.01 par value, 10,000,000 shares authorized; 6,504,226 and 6,326,176 shares issued, respectively.................. 65 63 Additional paid-in capital................. 38,678 36,283 Minimum pension liability adjustment....... (760) (760) Treasury stock, at cost, 57,400 shares .... (1,304) (1,304) Notes receivable from stockholder, net of discount of $120............. (1,601) -- Cumulative translation adjustment.......... (126) -- Retained earnings.......................... 40,586 34,644 -------- -------- Total stockholders' equity...... 75,538 68,926 -------- -------- Total liabilities and stockholders' equity.......... $157,942 $130,827 ======== ======== The accompanying notes are an integral part of these statements. 4 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Dollars in thousands, except per share data)
(Unaudited) (Unaudited) Three months ended Six months ended July 31, July 31, 1996 1995 1996 1995 ---- ---- ---- ---- Net sales............................ $71,748 $63,381 $134,177 $122,158 Cost of sales........................ 56,467 48,057 103,775 93,042 ------- ------- -------- -------- Gross profit..................... 15,281 15,324 30,402 29,116 Selling, general and administrative expenses......... 8,653 7,382 16,096 14,447 Research and development expenses......................... 2,162 1,447 4,036 3,040 ------- ------- -------- -------- Operating income................. 4,466 6,495 10,270 11,629 Interest expense, net................ 291 294 553 525 Other expense, net................... 130 199 127 255 ------- ------- -------- -------- Income before income taxes....... 4,045 6,002 9,590 10,849 Provision for income taxes........... 1,395 2,072 3,294 3,744 ------- ------- -------- -------- Net income....................... $ 2,650 $ 3,930 $ 6,296 $ 7,105 ======= ======= ======== ======== Net income per common and common equivalent share.......... $ .40 $ .61 $ .96 $ 1.11 ======= ======= ======== ======== Weighted average common and common equivalent shares......... 6,602 6,434 6,576 6,414 ======= ======= ======= ======== Dividends per share.................. $0.0275 $0.0275 $0.0550 $ 0.0550 ======= ======= ======= ========
The accompanying notes are an integral part of these statements. 5 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in thousands) (Unaudited) Six months ended July 31, 1996 1995* ---- ---- Cash flows provided (used) by operating activities: Net income ..................................... $ 6,296 $ 7,105 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization............. 4,104 3,138 Deferred income taxes..................... 1,000 (342) Loss on disposal of assets................ 10 139 Changes in: Accounts receivable................. (3,976) (2,024) Inventories......................... 602 (6,418) Other current assets................ (391) (185) Accounts payable.................... 928 4,431 Accrued liabilities................. (1,654) (27) Income taxes payable................ (72) 78 Other current liabilities........... 477 (533) Other liabilities................... 609 799 Other, net................................ 63 (225) ------- ------- Net cash provided by operating activities........... 7,996 5,936 ------- ------- Cash flows provided (used) by investing activities: Acquisition of businesses, net of cash acquired..................................... (19,739) -- Acquisition of property, plant and equipment ... (8,847) (3,430) Change in restricted cash....................... 3,597 75 ------- ------- Net cash used by investing activities............... (24,989) (3,355) ------- ------- Cash flows provided (used) by financing activities: Repayment of long-term debt..................... (7,094) (2,223) Proceeds from new borrowings.................... 20,500 -- Proceeds from issuance of common stock.......... 739 368 Payment of common stock dividends............... (350) (492) Purchase of treasury stock...................... -- (317) Note receivable from stockholder in connection with issuance of common stock...... (1,057) -- ------- ------- The accompanying notes are an integral part of these statements. 6 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (continued) (Dollars in thousands) (Unaudited) Six months ended July 31, 1996 1995* ---- ---- Net cash provided (used) by financing activities.... 12,738 (2,664) ------- ------ Effect of exchange rate changes on cash............. 2 11 ------- ------ Decrease in cash and cash equivalents............... (4,253) (72) Cash and cash equivalents at beginning of period........................................ 5,472 1,097 ------- ------ Cash and cash equivalents at end of period.......... $ 1,219 $1,025 ======= ====== SUPPLEMENTAL CASH FLOW DISCLOSURES Interest paid, net.................................. $ 593 $ 701 Income taxes paid................................... 2,368 4,008 SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES Acquired businesses: Estimated fair value of assets acquired....... $14,565 $ -- Goodwill and identifiable intangible assets . ................................... 11,661 -- Purchase price obligations.................... (1,160) -- Cash paid, net of cash acquired............... (19,739) -- ------- ------ Liabilities assumed........................... $ 5,327 $ -- ======= ====== Dividends declared but not paid..................... $ 177 $ -- Note receivable from stockholder in connection with issuance of common stock..................... $ 664 $ -- * Reclassified for comparative purposes. The accompanying notes are an integral part of these statements. 7 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Dollars in thousands) (UNAUDITED) 1. INTERIM STATEMENTS The accompanying interim consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto contained in the Company's Annual Report to Shareholders for the fiscal year ended January 31, 1996. The consolidated financial statements presented herein are unaudited but, in the opinion of management, include all necessary adjustments (which comprise only normal recurring items) required for a fair presentation of the consolidated financial position as of July 31, 1996 and the consolidated statements of income for the three and six months ended July 31, 1996 and 1995 and the consolidated statements of cash flows for the six months ended July 31, 1996 and 1995. However, interim results of operations necessarily involve more estimates than annual results and are not indicative of results for the full fiscal year. 2. INVENTORIES Inventories consisted of the following: July 31, January 31, 1996 1996 ---- ---- Raw materials ........................... $18,817 $14,033 Work-in-progress ........................ 11,277 9,357 Finished goods .......................... 11,670 11,837 ------- ------- $41,764 $35,227 ======= ======= 3. INCOME TAXES A reconciliation of the provision for income taxes from the statutory rate to the effective rate is as follows: Six months ended July 31, 1996 1995 ---- ---- U.S. statutory income tax ...................... 35.0% 35.0% State tax, net of federal income tax benefit.... 3.3 3.7 Reduction in valuation allowance................ -- (3.8) Reduction of taxes provided in prior years...... (3.1) -- Other........................................... (0.9) (0.4) ---- ---- 34.3% 34.5% ==== ==== 8 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands) (UNAUDITED) 4. CONTINGENT LIABILITIES With regard to the following contingent liabilities there have been no material changes since January 31, 1996. Because the Company uses lead and other hazardous substances in its manufacturing processes, it is subject to numerous federal, Canadian, Mexican, state and local laws and regulations that are designed to protect the environment and employee health and safety. These laws and regulations include requirements of periodic reporting to governmental agencies regarding the use and disposal of hazardous substances and compliance with rigorous criteria regarding exposure to employees and the disposal of scrap. In the opinion of the Company, the Company complies in all material respects with these laws and regulations. Notwithstanding such compliance, if damage to persons or the environment has been or is caused by hazardous substances used or generated in the conduct of the Company's business, the Company may be held liable for the damage and be required to pay the cost of remedying the same, and the amount of any such liability might be material to the results of operations or financial condition. However, under the terms of the purchase agreement with Allied for the Acquisition of the Company (the Acquisition Agreement), Allied is obligated to indemnify the Company for any liabilities of this type resulting from conditions existing at January 28, 1986 that were not disclosed by Allied to the Company in the schedules to the Acquisition Agreement. The Company, along with numerous other parties, has been requested to provide information to the United States Environmental Protection Agency (the EPA) in connection with investigations of the source and extent of contamination at several lead smelting facilities (the Third Party Facilities) to which the Company had made scrap lead shipments for reclamation prior to the date of the Acquisition. As of January 16, 1989, the Company, with the concurrence of Allied, entered into an agreement with other potentially responsible parties (PRPs) relating to remediation of a portion of one of the Third Party Facilities, the former NL Industries (NL), facility in Pedricktown, New Jersey (the NL Site), which agreement provides for their joint funding on a proportionate basis of certain remedial investigation and feasibility study activities with respect to that site. 9 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands) 4. CONTINGENT LIABILITIES (continued) In fiscal 1993 in accordance with an EPA order, a group comprised of the Company and 30 other parties commenced work on the cleanup of a portion of the NL Site based on a specified remedial approach which is now completed. Based on currently available information and well defined contribution levels of the other parties, including NL Industries, the Company does not expect to incur costs in excess of the $138 previously reserved. With regard to the remainder of the NL Site, the EPA is pursuing negotiations with NL and the other PRPs, including the Company, regarding the conduct and funding of the remedial work plan. The EPA has proposed a cost allocation plan, however, the allocation percentages between parties and the basis for allocation of cost are not defined in the plan or elsewhere. Therefore, a reliable range of the potential cost to the Company of this phase of the clean-up cannot currently be determined. Accordingly, the Company has not created any reserve for this potential exposure. The remedial investigation and feasibility study at a second Third Party Facility, the former Tonolli Incorporated facility at Nesquehoning, Pennsylvania (the Tonolli Site), was completed in fiscal 1993. The EPA and the PRPs are continuing to evaluate the draft remedial design work plan for the site. Based on the estimated cost of the remedial approach selected by the EPA, the Company believes that the potential cost of remedial action at the Tonolli Site is likely to range between $16,000 and $17,000. The Company's allocable share of this cost has not been finally determined, and will depend on such variables as the financial capability of various other PRPs to fund their respective allocable shares of the remedial cost. Based on currently available information, however, the Company believes that its most likely exposure with respect to the Tonolli Site will be the approximately $579 previously reserved, the majority of which is expected to be paid over the next three to five years. The Company has responded to requests for information from the EPA with regard to three other Third Party Facilities, one in September 1991, one (the Chicago Site) in October 1991 and the third (the ILCO Site) in October 1993. Of the three sites, the Company has been identified as a PRP at the ILCO and Chicago Sites only. Based on currently available information, the Company believes that the potential cost of remediation at the ILCO Site is likely to range between $54,000 and $59,000 (based on the estimated costs of the remedial approach selected by the EPA). The Company's allocable share of this cost has not been finally determined and will depend on such variables as the financial capability of various other PRPs to fund their respective allocable shares of 10 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands) 4. CONTINGENT LIABILITIES (continued) the remedial cost. However, on October 31, 1995 the Company received confirmation from the EPA that it is a de minimis PRP at the ILCO Site. Based on currently available information, however, the Company believes that its most likely exposure with respect to the ILCO Site is an immaterial amount which has been previously reserved, the majority of which is expected to be paid over the next three to five years. Based on currently available information, the Company believes that the potential cost of the remediation at the Chicago Site is likely to range between $8,000 and $10,500 (based on the preliminary estimated costs of the remediation approach negotiated with the EPA). Sufficient information is not available to determine the Company's allocable share of this cost. Based on currently available information, however, the Company believes that its most likely exposure with respect to the Chicago Site will be the approximately $283 previously reserved, the majority of which is expected to be paid over the next two to five years. Allied has accepted responsibility under the Acquisition Agreement for potential liabilities relating to all Third Party Facilities other than the aforementioned Sites. Based on currently available information, management of the Company believes that the foregoing will not have a material adverse effect on the Company's financial condition or results of operations. 