<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 8, 1996
REGISTRATION NO. 333-2471
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
EXIDE ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<S> <C>
DELAWARE 22-2231834
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
</TABLE>
---------------------
<TABLE>
<S> <C>
EXIDE ELECTRONICS CORPORATION EXIDE ELECTRONICS INTERNATIONAL CORP.
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
DELAWARE 23-2119242 DELAWARE 23-2119206
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
LECTRO PRODUCTS, INC. DELTEC POWER SYSTEMS, INC.
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
DELAWARE 59-2091680 WISCONSIN 39-1808670
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
EXIDE ELECTRONICS USA HOLDINGS CORP. DELTEC ELECTRONICS CORP.
(Exact name of registrant as specified in its (Exact name of registrant as specified in its
charter) charter)
DELAWARE 56-1854024 CALIFORNIA 36-3279502
(State or other (I.R.S. Employer (State or other (I.R.S. Employer
jurisdiction of Identification No.) jurisdiction of Identification No.)
incorporation or incorporation or
organization) organization)
<CAPTION>
<S> <C>
INTERNATIONAL POWER MACHINES CORP.
(Exact name of registrant as specified in its
charter)
DELAWARE 75-1251465
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
DATATRAX ACQUISITION CORP.
(Exact name of registrant as specified in its
charter)
DELAWARE 84-1244004
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
LORTEC POWER SYSTEMS, INC.
(Exact name of registrant as specified in its
charter)
OHIO 34-1225211
(State or other (I.R.S. Employer
jurisdiction of Identification No.)
incorporation or
organization)
</TABLE>
---------------------
3698
(Primary Standard Industrial Classification Code Number)
8609 SIX FORKS ROAD, RALEIGH, NORTH CAROLINA 27615
(919) 872-3020
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
---------------------
NICHOLAS J. COSTANZA, ESQ.
VICE PRESIDENT AND GENERAL COUNSEL
EXIDE ELECTRONICS GROUP, INC.
8609 SIX FORKS ROAD, RALEIGH, NORTH CAROLINA 27615
(919) 872-3020
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
COPIES TO:
<TABLE>
<S> <C>
BRAD S. MARKOFF, ESQ. KIRK A. DAVENPORT
SMITH HELMS MULLISS & MOORE, L.L.P. LATHAM & WATKINS
316 W. EDENTON STREET, RALEIGH, NORTH CAROLINA 27603 885 THIRD AVENUE, SUITE 1000, NEW YORK, NEW YORK
(919) 755-8700 10022
(212) 906-1200
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
---------------------
Cover continued on next page
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<PAGE> 2
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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- -------------------------------------------------------------------------------------------------------------------
TITLE OF EACH AMOUNT PROPOSED PROPOSED AMOUNT OF
CLASS OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Exide Electronics Group, Inc.
11 1/2% Senior Subordinated Notes due
2006...................................... $125,000,000 100% $125,000,000 $43,103(2)
- -------------------------------------------------------------------------------------------------------------------
Exide Electronics Corporation
Exide Electronics International Corp.
International Power Machines Corporation
Lectro Products, Inc.
Deltec Power Systems, Inc.
Datatrax Acquisition Corp.
Exide Electronics USA Holdings Corp.
Deltec Electronics Corp.
Lortec Power Systems, Inc.
Guarantees(3)............................. $125,000,000 100% $125,000,000 $0(4)
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457.
(2) Paid with the initial filing of the Registration Statement.
(3) Each of these subsidiaries of Exide Electronics Group, Inc. has guaranteed
the Notes being registered pursuant hereto.
(4) Pursuant to Rule 457(n), no separate fee is payable with respect to
guarantees of the Notes being registered.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
<PAGE> 3
EXIDE ELECTRONICS GROUP, INC.
CROSS REFERENCE SHEET
PURSUANT TO RULE 404(A) AND ITEM 501(B) OF REGULATION S-K
SHOWING LOCATION IN PROSPECTUS OF THE INFORMATION
REQUIRED BY PART I OF FORM S-4
<TABLE>
<C> <S> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus............... Outside Front Cover Page; Cross Reference
Sheet; Inside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus................................... Inside Front Cover Page; Information
Incorporated by Reference; Outside Back Cover
Page
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information................ Prospectus Summary; Risk Factors; Selected
Historical Consolidated Financial Data
4. Terms of the Transaction....................... The Exchange Offer; Certain United States
Federal Income Tax Considerations;
Description of Notes
5. Pro Forma Financial Information................ Prospectus Summary; Unaudited Pro Forma
Combined Financial Statements
6. Material Contracts with the Company Being
Acquired..................................... Not Applicable
7. Additional Information Required for Reoffering
by Persons and Parties Deemed to be
Underwriters................................. Not Applicable
8. Interests of Named Experts and Counsel......... Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.................................. Not Applicable
10. Information with Respect to S-3 Registrants.... Prospectus Summary; The Deltec Acquisition;
Capitalization; Selected Historical
Consolidated Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Principal
Shareholders; Description of New Credit
Facility; Description of Notes; Description
of Capital Stock; Financial Statements
11. Incorporation of Certain Information by
Reference.................................... Information Incorporated by Reference
12. Information with Respect to S-2 or S-3
Registrants.................................. Not Applicable
13. Incorporation of Certain Information by
Reference.................................... Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants.................. Not Applicable
15. Information with Respect to S-3 Companies...... Not Applicable
16. Information with Respect to S-2 or S-3
Companies.................................... Not Applicable
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies.................... Not Applicable
18. Information if Proxies, Consents or
Authorizations are to be Solicited........... Not Applicable
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or in
an Exchange Offer............................ Management; The Exchange Offer
</TABLE>
<PAGE> 4
SUBJECT TO COMPLETION, DATED MAY , 1996
PROSPECTUS
OFFER TO EXCHANGE
11 1/2% SENIOR SUBORDINATED NOTES DUE 2006, SERIES B
FOR ALL OUTSTANDING 11 1/2% SENIOR SUBORDINATED NOTES DUE 2006, SERIES A
OF
EXIDE ELECTRONICS GROUP, INC.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1996 UNLESS EXTENDED.
---------------------
Exide Electronics Group, Inc., a Delaware corporation (the "Company" or
"Exide Electronics"), hereby offers (the "Exchange Offer"), upon the terms and
subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (the "Letter of Transmittal"), to exchange $1,000
principal amount of its 11 1/2% Senior Subordinated Notes due 2006, Series B
(the "Series B Notes"), which exchange has been registered under the Securities
Act of 1933, as amended (the "Securities Act"), pursuant to a registration
statement of which this Prospectus is a part (the "Registration Statement"), for
each $1,000 principal amount of its outstanding 11 1/2% Senior Subordinated
Notes due 2006, Series A (the "Series A Notes"), of which $125.0 million in
aggregate principal amount are outstanding as of the date hereof. The form and
terms of the Series B Notes are the same as the form and terms of the Series A
Notes except that (i) the exchange will have been registered under the
Securities Act, and, therefore, the Series B Notes will not bear legends
restricting the transfer thereof, and (ii) holders of the Series B Notes will
not be entitled to certain rights of holders of the Series A Notes under the
Registration Rights Agreement (as defined herein), which rights will terminate
upon the consummation of the Exchange Offer. The Series B Notes will evidence
the same debt as the Series A Notes (which they replace) and will be entitled to
the benefits of an indenture dated as of March 13, 1996 governing the Series A
Notes and the Series B Notes (the "Indenture"). The Series A Notes and the
Series B Notes are sometimes referred to herein collectively as the "Notes." See
"The Exchange Offer" and "Description of Notes."
The Series B Notes will bear interest at the same rate and on the same
terms as the Series A Notes. Consequently, the Series B Notes will bear interest
at the rate of 11 1/2% per annum and the interest will be payable semiannually
on March 15 and September 15 of each year, commencing September 15, 1996. The
Series B Notes will bear interest from and including the date of issuance of the
Series A Notes (March 13, 1996). Holders whose Series A Notes are accepted for
exchange will be deemed to have waived the right to receive any interest accrued
on the Series A Notes. On or after March 15, 2001, the Series B Notes will be
redeemable at the option of the Company, in whole or in part, at the redemption
prices set forth herein, plus accrued and unpaid interest and Liquidated Damages
(as defined), if any, to the date of redemption. Upon a Change of Control (as
defined herein), holders of the Series B Notes will have the right to require
the Company to purchase their Series B Notes, in whole or in part, at a price
equal to 101% of the aggregate principal amount thereof, plus accrued and unpaid
interest, if any, to the date of repurchase.
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt (as defined herein) of
the Company, including borrowings under the New Credit Facility (as defined
herein). The Notes are guaranteed (the "Subsidiary Guarantees") by all of the
Company's existing and future domestic subsidiaries (collectively, the
"Guarantors"). The Subsidiary Guarantees will be subordinated in right of
payment to all existing and future Senior Debt of the Guarantors, including
guarantees of the New Credit Facility. The Notes, the Subsidiary Guarantees and
borrowings under the New Credit Facility will be effectively subordinated to the
indebtedness of foreign subsidiaries of the Company. As of December 31, 1995, on
a pro forma basis after giving effect to the Deltec Acquisition (as defined
herein), the New Credit Facility and the Offering (as defined herein), the
Company and its subsidiaries would have had $141.8 million of Senior Debt and
indebtedness of foreign subsidiaries that would effectively rank senior in right
of payment to the Notes and the Subsidiary Guarantees. The Indenture permits the
Company and its subsidiaries to incur additional indebtedness, including Senior
Debt, subject to certain limitations, and will prohibit the incurrence of any
indebtedness that is senior to the Notes and subordinated to any Senior Debt.
The Company will accept for exchange any and all validly tendered Series A
Notes not withdrawn prior to 5:00 p.m., New York City time, on , 1996
unless the Exchange Offer is extended by the Company, in its sole discretion
(the "Expiration Date"). Tenders of Series A Notes may be withdrawn at any time
prior to the Expiration Date. The Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer -- Conditions." Series A Notes may be
tendered only in integral multiples of $1,000.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
---------------------
The date of this Prospectus is , 1996
<PAGE> 5
Based on an interpretation by the staff of the Securities and Exchange
Commission (the "Commission") set forth in no-action letters issued to third
parties, the Company believes that the Series B Notes issued pursuant to this
Exchange Offer in exchange for Series A Notes may be offered for resale, resold
and otherwise transferred by a holder thereof (other than (i) a broker-dealer
who purchases such Series B Notes directly from the Company to resell pursuant
to Rule 144A or any other available exemption under the Securities Act or (ii) a
person that is an affiliate of the Company within the meaning of Rule 405 under
the Securities Act), without compliance with the registration and prospectus
delivery requirements of the Securities Act; provided that the holder is
acquiring the Series B Notes in the ordinary course of its business and is not
participating, and had no arrangement or understanding with any person to
participate, in the distribution of the Series B Notes. Holders of Series A
Notes wishing to accept the Exchange Offer must represent to the Company, as
required by the Registration Rights Agreement, that such conditions have been
met. Each broker-dealer that receives the Series B Notes for its own account in
exchange for the Series A Notes, where such Series A Notes were acquired by such
broker-dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of such Series B Notes.
Prior to this Exchange Offer, there has been no public market for the
Notes. The Company does not intend to list the Notes on any securities exchange,
but the Series A Notes are eligible for trading in the National Association of
Securities Dealers, Inc.'s Private Offerings, Resales and Trading through
Automatic Linkages (PORTAL) market. There can be no assurance that an active
market for the Notes will develop. To the extent that a market for the Notes
does develop, the market value of the Notes will depend on market conditions
(such as yields on alternative investments), general economic conditions, the
Company's financial condition and certain other factors. Such conditions might
cause the Notes, to the extent that they are traded, to trade at a significant
discount from face value. See "Risk Factors--Absence of Public Market for the
Notes."
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Series B Notes received in exchange for Series A Notes where
such Series A Notes were acquired by such broker-dealer as a result of
market-making activities or other trading activities. The Company has indicated
its intention to make this Prospectus (as it may be amended or supplemented)
available to any broker-dealer for use in connection with any such resale for a
period of 365 days from the date on which the Registration Statement is declared
effective. See "Plan of Distribution."
The Company will not receive any proceeds from, and has agreed to bear the
expenses of, this Exchange Offer. No underwriter is being used in connection
with this Exchange Offer.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF SERIES A NOTES IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE
WITH THE SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
SEE "RISK FACTORS," ON PAGES 16 THROUGH 20, FOR A DISCUSSION OF CERTAIN
FACTORS THAT INVESTORS SHOULD CONSIDER IN CONNECTION WITH THIS EXCHANGE OFFER
AND AN INVESTMENT IN THE SERIES B NOTES.
NO PERSON IS AUTHORIZED IN CONNECTION WITH THE EXCHANGE OFFER TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS OR
THE ACCOMPANYING LETTER OF TRANSMITTAL, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. NEITHER THE DELIVERY OF THIS PROSPECTUS OR THE ACCOMPANYING LETTER OF
TRANSMITTAL, NOR ANY EXCHANGE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES
CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF.
2
<PAGE> 6
UNTIL , 1996 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS OFFERING TRANSACTIONS IN THE SERIES B NOTES, WHETHER OR NOT
PARTICIPATING IN THIS EXCHANGE OFFER, MAY BE REQUIRED TO DELIVER A PROSPECTUS IN
CONNECTION THEREWITH. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
The Series B Notes will be available initially only in book-entry form. The
Company expects that the Series B Notes issued pursuant to this Exchange Offer
will be issued in the form of one or more fully registered global notes that
will be deposited with, or on behalf of, the Depository Trust Company ("DTC" or
the "Depositary") and registered in its name or in the name of Cede & Co., as
its nominee. Beneficial interests in the global note representing the Series B
Notes will be shown on, and transfers thereof will be effected only through,
records maintained by the Depositary and its participants. After the initial
issuance of such global note, Series B Notes in certificated form will be issued
in exchange for the global note in accordance with the terms and conditions of
the Indenture. See "Description of Notes--Book Entry."
---------------------
AVAILABLE INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-4 under the Securities Act with respect to the Series B Notes offered hereby.
As permitted by the rules and regulations of the Commission, this Prospectus
omits certain information, exhibits and undertakings contained in the
Registration Statement. For further information with respect to the Company and
the Series B Notes offered hereby, reference is made to the Registration
Statement, including the exhibits thereto and the financial statements, notes
and schedules filed as a part thereof. The Company is subject to the periodic
reporting and other informational requirements of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements, information statements and other information ("SEC
Reports") with the Commission. Such SEC Reports may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's regional
offices located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and 7 World Trade Center, 13th Floor, New York, New York 10048. Copies of such
material may be obtained by mail from the public reference branch of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed
rates.
The Company has agreed that, whether or not it is required by the Exchange
Act to file SEC Reports with the Commission, so long as any Notes are
outstanding, the Company will furnish to the Holders of Notes copies of all
quarterly and annual financial information that would be contained in Forms 10-Q
and 10-K and all current reports that would be filed on Form 8-K. In addition,
the Company has agreed that, for so long as any Notes remain outstanding, it
will furnish to the Holders and to securities analysts and prospective
investors, upon their request, the information required to be delivered pursuant
to Rule 144A(d)(4) under the Securities Act.
3
<PAGE> 7
INFORMATION INCORPORATED BY REFERENCE
The following documents or information have been filed by the Company with
the Commission and are incorporated herein by reference:
The Company's Annual Report on Form 10-K for the year ended September
30, 1995.
The Company's Current Report on Form 8-K filed with the Commission on
October 20, 1995.
The Company's Current Report on Form 8-K filed with the Commission on
November 17, 1995.
The Company's Quarterly Report on Form 10-Q for the quarter ended
December 31, 1995.
The information under the heading "Executive Compensation and Related
Information" in the Company's Notice of Annual Meeting and Proxy
Statement dated January 26, 1996.
The Company's Current Report on Form 8-K filed with the Commission on
February 21, 1996.
The Company's Current Report on Form 8-K/A filed with the Commission on
March 22, 1996.
The Company's Current Report on Form 8-K filed with the Commission on
March 27, 1996.
All documents subsequently filed by the Company with the Commission
pursuant to Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the
date of this Prospectus and prior to the termination of the offering covered by
this Prospectus will be deemed incorporated by reference into this Prospectus
and a part hereof from the date of filing of such documents. Any statement
contained in a document incorporated by reference herein shall be deemed to be
modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein modifies or supersedes such statement. Any statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Prospectus.
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST
DIRECTED TO THE CHIEF FINANCIAL OFFICER OF THE COMPANY AT 8609 SIX FORKS ROAD,
RALEIGH, NORTH CAROLINA 27615 (TELEPHONE NUMBER: (919) 872-3020). IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY NO LATER
THAN FIVE BUSINESS DAYS PRIOR TO THE EXPIRATION DATE.
4
<PAGE> 8
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Financial Statements and Unaudited Pro Forma Combined Financial Statements
and notes thereto, appearing elsewhere in this Prospectus. As used in this
Prospectus, the term "Company" refers to the Company and its subsidiaries,
unless the context otherwise requires. The Company's fiscal year ends on
September 30. References to a particular fiscal year are to the twelve-month
period ended on September 30 of the year indicated.
THE COMPANY
Exide Electronics Group, Inc. ("Exide Electronics" or the "Company") is one
of the world's leading manufacturers and marketers of uninterruptible power
supply ("UPS") products and power management software, as well as one of the
industry's largest UPS service providers. UPS products protect microprocessors
and other sensitive electronic equipment against electrical power interruptions
by providing temporary backup power. More sophisticated UPS systems also provide
additional protection against power distortions by continuously cleaning and
conditioning electrical power. The Company believes that it is one of only three
companies providing a full range of UPS products and services on a worldwide
basis. The Company's UPS products include small systems for use with personal
computers, workstations, client/server platforms and local and wide area
networks, and large systems for use with mainframe computers and data centers.
In addition, the Company's UPS products protect other types of sensitive
electronic equipment, including telecommunication systems, medical and
laboratory equipment, automated bank teller machines, industrial process
controls, and air traffic control and other transportation systems. Based on a
recent independent survey that divided domestic UPS product sales into two
segments, one for systems designed for power ratings above 5 kilovolt amperes
("kVA") and one for systems at or below 5 kVA , the Company (after giving effect
to the Deltec Acquisition (as defined below)) will have a leading position in
each of the two defined segments, ranking first for products above 5 kVA and
second for products at or below 5 kVA. (Source: Venture Development Corporation,
1995 (the "VDC Report")).
Based on internal research, the Company believes that total worldwide sales
of UPS products and services have grown approximately 20% since 1993 to
approximately $4.2 billion in 1995. The growth in the UPS industry is being
driven by the rapid proliferation of computers and related electronic systems in
a wide range of industries, including manufacturing, financial services,
utilities, telecommunications and transportation. This growth is being
compounded by the on-going transition from single-site mainframe systems to
multi-site network-based systems. To insure continued reliable operations,
computers and other electronic systems require the protection offered by UPS
products. The operations of such systems can be affected by a variety of
distortions in electrical power, including under-voltages (sags), over-voltages
(surges), transients (spikes), temporary power reductions (brownouts) and
complete power interruptions (blackouts). Any of these power distortions can
cause sensitive electronic equipment to malfunction or "crash," increasing the
likelihood of costly system downtime, information loss, and damage to equipment
and software. The need for UPS protection is particularly acute in certain
international markets where the quality of electrical power is poor.
On March 13, 1996, the Company completed its acquisition (the "Deltec
Acquisition") of Deltec Power Systems, Inc. and its subsidiaries (collectively,
"Deltec"). Deltec is one of the world's largest manufacturers and marketers of
off-line and line-interactive small UPS systems. Off-line UPS systems provide
temporary back-up power without the power conditioning features of an on-line
system, while line-interactive UPS systems are hybrid systems that provide
limited power conditioning features. The majority of UPS products sold by the
Company historically have been more sophisticated on-line systems, which
continuously condition the power supply in addition to providing a back-up power
source. Off-line and line-interactive products, such as those manufactured by
Deltec, are generally less expensive than on-line systems and are suitable for
applications where system downtime may be less costly, such as personal or small
business uses. With the addition of Deltec's product line and small systems
manufacturing and distribution capabilities, the Company believes that it has
become one of only a few companies that is a leading manufacturer and worldwide
marketer of UPS systems in each of the major product segments of the UPS
industry. On a pro forma basis
5
<PAGE> 9
after giving effect to the Deltec Acquisition, the Company would have had
revenues and EBITDA (as defined herein) of $515.2 million and $57.2 million,
respectively, for the last twelve months ("LTM") ended December 31, 1995.
The Company currently manufactures substantially all of its products at its
manufacturing facilities in Raleigh and Wilmington, North Carolina and Dallas,
Texas. Deltec manufactures substantially all of its products at manufacturing
facilities in San Diego, California, Tijuana, Mexico and Espoo, Finland near
Helsinki. The Company's large systems are sold through a direct sales force,
while both the Company's and Deltec's small systems are generally sold through
Value-Added Resellers ("VARs"), Original Equipment Manufacturers ("OEMs") and
distributors.
BUSINESS STRATEGY
The Company's business strategy is to continue to expand its sales and
profitability by providing its customers with Strategic Power Management through
a full range of product and service solutions at competitive prices. The Company
believes that its recent strategic acquisitions of Deltec, International Power
Machines Corporation ("IPM") and Lectro Products, Inc. ("Lectro") give the
Company one of the broadest product offerings in the global UPS industry,
including a wide range of off-line, line-interactive and on-line products
operating across a broad spectrum of kVA power ratings and applications. These
acquisitions also enable the Company to offer an expanded line of service
options, and provide the Company with one of the industry's largest global
distribution networks. To strengthen its global competitive position and improve
profitability, the Company intends to pursue a business strategy that
incorporates the following elements:
Increase its presence in the small systems segment. As a result of the
trend in the computer industry towards client-server computing and the
proliferation of personal computers, workstations, client/server platforms,
networks, and other microprocessor-based electronic equipment, industry sales of
small UPS systems grew approximately 28% from 1993 to 1995. During the same
period, the Company's sales of small systems products grew approximately 66% and
constituted approximately 38% of the Company's total revenues in fiscal 1995.
According to the VDC Report, sales of small systems in the U.S. are expected to
continue to grow significantly through 1999. The Company believes that the
Deltec Acquisition further improves the Company's competitive position in the
small systems segment because Deltec is particularly strong in sales of off-line
and line-interactive products, segments where the Company has traditionally not
had an extensive product offering. The Company plans to expand Deltec's existing
product line and believes that Deltec's small systems expertise, established
distribution channels and strong OEM relationships provide the Company with a
strategic platform to increase its small systems revenues and profitability.
Expand its international sales. The Company believes that international
markets accounted for approximately two-thirds of the worldwide market for UPS
products and services in 1995. Approximately 31% of the Company's fiscal 1995
sales were derived from products and services sold outside the U.S. The Company
anticipates significant growth in international markets due to the unreliability
of electric power in many foreign countries. Accordingly, the Company plans to
continue to develop products designed specifically to meet the unique power
needs of select international markets and establish joint ventures and other
strategic partnerships to design, manufacture and distribute UPS products to
serve these markets. The Company believes that its global distribution and
service networks, which were expanded through the acquisition of IPM (the "IPM
Acquisition"), have been significantly expanded with the Deltec Acquisition.
Deltec's broad line of high performance products, designed for the international
market, enhances the Company's position as one of the leaders in international
UPS sales.
Establish a leading position in emerging technologies. In response to
rapid growth in a number of new technologies that depend upon electrical power,
the Company has created the Emerging Technologies Group ("ETG"). ETG will
aggressively seek out opportunities to develop new small system UPS products
utilizing new technologies or serving new applications. ETG's initial efforts
will focus on low-end rectifiers and power supplies for the broadband cable
television and telecommunications industries, product lines acquired as part
6
<PAGE> 10
of the acquisition of Lectro (the "Lectro Acquisition"). The Company plans to
utilize these product lines as a platform to enter the rapidly expanding
wireless and personal communication services markets.
Redefine its large systems focus. The Company believes that the market for
large UPS products is relatively mature, and that the demand for such systems
will not grow significantly over the next several years. Historically, large UPS
systems were used to support the power requirements of large mainframe
computers. With the movement away from mainframe systems to smaller data centers
and office environments, there has been a need for large UPS systems operating
at lower kVA ratings. Accordingly, the Company's future efforts in the large
systems segment will generally be directed at reducing cost and product
development time by incorporating new features and functionality into existing
technology rather than developing entirely new product platforms. The Company is
also pursuing new commercial applications for its large systems products in
several markets, including healthcare and industrial process control.
Expand its service business. The Company's Worldwide Services Group
("WSG") is one of the world's leading UPS service organizations. Due to the
scheduled decline in service revenues under one large contract with the federal
government, the Company is projecting a decline in its total service revenues.
Excluding this one contract, however, the Company is anticipating growth in its
commercial service business with the introduction of new service offerings that
complement its Strategic Power Management focus, including offering support
services for non-UPS power equipment such as generators, switchgear, breakers
and power distribution systems, as well as providing power quality analysis and
remote systems monitoring. In addition, the Company is developing programs to
provide service support for OEMs and the federal government, which have
historically provided their own service and product support, but are
increasingly looking to out-source such services. The Company also plans to
target service sales to third party power management vendors.
Improve financial performance. The Company has implemented several
programs to reduce operating costs and to improve manufacturing productivity,
including programs designed to increase the commonality of parts in product
design in order to reduce inventory levels and the number of suppliers. In
addition, the Company is in the process of consolidating the manufacturing
facilities acquired in the IPM Acquisition and Lectro Acquisition into the
Company's existing manufacturing facilities. The Company also believes that it
can significantly reduce manufacturing costs by manufacturing certain
sub-assemblies and low-end products formerly sourced from Asian contractors at
Deltec's low-cost manufacturing facility in Tijuana, Mexico.
There can be no assurance that the Company will be successful in
implementing its business strategy. See "Risk Factors."
THE DELTEC ACQUISITION
Pursuant to a stock purchase agreement (the "Acquisition Agreement"), the
Company acquired Deltec from Fiskars Oy Ab and Fiskars Holdings, Inc.
(collectively "Fiskars") on March 13, 1996. Deltec designs, manufactures,
markets, sells and services a broad line of UPS products and power management
software worldwide through its principal operating subsidiaries, Deltec
Electronics Corporation ("Deltec EC"), which is headquartered in San Diego,
California and FPS Power Systems Oy Ab ("FPS"), which is based in Espoo,
Finland. The purchase price of approximately $188.1 million was comprised of
approximately $158.5 million in cash, 825,000 shares of common stock, par value
$0.01 per share, of the Company (the "Common Stock"), valued at $14.00 per
share, and 1,000,000 shares of the Company's Series G convertible preferred
stock (the "Series G Preferred Stock"), valued at $18.00 per share. The Series G
Preferred Stock is convertible into Common Stock on a one-for-one basis (subject
to adjustment under certain circumstances), has a per annum dividend rate of
$0.80 per share through March 31, 2001 and $1.20 per share thereafter, and is
subject to redemption under certain circumstances. The purchase price was
determined based on an assumption that the net book value of Deltec on the
closing would be approximately $28.7 million. The purchase price will be
adjusted upward or downward to the extent the closing date net book value (as
adjusted for certain excluded assets and liabilities) differs from this amount.
Such determination is expected to be made within 90 days of the closing date, as
provided in the Acquisition Agreement. Based on Deltec's net book value, as
adjusted, at December 31, 1995, the Company would have owed Fiskars additional
cash of $6.2 million.
7
<PAGE> 11
The Company financed the cash portion of the purchase price due on closing,
excluding transaction costs, with (i) the net proceeds of the sale of 125,000
units (the "Units") comprised of $125.0 million of the Series A Notes and
warrants (the "Warrants") to purchase 643,750 shares of Common Stock (the
"Offering"), which net proceeds were $121.3 million (before payment of
transaction costs) and (ii) $36.7 million of borrowings under a new credit
facility (the "New Credit Facility"). The balance of the purchase price ($0.5
million to redeem 50 shares of outstanding Deltec preferred stock) will be paid
on January 8, 1997. In addition, under the terms of the Acquisition Agreement,
the Company paid $4.0 million to Fiskars in payment of certain interest carrying
costs associated with Fiskars' agreement to extend the time for closing the
Deltec Acquisition. At the closing, the Company made a prepayment of $3.0
million to Fiskars related to the variable purchase price adjustment, which
would have been $6.2 million based on Deltec's net book value at December 31,
1995. An additional payment of $3.7 million was made to Fiskars, which
represented excess cash that remained in Deltec following the closing.
The New Credit Facility provides for term and revolving credit facilities
in the aggregate amount of up to $175.0 million, $134.4 million of which was
outstanding following the March 13, 1996 closing of the Offering and the Deltec
Acquisition. See "The Deltec Acquisition" and "Description of New Credit
Facility."
8
<PAGE> 12
THE EXCHANGE OFFER
THE EXCHANGE OFFER......... The Company is hereby offering to exchange $1,000
principal amount of Series B Notes for each $1,000
principal amount of Series A Notes that are
properly tendered and accepted. The Company will
issue Series B Notes on or promptly after the
Expiration Date. As of the date hereof, there is
$125.0 million aggregate principal amount of Series
A Notes outstanding. See "The Exchange Offer."
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the Series
B Notes issued pursuant to this Exchange Offer in
exchange for Series A Notes may be offered for
resale, resold and otherwise transferred by a
holder thereof (other than (i) a broker-dealer who
purchases such Series B Notes directly from the
Company to resell pursuant to Rule 144A or any
other available exemption under the Securities Act
or (ii) a person that is an affiliate of the
Company within the meaning of Rule 405 under the
Securities Act), without compliance with the
registration and prospectus delivery requirements
of the Securities Act; provided that the holder is
acquiring the Series B Notes in the ordinary course
of its business and is not participating, and had
no arrangement or understanding with any person to
participate, in the distribution of the Series B
Notes. Each broker-dealer that receives the Series
B Notes for its own account in exchange for the
Series A Notes, where such Series A Notes were
acquired by such broker-dealer as a result of
market-making activities or other trading
activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such
Series B Notes.
REGISTRATION RIGHTS
AGREEMENT................ The Units, which are comprised of the Series A
Notes and the Warrants, were sold by the Company on
March 13, 1996 to Donaldson, Lufkin & Jenrette
Securities Corporation, J.P. Morgan Securities Inc.
and NationsBanc Capital Markets, Inc.
(collectively, the "Initial Purchasers") pursuant
to a Purchase Agreement dated March 7, 1996 by and
among the Company and the Initial Purchasers (the
"Purchase Agreement"). Pursuant to the Purchase
Agreement, the Company and the Initial Purchasers
entered into a Registration Rights Agreement dated
as of March 13, 1996 (the "Registration Rights
Agreement"), which grants the holders of the Series
A Notes certain exchange and registration rights.
This Exchange Offer is intended to satisfy such
rights, which terminate upon the consummation of
the Exchange Offer. The holders of the Series B
Notes will not be entitled to any exchange or
registration rights with respect to the Series B
Notes. See "The Exchange Offer--Termination of
Certain Rights."