5. ACQUISITIONS Effective February 22, 1996 the Company acquired certain equipment and inventory of LH Research, Inc. used in their power supply business, along with all rights to the name "LH Research," for approximately $4,100, subject to certain adjustments. The Company used available cash to finance the acquisition. The acquisition has been recorded using the purchase method of accounting and the net purchase price approximates the fair value of the assets acquired. The results of operations are included in the Company's consolidated financial statements from the date of acquisition. Effective March 12, 1996, the Company acquired from Burr-Brown Corporation its entire interest in Power Convertibles Corporation (PCC) consisting of 1,044,418 shares of PCC common stock and all outstanding preferred stock. In addition the Company acquired or repaid approximately $5,200 of indebtedness of PCC. On April 26, 1996, the Company 11 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands, except per share data) 5. ACQUISITIONS (continued) acquired 190,000 shares of PCC common stock from the former chief executive officer of PCC which together with the shares previously acquired represents in excess of 99.6% of the outstanding PCC common stock. As of May 29, 1996, the Company purchased all remaining shares of PCC common stock and shares of PCC common stock covered by stock options. The source of funds for the acquisition was advances under the Company's existing credit facility with NationsBank, N.A., National Westminster Bank, NJ and CoreStates Bank, N.A. PCC is engaged in the business of designing and manufacturing DC to DC converters used in communications, computer, medical and industrial and instrumentation markets and also produces battery chargers for cellular phones. The acquisition has been recorded using the purchase method of accounting. The aggregate purchase price of approximately $17,000 has been allocated on the basis of the estimated fair market values of the assets acquired and liabilities assumed. The excess of the aggregate purchase price over the estimated fair market values of the net assets acquired was recognized as goodwill and is being amortized over a period of 20 years. The results of operations are included in the Company's consolidated financial statements from the date of acquisition. The following unaudited pro forma financial information combines the consolidated results of operations as if both acquisitions had occurred as of the beginning of the periods presented. Pro forma adjustments include only the effects of events directly attributed to a transaction that are factually supportable and expected to have a continuing impact. The pro forma adjustments contained in the table below include amortization of intangibles, interest expense on the acquisition debt, elimination of interest expense on debt not acquired, reduction of certain selling, general and administrative expenses and the related income tax effects. Six months ended July 31, 1996 1995 ---- ---- Net sales $136,100 $142,657 Net income 6,042 6,545 Net income per common and common equivalent share $ .92 $ 1.02 12 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) (Dollars in thousands) 5. ACQUISITIONS (continued) The pro forma financial information does not necessarily reflect the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor is such information indicative of future operating results. In addition, the pro forma financial results contain estimates since the acquired businesses did not maintain information on a period comparable with the Company's fiscal year-end. 13 REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of Charter Power Systems, Inc. We have reviewed the accompanying consolidated balance sheet of Charter Power Systems, Inc. and Subsidiaries as of July 31, 1996, the related consolidated statements of income for the three and six months ended July 31, 1996 and 1995 and the related consolidated statements of cash flows for the six months ended July 31, 1996 and 1995. These financial statements are the responsibility of the Company's management. We conducted our review in accordance with standards established by the American Institute of Certified Public Accountants. A review of interim financial information consists principally of applying analytical procedures to financial data and making inquiries of persons responsible for financial and accounting matters. It is substantially less in scope than an audit conducted in accordance with generally accepted auditing standards, the objective of which is the expression of an opinion regarding the financial statements taken as a whole. Accordingly, we do not express such an opinion. Based on our review, we are not aware of any material modifications that should be made to the accompanying consolidated financial statements for them to be in conformity with generally accepted accounting principles. We have previously audited, in accordance with generally accepted auditing standards, the consolidated balance sheet as of January 31, 1996 and the related consolidated statements of income, stockholders' equity and cash flows for the year then ended (not presented herein); and in our report dated March 22, 1996, we expressed an unqualified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying consolidated balance sheet as of January 31, 1996, is fairly presented, in all material respects, in relation to the consolidated balance sheet from which it has been derived. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania August 29, 1996 14 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company completed two acquisitions during the first quarter of fiscal 1996. Effective February 22, 1996, the Company purchased certain equipment and inventory of LH Research, Inc., ("LH") a Costa Mesa, California based manufacturer of standard power supply systems for the electronics industry. The power supplies are used in telecommunications, computer, medical, process control and other industrial applications. Effective March 12, 1996, the Company acquired from Burr-Brown Corporation its entire interest in Power Convertibles Corporation ("PCC") consisting of 1,044,418 shares of PCC common stock and all outstanding preferred stock. In addition the Company acquired or repaid approximately $5,200,000 of indebtedness of PCC. On April 26, 1996, the Company acquired 190,000 shares of PCC Common Stock from the former chief executive officer of PCC, which together with shares previously acquired by the Company represented in excess of 99.6% of the outstanding PCC Common Stock. As of May 29, 1996 the Company purchased all remaining shares of PCC Common Stock and shares of PCC Common Stock covered by stock options. Tucson, Arizona based PCC produces DC to DC converters used in communications, computer, medical and industrial and instrumentation markets and also produces battery chargers for cellular phones. Net sales for the fiscal 1997 second quarter and six months ended July 31, 1996 increased $8,367,000 or 13 percent and $12,019,000 or 10 percent, respectively, compared to the equivalent periods in fiscal 1996. Sales for the second quarter and half year of fiscal 1997 increased as a result of sales recorded by the Company's PCC and LH subsidiaries, coupled with lower motive power and power supplies sales, partially offset by higher sales to the telecommunications industry. Sales resulting from the acquisitions completed earlier this year were approximately $9,000,000 and $14,000,000 for the quarter and six months ended July 31, 1996, respectively. On a company wide basis, sales to the telecommunications market increased approximately 32 percent and 28 percent for the fiscal 1997 second quarter and six months ended July 31, 1996, respectively. Sales of motive power products were down 19 percent for the current quarter and 18 percent for the first half of fiscal 1997 due to lower volumes partially offset by higher prices. Gross profit was flat for the second quarter of fiscal 1997 and increased $1,286,000 or 4 percent for the six-month period ended July 31, 1996. Gross margins decreased to 21.3 percent from 24.2 percent for the quarter and to 22.7 percent from 23.8 percent for the year to date. Gross profit for the second quarter and for the six months ended July 31, 1997 were unfavorably impacted by non-recurring charges for relocating an electronics business from 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) Seattle, Washington to Tucson, Arizona and Dunlap, Tennessee, costs related to the failure of plastic casings used in Charter Power batteries, higher materials costs experienced by the electronics business and lower motive power sales. Selling, general and administrative expenses remained proportional to sales at 12 percent of sales for the second quarter and half year of both fiscal 1997 and 1996. Research and development expenses increased $715,000 for the second quarter and $996,000 for the six months ended July 31, 1996 primarily as a result of the acquisitions. Interest expense, net, remained relatively flat for the quarter and six months ended July 31, 1996 due to higher debt balances, offset by lower effective rates and higher capitalized interest related to the plant expansions at the Company's Conyers, Georgia and Leola, Pennsylvania locations. As a result of the above, income before income taxes decreased 33 percent for the second quarter of fiscal 1997 and 12 percent for the six-month period ended July 31, 1996 versus the comparable periods of the prior year. Net income for the quarter decreased 33 percent to $2,650,000 or 40 cents per share, while for the six-month period, net income decreased 11 percent to $6,296,000 or 96 cents per share. LIQUIDITY AND CAPITAL RESOURCES Net cash flows provided by operating activities increased 35 percent to $7,996,000 for the six-month period ended July 31, 1996 compared to $5,936,000 in the comparable period of the prior year. This increase was primarily due to a decrease in inventory levels during the first six months of fiscal 1997 (versus an increase in inventory and associated higher payables during the comparable prior year period), partially offset by a larger increase in accounts receivables resulting from higher sales levels during fiscal 1997. Also contributing to the increase were changes in deferred taxes due to the timing of the deductibility of exercised stock options and an increase in other current liabilities resulting from recording deferred revenue. Partially offsetting these increases was a larger reduction in accrued liabilities, which included cash payments related to certain liabilities established on the opening balance sheets of the aforementioned acquisitions. Net cash used by investing activities totaling $24,989,000 for the six-month period ended July 31, 1996 includes the purchase by the Company of PCC and certain equipment and inventory of LH for $19,739,000. Acquisition of property, plant and equipment during the first six months of fiscal 1997 increased by $5,417,000 over the comparable period of the 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (continued) prior year, primarily due to the plant capacity expansion programs at the Company's Conyers, Georgia and Leola, Pennsylvania facilities. The change in restricted cash resulted from the use of proceeds obtained from the Development Authority of Rockdale County Industrial Development Revenue Bonds, obtained in fiscal 1996, to finance the Company's expansion of the Conyers, Georgia plant. Net cash provided by financing activities was $12,738,000 for the six-month period ended July 31, 1996 compared to net cash used by financing activities of $2,664,000 for the comparable prior year period. The additional borrowings in the current year's six month period were used primarily for the funding of the aforementioned acquisitions. The reduction of long-term debt occurred primarily as a result of the Company's election to accelerate the retirement of the remaining term loan portion of its long-term debt during the first quarter of fiscal 1997. The Company's availability under the current loan agreement is expected to be sufficient to meet its ongoing cash needs for working capital requirements, debt service, capital expenditures and possible strategic acquisitions. Capital expenditures in the first six months of fiscal 1997 were incurred primarily to fund capacity expansion, new product development, a continuing series of cost reduction programs, normal maintenance capital, and regulatory compliance. Fiscal 1997 capital expenditures are expected to be approximately $17,000,000 for similar purposes. FORWARD LOOKING STATEMENTS Certain information contained in this Quarterly Report on Form 10-Q, including, without limitation, information appearing under Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," are forward-looking statements (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Factors that appear with the forward-looking statements, or in the Company's other Securities and Exchange Commission filings, could affect the Company's actual results and could cause the Company's actual results to differ materially from those expressed in any forward-looking statements made by the Company in this Quarterly Report on Form 10-Q. 17 PART II. OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders (a) The Company held its annual meeting of shareholders on July 25, 1996. (b) See Item 4(c) below. (c) Each of David Beretta, Glenn M. Feit and John A. H. Shober was elected as a director by a vote of 5,418,755 for and 22,154 withheld. Alfred Weber was elected as a director by a vote of 5,418,405 for and 22,504 withheld. Warren A. Law was elected as a director by a vote of 5,418,705 for with 22,204 withheld. William Harral, III was elected as a director by a vote of 5,417,905 for with 23,004 withheld. Alan G. Lutz was elected as a director by a vote of 5,417,855 for and 23,054 withheld. The Charter Power Systems, Inc. 1996 Stock Option Plan was approved by a vote of 3,314,597 for and 1,040,970 against with 7,995 abstentions and 1,077,347 broker non-votes. The appointment of Coopers & Lybrand L.L.P. as the Company's independent accountants for the year ending January 31, 1997 was ratified by a vote of 5,431,909 for and 4,200 against, with 4,800 abstentions. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.1 Charter Power Systems, Inc. 1996 Stock Option Plan (filed herewith). 10.2 Employment Agreement, dated as of April 1, 1996, and Pledge and Security Agreement and Reimbursement Agreement, each dated April 30, 1996, between Alfred Weber and the Company; Secured Promissory Note and Option Secured Promissory Note, each dated April 30, 1996, by Alfred Weber in favor of the Company (filed herewith). 11. Computation of per share earnings (filed herewith). 15. Letter from Coopers & Lybrand L.L.P., independent accountants for the Company, regarding unaudited interim financial information (filed herewith). 27. Financial Data Schedule (filed herewith). (b) Reports on Form 8-K: None 18 SIGNATURES - ------------------- Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CHARTER POWER SYSTEMS, INC. September 13, 1996 BY: /s/ Alfred Weber --------------------------------- Alfred Weber Chairman, President and Chief Executive Officer September 13, 1996 BY: /s/ Stephen E. Markert, Jr. ---------------------------------- Stephen E. Markert, Jr. Vice President Finance and Treasurer (Principal Financial and Accounting Officer) 19 EXHIBIT INDEX 10.1 Charter Power Systems, Inc. 1996 Stock Option Plan. 10.2 Employment Agreement, dated as of April 1, 1996, and Pledge and Security Agreement and Reimbursement Agreement, each dated April 30, 1996, between Alfred Weber and the Company; Secured Promissory Note and Option Secured Promissory Note, each dated April 30, 1996, by Alfred Weber in favor of the Company. 11. Computation of per share earnings. 15. Letter from Coopers & Lybrand L.L.P., independent accountants for the Company, regarding unaudited interim financial information. 27. Financial Data Schedule. 20 EX-10.1 2 EXHIBIT 10.1 CHARTER POWER SYSTEMS, INC. 1996 STOCK OPTION PLAN 1. PURPOSES The purposes of the Charter Power Systems, Inc. 1996 Stock Option Plan (the "Plan") are to aid Charter Power Systems, Inc. (the "Company") and its subsidiaries in attracting and retaining highly capable employees and to enable selected key employees of the Company and its subsidiaries to acquire or increase ownership interests in the Company on a basis that will encourage them to perform at increasing levels of effectiveness and use their best efforts to promote the growth and profitability of the Company and its subsidiaries. Consistent with these objectives, this Plan authorizes the granting to selected key employees of Incentive Stock Options and Nonqualified Stock Options to acquire shares of the Company's Common Stock, par value $.01 per share (the "Common Stock"), pursuant to the terms and conditions hereinafter set forth. As used herein the term "subsidiary" shall have the meaning ascribed to it under Section 424(f) of the Internal Revenue Code of 1986, as amended (the "Code"). 2. DEFINITIONS As used in this Plan, the following words shall have the following meanings: (a) "Board of Directors" means the Board of Directors of the Company; (b) "Incentive Stock Option" means a stock option to purchase shares of Common Stock which is intended to qualify as an incentive stock option as defined in Section 422(b) of the Code; (c) "Nonqualified Stock Option" means a stock option to purchase shares of Common Stock that is not an Incentive Stock Option; (d) "Option" means an Incentive Stock Option or a Nonqualified Stock Option. 3. EFFECTIVE DATE This Plan shall become effective on July 25, 1996 (the "Effective Date"), subject to approval of this Plan by the holders of a majority of the capital stock entitled to vote thereon (at the time of approval). In the event that this Plan is not so approved, it shall not become effective. 4. ADMINISTRATION (a) This Plan shall be administered by a committee (the "Committee"), which may be a subcommittee of the compensation committee, consisting of at least two members of the Board of Directors selected by the Board of Directors, or such greater number as the Board of Directors may from time to time determine. At the time of such selection, each such member shall not have been granted an Option under this Plan during the one-year period prior to the later of the Effective Date or such member's appointment to the Committee, or received stock or an option to purchase stock of the Company or any of its "affiliates" (as such term is defined under Rule 405 under the Securities Act of 1933, as amended) under any other plan maintained by the Company or any of its affiliates, except as may be otherwise provided in Rule 16b-3(c) under the Securities Exchange Act of 1934, as amended (the "Exchange Act") (or any successor rule). In addition, each such member shall qualify as an "outside director" as defined in Section 162(m) of the Code and the regulations thereunder. If, at any time, there are less than two members of the Committee eligible to serve in such capacity, the Board of Directors shall appoint one or more other eligible members of the Board of Directors to serve on the Committee. All Committee members shall serve, and may be removed, at the pleasure of the Board of Directors. (b) A majority of the members of the Committee (but not less than two) shall constitute a quorum, and any action taken by a majority of such members present at any meeting at which a quorum is present, or acts approved in writing by all such members, shall be the acts of the Committee. (c) Subject to the other provisions of this Plan, the Committee shall have full authority to decide when Options to acquire shares of Common Stock will be granted under this Plan, to select the key employees to whom the Options will be granted, to determine whether the Options to be granted will be Incentive Stock Options or Nonqualified Stock Options, and to determine the number of shares of Common Stock to be covered by each Option, the price at which such shares may be purchased upon the exercise of such Option (the "Option Exercise Price") and other terms and conditions of such purchase including Company, department and individual performance goals. In making those determinations, the Committee shall solicit the recommendations of the Chief Executive Officer of the Company and may take into account the key employee's present and potential contributions to the Company's business and any other factors which the Committee may deem relevant. Subject to the other provisions of this Plan, the Committee shall also have full authority to interpret this Plan and any stock option agreements evidencing Options granted hereunder, to issue rules for administering this Plan, to change, alter, amend or rescind such rules, and to make all other determinations necessary or appropriate for the administration of this Plan. All determinations, interpretations and constructions made by the Committee pursuant to this Section 4 shall be final and conclusive. No member of the Board of Directors or the Committee shall be liable for any action, determination or omission taken or made in good faith with respect to this Plan or any Option granted hereunder. 5. ELIGIBILITY (a) Subject to the provisions of Section 6 below, key employees of the Company and its subsidiaries (including officers and directors who are employees) shall be eligible to receive Options under this Plan. (b) The aggregate Fair Market Value (as such term is defined in Section 7(a) below), determined as of the Date of Grant (as such term is defined in Section 7(a) below), of the shares of stock with respect to which Incentive Stock Options (and incentive stock options under all other incentive stock option plans of the Company, its parent (if any) and its subsidiaries) are exercisable for the first time by an Optionee (as such term is defined in Section 7 below) during any calendar year may not exceed $100,000. (c) In addition to the foregoing, the maximum number of shares with respect to which Options may be granted to a person under this Plan during any calendar year may not exceed 100,000 (subject to the adjustments set forth in Section 6(b) below). To the extent that the maximum number of shares with respect to which Options may be granted to a person are not granted in a particular calendar year (beginning with the year in which the person receives his or her first grant of Options hereunder), such ungranted Options for that year shall increase the maximum number of shares with respect to which Options may be granted to such person in subsequent calendar years during the term of the Plan until used. 2 6. OPTION SHARES (a) The shares subject to Options granted under this Plan shall be shares of Common Stock and the aggregate number of shares with respect to which Options may be granted shall not exceed 500,000 shares (subject to the adjustments set forth in Section 6(b) below). If an Option expires, terminates or is otherwise surrendered, in whole or in part, the shares allocable to the unexercised portion of such Option shall again become available for grants of Options hereunder. Notwithstanding the foregoing, in order to comply with Section 162(m) of the Code, the Committee shall take into account that (1) if an Option is canceled, the canceled Option continues to be counted against the maximum number of shares for which Options may be granted to any person under the Plan in the original year of grant and (2) for purposes of Section 162(m) of the Code, if after the grant of an Option, the Committee or the Board of Directors reduces the Option Exercise Price, the transaction is treated as a cancellation of the Option and a grant of a new Option, and in such case, both the Option that is deemed to be canceled and the Option that is deemed to be granted reduce the maximum number of shares for which Options may be granted to the person under the Plan. As determined from time to time by the Board of Directors, the shares available under this Plan for grants of Options may consist either in whole or in part of authorized but unissued shares of Common Stock or shares of Common Stock which have been reacquired by the Company or a subsidiary following original issuance. (b) The aggregate number of shares of Common Stock as to which Options may be granted hereunder, as provided in Section 6(a) above, the number of shares covered by each outstanding Option and the Option Exercise Price shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split or other subdivision or consolidation of shares or other capital adjustment, or the payment of a stock dividend; provided, however, that any fractional shares resulting from any such adjustment shall be eliminated. Notwithstanding the foregoing, no adjustment shall be made upon the issuance of new shares of Common Stock for fair consideration including the conversion of shares of Preferred Stock. 7. TERMS AND CONDITIONS OF OPTIONS Each Option granted pursuant to this Plan shall be evidenced by a stock option agreement between the Company and the key employee to whom the Incentive Stock Option or Nonqualified Stock Option is granted (the "Optionee") in such form or forms as the Committee, from time to time, shall prescribe, which agreements need not be identical to each other but shall comply with and be subject to the following terms and conditions: (a) Option Exercise Price. The Option Exercise Price at which each share of Common Stock may be purchased pursuant to a Nonqualified Stock Option intended to be "performance-based" under Section 162(m) of the Code or an Incentive Stock Option shall not be less than 100% of the Fair Market Value for each such share on the date the Committee grants such Option (the "Date of Grant"). The Fair Market Value of the shares of Common Stock on any date the Common Stock is quoted on NASDAQ or listed upon an established stock exchange shall be, respectively, the closing bid price of the shares of Common Stock as quoted on NASDAQ on such date or the closing sale price of such shares as quoted on the stock exchange on which such shares are listed, or if shares of Common Stock were not traded on such date, on the next preceding trading day during which such shares were traded. If the Common Stock is not quoted on NASDAQ or listed (page 3 continues) on an established stock exchange, then the Fair Market Value shall be determined by such other method consistent with the Code and applicable regulations thereunder, as the Committee shall in its discretion select and apply at the time of grant of the Option concerned. Subject to the foregoing, the Committee in fixing the Option Exercise Price shall have full authority and discretion and 3 be fully protected in doing so. Anything contained in this Section 7(a) to the contrary notwithstanding, in the event that the number of shares of Common Stock subject to any Option is adjusted pursuant to Section 6(b) above, a corresponding adjustment shall be made in the Option Exercise Price per share. The Option Exercise Price at which each share of Common Stock may be purchased pursuant to a Nonqualified Stock Option, other than a Nonqualified Stock Option intended to be "performance-based" under Section 162(m) of the Code, shall be not less than the par value of each such share on the Date of Grant. (b) Duration of Options. Each Incentive Stock Option granted hereunder shall expire and all rights to purchase shares of Common Stock pursuant thereto shall cease on a date not later than the tenth anniversary of the Date of Grant of the Option, which date shall be fixed by the Committee. Each Nonqualified Stock Option granted hereunder shall expire and all rights to purchase shares of Common Stock pursuant thereto shall cease on a date not later than ten years and one day from the Date of Grant of the Option which date shall be fixed by the Committee. (The expiration date for the Incentive Stock Option and Nonqualified Stock Options may collectively be referred to herein as the "Expiration Date".) (c) Vesting of Options. Each Option granted hereunder shall vest at such time and in such amounts and based on lapse of time, or such Company, department or individual performance goals as the Committee may specify upon the grant thereof. Only Options which have vested may be exercised. Anything contained in this