EXPIRATION DATE............ The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1996, unless
the Exchange Offer is extended by the Company, in
its sole discretion, in which case the term
"Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended.
ACCRUED INTEREST ON THE
SERIES B NOTES AND SERIES A
NOTES.................... The Series B Notes will bear interest from and
including the date of issuance of the Series A
Notes (March 13, 1996). Holders whose
9
<PAGE> 13
Series A Notes are accepted for exchange will
be deemed to have waived the right to receive
any interest accrued on the Series A Notes.
CONDITIONS TO THE EXCHANGE
OFFER.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. The
Exchange Offer is not conditioned upon any minimum
aggregate principal amount of Series A Notes being
tendered for exchange. See "The Exchange
Offer--Conditions."
PROCEDURES FOR TENDERING
SERIES A NOTES........... Each holder of Series A Notes wishing to accept the
Exchange Offer must complete, sign and date the
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with such Series A Notes and any other required
documentation to American Bank National
Association, as exchange agent (the "Exchange
Agent"), at the address set forth herein. By
executing the Letter of Transmittal, each holder
will represent to and agree with the Company that,
among other things, (i) the Series B Notes to be
acquired by such holder of the Series A Notes in
connection with the Exchange Offer are being
acquired by such holder in the ordinary course of
its business, (ii) such holder has no arrangement
or understanding with any person to participate in
a distribution of Series B Notes, (iii) if such
holder is a broker-dealer registered under the
Exchange Act or is participating in the Exchange
Offer for the purposes of distributing the Series B
Notes, such holder will comply with the
registration and prospectus delivery requirements
of the Securities Act in connection with a
secondary resale transaction of the Series B Notes
acquired by such person and cannot rely on the
position of the staff of the Commission set forth
in no-action letters (see "The Exchange Offer --
Resale of Series B Notes"), (iv) such holder
understands that a secondary resale transaction
described in clause (iii) above and any resales of
Series B Notes obtained by such holder in exchange
for Series A Notes acquired by such holder directly
from the Company should be covered by an effective
registration statement containing the selling
securityholder information required by Item 507 or
Item 508, as applicable, of Regulation S-K of the
Commission, and (v) such holder is not an
"affiliate," as defined in Rule 405 under the
Securities Act, of the Company. If the holder is a
broker-dealer that will receive Series B Notes for
its own account in exchange for Series A Notes that
were acquired as a result of market-making
activities or other trading activities, such holder
is required to acknowledge in the Letter of
Transmittal that such holder will deliver a
prospectus in connection with any resale of such
Series B Notes; however, by so acknowledging and by
delivering a prospectus, such holder will not be
deemed to admit that it is an "underwriter" within
the meaning of the Securities Act. See "The
Exchange Offer--Procedures for Tendering."
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS.......... Any beneficial owner whose Series A Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and
who wishes to tender such Series A Notes in the
Exchange Offer should contact such registered
holder promptly and instruct such registered holder
to tender on such beneficial owner's behalf. If
such beneficial
10
<PAGE> 14
owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
such owner's Series A Notes, either make
appropriate arrangements to register ownership of
the Series A Notes in such owner's name or obtain
a properly completed bond power from the
registered holder. The transfer of registered
ownership may take considerable time and may not
be able to be completed prior to the Expiration
Date. See "The Exchange Offer--Procedures for
Tendering."
GUARANTEED DELIVERY
PROCEDURES............... Holders of Series A Notes who wish to tender their
Series A Notes and whose Series A Notes are not
immediately available or who cannot deliver their
Series A Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Series A Notes
according to the guaranteed delivery procedures set
forth under "The Exchange Offer--Guaranteed
Delivery Procedures."
ACCEPTANCE OF THE SERIES A
NOTES AND DELIVERY OF THE
SERIES B NOTES........... Subject to the satisfaction or waiver of the
conditions to the Exchange Offer, the Company will
accept for exchange any and all Series A Notes that
are properly tendered in the Exchange Offer prior
to the Expiration Date. The Series B Notes issued
pursuant to the Exchange Offer will be delivered on
the earliest practicable date following the
Expiration Date. See "The Exchange Offer--Terms of
the Exchange Offer."
WITHDRAWAL RIGHTS.......... Tenders of Series A Notes may be withdrawn at any
time prior to the Expiration Date. See "The
Exchange Offer--Withdrawal of Tenders."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS........... For a discussion of certain material federal income
tax considerations relating to the exchange of the
Series B Notes for the Series A Notes, see "Certain
Federal Income Tax Considerations."
EXCHANGE AGENT............. American Bank National Association is serving as
the Exchange Agent in connection with the Exchange
Offer.
THE SERIES B NOTES
The Exchange Offer applies to $125.0 million aggregate principal amount of
the Series A Notes. The form and terms of the Series B Notes are the same as the
form and terms of the Series A Notes except that (i) the exchange will have been
registered under the Securities Act and, therefore, the Series B Notes will not
bear legends restricting their transfer, and (ii) holders of the Series B Notes
will not be entitled to certain rights of holders of the Series A Notes under
the Registration Rights Agreement, which rights will terminate upon consummation
of the Exchange Offer. The Series B Notes will evidence the same debt as the
Series A Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture. See "Description of Notes" for further
information and for definitions of certain capitalized terms used below.
THE SERIES B NOTES:
MATURITY DATE.............. March 15, 2006
INTEREST................... The Series B Notes will bear interest at the rate
of 11 1/2% per annum, which will be payable in cash
semi-annually on March 15 and September 15 of each
year, commencing September 15, 1996.
11
<PAGE> 15
OPTIONAL REDEMPTION........ The Series B Notes may be redeemed at the option of
the Company, in whole or in part, on or after March
15, 2001, at the redemption prices set forth
herein, plus accrued and unpaid interest and
Liquidated Damages (as defined herein), if any,
through the redemption date. See "Description of
Notes--Optional Redemption."
GUARANTEES................. The Series B Notes will be guaranteed (the
"Subsidiary Guarantees") on an unsecured senior
subordinated basis by all of the Company's existing
and future domestic subsidiaries (collectively, the
"Guarantors"). Each Subsidiary Guarantee is full,
unconditional and made on a joint and several basis
with respect to the other Guarantors.
RANKING.................... The Series B Notes will be general unsecured
obligations of the Company, subordinated in right
of payment to all existing and future Senior Debt
(as defined herein) of the Company, including
borrowings under the New Credit Facility. In
addition, the Series B Notes will be effectively
subordinate to the indebtedness of foreign
subsidiaries of the Company. On a pro forma basis
after giving effect to the Offering, the Deltec
Acquisition and the New Credit Facility, as of
December 31, 1995, the Company and its subsidiaries
would have had approximately $141.8 million of
outstanding Senior Debt and indebtedness of foreign
subsidiaries, $133.9 million of which would have
been secured.
CHANGE OF CONTROL OFFER.... Upon a Change of Control, the holders of the Series
B Notes will have the right to require the Company
to purchase their Series B Notes, in whole or in
part, at a price equal to 101% of the aggregate
principal amount thereof. See "Description of
Notes--Repurchase at the Option of Holders--Change
of Control."
CERTAIN COVENANTS.......... The Indenture under which the Series B Notes will
be issued contains certain covenants with respect
to the Company and its subsidiaries that limit the
ability of the Company and its subsidiaries to,
among other things, (i) incur additional
Indebtedness (as defined herein) and issue
preferred stock, (ii) pay dividends or make other
distributions or make certain other Restricted
Payments (as defined), (iii) layer Indebtedness,
(iv) create certain liens, (v) sell assets of the
Company or its subsidiaries, (vi) enter into
certain transactions with affiliates, (vii) enter
into certain mergers or consolidations, (viii)
enter into sale and leaseback transactions, or (ix)
sell or issue capital stock of the Company's
subsidiaries.
FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH THE EXCHANGE OFFER AND AN INVESTMENT IN THE SERIES B NOTES, SEE "RISK
FACTORS."
12
<PAGE> 16
SUMMARY PRO FORMA FINANCIAL DATA
The following table presents summary unaudited pro forma combined financial
information derived from the Unaudited Pro Forma Combined Financial Statements
included elsewhere in this Prospectus. The summary pro forma combined financial
information gives effect to the Deltec Acquisition, the conversion of the
Convertible Subordinated Notes (as defined), the New Credit Facility and the
Offering (collectively, the "Transactions") as if they had occurred as of
October 1, 1994 for purposes of the pro forma combined statements of operations
data and other financial data, and as of December 31, 1995 for purposes of the
pro forma combined balance sheet data.
The Unaudited Pro Forma Combined Financial Statements do not purport to
present the actual financial position or results of operations of the Company
had the transactions and events assumed therein in fact occurred on the dates
specified, nor are they necessarily indicative of the results of operations that
may be achieved in the future. The Unaudited Pro Forma Combined Financial
Statements are based on certain assumptions and adjustments described in the
notes to the Unaudited Pro Forma Combined Financial Statements and should be
read in conjunction therewith and with "The Deltec Acquisition," "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the historical Consolidated Financial Statements of Exide Electronics and the
historical Combined/Consolidated Financial Statements of Deltec and the related
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, --------------------- DECEMBER 31,
1995(1) 1994 1995 1995(2)
------------- -------- -------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............................ $ 368,767 $ 88,516 $ 98,025 $378,276
Service revenues............................ 138,526 33,024 31,386 136,888
------------- -------- -------- ------------
Total revenues......................... 507,293 121,540 129,411 515,164
Gross profit................................ 151,223 34,534 41,966 158,655
Income from operations...................... 18,884(3) 329 10,223 28,778(3)
Interest expense............................ 30,180 10,515 7,054 26,719
Net income.................................. (6,273)(3) (5,964) 1,833 1,523(3)
OTHER DATA:
EBITDA(4)................................... $ 55,445 $ 13,493 $ 15,223 $ 57,175
Depreciation................................ 9,224 2,217 2,469 9,476
Amortization................................ 19,637 10,947 2,531 11,221
Capital expenditures........................ 14,730 2,902 4,677 16,505
Ratio of EBITDA to interest expense......... 1.8x 1.3x 2.2x 2.1x
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------
EXIDE
ELECTRONICS PRO FORMA
HISTORICAL COMBINED
----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................... $ 108,033 $ 143,621
Total assets....................................................... 253,939 499,989
Long-term debt..................................................... 76,416 256,800
Preferred stock (redeemable after Sept. 30, 2006).................. -- 18,000
Common shareholders' equity........................................ 92,588 101,907
</TABLE>
13
<PAGE> 17
SUMMARY HISTORICAL FINANCIAL DATA
The summary historical financial data presented in the table below has been
derived from the Company's Consolidated Financial Statements and the related
notes thereto and Deltec's Combined/Consolidated Financial Statements and the
related notes thereto included elsewhere in this Prospectus and should be read
in conjunction therewith. The Company's historical financial data for the three
months ended December 31, 1994 and 1995 and for the LTM ended December 31, 1995
and Deltec's historical financial data for the three months ended December 31,
1994 and 1995 and the year ended September 30, 1995 are unaudited but, in the
opinion of management, include all material adjustments (consisting only of
normal recurring entries) necessary for a fair presentation of such data in all
material respects. The statement of operations data for the three months ended
December 31, 1995 is not necessarily indicative of the results that may be
expected for a complete fiscal year. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
EXIDE ELECTRONICS
<TABLE>
<CAPTION>
THREE MONTHS ENDED LTM
YEAR ENDED SEPTEMBER 30, DECEMBER 31, ENDED
-------------------------------- --------------------- DEC. 31,
1993 1994 1995 1994 1995 1995(2)
-------- -------- -------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Product revenues............ $220,143 $259,403 $271,482 $63,896 $57,659 $265,245
Service revenues............ 97,799 104,580 119,496 28,170 25,644 116,970
-------- -------- -------- ------- ----------- --------
Total revenues......... 317,942 363,983 390,978 92,066 83,303 382,215
Gross profit................ 85,495 98,695 103,865 23,684 22,215 102,396
Income from operations...... 20,397 18,462(5) 16,270(3) 4,580 2,249 13,939(3)
Net income.................. 10,832(6) 9,175(5) 7,385(3) 2,249 413 5,549(3)
OTHER DATA:
EBITDA(4)................... $ 27,347 $ 31,889 $ 33,415 $ 6,795 $ 4,702 $ 31,322
Depreciation................ 5,304 6,105 6,683 1,562 1,841 6,962
Amortization................ 1,646 2,325 2,762 653 612 2,721
Capital expenditures........ 8,255 8,735 12,497 2,332 3,938 14,103
</TABLE>
DELTEC
<TABLE>
<CAPTION>
YEAR
YEAR ENDED DECEMBER ENDED THREE MONTHS ENDED LTM
31, SEPT. DECEMBER 31, ENDED
------------------- 30, --------------------- DEC. 31,
1993 1994 1995(1) 1994 1995 1995
-------- -------- -------- ------- ----------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............ $ 60,446 $ 80,236 $ 97,285 $24,620 $40,366 $113,031
Service revenues............ 14,982 16,960 19,030 4,854 5,742 19,918
-------- -------- -------- ------- ----------- --------
Total revenues......... 75,428 97,196 116,315 29,474 46,108 132,949
Gross profit................ 28,749 38,518 44,858 11,500 18,701 52,059
Income from operations...... 4,189 6,049 6,581 2,779 6,223 10,025
Net income.................. 4,484(6) 3,156 3,288 1,550 3,551 5,289
OTHER DATA:
EBITDA(4)................... $ 9,016 $ 12,332 $ 14,030 $ 4,698 $ 8,521 $ 17,853
Depreciation................ 1,358 1,690 2,041 530 503 2,014
Amortization................ 1,991 2,295 2,485 675 593 2,403
Capital expenditures........ 1,456 1,634 2,233 570 739 2,402
</TABLE>
14
<PAGE> 18
- ---------------
(1) Deltec operating data for the year ended September 30, 1995 was derived from
the Deltec Statements of Income for the last three months of the year ended
December 31, 1994, and the Deltec Statements of Income for the nine months
ended September 30, 1995.
(2) Exide Electronics operating data for the LTM ended December 31, 1995 was
derived from the Exide Electronics Statements of Operations for the last
nine months of the year ended September 30, 1995 and the three months ended
December 31, 1995.
(3) Exide Electronics income from operations and net income for the year ended
September 30, 1995 and LTM ended December 31, 1995 include one-time merger,
acquisition and litigation charges of $7,700 ($5,597 after tax). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Results of Operations--Litigation Expense" and "--Merger and
Acquisition Expense."
(4) EBITDA represents income from operations plus depreciation and amortization
(including, for pro forma combined EBITDA, the amortization of purchase
accounting adjustments), a non-recurring 1994 Exide Electronics litigation
charge of $4,997, non-recurring 1995 Exide Electronics merger, acquisition
and litigation charges of $7,700 and Deltec royalty expense payable to
Fiskars which is not being charged after the Deltec Acquisition. Pro forma
EBITDA also includes pro forma adjustments to reflect $8.0 million of
annual estimated cost savings resulting from the Deltec Acquisition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Results of Operations--Litigation Expense" and "--Merger and
Acquisition Expense." While EBITDA should not be construed as a substitute
for income from operations, net income and cash flows from operating
activities in analyzing operating performance, financial position and cash
flows, the Company has included EBITDA because it is commonly used by
certain investors and analysts to analyze and compare companies on the
basis of operating performance, leverage and liquidity and to determine a
company's ability to service debt. See Note 2 of the Notes to the Unaudited
Pro Forma Combined Financial Statements.
(5) Exide Electronics income from operations and net income for the year ended
September 30, 1994 include a one-time litigation charge of $4,997 ($2,936
after tax). See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Results of Operations--Litigation
Expense".
(6) Exide Electronics net income for the year ended September 30, 1993 and
Deltec net income for the year ended December 31, 1993 were increased
$1,000 and $1,509, respectively, for the cumulative effect of an accounting
change for income taxes.
15
<PAGE> 19
RISK FACTORS
In evaluating this Exchange Offer and an investment in the Series B Notes,
prospective investors should consider carefully the following factors in
addition to the other information presented in the Prospectus.
FAILURE TO EXCHANGE SERIES A NOTES
The Series B Notes will be issued in exchange for Series A Notes only after
timely receipt by the Exchange Agent of such Series A Notes, a properly
completed and duly executed Letter of Transmittal and all other required
documents. Therefore, holders of Series A Notes desiring to tender such Series A
Notes in exchange for Series B Notes should allow sufficient time to ensure
timely delivery. Neither the Exchange Agent nor the Company is under any duty to
give notification of defects or irregularities with respect to tenders of Series
A Notes for exchange. Series A Notes that are not tendered or are tendered but
not accepted will, following consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof. In addition, any
holder of Series A Notes who tenders in the Exchange Offer for the purpose of
participating in a distribution of the Series B Notes will be required to comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction. Each broker-dealer that receives
Series B Notes for its own account in exchange for Series A Notes, where such
Series A Notes were acquired by such broker-dealer as a result of market-making
activities or any other trading activities, must acknowledge that it will
deliver a prospectus in connection with any resale of such Series B Notes. To
the extent that Series A Notes are tendered and accepted in the Exchange Offer,
the trading market for untendered and tendered but unaccepted Series A Notes
could be adversely affected due to the limited amount, or "float," of the Series
A Notes that are expected to remain outstanding following the Exchange Offer.
Generally, a lower "float" of a security could result in less demand to purchase
such security and could, therefore, result in lower prices for such security.
For the same reason, to the extent that a large amount of Series A Notes are not
tendered or are tendered and not accepted in the Exchange Offer, the trading
market for the Series B Notes could be adversely affected. See "Plan of
Distribution" and "The Exchange Offer."
LEVERAGE
The Company incurred substantial indebtedness in connection with the Deltec
Acquisition and, as a result, is highly leveraged. As of December 31, 1995,
after giving pro forma effect to the Transactions, the Company would have had
total indebtedness of $263.6 million, preferred stock of $18.0 million and
common shareholders' equity of $101.9 million and a ratio of earnings to fixed
charges for the LTM ended December 31, 1995, of 1.1 to 1 and for the three
months ended December 31, 1995, of 1.4 to 1. While pro forma earnings, as
adjusted to eliminate non-cash fixed charges of depreciation and amortization,
would have exceeded fixed charges by $19.4 million for the year ended September
30, 1995 and by $3.3 million for the three months ended December 31, 1994, pro
forma earnings, after deducting depreciation and amortization, were inadequate
to cover fixed charges by $9.5 million for the year ended September 30, 1995 and
$9.9 million for the three months ended December 31, 1994. Pro forma interest
expense for the LTM ended December 31, 1995 would have been $26.7 million. The
Company may incur additional indebtedness in the future, subject to limitations
imposed by the Indenture and the New Credit Facility. See "Capitalization" and
Unaudited Pro Forma Combined Financial Statements.
The Company's ability to make scheduled payments of principal of, or to pay
interest on, or to refinance its indebtedness (including the Notes) depends on
its future performance, which, to a certain extent, is subject to general
economic, financial, competitive, legislative, regulatory and other factors
beyond its control. Based upon the current level of operations and anticipated
growth, the Company believes that cash flow from operations, together with
available borrowings under the New Credit Facility and other sources of
liquidity, will be adequate to meet the Company's anticipated future
requirements for working capital, capital expenditures and scheduled payments of
principal of and interest on its indebtedness, including the Notes. There can be
no assurance, however, that the Company's business will generate sufficient cash
flow from operations or that future working capital borrowings will be available
in an amount sufficient to enable the Company to service its indebtedness,
including the Notes, or make necessary capital expenditures. See
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<PAGE> 20
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Financial Condition."
The degree to which the Company is leveraged could have important
consequences to holders of the Notes, including, but not limited to, the
following: (i) a substantial portion of the Company's cash flow from operations
will be required to be dedicated to debt service and will not be available for
other purposes; (ii) the Company's ability to obtain additional financing in the
future could be limited; (iii) certain of the Company's borrowings are at
variable rates of interest, which could result in higher interest expense in the
event of increases in interest rates; and (iv) the Indenture and the New Credit
Facility will contain financial and restrictive covenants that limit the ability
of the Company to, among other things, borrow additional funds, dispose of
assets or pay cash dividends. Failure by the Company to comply with such
covenants could result in an event of default which, if not cured or waived,
would have a material adverse effect on the Company. In addition, the degree to
which the Company is leveraged could prevent it from repurchasing all Notes
tendered to it upon the occurrence of a Change of Control. See "Description of
Notes" and "Description of New Credit Facility."
SUBORDINATION
The Notes are general unsecured obligations of the Company and are
subordinated in right of payment to all Senior Debt of the Company (which will
include all indebtedness under the New Credit Facility) and will rank senior in
right of payment to all future subordinated indebtedness of the Company. As of
December 31, 1995, after giving pro forma effect to the Transactions, the
Company had approximately $141.8 million of Senior Debt. The Indenture and the
New Credit Facility will permit the Company to incur additional Senior Debt in
the future, subject to certain conditions. Moreover, the Indenture will not
limit the Company's ability to secure Senior Debt. In addition, as of December
31, 1995, after giving pro forma effect to the Transactions, the Company would
have had available borrowings of $41.5 million under the revolving portion of
the New Credit Facility. In the event of the insolvency, liquidation,
reorganization, dissolution or other winding-up of the Company or upon a default
in payment with respect to, or the acceleration of, or if a judicial proceeding
is pending with respect to any default under, any Senior Debt, the lenders under
the New Credit Facility and any other creditors who are holders of Senior Debt
must be paid in full before a holder of Notes may be paid. Accordingly, there
may be insufficient assets remaining after such payments to pay principal of or
interest on the Notes. See "Description of Notes--Subordination."
The amounts outstanding under the New Credit Facility will be subject to
mandatory prepayment with (i) the proceeds of certain asset sales and the
proceeds of certain debt incurrences, (ii) 50% of the proceeds of equity
issuances in excess of $200,000 in any fiscal year, and (iii) on an annual
basis, 50% of the Company's Excess Cash Flow (as defined in the New Credit
Facility) subject to certain dollar thresholds. The New Credit Facility also
will provide that certain change of control events with respect to the Company
would constitute a default thereunder. Any future credit agreements or other
agreements relating to Senior Debt to which the Company becomes a party may
contain similar restrictions and provisions. In the event that the Company makes
certain asset sales or a change of control occurs at a time when the Company is
prohibited from repurchasing Notes, the Company could seek the consent of its
lenders of Senior Debt to the repurchase of Notes or could attempt to refinance
the borrowings that contain such prohibitions. If the Company does not obtain
such a consent or repay such borrowings, the Company will remain prohibited from
repurchasing Notes. The Company's failure to repurchase tendered Notes at a time
when such repurchase is required by the Indenture would constitute an Event of
Default thereunder which would, in turn, constitute a default under the New
Credit Facility. In such circumstances, the subordination provisions in the
Indenture would likely restrict payments to the holders of Notes. See
"Description of Notes--Subordination," and "Description of New Credit Facility."
FRAUDULENT CONVEYANCE CONSIDERATIONS
The Guarantors will guarantee the due and punctual payment of principal of,
premium, if any, and interest on the Notes and the performance of the other
obligations of the Company under the Notes and the Indenture. The Subsidiary
Guarantees are general unsecured obligations of the Guarantors and are subordi-
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<PAGE> 21
nated in right of payment to all senior indebtedness of the Guarantors,
including the Guarantors' guarantees of indebtedness under the New Credit
Facility. Each Subsidiary Guarantee is full, unconditional and made on a joint
and several basis with respect to the other Guarantors.
It is possible that creditors of the Guarantors may challenge the
Subsidiary Guarantees as a fraudulent conveyance under relevant federal and
state statutes, and, under certain circumstances (including a finding that a
Guarantor was insolvent at the time its Subsidiary Guarantee was issued), a
court could hold that the obligations of the Guarantors under the Subsidiary
Guarantees may be voided or are subordinate to other obligations of the
Guarantors. In addition, it is possible that the amount for which each Guarantor
is liable under its Subsidiary Guarantees may be limited. The measure of
insolvency for purposes of the foregoing may vary depending upon the law of the
jurisdiction that is being applied. Generally, however, a company would be
considered insolvent if the sum of its debts is greater than all of its property
at a fair valuation or if the present fair saleable value of its assets is less
than the amount that will be required to pay its probable liability on its
existing debts as they become absolute and mature. The Indenture will provide
that the obligations of the Guarantors under the Subsidiary Guarantees will be
limited to amounts which will not result in the Subsidiary Guarantees being a
fraudulent conveyance under applicable law. See "Description of
Notes--Subsidiary Guarantees."
HOLDING COMPANY STRUCTURE
The Company is a holding company that conducts substantially all of its
business operations through its subsidiaries; therefore, the Notes will be
effectively subordinated to all existing and future liabilities (including trade
payables) of the Company's subsidiaries. Consequently, the Company's operating
cash flow and its ability to service its indebtedness, including the Notes, is
dependent upon the cash flow of its subsidiaries and the payment of funds by
such subsidiaries to the Company in the form of loans, dividends or otherwise.
Because the Company's subsidiaries are separate and distinct legal entities
apart from the Company, all of the Company's domestic subsidiaries have agreed
to guarantee payment of the Notes on a senior subordinated basis and the
Indenture will contain financial and restrictive covenants that limit the
ability of the Company and its subsidiaries to, among other things, borrow
additional funds, dispose of assets or pay cash dividends. The Company's foreign
subsidiaries, however, will not be Guarantors, and as a result, creditors of
those subsidiaries will have claims that would effectively rank senior (as to
the assets of such subsidiaries) to the claims of the Holders of Notes. See Note
18 to the Exide Electronics Notes to annual consolidated financial statements,
Note 6 to the Exide Electronics Notes to interim consolidated financial
statements and Note 13 to the Deltec Notes to the combined/consolidated
financial statements. In addition, the New Credit Facility will be secured by
inventory, receivables and a pledge of a portion of the capital stock of certain
of the Company's subsidiaries, including the Guarantors. See "Description of New
Credit Facility."
INTEGRATION OF ACQUISITIONS
The Company is currently experiencing rapid growth. The Deltec Acquisition,
the IPM Acquisition and the Lectro Acquisition have significantly increased the
size of the Company and the scope of its markets. On a pro forma basis, after
giving effect to the IPM Acquisition and the Deltec Acquisition as if they had
occurred on October 1, 1994, the Company's revenues would have grown to $507.3
million in fiscal 1995 from its actual Exide Electronics revenues of $326.6
million in fiscal 1994, an increase of 55.3%. In addition, the Company has grown
from approximately 1,400 employees prior to the 1995 IPM Acquisition to
approximately 2,400 employees following the Deltec Acquisition. The integration
of these additional employees, as well as the integration of each entity's
existing product offerings, manufacturing facilities and distribution networks
will require substantial attention from the newly integrated management team.
Any inability of the Company to successfully integrate these companies in a
timely and efficient manner could have an adverse effect on the Company's
business.
COMPETITION
The Company is one of only three global companies providing a full range of
UPS products and services. The UPS industry, however, is highly competitive on
both a worldwide basis and a regional geographic basis. The Company competes,
and will continue to compete, with several U.S. and foreign firms with respect
to
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<PAGE> 22
small and large UPS products, both on a worldwide basis and in various
geographic regions, and within individual UPS product and application niches.
Among such competitors, certain of which are larger and have greater financial
and other resources than the Company, are a division of Emerson Electric Co., a
company that is larger than the Company; American Power Conversion Corporation,
a leading manufacturer and seller of small UPS products on a worldwide basis;
and a subsidiary of Groupe Schneider, S.A., a diversified worldwide company that
has UPS operations in the U.S. and is the leading manufacturer and seller of UPS
products in Europe. The future success of the Company will depend primarily upon
its continued ability to design, manufacture and market products incorporating
new technological developments that address the changing needs of its customers
on a cost-effective and timely basis. There can be no assurance that the Company
will be able to produce successful products or that new products will achieve
market acceptance.
GOVERNMENT CONTRACT MATTERS
Sales to the federal government accounted for approximately 35%, 33% and
27% of the Company's total revenues for fiscal 1993, 1994 and 1995,
respectively. A significant portion of the Company's sales to the federal
government in recent years have been under a five-year contract awarded to the
Company by the Air Force Logistics Command (the "ALC Contract") in May 1988
following a competitive procurement. A significant portion of the orders
received by the Company under the ALC Contract has been for the Federal Aviation
Administration Air Route Traffic Control Center Modernization Program (the "FAA
Program"). Despite the large proportion of sales to the federal government, such
sales actually declined by approximately 12% in fiscal 1995 versus fiscal year
1994, reflecting the scheduled decline in large systems sales due to the
completion of most product shipments under the FAA Program. As of September 30,
1995, a significant portion of the Company's backlog related to orders received
under the FAA Program. The period during which orders could be placed under the
FAA Program expired in May 1993. Although expiration of the program does not
affect orders received prior to expiration and delivery on the remainder of such
orders, sales to the federal government in fiscal 1996 are expected to decline
by approximately 40-50%.
The Company's contracts with the federal government have no significant
minimum purchase commitments, and the government may cease purchases under these
contracts at any time for any reason. These contracts are subject to termination
for the convenience of the government pursuant to the terms of the contracts.
The Company's compliance with government contract regulations is audited or
reviewed from time to time by government auditors. Under federal government
regulations, certain costs are not allowable as costs for which the government
will reimburse the Company. Government auditors may recommend that certain
charges be treated as unallowable and reimbursement be made to the government.
The Company provides for estimated unallowable charges and voluntary refunds in
its financial statements and believes that its provisions are adequate as of
December 31, 1995.
FOREIGN OPERATIONS; RISK OF CURRENCY FLUCTUATIONS
The Company manufactures and markets its products worldwide through several
foreign subsidiaries and independent agents. The Company's worldwide operations
are subject to the risks normally associated with foreign operations, including,
but not limited to, the disruption of markets, changes in export or import laws,
restrictions on currency exchanges, and the modification or introduction of
other governmental policies with potentially adverse effects.
Approximately 31% of the Company's fiscal 1995 sales were derived from
products and services sold outside the U.S. The U.S. dollar value of these
revenues sometimes varies with currency exchange rate fluctuations, and the
Company may be exposed to exchange losses based upon such fluctuations, which
losses could have a material adverse effect on the Company's financial results
and its ability to meet interest and principal obligations on its U.S. dollar
denominated debt. Although the Company has entered into hedging transactions to
reduce its exposure to such foreign currency exchange risks, there can be no
assurance that these hedging transactions will protect the Company from all such
exchange losses.