Section 7(c) to the contrary notwithstanding, unless the Committee shall specify otherwise, an Optionee shall become fully (100%) vested in each of his or her Options upon his or her termination of employment with the Company or any of its subsidiaries for reasons of death, disability or retirement. The Committee shall, in its sole discretion, determine whether or not disability or retirement has occurred. Notwithstanding the foregoing, the Committee at any time may in its sole discretion limit the number of Options that can be exercised in any taxable year of the Company, to the extent necessary to prevent the application of Section 162(m) of the Code (or any similar or successor provision), provided that the Committee may not postpone the earliest date on which Options can be exercised beyond the last day of the stated term of such Options. (d) Merger, Consolidation, etc. In the event the Company shall, pursuant to action by its Board of Directors, at any time propose to merge with or into, consolidate with, or sell or otherwise transfer all or substantially all of its assets to, another entity or in the event of the acquisition of all or substantially all of the Company's outstanding Common Stock by a single person or entity and/or group of entities acting in concert and provision is not made pursuant to the terms of such transaction for (i) the continuation or assumption by the surviving, resulting or acquiring entity of all outstanding Options, (ii) the substitution of new options therefor, or (iii) the payment of cash or other consideration in respect thereof, the Committee shall cause written notice of the proposed transaction to be given to each Optionee not less than 30 days prior to the anticipated effective date of the proposed transaction. On a date which the Committee shall specify in such notice, which date shall not be less than 10 days prior to the anticipated effective date of the proposed transaction, each Optionee's Options shall become fully (100%) vested and each Optionee shall have the right to exercise his or her Options to purchase any or all shares then subject to such Options (conditioned on the consummation of the proposed transaction). If the transaction is consummated, each Option, to the extent not previously exercised prior to the effective date of the transaction, (page 4 continues) shall terminate on such effective date. If the transaction is abandoned or otherwise not consummated then, to the extent that any Option not exercised prior to such abandonment or termination shall have vested solely by operation of this Section 7(d), such vesting shall be annulled and be of no further force or effect, and the vesting period set forth in Section 7(c) above shall be re-instituted, as of the date of such abandonment or termination. 4 (e) Exercise of Options. A person entitled to exercise an Option may exercise it in whole at any time, or in part from time to time, by delivering to the Company at its principal office, directed to the attention of its Treasurer, written notice specifying the number of shares of Common Stock with respect to which the Option is being exercised, together with payment in full of the purchase price for such shares. Such payment shall be made in cash or by certified check or bank draft to the order of the Company; provided, however, that the Committee may, in its sole discretion, authorize such payment, in whole or in part, in any other form, including payment by personal check or by the exchange of shares of Common Stock of the Company previously acquired by the person entitled to exercise the Option and having a Fair Market Value on the date of exercise equal to the price for which the shares of Common Stock may be purchased pursuant to the Option. Subject to applicable securities laws, the Committee may also permit "cashless exercise" of Options through the delivery of irrevocable instructions to a broker to deliver promptly to the Company an amount equal to the aggregate Option Exercise Price plus all applicable tax withholding by payment through a cash or margin arrangement with such broker. (f) Nontransferability. Options shall not be transferable other than by will or the laws of descent and distribution and no Option may be exercised by anyone other than the Optionee, except that, if the Optionee dies or becomes incapacitated, the Option may be exercised by his or her estate, legal representative or beneficiary, as the case may be, subject to all other terms and conditions contained in this Plan. (g) Termination and Employment. Unless the Committee shall specify otherwise, the following rules shall apply in the event of an Optionee's termination of employment with the Company or any of its subsidiaries: (i) In the event of an Optionee's termination of employment with the Company or any of its subsidiaries either (1) by the Company or any of its subsidiaries for cause given by the Optionee, or (2) voluntarily on the part of the Optionee, his or her Options shall immediately terminate. (ii) In the event of an Optionee's termination of employment with the Company or any of subsidiaries for reason of retirement or under circumstances other than those specified in Section 7(g)(i) immediately above, and for reasons other than death or disability, such Options shall terminate three months after the date of such termination of employment or on their respective Expiration Dates, whichever shall first occur; provided, however, that if the Optionee dies within such 3 month period, the time period set forth in Section 7(g)(iii) immediately below shall apply. (iii) In the event of the death or disability of an Optionee while such Optionee is employed by the Company or any of its subsidiaries, such Options shall terminate on the first anniversary of the Optionee's death or disability, as the case may be, or on their respective Expiration Dates, whichever shall first occur. (iv) Anything contained in this Section 7(g) to the contrary notwithstanding, an Option may only be exercised following the Optionee's termination of employment with the Company or any of its subsidiaries for reasons other than death, disability or retirement if, and to the extent that, such Option was exercisable immediately prior to such termination of employment. (page 5 continues) (v) An Optionee's transfer of employment between the Company and any of its subsidiaries or between subsidiaries shall not constitute a termination of employment and the Committee shall determine in each case whether an authorized leave of absence for military service 5 or otherwise shall constitute a termination of employment. Furthermore, the Committee may in its discretion determine that, if an Optionee provides consulting services to the Company after his or her cessation of employment, the Optionee's employment will be deemed, for purposes of Options held by him or her, to continue until the termination of his or her consulting services or at such earlier time as the Committee may determine. (h) No Rights as Stockholder or to Continued Employment. No Optionee shall have any rights as a stockholder of the Company with respect to any shares covered by an Option prior to the date of issuance to such Optionee of the certificate or certificates for such shares, and neither this Plan nor any Option granted hereunder shall confer upon an Optionee any right to continuance of employment by the Company or any of its subsidiaries or interfere in any way with the right of the Company or of its subsidiaries to terminate the employment of such Optionee. 8. TEN PERCENT STOCKHOLDERS The Committee shall not grant an Incentive Stock Option to an individual who owns, at the time such Option is granted (directly or by attribution pursuant to Section 424(d) of the Code), shares of capital stock of the Company possessing more than 10% of the voting power of all classes of capital stock of the Company unless, at the time such Option is granted, the price at which each share of Common Stock may be purchased pursuant to the Option is at least 110% of the Fair Market Value for each such share on the Date of Grant and such Option, by its terms, is not exercisable after the expiration of five years from the Date of Grant. 9. ISSUANCE OF SHARES; RESTRICTIONS (a) Subject to the conditions and restrictions provided in this Section 9, the Company shall, within 20 business days after an Option has been duly exercised in whole or in part, deliver to the person who exercised the Option one or more certificates, registered in the name of such person, for the number of shares of Common Stock with respect to which the Option has been exercised. The Company may legend any stock certificate issued hereunder to reflect any restrictions provided for in this Section 9. (b) Unless the shares subject to Options granted under the Plan have been registered under the Securities Act of 1933, as amended (the "Act") (and, in the case of any Optionee who may be deemed an "affiliate" of the Company as such term is defined in Rule 405 under the Act, such shares have been registered under the Act for resale by such Optionee), or the Company has determined that an exemption from registration under the Act is available, the Company may require prior to and as a condition of the issuance of any shares of Common Stock, that the person exercising an Option hereunder furnish the Company with a written representation in a form prescribed by the Committee to the effect that such person is acquiring such shares solely with a view to investment for his or her own account and not with a view to the resale or distribution of all or any part thereof, and that such person will not dispose of any of such shares otherwise than in accordance with the provisions of Rule 144 under the Act unless and until either such shares are registered under the Act or the Company is satisfied that an exemption from such registration is available. (page 6 continues) (c) Anything contained herein to the contrary notwithstanding, the Company shall not be obligated to sell or issue any shares of Common Stock pursuant to the exercise of an Option granted hereunder unless and until the Company is satisfied that such sale or issuance complies with all applicable provisions of the Act and all other laws or regulations by which the Company is bound or to which the Company or such shares are subject. 6 10. SUBSTITUTE OPTIONS Anything contained herein to the contrary notwithstanding, Options may, at the discretion of the Board of Directors, be granted under this Plan in substitution for options to purchase shares of capital stock of another corporation which is merged into, consolidated with, or all or a substantial portion of the property or stock of which is acquired by, the Company or a subsidiary. 11. TERM OF THE PLAN Unless the Plan has been sooner terminated pursuant to Section 12 below, this Plan shall terminate on, and no Options shall be granted after, the tenth anniversary of the Effective Date. The provisions of this Plan, however, shall continue thereafter to govern all Options theretofore granted, until the exercise, expiration or cancellation of such Options. 12. AMENDMENT AND TERMINATION OF PLAN The Board of Directors at any time may terminate this Plan or amend it from time to time in such respects as it deems desirable; provided, however, that, without the further approval of the stockholders of the Company, no amendment shall (i) increase the maximum aggregate number of shares of Common Stock with respect to which Options may be granted under this Plan (except by operation of Section 6(b)), (ii) increase the maximum individual number of shares of Common Stock with respect to which Options may be granted in any calendar year under this Plan (except by operation of Section 6(b)), (iii) decrease the Option Exercise Price provided for in Section 7(a) hereof, (iv) change the eligibility provisions of Section 5 hereof, or (v) effect any change that would require stockholder approval under Section 162(m) of the Code or Rule 16b-3 under the Exchange Act and provided, further, that, subject to the provisions of Section 9 hereof, no termination of or amendment hereto shall adversely affect the rights of an Optionee or other person holding an Option theretofore granted hereunder without the consent of such Optionee or other person, as the case may be. 7 EX-10.2 3 CHARTER POWER SYSTEMS, INC. 1400 Union Meeting Road Blue Bell, Pa. 19422-0858 Mr. Alfred Weber 2583 Cold Spring Road Lansdale, Pennsylvania 19446 As of April 1, 1996 Dear Mr. Weber: Charter Power Systems, Inc., a Delaware corporation (the "Company"), agrees to continue to employ Alfred Weber ("you" or the "Executive") and you agree to continue such employment, under the following terms and conditions: 1. TERM OF EMPLOYMENT. Except for earlier termination as provided in Section 5 or 11 below, your employment under this Agreement, and the term of this Agreement, shall be for an initial period commencing as of April 1, 1996 (the "Effective Date") and terminating on March 31, 1999 (the "Initial Term"). After the Initial Term, this Agreement and your employment hereunder shall be renewed automatically for successive terms of one year each (each, a "Renewal Term"), unless prior to the end of the Initial Term or any Renewal Term either party shall have given to the other party at least three months' prior written notice (a "Termination Notice") of termination of this Agreement. If a Termination Notice is given by either party, (a) the Company shall, without any liability to you, have the right, exercisable at any time after the 1 Termination Notice is given, to elect any other person to the office or offices in which you are then serving and to remove you from such office or offices, but (b) except for Sections 3 and 6, all other obligations each of you and the Company have to the other, including the Company's obligation to pay your compensation and make available the benefits to which you are entitled hereunder, shall continue until the end of the Initial Term or any Renewal Term, as the case may be. 2. COMPENSATION. You shall be compensated for performance of your obligations under this Agreement at a rate of not less than $400,000 per annum (such salary, as adjusted from time to time, hereinafter referred to as the "Base Salary"), payable in such manner as is consistent with the Company's payroll practices for executive employees. The Base Salary shall be increased each year, on April 1, 1997, April 1, 1998 and April 1, 1999 (if this Agreement continues after the Initial Term), by $35,000 per annum. Any increase in the Base Salary after March 31, 2000, if this Agreement shall be in effect, shall be determined by the Company's Board of Directors or Compensation Committee in its discretion; provided that in no event shall the Base Salary be decreased at any time. 3. DUTIES. (a) During the term of your employment hereunder, including any Renewal Term hereof, you shall serve and the Company shall employ you as the Chairman of the Board, President and Chief Executive Officer of the Company with such executive duties and responsibilities consistent with such positions and stature as the Board of Directors from time to time 2 may determine. You shall report to, and act under the general direction of, the Board of Directors of the Company. You shall be nominated, on an annual basis so long as you continue to be employed hereunder, for election as a director of the Company and, if elected, you shall serve as a director. In addition, at the request of the Board of Directors, you shall serve as an officer and/or director of any of the Company's subsidiaries, in all cases in conformity with the by-laws and the policies of the Board of Directors of each such corporation, without additional compensation. (b) You shall be required to devote your entire business time and energies during normal business hours to the business and affairs of the Company and its subsidiaries. Nothing in this Section shall be construed as prohibiting you from investing your personal assets in businesses in which your participation is solely that of a passive investor in such form or manner as will not violate Section 8 hereof or require any services on your part in the operation or affairs of those businesses. You may also participate in philanthropic or civic activities so long as they do not materially interfere with your performance of your duties hereunder. (c) You shall be subject to the Company's rules, practices and policies applicable to the Company's senior executive employees, except to the extent the same are inconsistent with any of the express provisions hereof. 3 4. BENEFITS. (a) You shall have the benefit of and be entitled to participate in such employee benefit plans and programs, including life, disability and medical insurance, pension, savings, retirement and other similar plans, as the Company now has or hereafter may establish from time to time, and in which you would be entitled to participate pursuant to the terms thereof. The foregoing, however, shall not be construed to require the Company to establish any such plans or to prevent the Company from modifying or terminating any such plans, and no such action or failure thereof shall affect this Agreement. (b) You shall be entitled (i) to participate in the Company's Incentive Compensation Plan each year in accordance with criteria and for amounts approved by the Compensation Committee, and (ii) to be granted options, to the extent (if any) approved by the Compensation Committee or the relevant Option Committee, under the Company's stock option plans in effect from time to time. (c) You shall be entitled to four weeks of vacation each year. (d) The Company shall reimburse you annually for up to $5,000 of fees and expenses incurred by you for personal tax and financial planning advice, upon presentation by you of appropriate substantiation of such fees and expenses. The Company also shall reimburse you for any reasonable legal fees incurred by you in the negotiation and preparation of this Agreement. 4 (e) The Company shall provide you with a leased automobile of reasonable size and quality suitable to your position. 5. CHANGE OF CONTROL. In the event of a Change of Control Termination of this Agreement, you shall be entitled to certain payments and benefits, as provided in Exhibit A hereto. 6. WORKING AND OTHER FACILITIES. During the Initial Term and any Renewal Term, you shall be provided with such working facilities and other support services as are suitable to your position and appropriate for the performance of your duties. In the event the Company's principal executive offices are relocated to a location more than fifty (50) miles from your residence, the Company shall reimburse your moving expenses (including reasonable costs relating to any interim living accommodations). 7. EXPENSES. The Company shall reimburse you for all reasonable expenses incurred by you in connection with your employment hereunder, and vouchered by you to the Company in accordance with its expense reimbursement practice. 8. RESTRICTIVE COVENANTS. (a) During such time as you shall be employed by the Company, and for a period of one year thereafter, you shall not, without the written consent of the Board of Directors, directly or indirectly, become associated with, render services to, invest in, represent, advise or otherwise participate as an officer, employee, director, 5 stockholder, partner or agent of, or as a consultant for, any business within the United States, Canada or Mexico which is competitive with the business in which the Company is engaged at the time your employment with the Company ceases (a "Competitive Business"); PROVIDED, HOWEVER, that (i) nothing herein shall prevent you from investing without limit in the securities of any company listed on a national securities exchange or quoted on the NASDAQ quotation system, PROVIDED that your involvement with any such company is solely that of a stockholder, and (ii) nothing herein is intended to prevent you from being employed during the one-year period following the termination of your employment with the Company by any business other than a Competitive Business. (b) The parties hereto intend that the covenant contained in this Section 8 shall be deemed a series of separate covenants for each appropriate jurisdiction. If, in any judicial proceeding, a court shall refuse to enforce all the separate covenants deemed included in this Section 8 on grounds that, taken together, they cover too extensive a geographic area, the parties intend that those covenants (taken in order of the jurisdictions that are the least populous) that, if eliminated would permit the remaining separate covenants to be enforced in that proceeding, shall, for the purpose of such proceeding, be deemed eliminated from the provisions of this Section 8. 9. CONFIDENTIALITY, NONINTERFERENCE AND PROPRIETARY INFORMATION. (a) In the course of your employment by the Company hereunder, you will have access to confidential or 6 proprietary data or information of the Company. You shall not at any time divulge or communicate to any person, nor shall you direct any Company employee to divulge or communicate to any person (other than to a person bound by confidentiality obligations similar to those contained herein and other than as necessary in performing your duties hereunder) or use to the detriment of the Company or for the benefit of any other person, any of such confidential or proprietary data or information, except to the extent the same (i) becomes publicly known other than through a breach of this Agreement by you, (ii) was known to you prior to the disclosure thereof by the Company to you or (iii) is subsequently disclosed to you by a third party who shall not have received it under any obligation of confidentiality to the Company. The provisions of this Section 9(a) shall survive your employment hereunder, whether by the normal expiration thereof or otherwise, for as long as such data or information remains confidential. The term "confidential or proprietary data or information" as used in this Agreement shall mean data or information not generally available to the public, including personnel information, financial information, customer lists, supplier lists, product and trading specifications, trade secrets, information concerning product composition and formulas, tools and dies, drawings and schematics, manufacturing processes, information regarding operations, systems and services, knowhow, computer and any other processed or collated data, computer programs, and pricing, marketing, sales and advertising data. 7 (b) You shall not, during the term of this Agreement and for a period of one year after the termination of your employment by the Company, for your own account or for the account of any other person, interfere with the Company's relationship with any of its suppliers, customers or employees; PROVIDED, however, that you shall not be prohibited from contacting suppliers or customers after termination of your employment with regard to matters that do not violate your noncompetition or confidentiality obligations contained in Sections 8(a) and 9(a); and, PROVIDED further that such contacts do not interfere with the Company's relationship with such parties. (c) You shall at all times promptly disclose to the Company, in such form and manner as the Company reasonably may require, any inventions, improvements or procedural or methodological innovations, programs, methods, forms, systems, services, designs, marketing ideas, products or processes (whether or not capable of being trade-marked, copyrighted or patented) conceived or developed or created by you during and in connection with your employment hereunder and which relate to the business of the Company ("Intellectual Property"). All such Intellectual Property shall be the sole property of the Company. You shall execute such instruments and perform such acts as reasonably may be requested by the Company to transfer to and perfect in the Company all legally protectable rights in such Intellectual Property. If the Company is unable for any reason to secure your signature on such instruments, you irrevocably 8 appoint the Company and its duly authorized officers and agents as your agents and attorneys-in-fact to execute such instruments and to do such things with the same legal force and effect as if executed or done by you. The Company shall not claim any benefits under this paragraph if the same are substantially derived or adapted from information or data held or possessed by third parties and generally available to you whether or not employed by the Company. (d) All written materials, records and documents made by you or coming into your possession during your employment concerning any products, processes or equipment, manufactured, used, developed, investigated or considered by the Company or otherwise concerning the business or affairs of the Company, shall be the sole property of the Company, and upon termination of your employment, or upon the request of the Company during your employment, you shall deliver the same to the Company. In addition, upon termination of your employment, or upon request of the Company during your employment, you shall deliver to the Company all other Company property in your possession or under your control, including confidential or proprietary data or information and all Company credit cards. 10. EQUITABLE RELIEF. With respect to the covenants contained in Sections 8 and 9 of this Agreement, you acknowledge that any remedy at law for any breach of said covenants may be inadequate and that the Company, in addition to its rights at law, shall be entitled to specific performance or any other mode 9 of injunctive or other equitable relief to enforce its rights hereunder. 11. TERMINATION; ADDITIONAL COMPENSATION. This Agreement, and your employment hereunder, shall terminate prior to the end of the Initial Term or any Renewal Term, upon the following terms and conditions: (a) This Agreement shall terminate automatically on the date of your death. Notwithstanding the foregoing, the Company shall continue to make payments to your estate of your Base Salary until six months after your death, at the rate in effect from time to time during such period pursuant to this Agreement (including any increases pursuant to Section 2). (b) This Agreement shall be terminated, at the option of the Company, if you are unable to perform a substantial portion of your duties hereunder for any 180 days (whether or not consecutive) during any period of 365 consecutive days by reason of physical or mental disability. Notwithstanding the foregoing, the Company shall continue to pay to you, until six months after termination of your employment due to such disability, your Base Salary at the rate in effect from time to time during such period pursuant to this Agreement (including any increases pursuant to Section 2), but less any amounts paid to you pursuant to any disability policy sponsored by the Company. For purposes of this Agreement, "physical or mental disability" shall mean your inability, due to health reasons, to discharge properly your duties of employment, supported by the opinion of a physician 10 reasonably satisfactory to both you and the Company. If the parties do not agree on a mutually satisfactory physician within ten days of written demand by one or the other, a physician shall be selected by the president of the Pennsylvania Medical Association, and the physician shall, within 30 days thereafter, make a determination as to whether disability exists and certify the same in writing. The services of the physician shall be paid for by the Company. You shall fully cooperate with the examining physician including submitting yourself to such examinations as may be requested by the physician for the purpose of determining whether you are disabled. (c) This Agreement shall terminate immediately upon the Company's sending you written notice terminating your employment hereunder for Cause. "Cause", as used herein, shall mean: (i) your conviction of a felony (other than a traffic violation); (ii) your continued material breach of any obligations under this Agreement 30 days after the Company has given you notice thereof in reasonable detail, if such breach has not been cured by you during