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<PAGE> 23
ABSENCE OF PUBLIC MARKET
As of the date hereof, the only registered holder of the Series A Notes is
Cede & Co., as the nominee of DTC. The Company believes that, as of the date
hereof, such holder is not an "affiliate" (as such term is defined in Rule 405
under the Securities Act) of the Company. Prior to the Offering, there had been
no market for the Notes and there can be no assurance that such a market will
develop or, if such a market develops, as to the liquidity of such market. The
Series B Notes will not be listed on any securities exchange, but the Series A
Notes are eligible for trading in the National Association of Securities
Dealers, Inc.'s Private Offerings, Resales and Trading through Automatic
Linkages (PORTAL) market. The Series B Notes are new securities for which there
is currently no market. The Series B Notes may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and other factors. The
Company has been advised by the Initial Purchasers that they intend to make a
market in the Series B Notes, as well as the Series A Notes, as permitted by
applicable laws and regulations; however, the Initial Purchasers are not
obligated to do so and any such market making activities may be discontinued at
any time without notice. In addition, such market making activities may be
limited during the Exchange Offer and the pendency of the Shelf Registration
Statement (as defined in the Registration Rights Agreement). Therefore, there
can be no assurance that an active market for the Notes will develop. See "The
Exchange Offer" and "Plan of Distribution."
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<PAGE> 24
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Series A Notes were sold by the Company on March 13, 1996 (the "Closing
Date") to the Initial Purchasers pursuant to the Purchase Agreement. The Initial
Purchasers subsequently sold the Series A Notes to (i) "qualified institutional
buyers" ("QIBs"), as defined in Rule 144A under the Securities Act ("Rule
144A"), in reliance on Rule 144A and (ii) a limited number of institutional
"accredited investors" ("Accredited Institutions"), as defined in Rule
501(a)(1), (2), (3) or (7) under the Securities Act. As a condition to the sale
of the Series A Notes, the Company and the Initial Purchasers entered into the
Registration Rights Agreement on March 13, 1996. Pursuant to the Registration
Rights Agreement, the Company agreed that, unless the Exchange Offer is not
permitted by applicable law or Commission policy, it would (i) file with the
Commission a Registration Statement under the Securities Act with respect to the
Series B Notes within 30 days after the Closing Date, (ii) use its best efforts
to cause such Registration Statement to become effective under the Securities
Act within 120 days after the Closing Date and (iii) upon effectiveness of the
Registration Statement, to commence the Exchange Offer, maintain the
effectiveness of the Registration Statement for at least 20 business days (or a
longer period if required by law) and deliver to the Exchange Agent Series B
Notes in the same aggregate principal amount as the Series A Notes that were
tendered by holders thereof pursuant to the Exchange Offer. A copy of the
Registration Rights Agreement has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part. The Registration Statement of
which this Prospectus is a part is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement and the Purchase Agreement.
RESALE OF THE SERIES B NOTES
With respect to the Series B Notes, based upon an interpretation by the
staff of the Commission set forth in certain no-action letters issued to third
parties, the Company believes that a holder (other than (i) a broker-dealer who
purchases such Series B Notes directly from the Company to resell pursuant to
Rule 144A or any other available exemption under the Securities Act or (ii) any
such holder that is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) who exchanges Series A Notes for Series B Notes in the
ordinary course of business and who is not participating, does not intend to
participate, and has no arrangement with any person to participate, in a
distribution of the Series B Notes, will be allowed to resell Series B Notes to
the public without further registration under the Securities Act and without
delivering to the purchasers of the Series B Notes a prospectus that satisfies
the requirements of Section 10 of the Securities Act. However, if any holder
acquires Series B Notes in the Exchange Offer for the purpose of distributing or
participating in the distribution of the Series B Notes or is a broker-dealer,
such holder cannot rely on the position of the staff of the Commission
enumerated in certain no-action letters issued to third parties and must comply
with the registration and prospectus delivery requirements of the Securities Act
in connection with any resale transaction, unless an exemption from registration
is otherwise available. Each broker-dealer that receives Series B Notes for its
own account in exchange for Series A Notes, where such Series A Notes were
acquired by such broker-dealer as a result of market-making activities or other
trading activities, must acknowledge that it will deliver a prospectus in
connection with any resale of such Series B Notes. The Letter of Transmittal
states that by so acknowledging and by delivering a prospectus, a broker-dealer
will not be deemed to admit that it is an "underwriter" within the meaning of
the Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of
Series B Notes received in exchange for Series A Notes where such Series A Notes
were acquired by such broker-dealer as a result of market-making or other
trading activities. Pursuant to the Registration Rights Agreement, the Company
has agreed to make this Prospectus, as it may be amended or supplemented from
time to time, available to broker-dealers for use in connection with any resale
for a period of 365 days from the date on which the Registration Statement is
declared effective. See "Plan of Distribution."
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<PAGE> 25
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Series A
Notes validly tendered and not withdrawn prior to the Expiration Date. The
Company will issue $1,000 principal amount of Series B Notes in exchange for
each $1,000 principal amount of outstanding Series A Notes surrendered pursuant
to the Exchange Offer. Series A Notes may be tendered only in integral multiples
of $1,000.
The form and terms of the Series B Notes are the same as the form and terms
of the Series A Notes except that (i) the exchange will be registered under the
Securities Act and, therefore, the Series B Notes will not bear legends
restricting their transfer and (ii) holders of the Series B Notes will not be
entitled to any of the rights of holders of Series A Notes under the
Registration Rights Agreement, which rights will terminate upon the consummation
of the Exchange Offer. The Series B Notes will evidence the same debt as the
Series A Notes (which they replace) and will be issued under, and be entitled to
the benefits of, the Indenture, which also authorized the issuance of the Series
A Notes, such that both series of Notes will be treated as a single class of
debt securities under the Indenture.
As of the date of this Prospectus, $125.0 million in aggregate principal
amount of the Series A Notes are outstanding and registered in the name of Cede
& Co., as nominee for DTC. Only a registered holder of the Series A Notes (or
such holder's legal representative or attorney-in-fact) as reflected on the
records of the Trustee under the Indenture may participate in the Exchange
Offer. There will be no fixed record date for determining registered holders of
the Series A Notes entitled to participate in the Exchange Offer.
Holders of the Series A Notes do not have any appraisal or dissenters'
rights under the Indenture in connection with the Exchange Offer. The Company
intends to conduct the Exchange Offer in accordance with the provisions of the
Registration Rights Agreement and the applicable requirements of the Securities
Act, the Exchange Act and the rules and regulations of the Commission
thereunder.
The Company shall be deemed to have accepted validly tendered Series A
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
holders of Series A Notes for the purposes of receiving the Series B Notes from
the Company.
Holders who tender Series A Notes in the Exchange Offer will not be
required to pay brokerage commissions or fees or, subject to the instructions in
the Letter of Transmittal, transfer taxes with respect to the exchange of Series
A Notes pursuant to the Exchange Offer. The Company will pay all charges and
expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time on
, 1996, unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" shall mean the
latest date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will (i) notify the
Exchange Agent of any extension by oral or written notice, (ii) mail to the
registered holders an announcement thereof, and (iii) issue a press release or
other public announcement, which shall include disclosure of the approximate
number of Series A Notes deposited to date, each prior to 9:00 a.m., New York
City time, on the next business day after the previously scheduled Expiration
Date. Without limiting the manner in which the Company may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Series A Notes, (ii) to extend the Exchange Offer, or (iii) if any
conditions set forth below under "--Conditions" shall not have been satisfied,
to terminate the Exchange Offer by giving oral or written notice of such delay,
extension or
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<PAGE> 26
termination to the Exchange Agent. Any such delay in acceptance, extension,
termination or amendment will be followed as promptly as practicable by oral or
written notice thereof to the registered holders. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the amendment and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
INTEREST ON THE SERIES B NOTES
The Series B Notes will bear interest at a rate equal to 11 1/2% per annum.
Interest on the Series B Notes will be payable semi-annually on each March 15
and September 15, commencing September 15, 1996. Holders of Series B Notes will
receive interest on September 15, 1996 from the date of initial issuance of the
Series B Notes, plus an amount equal to the accrued interest on the Series A
Notes from the date of initial delivery to the date of exchange thereof for
Series B Notes. Holders of Series A Notes that are accepted for exchange will be
deemed to have waived the right to receive any interest accrued on the Series A
Notes.
PROCEDURES FOR TENDERING
Only a registered holder of Series A Notes may tender such Series A Notes
in the Exchange Offer. To tender in the Exchange Offer, a holder of Series A
Notes must complete, sign and date the Letter of Transmittal, or facsimile
thereof, have the signatures thereon guaranteed if required by the Letter of
Transmittal, and mail or otherwise deliver such Letter of Transmittal or such
facsimile to the Exchange Agent at the address set forth below under "--Exchange
Agent" for receipt prior to the Expiration Date. In addition, either (i)
certificates for such Series A Notes must be received by the Exchange Agent
along with the Letter of Transmittal, (ii) a timely confirmation of a book-entry
transfer (a "Book-Entry Confirmation") of such Series A Notes, if such procedure
is available, into the Exchange Agent's account at the Depositary pursuant to
the procedure for book-entry transfer described below, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described below.
The tender by a holder that is not withdrawn prior to the Expiration Date
will constitute an agreement between such holder and the Company in accordance
with the terms and subject to the conditions set forth herein and in the Letter
of Transmittal.
THE METHOD OF DELIVERY OF SERIES A NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE, PROPERLY INSURED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT
BEFORE THE EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR SERIES A NOTES SHOULD BE
SENT TO THE COMPANY. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS,
COMMERCIAL BANKS, TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS
FOR SUCH HOLDERS.
Any beneficial owner(s) of the Series A Notes whose Series A Notes are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee and who wishes to tender should contact the registered holder
promptly and instruct such registered holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes to tender on such owner's own
behalf, such owner must, prior to completing and executing the Letter of
Transmittal and delivering such owner's Series A Notes, either make appropriate
arrangements to register ownership of the Series A Notes in such owner's name or
obtain a properly completed bond power from the registered holder. The transfer
of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal described
below (see "--Withdrawal of Tenders"), as the case may be, must be guaranteed by
an Eligible Institution (as defined below) unless the Series A Notes tendered
pursuant thereto are tendered (i) by a registered holder who has not completed
the box titled "Special Delivery Instructions" on the Letter of Transmittal or
(ii) for the account of an Eligible
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<PAGE> 27
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be made by a member firm of a registered national securities exchange or of
the National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
which is a member of one of the recognized signature guarantee programs
identified in the Letter of Transmittal (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered holder of any Series A Notes listed therein, such Series A Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Series A
Notes.
If the Letter of Transmittal or any Series A Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
The Exchange Agent and the Depositary have confirmed that any financial
institution that is a participant in the Depositary's system may utilize the
Depositary's Automated Tender Offer Program to tender Series A Notes.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Series A Notes will be
determined by the Company in its sole discretion, which determination will be
final and binding. The Company reserves the absolute right to reject any and all
Series A Notes not properly tendered or any Series A Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Series A Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Series A Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Series A Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Series A Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived.
While the Company has no present plan to acquire any Series A Notes that
are not tendered in the Exchange Offer or to file a registration statement to
permit resales of any Series A Notes that are not tendered pursuant to the
Exchange Offer, the Company reserves the right in its sole discretion to
purchase or make offers for any Series A Notes that remain outstanding
subsequent to the Expiration Date or, as set forth below under "--Conditions,"
to terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Series A Notes in the open market, in privately negotiated transactions
or otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
By tendering, each holder of Series A Notes will represent to the Company
that, among other things, (i) the Series B Notes to be acquired by such holder
of Series A Notes in connection with the Exchange Offer are being acquired by
such holder in the ordinary course of business of such holder, (ii) such holder
has no arrangement or understanding with any person to participate in the
distribution of Series B Notes, (iii) such holder acknowledges and agrees that
any person who is a broker-dealer registered under the Exchange Act or is
participating in the Exchange Offer for the purposes of distributing the Series
B Notes must comply with the registration and prospectus delivery requirements
of the Securities Act in connection with a secondary resale transaction of the
Series B Notes acquired by such person and cannot rely on the position of the
staff of the Commission set forth in certain no-action letters, (iv) such holder
understands that a secondary resale transaction described in clause (iii) above
and any resales of Series B Notes obtained by such holder in exchange for Series
A Notes acquired by such holder directly from the Company should be covered by
an effective registration statement containing the selling securityholder
information required by Item 507 or Item 508, as applicable, of Regulation S-K
of the Commission, and (v) such holder is not an "affiliate," as defined in Rule
405 under the Securities Act, of the Company. If the holder is a broker-dealer
that will receive
24
<PAGE> 28
Series B Notes for such holder's own account in exchange for Series A Notes that
were acquired as a result of market-making activities or other trading
activities, such holder will be required to acknowledge in the Letter of
Transmittal that such holder will deliver a prospectus in connection with any
resale of such Series B Notes; however, by so acknowledging and by delivering a
prospectus, such holder will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act.
RETURN OF SERIES A NOTES
If any tendered Series A Notes are not accepted for any reason set forth in
the terms and conditions of the Exchange Offer or if Series A Notes are
withdrawn or are submitted for a greater principal amount than the holders
desire to exchange, such unaccepted, withdrawn or non-exchanged Series A Notes
will be returned without expense to the tendering holder thereof (or, in the
case of Series A Notes tendered by book-entry transfer into the Exchange Agent's
account at the Depositary pursuant to the book-entry transfer procedures
described below, such Series A Notes will be credited to an account maintained
with the Depositary) as promptly as practicable.
BOOK-ENTRY TRANSFER
The Exchange Agent will make a request to establish an account with respect
to the Series A Notes at the Depositary for purposes of the Exchange Offer
within two business days after the date of this Prospectus, and any financial
institution that is a participant in the Depositary's systems may make
book-entry delivery of Series A Notes by causing the Depositary to transfer such
Series A Notes into the Exchange Agent's account at the Depositary in accordance
with the Depositary's procedures for transfer. However, although delivery of
Series A Notes may be effected through book-entry transfer at the Depositary,
the Letter of Transmittal or facsimile thereof, with any required signature
guarantees and any other required documents, must, in any case, be transmitted
to and received by the Exchange Agent at the address set forth below under
"--Exchange Agent" on or prior to the Expiration Date or pursuant to the
guaranteed delivery procedures described below.
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Series A Notes and (i) whose Series A
Notes are not immediately available or (ii) who cannot deliver their Series A
Notes, the Letter of Transmittal or any other required documents to the Exchange
Agent prior to the Expiration Date, may effect a tender if:
(a) The tender is made through an Eligible Institution;
(b) Prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery substantially in the form provided by the Company (by
facsimile transmission, mail or hand delivery) setting forth the name and
address of the holder, the certificate number(s) of such Series A Notes and
the principal amount of Series A Notes tendered, stating that the tender is
being made thereby and guaranteeing that, within three New York Stock
Exchange trading days after the Expiration Date, the Letter of Transmittal
(or a facsimile thereof), together with the certificate(s) representing the
Series A Notes in proper form for transfer or a Book-Entry Confirmation, as
the case may be, and any other documents required by the Letter of
Transmittal, will be deposited by the Eligible Institution with the
Exchange Agent; and
(c) Such properly executed Letter of Transmittal (or facsimile
thereof), as well as the certificate(s) representing all tendered Series A
Notes in proper form for transfer and all other documents required by the
Letter of Transmittal are received by the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to holders who wish to tender their Series A Notes according to the
guaranteed delivery procedures set forth above.
25
<PAGE> 29
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Series A Notes may be
withdrawn at any time prior to the Expiration Date.
To withdraw a tender of Series A Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to the Expiration Date. Any such
notice of withdrawal must (i) specify the name of the person having deposited
the Series A Notes to be withdrawn (the "Depositor"), (ii) identify the Series A
Notes to be withdrawn (including the certificate number or numbers and principal
amount of such Series A Notes), and (iii) be signed by the holder in the same
manner as the original signature on the Letter of Transmittal by which such
Series A Notes were tendered (including any required signature guarantees). All
questions as to the validity, form and eligibility (including time of receipt)
of such notices will be determined by the Company in its sole discretion, whose
determination shall be final and binding on all parties. Any Series A Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and no Series B Notes will be issued with respect thereto unless
the Series A Notes so withdrawn are validly retendered. Properly withdrawn
Series A Notes may be retendered by following one of the procedures described
above under "--Procedures for Tendering" at any time prior to the Expiration
Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange the Series B Notes for, any
Series A Notes, and may terminate the Exchange Offer as provided herein before
the acceptance of such Series A Notes, if the Exchange Offer violates applicable
law, rules or regulations or an applicable interpretation of the staff of the
Commission.
If the Company determines in its sole discretion that any of these
conditions are not satisfied, the Company may (i) refuse to accept any Series A
Notes and return all tendered Series A Notes to the tendering holders, (ii)
extend the Exchange Offer and retain all Series A Notes tendered prior to the
expiration of the Exchange Offer, subject, however, to the rights of holders to
withdraw such Series A Notes (see "--Withdrawal of Tenders") or (iii) waive such
unsatisfied conditions with respect to the Exchange Offer and accept all
properly tendered Series A Notes that have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Series A Notes, and the Company
will extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure to
the registered holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
TERMINATION OF CERTAIN RIGHTS
All rights under the Registration Rights Agreement (including registration
rights) of holders of the Series A Notes eligible to participate in this
Exchange Offer will terminate upon consummation of the Exchange Offer except
with respect to the Company's continuing obligations (i) to indemnify such
holders (including any broker-dealers) and certain parties related to such
holders against certain liabilities (including liabilities under the Securities
Act), (ii) to provide, upon the request of any holder of a transfer-restricted
Series A Note, the information required by Rule 144A(d)(4) under the Securities
Act in order to permit resales of such Series A Notes pursuant to Rule 144A,
(iii) to use its best efforts to keep the Registration Statement effective to
the extent necessary to ensure that it is available for resales of
transfer-restricted Series A Notes by broker-dealers for a period of 365 days
from the date on which the Registration Statement is declared effective, and
(iv) to provide copies of the latest version of the Prospectus to broker-dealers
upon their request for a period of 365 days from the date on which the
Registration Statement is declared effective.
LIQUIDATED DAMAGES
In the event of a Registration Default (as defined in the Registration
Rights Agreement), the Company is required to pay liquidated damages to each
holder of Transfer Restricted Securities (as defined below),
26
<PAGE> 30
during the first 90-day period immediately following the occurrence of such
Registration Default in an amount equal to $0.05 per week per $1,000 principal
amount of Series A Notes constituting Transfer Restricted Securities held by
such holder. Transfer Restricted Securities shall mean each Series A Note until
(i) the date on which such Series A Note has been exchanged for a Series B Note
in the Exchange Offer, (ii) the date on which such Series A Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement (as defined in the Registration Rights
Agreement), or (iii) the date on which such Series A Note is distributed to the
public pursuant to Rule 144(k) under the Securities Act. The amount of the
liquidated damages will increase by an additional $0.05 per week per $1,000
principal amount of Series A Notes constituting Transfer Restricted Securities
for each subsequent 90-day period until all Registration Defaults have been
cured, up to a maximum amount of liquidated damages of $0.50 per week per $1,000
principal amount of Series A Notes constituting Transfer Restricted Securities.
Following the cure of all Registration Defaults, the payment of liquidated
damages will cease. The filing and effectiveness of the Registration Statement
of which this Prospectus is a part and the consummation of the Exchange Offer
will eliminate all rights of the holders of Series A Notes eligible to
participate in the Exchange Offer to receive damages that would have been
payable if such actions had not occurred.
EXCHANGE AGENT
American Bank National Association has been appointed as Exchange Agent of
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notice of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
<TABLE>
<S> <C>
By Registered or Certified Mail: By Hand Delivery:
American Bank National Association American Bank National Association
101 East Fifth Street 101 East Fifth Street
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101
Attention: Corporate Trust Department Attention: Corporate Trust Department
By Overnight Delivery: By Facsimile:
American Bank National Association (612) 229-6415
101 East Fifth Street Confirm by Telephone:
St. Paul, Minnesota 55101 (612) 229-2600
Attention: Corporate Trust Department
</TABLE>
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay the
Exchange Agent reasonable and customary fees for its services and will reimburse
it for its reasonable out-of-pocket expenses in connection therewith. The cash
expenses to be incurred in connection with the Exchange Offer will be paid by
the Company.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Series A Notes pursuant to the Exchange Offer. If, however, a transfer tax is
imposed for any reason other than the exchange of the Series A Notes pursuant to
the Exchange Offer, then the amount of any such transfer taxes (whether imposed
on the registered holder or any other persons) will be payable by the tendering
holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted with the Letter of Transmittal, the amount of such transfer
taxes will be billed directly to such tendering holder.
27
<PAGE> 31
CONSEQUENCE OF FAILURES TO EXCHANGE
Participation in the Exchange Offer is voluntary. Holders of the Series A
Notes are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
The Series A Notes that are not exchanged for the Series B Notes pursuant
to the Exchange Offer will remain restricted securities. Accordingly, such
Series A Notes may be resold only (i) to a person whom the seller reasonably
believes is a QIB in a transaction meeting the requirements of Rule 144A, (ii)
in a transaction meeting the requirements of Rule 144 under the Securities Act,
(iii) outside the United States to a foreign person in a transaction meeting the
requirements of Rule 904 under the Securities Act, (iv) in accordance with
another exemption from the registration requirements of the Securities Act (and
based upon an opinion of counsel if the Company so requests), (v) to the
Company, or (vi) pursuant to an effective registration statement and, in each
case, in accordance with any applicable securities laws of any state of the
United States or any other applicable jurisdiction.
ACCOUNTING TREATMENT
For accounting purposes, the Company will recognize no gain or loss as a
result of the Exchange Offer. The expenses of the Exchange Offer will be
amortized over the term of the Series B Notes.
28
<PAGE> 32
THE DELTEC ACQUISITION
Pursuant to the Acquisition Agreement, the Company acquired Deltec from
Fiskars on March 13, 1996. Deltec designs, manufactures, markets, sells and
services a broad line of uninterruptible power systems products and power
management software worldwide through its principal operating subsidiaries,
Deltec EC, which is headquartered and has a plant in San Diego, California and a
plant in Tijuana, Mexico, and FPS, which is based and has a manufacturing
facility in Espoo, Finland. Deltec is one of the world's largest manufacturers
of UPS systems, with revenues of $132.9 million for the year ended December 31,
1995.
The purchase price of approximately $188.1 million was comprised of
approximately $158.5 million in cash ($158.0 million of which was paid at the
closing or the day immediately following), 825,000 shares of Common Stock,
valued at $14.00 per share, and 1,000,000 shares of the Series G Preferred
Stock, valued at $18.00 per share. The Series G Preferred Stock is convertible
into Common Stock on a one-for-one basis (subject to adjustment under certain
circumstances), has a per annum dividend rate of $0.80 per share through March
31, 2001 and $1.20 per share thereafter, and is subject to redemption under
certain circumstances. The balance of the purchase price (approximately $0.5
million to redeem 50 shares of Deltec's 10% Class A preferred stock, plus
accrued but unpaid dividends) will be paid on January 8, 1997. The purchase
price was determined based on an assumption that the net book value of Deltec on
the closing would be approximately $28.7 million. The purchase price will be
adjusted upward or downward to the extent the closing date net book value (as
adjusted for certain excluded assets and liabilities) differs from this amount.
Such determination is expected to be made within 90 days of the closing date, as
provided in the Acquisition Agreement. Based on Deltec's net book value, as
adjusted, at December 31, 1995, the Company would have owed Fiskars additional
cash of $6.2 million. The Company financed the cash portion of the purchase
price paid at closing, excluding the estimated $4.5 million in transaction costs
with (i) the net proceeds of the Offering, which were $121.3 million (before
payment of transaction costs) and (ii) $36.7 million of borrowings under the New
Credit Facility. In addition, under the terms of the Acquisition Agreement, the
Company paid $4.0 million to Fiskars in payment of certain interest carrying
costs associated with Fiskars' agreement to extend the time for closing the
Deltec Acquisition. At the closing, the Company made a prepayment of $3.0
million to Fiskars related to the variable purchase price adjustment, which
would have been $6.2 million based on Deltec's net book value at December 31,
1995. An additional payment of $3.7 million was made to Fiskars, which
represented excess cash that remained in Deltec following the closing.
The Acquisition Agreement contains other provisions customary for
transactions of this size and type, including representations and warranties
with respect to the condition and operations of the business. The Acquisition
Agreement prohibits Fiskars from competing on a worldwide basis in the Company's
business for four years. In addition, subject to certain time and dollar
limitations, Fiskars will indemnify the Company for liabilities arising from
inaccuracies of representations and warranties and breaches of covenants
contained in the Acquisition Agreement. Fiskars' total liability for
indemnification claims is limited under the Acquisition Agreement to 50% of the
purchase price. In addition, under the terms of the Acquisition Agreement,
Fiskars is entitled to two representatives on the Company's Board of Directors.
To accommodate this provision, the Company's Board of Directors will be enlarged
from eight to ten members. See "Description of Capital Stock."
29
<PAGE> 33
USE OF PROCEEDS
There will be no proceeds to the Company from the Exchange Offer. The net
proceeds from the Offering were approximately $121.3 million (after deducting
discounts and commissions to the Initial Purchasers and before deducting
estimated offering expenses). The net proceeds were used to fund a portion of
the cash purchase price of the Deltec Acquisition, the balance of which was
funded with borrowings under the New Credit Facility. See "Description of New
Credit Facility" and "The Deltec Acquisition."
CAPITALIZATION
The following table sets forth the capitalization of the Company at
December 31, 1995 and pro forma combined to give effect to the Transactions.
This table should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," the Unaudited Pro
Forma Combined Financial Statements and the Consolidated Financial Statements of
the Company and the Combined/Consolidated Financial Statements of Deltec and the
related notes thereto included elsewhere in the Prospectus.
Total debt outstanding as of February 29, 1996 was $91.7 million.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1995
-----------------------------
EXIDE
ELECTRONICS PRO FORMA
HISTORICAL COMBINED(1)
----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Total debt:
New Credit Facility(2)................................. $ -- $ 133,550
Other senior debt(3)................................... 83,163 8,266
Notes.................................................. -- 121,741
----------- -----------
Total debt.......................................... 83,163 263,557
Series G Preferred Stock (redeemable after Sept. 30,
2006).................................................. -- 18,000
Common shareholders' equity.............................. 92,588 101,907
----------- -----------
Total capitalization................................ $ 175,751 $ 383,464
======== ==========
</TABLE>
- ---------------
(1) Pro forma for the Deltec Acquisition, the New Credit Facility and the
Offering. The issuance of Warrants to purchase 643,750 shares of Common
Stock in connection with the Series A Notes resulted in the Series A Notes
being recorded at a discount of $3.3 million (such amount being equal to the
value of the Warrants) and common shareholders' equity being increased by
the same amount.
(2) The New Credit Facility provides for term and revolving credit in an amount
of up to $175.0 million. Upon completion of the Offering and the Deltec
Acquisition, approximately $133.6 million was expected to be outstanding on
a pro forma basis, $50.0 million of which was expected to be a term loan and
$83.6 million of which was expected to constitute revolving credit debt. See
"Description of New Credit Facility."
(3) At December 31, 1995, the Company's Senior Debt consisted of $76.1 million
outstanding under an existing domestic credit facility, $6.3 million
outstanding under various credit facilities entered into by the Company's
foreign subsidiaries and other amounts totaling $0.8 million. In connection
with closing the Transactions, the Company repaid all amounts outstanding
under the existing domestic credit facility with a portion of the proceeds
of the New Credit Facility. In addition, as part of the Deltec Acquisition,
the Company assumed approximately $1.2 million of indebtedness held by one
of Deltec's foreign subsidiaries, increasing the Company's foreign
subsidiary debt to approximately $7.5 million.
30
<PAGE> 34
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
The following sets forth the Company's Unaudited Pro Forma Combined
Statement of Operations and Other Data, and the Company's Unaudited Pro Forma
Combined Balance Sheet, in each case giving effect to the Transactions described
in Note 1 hereto as if such transactions had been consummated at the beginning
of fiscal 1995 (in the case of the Unaudited Pro Forma Combined Statement of
Operations and Other Data) and on December 31, 1995 (in the case of the Pro
Forma Combined Balance Sheet). The Unaudited Pro Forma Combined Financial
Statements of the Company do not purport to present the financial position or
results of operations of the Company had the Transactions assumed herein
occurred on the dates indicated, nor are they necessarily indicative of the
results of operations which may be expected to occur in the future.
The Exide Electronics operating data for the LTM ended December 31, 1995
was derived from the Exide Electronics Statements of Operations for the last
nine months of the year ended September 30, 1995 and the three months ended
December 31, 1995. The Deltec operating data for the year ended September 30,
1995, was derived from the Deltec Statements of Income for the three months
ended December 31, 1994, and for the nine months ended September 30, 1995.
The Deltec Acquisition will be accounted for by the Company as a purchase
whereby the basis for accounting for Deltec's assets and liabilities will be
based upon their fair market values at the date of the Deltec Acquisition. Pro
forma adjustments, including the preliminary purchase price allocation and
estimated cost savings resulting from the Deltec Acquisition as described in
Notes 1 and 2 of the Notes to the Unaudited Pro Forma Combined Financial
Statements, represent the Company's preliminary determination of these
adjustments and are based upon preliminary information, assumptions and
operating decisions which the Company considers reasonable under the
circumstances. Final amount of cost savings may differ significantly from those
set forth herein.