such period; or (iii) your gross negligence or willful misconduct with respect to your duties or gross misfeasance of office. (d) You shall have the right to terminate this Agreement effective at any time by giving at least six month's prior written notice of termination to the Company. (e) Upon termination of this Agreement for any reason, in addition to any other rights or benefits to which you may be entitled under this Agreement, you shall be paid all 11 Accrued Obligations through the date of termination. Accrued Obligations shall mean (i) your Base Salary through the date of termination, (ii) any annual bonus earned pursuant to the terms of any applicable incentive compensation or bonus plans of the Company but not yet paid with respect to any fiscal year completed prior to termination, (iii) a prorated annual bonus for the fiscal year in which termination occurs equal to the product of (x) the annual bonus paid to you for the last full fiscal year of the Company multiplied by (y) a fraction, the numerator of which is the number of days in the current fiscal year during which you were employed by the Company, and the denominator of which is 365; and (iv) any accrued vacation pay not yet paid by the Company; PROVIDED, that if termination is by the Company for Cause or by you voluntarily, the term "Accrued Obligations" will not include (iii) above. Upon termination, (w) you shall also be entitled to all rights and benefits under benefit and incentive plans (other than those relating to the annual bonus) in accordance with the respective terms of the plans; (x) you shall be reimbursed for all of your business expenses incurred prior to termination in accordance with Section 7 above; (y) the Company shall, at your request within 15 days after termination and at your expense, assign to you the lease and any related purchase option for the automobile provided to you pursuant to Section 4(e), provided such lease and purchase option is assignable; and (z) to the extent the Company's life insurance plan has a conversion option available upon termination of employment, the Company shall make such option available to you. For purposes of 12 (ii) above, a bonus shall be deemed to be earned upon completion of the fiscal year to which it relates regardless of whether the Compensation Committee has approved bonuses for such year as of the date of termination. (f) If your employment hereunder shall be terminated by the Company (i) without Cause, other than pursuant to Section 11(a) or 11(b), or (ii) as a result of nonrenewal pursuant to a Termination Notice given by the Company under Section 1, then in addition to any other rights or benefits to which you may be entitled, the Company shall, for a period of one year after termination, (i) continue to pay you your Base Salary at the rate in effect from time to time during such one-year period pursuant to Section 2, (ii) continue to provide you with a leased automobile pursuant to Section 4(e), and (iii) continue all other benefits provided to you prior to termination (except not including any bonus with respect to the period after termination). The compensation under this Section 11(f) shall not be payable in the event of a Change of Control Termination, which shall be governed by the terms of Exhibit A hereto. Nothing herein shall limit or affect any rights you may have in the event of a termination of this Agreement by the Company in violation of its terms. 12. ENTIRE AGREEMENT; MODIFICATION; CONSTRUCTION. This Agreement, together with Exhibit A hereto, constitutes the full and complete understanding of the parties, and supersedes all prior agreements and understandings, oral or written, between 13 the parties, with respect to the subject matter hereof. Exhibit A is hereby incorporated by reference and made a part of this Agreement. Each party to this Agreement acknowledges that no representations, inducements, promises or agreements, oral or otherwise, have been made by either party, or anyone acting on behalf of either party, which are not embodied or referred to herein. This Agreement may not be modified or amended except by an instrument in writing signed by the party against which enforcement thereof may be sought. 13. SEVERABILITY. Any term or provision of this Agreement that is held to be invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be ineffective to the extent of that invalidity or unenforceability without rendering invalid or unenforceable the remaining terms and provisions of this Agreement or affecting the validity or enforceability of any of the terms or provisions of this Agreement in any other jurisdiction. 14. WAIVER OF BREACH. The waiver by either party of a breach of any provision of this Agreement, which waiver must be in writing to be effective, shall not operate as or be construed as a waiver of any subsequent breach. 15. NOTICES. All notices hereunder shall be in writing and shall be sent by messenger or by certified or registered mail, postage prepaid, return receipt requested, if to you, to your residence set forth above, and if to the Company, to 14 the address set forth above with copies to the Chief Financial Officer, at the Company's address, and to Proskauer Rose Goetz & Mendelsohn LLP, 1585 Broadway, New York, New York 10036, Attention: Steven L. Kirshenbaum, Esq., or to such other address as either party to this Agreement shall specify to the other. 16. ASSIGNABILITY; BINDING EFFECT. This Agreement shall not be assignable by either party, except that it may be assigned to an acquiror of all or substantially all of the assets of the Company, subject to your rights arising from a Change of Control as provided in Exhibit A. This Agreement shall be binding upon and inure to the benefit of you, your legal representatives, heirs and distributees, and shall be binding upon and inure to the benefit of the Company, its successors and assigns. 17. GOVERNING LAW. All questions pertaining to the validity, construction, execution and performance of this Agreement shall be construed and governed in accordance with the laws of the Commonwealth of Pennsylvania, without giving effect to the conflicts or choice of law provisions thereof. 18. ARBITRATION. Any controversy or claim arising out of or relating to this contract, or the breach thereof, shall be settled in Philadelphia, Pennsylvania or other mutually agreed location, by arbitration administered by the American Arbitration Association under its Commercial Arbitration Rules, and judgment 15 on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. 19. HEADINGS. The headings in this Agreement are intended solely for convenience of reference and shall be given no effect in the construction or interpretation of this Agreement. 20. COUNTERPARTS. This Agreement may be executed in several counterparts each of which shall be deemed to be an original but all of which together shall constitute one and the same instrument. If this letter correctly sets forth our understanding, please sign the duplicate original in the space provided below and return it to the Company. CHARTER POWER SYSTEMS, INC. By:/s/ Stephen E. Markert, Jr. ---------------------------- Agreed as of the date first above written: /s/ Alfred Weber - ---------------------------------- Alfred Weber 16 EXHIBIT A TO EMPLOYMENT AGREEMENT ("AGREEMENT") OF ALFRED WEBER DATED AS OF APRIL 1, 1996 I. SPECIAL TERMINATION PROVISIONS. In the event a Change of Control (as defined below) occurs, and within twenty-four months after such Change of Control: (a) the Executive's employment is terminated pursuant to a Termination for Good Reason (as defined below); or (b) the Executive's employment with the Company is terminated by the Company for any reason other than death, disability or for Cause pursuant to Sections 11(a), (b) or (c) of the Agreement; or (c) the Executive's employment is terminated or this Agreement is not renewed due to a Termination Notice given by the Company, as provided in Section 1(a) of the Agreement (the events under (a), (b) and (c) herein collectively called a "Change of Control Termination"), the Executive shall be entitled to receive the payments and benefits set forth in Section III below. II. DEFINITIONS. (a) CHANGE OF CONTROL. For purposes of the Agreement, a "Change of Control" shall be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and as used in Sections 13(d) and 14(d) thereof)), excluding the Company, any "Subsidiary" and any employee benefit plan sponsored or maintained by the Company or any Subsidiary (including any trustee of any such plan acting in his capacity as trustee), but including a "group" as defined in Section 13(d)(3) of the Exchange Act, becomes the beneficial 1 owner of shares of the Company having at least thirty percent (30%) of the total number of votes that may be cast for the election of directors of the Company; (ii) the shareholders of the Company shall approve any merger or other business combina tion of the Company, sale of all or substantially all of the Company's assets or combination of the foregoing transactions (a "Transaction"), other than a Transaction involving only the Company and one or more of its Subsidiaries, or a Transaction immediately following which the shareholders of the Company immediately prior to the Transaction continue to have a majority of the voting power in the resulting entity (excluding for this purpose any shareholder owning directly or indirectly more than ten percent (10%) of the shares of the other company involved in the Transaction) and no person is the beneficial owner of 30% of the shares of the resulting entity as contemplated by Section II(a)(i) above, or (iii) within any twenty-four (24) month period beginning on or after the date hereof, the persons who were directors of the Company immediately before the beginning of such period (the "Incumbent Directors") shall cease to constitute at least a majority of the Board or the board of directors of any successor to the Company, provided that any director who was not a director as of the date hereof shall be deemed to be an Incumbent Director if such director was elected to the Board by, or on the recommendation of or with the approval of, at least two-thirds of the directors who then qualified as Incumbent Directors either actually or by prior operation of this Section II(a)(iii), unless such election, recommendation or approval was 2 the result of an actual or threatened election contest of the type contemplated by Regulation 14a-11 promulgated under the Exchange Act or any successor provision. Notwithstanding the foregoing, no Change of Control of the Company shall be deemed to have occurred for purposes of this Agreement by reason of any actions or events in which the Executive participates in a capacity other than in his capacity as an executive or director of the Company. (b) TERMINATION FOR GOOD REASON. For purposes of the Agreement, a Termination for Good Reason means a termination by Executive by written notice given within ninety (90) days after the occurrence of the Good Reason event. A notice of Termination for Good Reason shall indicate the specific termination provision in Section II(c) relied upon and shall set forth in reasonable detail the facts and circumstances claimed to provide a basis for Termination for Good Reason. The failure by Executive to set forth in such notice any facts or circumstances which contribute to the showing of Good Reason shall not waive any right of Executive hereunder or preclude Executive from asserting such fact or circumstance in enforcing his rights hereunder. The notice of Termination for Good Reason shall provide for a date of termination not less than ten (10) nor more than sixty (60) days after the date such Notice of Termination for Good Reason is given. (c) GOOD REASON. For purposes of the Agreement, "Good Reason" shall mean the occurrence, without Executive's 3 express written consent, of any of the following circumstances, unless such circumstances are fully corrected prior to the date of termination specified in the notice of Termination for Good Reason as contemplated in Section II(b) above: (i) Any material diminution of Executive's positions, duties or responsibilities hereunder (except in each case in connection with the termination of Executive's employment for Cause pursuant to Section 11(c) of the Agreement or due to disability or death pursuant to Sections 11(a) or 11(b) of the Agreement, or temporarily as a result of Executive's illness or other absence), or the assignment to Executive of duties or responsibilities that are inconsistent with Executive's position as Chairman of the Board, President and Chief Executive Officer; (ii) Removal of, or the nonreelection of, the Executive from the officer positions with the Company specified herein; (iii) Relocation of the Company's principal United States executive offices to a location more than fifty (50) miles from his residence at the time of the relocation; (iv) Failure by the Company, after a Change of Control, (A) to continue any bonus plan, program or arrangement in which Executive is entitled to participate immediately prior to the Change of Control (the "Bonus Plans"), provided that any such Bonus Plans may be modified at the Company's discretion from time to time but shall be deemed terminated if (x) any such plan does not remain substantially in the form in effect prior to such modification and (y) if plans providing Executive with substantially similar benefits are not substituted therefor ("Substitute Plans"), or (B) to continue Executive as a 4 participant in the Bonus Plans and Substitute Plans on at least the same basis as to potential amount of the bonus and substantially the same level of criteria for achievability thereof as Executive participated in immediately prior to any change in such plans or awards, in accordance with the Bonus Plans and the Substitute Plans; (v) Any material breach by the Company of any provision of this Agreement; (vi) If the Executive is on the Board of Directors at the time of a Change of Control, Executive's removal from or failure to be reelected to the Board of Directors thereafter or (vii) Failure of any successor to