31
<PAGE> 35
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
LAST TWELVE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............................. $ 265,245 $113,031 $ -- $378,276
Service revenues............................. 116,970 19,918 -- 136,888
----------- -------- -------------- ---------
Total revenues........................... 382,215 132,949 -- 515,164
----------- -------- -------------- ---------
Product cost of revenues..................... 198,131 71,921 (4,200)(2)(3) 265,852
Service cost of revenues..................... 81,688 8,969 -- 90,657
----------- -------- -------------- ---------
Total cost of revenues................... 279,819 80,890 (4,200) 356,509
----------- -------- -------------- ---------
Gross profit................................. 102,396 52,059 4,200 158,655
Selling, general and administrative
expense.................................... 70,866 33,647 3,797(2)(3) 108,310
Research and development expense............. 9,891 4,976 (1,000)(2) 13,867
Litigation expense........................... 700 -- -- 700
Merger and acquisition expense............... 7,000 -- -- 7,000
Royalty expense.............................. -- 3,411 (3,411)(4) --
----------- -------- -------------- ---------
Income from operations................... 13,939 10,025 4,814 28,778
Interest expense............................. 5,648 3,177 17,894(5) 26,719
Interest income.............................. (377) (678) -- (1,055 )
Other (income) expense....................... (619) -- -- (619 )
----------- -------- -------------- ---------
Income before income taxes............... 9,287 7,526 (13,080) 3,733
Provision for income taxes................... 3,738 2,237 (3,765)(6) 2,210
----------- -------- -------------- ---------
Net income............................... 5,549 $ 5,289 (9,315) 1,523
=========
Preferred stock dividends.................... 394 977(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................... $ 5,155 $(10,292) $ 152
========== ============== ==========
Earnings per share(7)........................ $ 0.57 $ 0.01
========== ==========
Weighted average common shares outstanding... 9,677 10,439
========== ==========
OTHER DATA:
EBITDA(8).................................... $ 31,322 $ 17,853 $ 8,000(2) $ 57,175
Depreciation................................. 6,962 2,014 500 9,476
Amortization................................. 2,721 2,403 6,097 11,221
Capital expenditures......................... 14,103 2,402 16,505
Ratio of EBITDA to interest expense.......... 5.5x 5.6x 2.1 x
Ratio of earnings to fixed charges(9)........ 2.1x 2.8x 1.1 x
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
32
<PAGE> 36
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- -------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues........................... $ 271,482 $ 97,285 $ -- $368,767
Service revenues........................... 119,496 19,030 -- 138,526
----------- -------- -------------- ---------
Total revenues......................... 390,978 116,315 -- 507,293
----------- -------- -------------- ---------
Product cost of revenues................... 204,683 61,600 (2,500)(2)(3) 263,783
Service cost of revenues................... 82,430 9,857 -- 92,287
----------- -------- -------------- ---------
Total cost of revenues................. 287,113 71,457 (2,500) 356,070
----------- -------- -------------- ---------
Gross profit........................... 103,865 44,858 2,500 151,223
Selling, general and administrative
expense.................................. 69,966 30,527 5,390(2)(3) 105,883
Research and development expense........... 9,929 4,827 4,000(2)(3) 18,756
Litigation expense......................... 700 -- -- 700
Merger and acquisition expense............. 7,000 -- -- 7,000
Royalty expense............................ -- 2,923 (2,923)(4) --
----------- -------- -------------- ---------
Income from operations................. 16,270 6,581 (3,967) 18,884
Interest expense........................... 5,575 2,982 21,623(5) 30,180
Interest income............................ (485) (701) -- (1,186 )
Other (income) expense..................... (897) -- -- (897 )
----------- -------- -------------- ---------
Income before income taxes............. 12,077 4,300 (25,590) (9,213 )
Provision for (benefit from) income
taxes.................................... 4,692 1,012 (8,644)(6) (2,940 )
----------- -------- -------------- ---------
Net income............................. 7,385 $ 3,288 (16,946) (6,273 )
=========
Preferred stock dividends.................. 592 779(7) 1,371
----------- -------------- ---------
Net income applicable to common
shareholders............................. $ 6,793 $(17,725) $ (7,644 )
========== ============== ==========
Earnings per share(7)...................... $ 0.84 $ (0.73 )
========== ==========
Weighted average common shares
outstanding.............................. 9,673 10,471
========== ==========
OTHER DATA:
EBITDA(8).................................. $ 33,415 $ 14,030 $ 8,000(2) $ 55,445
Depreciation............................... 6,683 2,041 500 9,224
Amortization............................... 2,762 2,485 14,390 19,637
Capital expenditures....................... 12,497 2,233 14,730
Ratio of EBITDA to interest expense........ 6.0x 4.7x 1.8 x
Ratio of earnings to fixed charges......... 2.4x 2.1x 0.7 x(9)
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
33
<PAGE> 37
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............................ $63,896 $24,620 $ -- $ 88,516
Service revenues............................ 28,170 4,854 -- 33,024
----------- ------- -------------- ---------
Total revenues.......................... 92,066 29,474 -- 121,540
----------- ------- -------------- ---------
Product cost of revenues.................... 49,060 14,997 650(2)(3) 64,707
Service cost of revenues.................... 19,322 2,977 -- 22,299
----------- ------- -------------- ---------
Total cost of revenues.................. 68,382 17,974 650 87,006
----------- ------- -------------- ---------
Gross profit............................ 23,684 11,500 (650) 34,534
Selling, general and administrative
expense................................... 16,557 6,862 2,344(2)(3) 25,763
Research and development expense............ 2,547 1,145 4,750(2)(3) 8,442
Royalty expense............................. -- 714 (714)(4) --
----------- ------- -------------- ---------
Income from operations.................. 4,580 2,779 (7,030) 329
Interest expense............................ 1,424 665 8,426(5) 10,515
Interest income............................. (139) (121) -- (260 )
Other (income) expense...................... (161) -- -- (161 )
----------- ------- -------------- ---------
Income before income taxes.............. 3,456 2,235 (15,456) (9,765 )
Provision for (benefit from) income taxes... 1,207 685 (5,693)(6) (3,801 )
----------- ------- -------------- ---------
Net income.............................. 2,249 $ 1,550 (9,763) (5,964 )
========
Preferred stock dividends................... 198 145(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 2,051 $ (9,908) $ (6,307 )
========== ============== ==========
Earnings per share(7)....................... $ 0.25 $ (0.61 )
========== ==========
Weighted average common shares
outstanding............................... 9,005 10,349
========== ==========
OTHER DATA:
EBITDA(8)................................... $ 6,795 $ 4,698 $ 2,000(2) $ 13,493
Depreciation................................ 1,562 530 125 2,217
Amortization................................ 653 675 9,619 10,947
Capital expenditures........................ 2,332 570 2,902
Ratio of EBITDA to interest expense......... 4.8x 7.1x 1.3 x
Ratio of earnings to fixed charges(9)....... 2.6x 3.7x 0.1 x(9)
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
34
<PAGE> 38
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS AND OTHER DATA
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues............................ $57,659 $40,366 $ -- $ 98,025
Service revenues............................ 25,644 5,742 -- 31,386
----------- ------- -------------- ---------
Total revenues.......................... 83,303 46,108 -- 129,411
----------- ------- -------------- ---------
Product cost of revenues.................... 42,508 25,318 (1,050)(2)(3) 66,776
Service cost of revenues.................... 18,580 2,089 -- 20,669
----------- ------- -------------- ---------
Total cost of revenues.................. 61,088 27,407 (1,050) 87,445
----------- ------- -------------- ---------
Gross profit............................ 22,215 18,701 1,050 41,966
Selling, general and administrative
expense................................... 17,457 9,982 751(2)(3) 28,190
Research and development expense............ 2,509 1,294 (250)(2) 3,553
Royalty expense............................. -- 1,202 (1,202)(4) --
----------- ------- -------------- ---------
Income from operations.................. 2,249 6,223 1,751 10,223
Interest expense............................ 1,497 860 4,697(5) 7,054
Interest income............................. (31) (98) -- (129 )
Other (income) expense...................... 117 -- -- 117
----------- ------- -------------- ---------
Income before income taxes.............. 666 5,461 (2,946) 3,181
Provision for income taxes.................. 253 1,910 (815)(6) 1,348
----------- ------- -------------- ---------
Net income.............................. 413 $ 3,551 (2,131) 1,833
========
Preferred stock dividends................... -- 343(7) 343
----------- -------------- ---------
Net income applicable to common
shareholders.............................. $ 413 $ (2,474) $ 1,490
========== ============== ==========
Earnings per share(7)....................... $ 0.04 $ 0.14
========== ==========
Weighted average common shares
outstanding............................... 9,500 10,323
========== ==========
OTHER DATA:
EBITDA(8)................................... $ 4,702 $ 8,521 $ 2,000(2) $ 15,223
Depreciation................................ 1,841 503 125 2,469
Amortization................................ 612 593 1,326 2,531
Capital expenditures........................ 3,938 739 4,677
Ratio of EBITDA to interest expense......... 3.1x 9.9x 2.2 x
Ratio of earnings to fixed charges(9)....... 1.3x 6.2x 1.4 x
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
35
<PAGE> 39
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
EXIDE PRO FORMA PRO FORMA
ELECTRONICS DELTEC ADJUSTMENTS(1) COMBINED
----------- ------- -------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents............. $ 2,001 $ 5,603 $ (1,903)(1) $ 5,701
Accounts receivable................... 95,436 34,268 -- 129,704
Inventories........................... 76,753 21,633 1,700(1) 100,086
Other current assets.................. 15,357 4,388 2,500(1) 22,245
----------- ------- -------------- ---------
Total current assets............... 189,547 65,892 2,297 257,736
Property, plant and equipment........... 37,251 7,135 4,000(1) 48,386
Goodwill................................ 18,318 7,384 129,624(10) 155,326
Other assets............................ 8,823 468 29,250(11) 38,541
----------- ------- -------------- ---------
$ 253,939 $80,879 $165,171 $ 499,989
======== ======= =========== ========
LIABILITIES, PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt....................... $ 6,747 $ 10 $ -- $ 6,757
Accounts payable...................... 43,220 11,845 -- 55,065
Deferred revenues..................... 15,840 4,461 -- 20,301
Other accrued liabilities............. 15,707 19,341 (6,713)(1)(13) 28,335
Payable to Fiskars.................... -- -- 3,657(1) 3,657
----------- ------- -------------- ---------
Total current liabilities.......... 81,514 35,657 (3,056) 114,115
Long-term debt.......................... 76,416 37,836 142,548(12) 256,800
Deferred liabilities.................... 3,421 4,076 1,670(1)(13) 9,167
Series G Preferred Stock (redeemable
after September 30, 2006)............. -- -- 18,000(1) 18,000
Common shareholders' equity............. 92,588 3,310 6,009(13) 101,907
----------- ------- -------------- ---------
$ 253,939 $80,879 $165,171 $ 499,989
======== ======= =========== ========
</TABLE>
See Accompanying Notes to Unaudited Pro Forma Combined Financial Statements
36
<PAGE> 40
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
1. The Company's Unaudited Pro Forma Combined Financial Statements assume the
following transactions occurred (1) at the beginning (October 1, 1994) of
the Company's 1995 fiscal year for purposes of the Unaudited Pro Forma
Combined Statements of Operations and Other Data and (2) on December 31,
1995, for purposes of the Unaudited Pro Forma Combined Balance Sheet:
a. The Deltec Acquisition -- Immediately prior to the closing of the
Deltec Acquisition, under the terms of the Acquisition Agreement,
Fiskars converted all net amounts owed by Deltec to Fiskars or
affiliates to Deltec shareholders' equity and distributed all Deltec
cash to Fiskars. Accordingly, the pro forma adjustments reflect
decreases in cash ($5,603), goodwill and intangible assets ($7,384),
other accrued liabilities ($6,791), deferred liabilities ($1,060) and
long-term debt ($36,643), along with a corresponding increase to Deltec
shareholders' equity ($31,507).
It is assumed that the Deltec Acquisition was financed through
borrowings of $43,450 under the New Credit Facility, $121,250 from the
net proceeds of the Offering, $500 payable to Fiskars on January 8, 1997
and $3,157 additional variable amount payable to Fiskars related to the
assumed purchase price adjustment at December 31, 1995.
The excess of cost over fair value of net assets acquired resulting from
the preliminary purchase price allocation is assumed to be as follows:
<TABLE>
<S> <C>
Pro forma purchase price --
Cash --
Fixed amount stated in Acquisition Agreement...................... $158,500
Variable amount related to assumed purchase price adjustment;
calculated based on Deltec net book value and excluded assets and
liabilities at December 31, 1995, net of prepayment of $3,000.... 3,157
Additional amounts paid at closing:
Prepayment of variable purchase price adjustment................ 3,000
Excess cash which remained in Deltec following the
Acquisition.................................................... 3,700
Series G Preferred Stock (1,000,000 shares at fair value of $18 per
share)............................................................ 18,000
Common Stock (825,000 shares at fair market value of $14 per
share)............................................................ 11,550
Transaction costs.................................................... 4,500
--------
Total pro forma purchase price.................................... 202,407
--------
Pro forma historical net book value of assets acquired --
Book value per historical financial statements....................... 3,310
Net liabilities excluded as described above.......................... 31,507
Excess cash which remained in Deltec following the Acquisition....... 3,700
--------
Total pro forma historical net book value of assets acquired...... (38,517)
--------
Excess of purchase price over net book value of assets acquired........ 163,890
Allocated to:
Inventories....................................................... (1,700)
Other current assets.............................................. (2,500)
Property and equipment............................................ (4,000)
Other long-term assets............................................ (20,000)
In-process research and development............................... (5,000)
Deferred income tax liability --
Current......................................................... 1,638
Long-term....................................................... 4,680
--------
Remaining excess of cost over fair value of net assets acquired
(goodwill)........................................................... $137,008
========
</TABLE>
37
<PAGE> 41
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The preliminary purchase price allocation included allocations to other
long-term assets for the noncompete agreement, prepaid license fees for
use of the Fiskars tradename in Europe, trademarks, patents and product
drawings and specifications.
The foregoing preliminary purchase price allocation is based on
available information and certain assumptions the Company considers
reasonable. The final purchase price allocation will be based upon a
final determination of the fair market value of the net assets acquired
at the date of the Deltec Acquisition as determined by valuations and
other studies which are not yet complete.
b. The conversion on October 23, 1995, of Exide Electronics' 8.375%
convertible subordinated notes (the "Convertible Subordinated Notes")
(balance at September 30, 1995 -- $15,000) into 1,146,789 shares of
Common Stock.
c. The New Credit Facility -- Simultaneously with closing the Offering,
the Company entered into the New Credit Facility to replace its then
existing credit facility. The Deltec Acquisition was partially financed
through borrowings under the New Credit Facility.
d. The issuance of the Notes in the Offering.
2. Because the Deltec Acquisition was only recently consummated, the Company
has begun, but not completed, its strategic and operating plans for the
integration of Deltec's operations into those of the Company. The Company
is in the process of completing its strategic and operating integration
plan, including coordinating its strategic and operating plans and
decisions with the plans and decisions of Deltec's management.
Nevertheless, based on enacted and planned operating decisions, the Company
has begun to eliminate duplicative costs through the combination of the two
companies as described below. However, the actual cost savings may differ
significantly from the preliminary estimates.
The pro forma adjustments to reflect estimated cost savings resulting from
the Deltec Acquisition assumes the following preliminary estimates of
expected cost savings:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
Consolidation of large systems manufacturing
facilities.................................. $ 3,000 $ 750 $ 750 $3,000
Elimination of duplicative selling, general
and administrative and research and
development
costs....................................... 2,700 675 675 2,700
Elimination of certain manufacturing
outsourcing and combination of
procurement................................. 1,200 300 300 1,200
Consolidation of European sales and service
operations.................................. 600 150 150 600
Consolidation of international product
offerings................................... 500 125 125 500
------------- ------ ------ ------------
Pro forma adjustment..................... $ 8,000 $2,000 $2,000 $8,000
========== ====== ====== ==========
</TABLE>
Such pro forma adjustments have reduced costs of revenues, selling, general
and administrative expense and research and development expense by $4,700,
$2,300 and $1,000, respectively, for both the year ended September 30, 1995
and the LTM ended December 31, 1995 and by $1,175, $575 and $250 for both
the three month periods ended December 31, 1994 and 1995, respectively.
In addition to the cost savings initiatives and estimated cost savings
described above, the Company estimates that it can eliminate additional
annual duplicative costs through the combination of the two companies.
However, such amount cannot be quantified at this time and has not been
reflected in the pro forma adjustments.
38
<PAGE> 42
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
The estimated non-recurring costs of implementing the above pro forma cost
savings are $3,500 and are excluded from the pro forma adjustments. The
actual non-recurring costs may differ significantly from the preliminary
estimates.