the Company to assume in a writing delivered to Executive upon the assignee becoming such, the obligations of the Company hereunder. III. PAYMENTS AND BENEFITS. Upon a Change of Control Termination, as provided in Section I(a) above, the Company shall pay or provide the Executive the following payments and benefits: (a) The Company shall pay to the Executive in a lump sum within five business days after the date of termination any Accrued Obligations. (b) The Company shall pay to the Executive as severance pay, not later than the fifth business day following the date of termination of Executive's employment: (i) a lump sum in an amount equal to two (2) years of the Executive's Base Salary (or the aggregate Base Salary the Executive would have earned for the Term Balance, as defined below, if greater); and 5 (ii) a lump sum in an amount equal to the product of (A) the annual bonus paid by the Company to the Executive based on the average of the bonuses paid during the last two fiscal years of the Company ending prior to the date of termination, multiplied by (B) the greater of two or the number of years (including fractions) remaining in the Term Balance. For purposes of this Exhibit, Term Balance shall mean the balance of the Initial Term after termination, if termination occurs during the Initial Term. (c) As additional severance, the Company shall continue the participation of the Executive and the Executive's dependents for the greater of two (2) years or the Term Balance (and at the same level and at the same charges to the Executive) in all health, medical and accident, life and other welfare plans (as defined in Section 3(1) of ERISA), in which the Executive was participating immediately prior to the date of termination, except for any disability plans, and shall provide the Executive with a leased automobile pursuant to Section 4(e) for such period; PROVIDED, however, that to the extent the Company's plans do not permit such continued participation or such participation would have an adverse tax impact on such plans or on the other participants in such plans, the Company may instead provide materially equivalent benefits to the Executive outside of such plans; PROVIDED further that under such circumstances, (i) medical insurance benefits may be provided by the Company paying 6 any COBRA premiums (COBRA coverage, in any event, to be measured from the date of termination of employment) and (ii) if the Company is unable to continue the Executive's life insurance coverage, it shall pay the Executive an amount equal to twice the premium paid during the year prior to termination or if the Executive converts the insurance to an individual policy, the Company shall pay the premium for such insurance for two years. The Executive shall complete such forms and take such physical examinations as reasonably requested by the Company. To the extent the Executive incurs any tax obligation as a result of the provisions of this paragraph (c) that the Executive would not have incurred if the Executive remained an employee of the Company and had continued to participate in the benefit plans as an employee, the Company shall pay to the Executive, at the time the tax is due, an amount to cover such taxes and the taxes on the amount paid to cover such taxes. (d) To the extent permitted under the terms of the applicable stock option or restricted stock plan (if any), any stock options that would vest in the two (2) years after termination, or during the Term Balance, if greater, and any restricted stock that would become nonforfeitable in such two (2) year period or during the Term Balance, if greater, shall immediately vest or become nonforfeitable, as the case may be, and the exercise period of any stock options shall be extended as if the Executive remained employed until the end of such additional two (2) years, or the Term Balance, whichever is 7 longer. In the event the foregoing sentence becomes applicable, the Company agrees to cause the Board of Directors or plan committee to take all steps necessary to implement the foregoing sentence. 8 SECURED PROMISSORY NOTE $1,057,138 April 30, 1996 FOR VALUE RECEIVED, ALFRED WEBER (the "Payor") hereby promises to pay to CHARTER POWER SYSTEMS, INC., a Delaware corporation (the "Company"), the principal sum of One Million Fifty Seven Thousand One Hundred Thirty Eight ($1,057,138), on April 29, 1997 (the "Due Date"). The Payor also agrees to pay the Company interest on the outstanding principal amount hereof at the rate of 5.33% per annum, payable annually or upon prepayment of this Note in full. Payments of principal and interest are to be made in lawful money of the United States of America at the offices of the Company or at such other place as the holder hereof shall designate. The Payor may by written notice given to the Company prior to the Due Date extend the Due Date to a date no later than April 29, 1999. This Note is secured by the pledge by the Payor to the Company of certain shares ("Shares") of common stock of the Company, in accordance with the terms of a Pledge and Security Agreement (the "Security Agreement") between the Payor and the Company, dated as of April 30, 1996, and in that respect is subject to all of the terms, provisions and conditions of the Security Agreement. 1 If the Payor shall sell or transfer any of his Shares or the proceeds thereof, or any cash (other than cash dividends), securities, or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of the Shares (collectively, the "Additional Shares"), there shall be due and payable, immediately upon the consummation of the sale or transfer, a payment of principal hereunder in an amount equal to the product obtained by multiplying the then outstanding principal amount of this Note by a fraction, the numerator of which shall be the number of Shares and Additional Shares then sold or transferred and the denominator of which shall be the number of Shares and Additional Shares then owned by the Payor (before giving effect to the sale or transfer). Nothing in this paragraph shall be deemed to permit any sale or transfer by the Payor of any Shares or Additional Shares, to the extent the same otherwise would be prohibited by the provisions of any other agreement to which the Payor and the Company are parties. If: (i) the Payor fails to make any payment hereunder within ten days after notice from the Company to the Payor that the payment is due; or (ii) the Payor's employment with the Company is terminated for "Cause", as defined in the employment agreement, dated as of April 1, 1996, between the Payor and the Company, the then outstanding principal balance hereof, together with all accrued and unpaid interest, shall be immediately due and payable. 2 The Payor may, at any time and from time to time, prepay in whole or part, without premium or penalty, the then outstanding principal balance hereof and accrued but unpaid interest thereon. The Payor hereby agrees to pay all reasonable costs, fees and expenses incurred by the Company for the collection of all sums due hereunder, including reasonable attorneys' fees and court costs. The Payor hereby waives presentment, demand, notice of dishonor, protest and all other demands and notices in connection with this Note (including any acceleration of the maturity hereof) and further agrees that this Note shall be deemed to have been made under and shall be governed by the laws of the State of New York in all respects (without giving effect to the conflicts of law provisions thereof), including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except to the extent the Company may consent thereto in writing. IN WITNESS WHEREOF, the Payor has executed and delivered this Note to the Company as of the date first above written. /s/ Alfred Weber ---------------------------- ALFRED WEBER 3 OPTION SECURED PROMISSORY NOTE $664,400 April 30, 1996 FOR VALUE RECEIVED, ALFRED WEBER (the "Payor") hereby promises to pay to CHARTER POWER SYSTEMS, INC., a Delaware corporation (the "Company"), the principal sum of Six Hundred Sixty-four Thousand Four Hundred Dollars ($664,400.00), without interest, on October 31, 1997. Payment of principal is to be made in lawful money of the United States of America at the offices of the Company or at such other place as the holder hereof shall designate. This Note is secured by the pledge by the Payor to the Company of certain shares of common stock of the Company, in accordance with the terms of a Pledge and Security Agreement (the "Security Agreement") between the Payor and the Company, dated as of April 30, 1996, and in that respect is subject to all of the terms, provisions and conditions of the Security Agreement. This Note evidences a loan made by the Company to the Payor to enable him to purchase an aggregate 110,000 shares of common stock of the Company (the "Shares"). If the Payor shall sell or transfer any of his Shares or the proceeds thereof, or any cash (other than cash dividends), securities, or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any or all of the Shares (collectively, the "Additional Shares"), there 1 shall be due and payable, immediately upon the consummation of the sale or transfer, a payment of principal hereunder in an amount equal to the product obtained by multiplying the then outstanding principal amount of this Note by a fraction, the numerator of which shall be the number of Shares and Additional Shares then sold or transferred and the denominator of which shall be the number of Shares and Additional Shares then owned by the Payor (before giving effect to the sale or transfer). Nothing in this paragraph shall be deemed to permit any sale or transfer by the Payor of any Shares or Additional Shares, to the extent the same otherwise would be prohibited by the provisions of any other agreement to which the Payor and the Company are parties. If: (i) the Payor fails to make any payment hereunder within ten days after notice from the Company to the Payor that the payment is due; or (ii) the Payor's employment with the Company is terminated for "Cause", as defined in the employment agreement, dated as of April 1, 1996, between the Payor and the Company; or (iii) a Default (as such term is defined in the Security Agreement) shall have occurred under the Security Agreement (each of the events listed in (i), (ii) and (iii) above being an "Event of Default" hereunder), the then outstanding principal balance hereof shall be immediately due and payable. The Payor may, at any time and from time to time, prepay in whole or part, without premium or penalty, the then outstanding principal balance hereof. 2 The Payor hereby agrees to pay all reasonable costs, fees and expenses incurred by the Company for the collection of all sums due hereunder, including reasonable attorneys' fees and court costs. The Payor hereby waives presentment, demand, notice of dishonor, protest and all other demands and notices in connection with this Note (including any acceleration of the maturity hereof) and further agrees that this Note shall be deemed to have been made under and shall be governed by the Laws of the State of New York in all respects (without giving effect to the conflicts of law provisions thereof), including matters of construction, validity and performance, and that none of its terms or provisions may be waived, altered, modified or amended except to the extent the Company may consent thereto in writing. IN WITNESS WHEREOF, the Payor has executed and delivered this Note to the Company as of the date first above written. /s/ Alfred Weber -------------------------- ALFRED WEBER 3 PLEDGE AND SECURITY AGREEMENT PLEDGE AND SECURITY AGREEMENT, dated April 30, 1996, between ALFRED WEBER ("Pledgor") and CHARTER POWER SYSTEMS, INC., a Delaware corporation ("the Company"). WHEREAS, the Company has made loans (collectively, the "Loan") to Pledgor on the date hereof (a) in the amount of $664,400 to purchase 60,000 shares (the "Option Shares") of Common Stock of the Company, par value $.01 per share ("Common Stock"), upon the exercise of an option granted to him pursuant to the Option Agreement dated May 30, 1989, as amended (the "Option Agreement"), between Pledgor and the Company, and (b) in the amount of $1,057,138; and WHEREAS, in order to induce the Company to make the Loan, Pledgor has agreed to grant, and does hereby grant, to the company, a security interest in the Option Shares. NOW, THEREFORE, in consideration of the premises and the mutual agreements hereinafter contained, the parties hereto agree as follows: 1. CREATION OF SECURITY INTEREST. As security for payment in full of the Loan, Pledgor hereby pledges, hypothecates, assigns, transfers, sets over and delivers unto the Company as collateral security, and hereby grants to the Company 1 a first lien and security interest in, all of the Option Shares, the proceeds thereof, and all cash (other than cash dividends, except to the extent expressly provided herein), securities or other property at any time and from time to time receivable or otherwise distributed in respect of or in exchange for any of the Option Shares (all of such Option Shares, proceeds thereof, cash (other than cash dividends, except to the extent expressly provided herein), securities and other property hereinafter being referred to collectively as the "Collateral"). Concurrently with the execution of this Agreement, Pledgor is delivering to the Company (i) all stock certificates representing the Option Shares and (ii) a duly endorsed irrevocable stock power in blank therefor. 2. STOCK DIVIDENDS AND ADJUSTMENTS; VOTING RIGHTS. If, during the term of this Agreement, any stock dividend, reclassification, stock split, readjustment, warrant, option or right to acquire additional securities is issued with respect to the Collateral or any part thereof, or any other change is made in the capital structure of the Company, all new, substituted or additional shares or securities that Pledgor shall become entitled to receive as a result thereof promptly shall be delivered to the Company (together with appropriate instruments of transfer duly endorsed in blank) and, from and after the time Pledgor shall be entitled to receive the same, those shares and securities shall be, and be deemed to be, part 2 of the property pledged hereunder and included in the term Collateral as defined herein. So long as a Default (as hereinafter defined) shall not have occurred and be continuing, Pledgor shall be entitled to receive all cash dividends payable with respect to, and to exercise all rights to vote, the securities contained in the Collateral. Upon the occurrence and during the continuance of a Default, the Company shall be entitled to receive all such cash dividends and to exercise all such voting rights. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS. Pledgor hereby represents, warrants and covenants that: (a) Pledgor is and will be the sole legal and equitable owner of the Collateral, and Pledgor has and will have the right to transfer, pledge and deliver the Collateral to the Company hereunder; (b) there are and will be no outstanding liens, encumbrances, or claims in respect of the Collateral other than the security interest created by this Agreement; (c) Pledgor will preserve and defend all right, title and interest of the Company in and to the Collateral against all claims thereon; and (d) the pledge of the Collateral made hereby and the delivery of the Collateral in accordance herewith are and will be effective to vest in the Company a perfected, first priority security interest in the Collateral as set forth herein. 3 4. DEFAULT; REMEDIES. (a) A Default shall be deemed to have occurred hereunder if: (i) an Event of Default (as such term is defined in the promissory notes evidencing the Loan (the "Notes")) shall occur; (ii) Pledgor sells, assigns, transfers or otherwise disposes of, or grants a lien on or security interest in or option or right with respect to, or otherwise encumbers the Collateral or any part thereof or any interest therein, unless concurrently therewith Pledgor repays the Notes to the extent required in accordance with the terms thereof; (iii) Pledgor becomes insolvent, makes a general assignment for the benefit of creditors, or files or has filed against him any petition under any bankruptcy or insolvency law or any action for the appointment of a receiver or trustee; PROVIDED, HOWEVER, that in the event of an involuntary bankruptcy or insolvency proceeding, Pledgor shall have 60 days from the date of filing thereof to stay such proceeding; (iv) any of the Collateral shall be attached or levied upon or seized in any legal proceedings, or held by virtue of any levy or distraint, which attachment, levy or distraint shall not be vacated within 60 days, PROVIDED, HOWEVER, that any such attachment, levy or distraint shall not constitute a Default so long as it is stayed; or (v) Pledgor otherwise defaults in any material respect in the observance or performance of any representation or 4 other covenant or agreement contained herein or in the Note, and that default continues for a period of ten days after notice thereof from the Company. (b) If a Default shall have occurred and be continuing, the Company shall be entitled, in addition to any other rights granted under the Note, to exercise all of the rights and remedies with respect to the Collateral of a secured party under the Uniform Commercial Code or any other applicable law, all of which rights and remedies, to the full extent permitted by law, shall be cumulative and not alternative. Pledgor agrees that 30 days shall constitute reasonable notice of a sale or other disposition of any of the Collateral. The remainder of the proceeds from any such sale or other disposition, after deducting therefrom all expenses incurred in connection therewith (including reasonable legal fees and expenses) and after payment in full of Pledgor's obligations to the Company under the Note and this Agreement, shall be paid over to Pledgor. The Company shall not sell or otherwise dispose of a greater number of Option Shares or other Collateral than it reasonably determines is necessary for the payment in full of Pledgor's obligations to the Company under the Note and this Agreement, including all expenses incurred in connection with such sale or other disposition. Pledgor further agrees that a private sale of the Collateral on such terms as the Company approves shall be deemed to be commercially reasonable: PROVIDED, HOWEVER, that the Company is authorized in its absolute 5 discretion to restrict the prospective purchasers to those persons who represent and agree to the satisfaction of the Company and its counsel that they are purchasing the Collateral for their own account, for investment, and not with a view to or for sale in connection with a distribution in violation of the Securities Act of 1933 or any other applicable law or regulation. 5. WAIVER OF RIGHTS OR REMEDIES. (a) The Company, by act, delay, omission, acceptance of partial payment or otherwise, shall not be deemed to have waived any rights or remedies hereunder or under the Note unless the waiver is in writing and signed by the Company, and then only to the extent therein set forth. A waiver by the Company of any right or remedy on any one occasion, shall not be construed as a bar to or waiver of any such right or remedy, or both, that the Company otherwise would have had on any future occasion. (b) To the full extent that Pledgor may lawfully so agree, Pledgor agrees that he will not at any time plead, claim or take the benefit of any moratorium or redemption law now or hereafter enforced, in order to prevent or delay the enforcement of this Agreement or the application of any portion or all of the Collateral as provided by this Agreement, and Pledgor, for himself and all who may claim under Pledgor, as far as they now or hereafter lawfully may, hereby waives the benefit of all such laws. 6 6. AUTHORIZATION. The Company shall have and be entitled to exercise all such powers hereunder as are specifically delegated to the Company by the terms hereof, together with such powers as are reasonable incidental thereto. The Company may execute any of its duties hereunder by or through designees and shall be entitled to retain counsel and to act in reliance upon the advice of such counsel concerning all matters pertaining to its duties hereunder. Neither the Company, nor any director, officer or employee of the Company, shall be liable to Pledgor for any action taken or omitted to be taken by it or them hereunder in connection herewith, except for its or their own negligence or willful misconduct or breach of this Agreement. The Company shall be entitled to rely on any communication, instrument or document believed by it to be genuine and correct and to have been signed or sent by the proper person or persons. 7. FURTHER ASSURANCES. Pledgor agrees that he shall at the request of the Company execute and deliver all such further assignments, endorsements and other documents and take all such further action as the company may reasonably request in order to effect the purposes and provisions of this Agreement and to perfect, continue, better assure or confirm the rights of the Company in the Collateral provided for hereunder. 8. ERMINATION. The security interest and assignment created and granted hereunder shall terminate only when Pledgor has fully satisfied all of his obligations hereunder and under 7 the Note, and at that time all Collateral remaining in the possession of the Company shall be returned to Pledgor, accompanied by appropriate stock powers. Notwithstanding anything contained herein to the contrary, Pledgor may sell Collateral free and clear of the security interest and assignment created and granted hereunder, and the Company will cooperate with Pledgor in connection with such sale, if concurrently with any such sale Pledgor repays the Notes to the extent requred in accordance with the terms thereof. 9. NOTICES. Notices or other communications to either of the parties shall be in writing and shall be deemed to have been duly and properly given on the date such notices or other communications are (i) personally delivered with receipt acknowledged, or (ii) received when mailed by registered or certified mail, postage prepaid, return receipt requested, to the addresses set forth below or to which other address as either party to this Agreement shall specify to the other: To Pledgor: Alfred Weber 2583 Cold Spring Road Lansdale, PA 19446 To the Company: Charter Power Systems, Inc. 1400 Union Meeting Road Blue Bell, PA 19422 Attention: Chief Financial Officer -with a copy to- Proskauer Rose Goetz & Mendelsohn LLP 1585 Broadway New York, NY 10036 Attention: Steven L. Kirshenbaum, Esq. 8 10. MISCELLANEOUS. (a) This Agreement shall be governed by and interpreted under the laws of the State of New York applicable to contracts made and performed therein without regard to the principles of conflict of laws thereof. If any term or provision of this Agreement shall, for any reason, be held to be illegal, invalid or unenforceable under the laws of any governmental authority to which this Agreement is subject, the term or provision shall be deemed severed from this Agreement, and the remaining terms and provisions shall be enforceable, to the fullest extent, permitted by law. (b) This Agreement shall inure to the benefit of and shall be binding upon the respective successors, assigns and legal representatives of the parties, except that Pledgor shall not be permitted to assign this Agreement or any interest herein or in the Collateral, or any part thereof, or otherwise pledge, encumber or grant any option with respect to the Collateral, or any part thereof, or any cash or property held by the Company as Collateral under this Agreement, except to the extent provided herein. The Company may assign this Agreement, any interest herein or in the Collateral or any part thereof, to any wholly owned affiliated entity of the Company. (c) Captions used herein are inserted for reference purposes only and shall not affect the interpretation or meaning of this Agreement. 9 (d) This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same agreement. (e) This Agreement may not be changed, modified or, except as provided in Section 8 hereof, terminated, in whole or in part, except by a written instrument signed by the party against whom any such change, modification or termination is sought to be enforced. IN WITNESS WHEREOF, Pledgor has executed this Agreement on the date hereinabove first written. /s/ Alfred Weber ---------------------------- Alfred Weber TO AND ACCEPTED: CHARTER POWER SYSTEMS, INC. By: /s/ Stephen E. Markert, Jr. - ---------------------------------- Title: 10 Charter Power Systems, Inc. 1400 Union Meeting Road Blue Bell, Pennyslvania 19422 April 30, 1996 Mr. Alfred Weber 2583 Cold Spring Road Lansdale, PA 19446 Dear Mr. Weber: We refer to the Promissory Note (the "Note"), dated April 30, 1996, by you to us in the original principal amount of $1,057,138. We hereby agree to reimburse you for all interest on the Note accruing through the earlier of April 29, 1997 or the date of prepayment of the Note, plus an amount equal to the taxes payable by you on any payments made to you pursuant to this letter. Very truly yours, CHARTER POWER SYSTEMS, INC. By:/s/ Stephen E. Markert, Jr. ------------------------------- Title: Agreed to: /s/ Alfred Weber - ---------------------------------- ALFRED WEBER EX-11 4 EXHIBIT 11 CHARTER POWER SYSTEMS, INC. AND SUBSIDIARIES EARNINGS PER SHARE COMPUTATIONS (Dollars and shares in thousands)
(Unaudited) (Unaudited) Three months ended Six months ended July 31, July 31, 1996 1995 1996 1995 ---- ---- ---- ---- NET INCOME ................................. $2,650 $3,930 $6,296 $7,105 ====== ====== ====== ====== Weighted average number of common shares outstanding ....................... 6,441 5,979 6,363 5,973 Effect of shares issuable under stock option plan .............................. 161 455 213 441 ------ ------ ------ ------ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (PRIMARY) ............. 6,602 6,434 6,576 6,414 ====== ====== ====== ====== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (PRIMARY) ............................... $ 0.40 $ 0.61 $ 0.96 $ 1.11 ====== ====== ====== ====== Weighted average number of common shares outstanding ....................... 6,441 5,979 6,363 5,973 Effect of shares issuable under stock option plan .............................. 161 468 213 448 ------ ------ ------ ------ WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING (FULLY DILUTED) ................................. 6,602 6,447 6,576 6,421 ====== ====== ====== ====== NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE (FULLY DILUTED) .......................... $ 0.40 $ 0.61 $ 0.96 $ 1.11 ====== ====== ====== ======
EX-15 5 EXHIBIT 15 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, DC 20549 re: Charter Power Systems, Inc. and Subsidiaries Registration on Forms S-8 (Registration No. 33-31978, No. 33-71390 and No. 33-86672) We are aware that our report dated August 29, 1996 on our review of interim financial information of Charter Power Systems, Inc. and Subsidiaries for the period ended July 31, 1996 and included in the Company's quarterly report on Form 10-Q for the quarter then ended is incorporated by reference in the registration statements of Charter Power Systems, Inc. and Subsidiaries on Forms S-8 (Registration No. 33-31978, No. 33-71390 and No. 33-86672). Pursuant to Rule 436(c) under the Securities Act of 1933, this report should not be considered a part of the registration statement prepared or certified by us within the meaning of Sections 7 and 11 of that Act. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. 2400 Eleven Penn Center Philadelphia, Pennsylvania September 13, 1996 EX-27 6
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONSOLIDATED BALANCE SHEET AS OF 7/31/96 AND STATEMENT OF INCOME FOR THE PERIOD ENDED 7/31/96 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1000 6-MOS JAN-31-1997 JUL-31-1996 3024 0 39865 1429 41764 92012 49061 0 157942 40010 29752 0 0 65 75473 157942 134177 134177 103775 103775 4036 0 553 9590 3294 6296 0 0 0 6296 .96 .96
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