3. The pro forma adjustment to reflect the effect of the preliminary purchase
price allocation on cost of revenues, selling, general and administrative
expense and research and development expense assumes:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ---------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
Cost of revenues --
Record amortization of amounts allocated
to inventories........................ $ 1,700 $1,700 $ -- $ --
Record depreciation of amounts allocated
to property and equipment............. 500 125 125 500
------------- ------ ------ ------------
$ 2,200 $1,825 $ 125 $ 500
========== ====== ====== ==========
Selling, general and administrative
expense --
Record amortization of amounts allocated
to other current assets............... $ 2,500 $1,675 $ -- $ 825
Record amortization of goodwill in
connection with the acquisition over
40 years.............................. 3,425 856 856 3,425
Record amortization of amounts allocated
to other long-term assets............. 4,250 1,063 1,063 4,250
Elimination of previously recorded Deltec
amortization of goodwill and
intangible assets..................... (2,485) (675) (593) (2,403)
------------- ------ ------ ------------
$ 7,690 $2,919 $1,326 $ 6,097
========== ====== ====== ==========
Research and development expense --
Record amortization of amounts allocated
to purchased in-process research and
development........................... $ 5,000 $5,000 $ -- $ --
========== ====== ====== ==========
</TABLE>
The amounts allocated to inventories, other current assets and purchased
in-process research and development will be fully amortized during the
twelve months following the Deltec Acquisition date. Amounts allocated to
certain long-term assets will be fully amortized during the four years
following the Deltec Acquisition date, which will reduce the annual
amortization for such amounts from $4,250 as shown above to $750 beginning
in the fifth year following the Deltec Acquisition date.
4. The royalty expense previously charged by Fiskars to Deltec is not being
charged after the Deltec Acquisition due to the license fees paid in the
purchase price for use of the Fiskars tradename in Europe.
39
<PAGE> 43
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
5. The pro forma adjustment to interest expense assumes:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ----------------- DECEMBER 31,
1995 1994 1995 1995
------------- ------ ------ ------------
<S> <C> <C> <C> <C>
Elimination of interest related to --
Conversion of Deltec debt to Fiskars to
Deltec equity............................ $(2,888) $ (635) $ (808) $ (3,061)
Conversion of Convertible Subordinated
Notes.................................... (1,256) (314) (80) (1,022)
Additional interest expense related to --
The Notes at 11.5%.......................... 14,375 3,594 3,594 14,375
Amortization of discount related to the
Notes(a)................................. 326 82 82 326
$57,450 of net additional borrowings under
the New Credit Facility.................. 4,869 1,204 1,217 4,882
Replacement of the previously existing
credit facility with the New Credit
Facility................................. 715 125 334 924
Interest payment to Fiskars as part of
amendment to Acquisition Agreement....... 4,000 4,000 -- --
Amortization of deferred financing costs
related to --
The Notes................................... 500 125 125 500
New Credit Facility......................... 982 245 233 970
------------- ------ ------ ------------
Pro forma adjustment..................... $21,623 $8,426 $4,697 $ 17,894
========== ====== ====== ==========
</TABLE>
- ---------------
(a) The issuance of Warrants in connection with Notes resulted in the Notes
being recorded at a discount of $3,259, which discount is amortized
over the life of the Notes resulting in additional interest expense
being recorded.
The additional interest expense related to the replacement of the
previously existing credit facility with the New Credit Facility was
determined based on (i) average borrowings outstanding under the previously
existing credit facility of $40,985 for the year ended September 30, 1995,
$28,550 for the three months ended December 31, 1994, $70,334 for the three
months ended December 31, 1995 and $51,431 for the LTM ended December 31,
1995, and (ii) an increase in the interest rate from the agent bank's base
rate or, at the Company's option, the LIBOR rate plus 0.60% under the
previously existing credit facility to the agent bank's base rate plus
1.5%, or at the Company's option, the LIBOR rate plus 2.5% under the New
Credit Facility.
A 25 basis point increase (or decrease) in such interest rates would
increase (or decrease) annual interest expense with respect to the New
Credit Facility by $334 based on pro forma borrowings of $133,550 at
December 31, 1995.
6. The pro forma adjustments to the provision for income taxes assumes a tax
benefit at a 39% tax rate is applied (1) to the pro forma adjustments which
are assumed to be deductible for tax return purposes and (2) to
non-deductible pro forma adjustments for which deferred income taxes were
established in the preliminary purchase price allocation. While tax
benefits for interest deductions on the Notes have been
40
<PAGE> 44
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
reflected in the pro forma adjustments, such deductions may be subject to
certain limitations under the Code (as defined).
7. The pro forma adjustments to preferred stock dividends assumes:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, LTM ENDED
SEPTEMBER 30, ------------ DECEMBER 31,
1995 1994 1995 1995
------------- ----- ---- ------------
<S> <C> <C> <C> <C>
Dividends related to Series G Preferred
Stock issued to Fiskars --
Cash dividends................................ $ 800 $ 200 $200 $ 800
Accreted dividends............................ 571 143 143 571
Eliminate dividends on Exide Electronics Series
D and E preferred stock which was converted to
Common Stock in 1995.......................... (592) (198) -- (394)
----- ----- ---- ------
$ 779 $ 145 $343 $ 977
====== ===== ==== ======
</TABLE>
The accreted dividends relate to the accretion of the difference between the
assumed fair market value of the Series G Preferred Stock at the Deltec
Acquisition date ($18,000) and the redemption price at the option of holder
($24,000) after September 30, 2006 over the period from the Deltec
Acquisition date to September 30, 2006.
Pro forma primary and fully diluted earnings per share are the same for all
periods presented. The computation of pro forma primary and fully diluted
earnings per share assumes that the Exide Electronics Series D and E
preferred stock were converted to Common Stock on October 1, 1994.
8. EBITDA represents income from operations plus depreciation and amortization
(including depreciation and amortization of purchase accounting
adjustments), non-recurring 1995 Exide Electronics merger, acquisition and
litigation charges of $7,700 and Deltec royalty expense payable to Fiskars
which is not being charged after the Deltec Acquisition. While EBITDA should
not be construed as a substitute for income from operations, net income and
cash flows from operating activities in analyzing operating performance,
financial position and cash flows, the Company has included EBITDA because
it is commonly used by certain investors and analysts to analyze and compare
companies on the basis of operating performance, leverage and liquidity and
to determine a company's ability to service debt.
9. In the computation of the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges minus the
undistributed earnings of Exide Electronics' 50%-owned subsidiary accounted
for by the equity method. Fixed charges consist of interest expense which
includes amortization of deferred financing costs, and one-third of rental
expenses which represents that portion of rental expenses attributable to
interest. On a pro forma basis after giving effect to the Transactions,
earnings were inadequate to cover fixed charges by $9,470 for the year ended
September 30, 1995 and $9,882 for the three months ended December 31, 1994.
Adjusted to eliminate non-cash charges of depreciation and amortization of
$28,861 for the year ended September 30, 1995 and $13,164 for the three
months ended December 31, 1994, pro forma earnings would have exceeded fixed
charges by $19,391 and $3,282, respectively.
10. The pro forma adjustment to goodwill assumes:
<TABLE>
<S> <C>
Record additional goodwill related to the Deltec Acquisition.............. $137,008
Eliminate existing Deltec goodwill........................................ (7,384)
--------
Pro forma adjustment............................................ $129,624
========
</TABLE>
41
<PAGE> 45
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS)
11. The pro forma adjustment to other long-term assets assumes:
<TABLE>
<S> <C>
Record certain other intangible assets............................................ $ 20,000
Record deferred financing costs related to the Notes.............................. 5,000
Record deferred financing costs related to New Credit Facility.................... 4,250
--------
Pro forma adjustment......................................................... $ 29,250
========
</TABLE>
12. The pro forma adjustment to long-term debt assumes:
<TABLE>
<S> <C>
Record the Notes, less discount of $3,259(a)...................................... $121,741
Record net additional borrowings under New Credit Facility:
Cash purchase price to Fiskars.................................................. 36,750
Additional amounts of purchase price paid at closing............................ 6,700
Acquisition transaction costs................................................... 4,500
Transaction costs related to the Notes.......................................... 1,250
Transaction costs related to New Credit Facility................................ 4,250
Interest paid to Fiskars........................................................ 4,000
Eliminate Deltec long-term debt to Fiskars........................................ (36,643)
--------
Pro forma adjustment......................................................... $142,548
========
</TABLE>
- ---------------
(a) The issuance of Warrants in connection with the Notes resulted in the Notes
being recorded at a discount.
13. The pro forma adjustment to common shareholders' equity assumes:
<TABLE>
<S> <C>
Record common stock issued to Fiskars.............................................. $11,550
Record writeoff of purchased in-process research and development, net of assumed
tax benefit of $1,950............................................................ (3,050)
Record interest of $4,000 paid to Fiskars, net of assumed tax benefit of $1,560.... (2,440)
Record value of Warrants issued in connection with the Notes(a).................... 3,259
Eliminate Deltec shareholders' equity.............................................. (3,310)
-------
Pro forma adjustment.......................................................... $ 6,009
=======
</TABLE>
- ---------------
(a) The issuance of Warrants to purchase 643,750 shares of Common Stock at
$13.475 per share resulted in the value ($3,259) of the Warrants being
recorded as additional common shareholders' equity.
42
<PAGE> 46
[This page intentionally left blank]
43
<PAGE> 47
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following selected historical financial data were derived from, and
should be read in conjunction with, the historical consolidated financial
statements of the Company and the historical combined/consolidated financial
statements of Deltec. The historical consolidated financial statements of the
Company as of and for each of the years ended September 30, 1991, 1992, 1993,
1994 and 1995 have been audited. The historical financial statements of the
Company as of and for each of the three-month periods ended December 31, 1994
and 1995 are unaudited. The historical financial statements of Deltec as of
December 31, 1994, September 30, 1995 and December 31, 1995 and for each of the
years ended December 31, 1993, 1994 and 1995 and the nine-month period ended
September 30, 1995 have been audited. The historical financial statements of
Deltec as of December 31, 1993 and for the three-month periods ended December
31, 1994 and 1995 are unaudited. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Financial Statements and
related notes thereto included elsewhere in this Prospectus.
EXIDE ELECTRONICS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED SEPTEMBER 30, DECEMBER 31,
---------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1994 1995
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues.................... $175,487 $186,579 $220,143 $259,403 $271,482 $ 63,896 $ 57,659
Service revenues.................... 45,912 60,524 97,799 104,580 119,496 28,170 25,644
-------- -------- -------- -------- -------- -------- --------
Total revenues.................. 221,399 247,103 317,942 363,983 390,978 92,066 83,303
-------- -------- -------- -------- -------- -------- --------
Gross profit........................ 51,465 68,695 85,495 98,695 103,865 23,684 22,215
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations....... (2,899) 12,844 20,397 18,462(1) 16,270(2) 4,580 2,249
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income taxes
and the cumulative effect of
accounting change................. (7,596) 9,159 16,046 13,459(1) 12,077(2) 3,456 666
-------- -------- -------- -------- -------- -------- --------
Income (loss) before the cumulative
effect of accounting change....... (6,698) 6,056 9,832 9,175(1) 7,385(2) 2,249 413
Cumulative effect of accounting
change............................ 1,014 -- 1,000 -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)................... (5,684) 6,056 10,832 9,175(1) 7,385(2) 2,249 413
-------- -------- -------- -------- -------- -------- --------
Preferred stock dividends........... 301 484 1,071 790 592 198 --
-------- -------- -------- -------- -------- -------- --------
Net income (loss) applicable to
common shareholders............... $ (5,985) $ 5,572 $ 9,761 $ 8,385 $ 6,793 $ 2,051 $ 413
========= ========= ========= ========= ========= ========= =========
Primary earnings per share.......... $ (0.82) $ 0.79 $ 1.34 $ 1.07 $ 0.84 $ 0.26 $ 0.04
========= ========= ========= ========= ========= ========= =========
Fully diluted earnings per share.... $ (0.82) $ 0.79 $ 1.21 $ 1.03 $ 0.84 $ 0.25 $ 0.04
========= ========= ========= ========= ========= ========= =========
OTHER DATA:
EBITDA(3)........................... $ 1,601 $ 19,642 $ 27,347 $ 31,889 $ 33,415 $ 6,795 $ 4,702
Depreciation........................ 3,628 4,633 5,304 6,105 6,683 1,562 1,841
Amortization........................ 872 2,165 1,646 2,325 2,762 653 612
Capital expenditures................ 6,156 5,828 8,255 8,735 12,497 2,332 3,938
Ratio of earnings to fixed
charges(4)........................ (0.1)x 2.2x 3.4x 2.7x 2.4x 2.6x 1.3x
BALANCE SHEET DATA (END OF PERIOD):
Working capital..................... $ 49,073 $ 61,714 $ 87,029 $ 93,337 $105,543 $ 75,550 $108,033
Total assets........................ 137,918 151,178 203,233 224,676 256,451 209,971 253,939
Long-term debt...................... 34,995 40,299 56,805 58,400 80,258 39,700 76,416
Redeemable preferred stock.......... 5,000 10,100 10,000 10,000 -- 10,000 --
Common shareholders' equity......... 39,745 44,501 58,017 67,462 83,767 69,216 92,588
</TABLE>
44
<PAGE> 48
DELTEC
<TABLE>
<CAPTION>
NINE THREE MONTHS
YEAR ENDED MONTHS ENDED
DECEMBER 31, ENDED DECEMBER 31, YEAR ENDED
------------------ SEPT. 30, ------------------ DECEMBER 31,
1993 1994 1995 1994 1995 1995
------- ------- --------- ------- ------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Product revenues.......................... $60,446 $80,236 $72,665 $24,620 $40,366 $113,031
Service revenues.......................... 14,982 16,960 14,176 4,854 5,742 19,918
------- ------- ------- ------- ------- --------
Total revenues.......................... 75,428 97,196 86,841 29,474 46,108 132,949
------- ------- ------- ------- ------- --------
Gross profit.............................. 28,749 38,518 33,358 11,500 18,701 52,059
------- ------- ------- ------- ------- --------
Income from operations.................... 4,189 6,049 3,802 2,779 6,223 10,025
------- ------- ------- ------- ------- --------
Income before income taxes and cumulative
effect of change in accounting principle
for income taxes........................ 3,790 5,041 2,065 2,235 5,461 7,526
------- ------- ------- ------- ------- --------
Income before cumulative effect of change
in accounting principle for income
taxes................................... 2,975 3,156 1,738 1,550 3,551 5,289
Cumulative effect of change in accounting
principle for income taxes.............. 1,509 -- -- -- -- --
------- ------- ------- ------- ------- --------
Net income................................ $ 4,484 $ 3,156 $ 1,738 $ 1,550 $ 3,551 $ 5,289
======= ======= ======= ======= ======= ========
OTHER DATA:
EBITDA(3)................................. $ 9,016 $12,332 $ 9,332 $ 4,698 $ 8,521 $ 17,853
Depreciation.............................. 1,358 1,690 1,511 530 503 2,014
Amortization.............................. 1,991 2,295 1,810 675 593 2,403
Capital expenditures...................... 1,456 1,634 1,663 570 739 2,402
Ratio of earnings to fixed charges(4)..... 3.4x 3.3x 1.7x 3.7x 6.2x 2.8x
BALANCE SHEET DATA (END OF PERIOD):
Working capital........................... $21,563 $26,336 $26,694 $ 30,235
Total assets.............................. 51,380 63,502 71,601 80,879
Long-term debt:
Fiskars or affiliates................... 7,506 32,572 30,704 36,643
Other................................... 475 685 1,237 1,193
Shareholders' equity(5)................... 25,031 5,042 6,240 3,310
</TABLE>
- ---------------
(1) Includes a one-time litigation charge of $4,997 ($2,936 after tax). See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Litigation Expense,"
(2) Includes one-time merger, acquisition and litigation charges for Exide
Electronics of $7,700 ($5,597 after tax). See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations-- Litigation Expense" and "--Merger and Acquisition Expense."
(3) EBITDA represents income from operations plus depreciation and amortization,
and a non-recurring 1994 Exide Electronics litigation charge of $4,997 and
non-recurring 1995 Exide Electronics merger, acquisition and litigation
charges of $7,700 and Deltec royalty expense payable to Fiskars which is not
being charged after the Deltec Acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations--Litigation Expenses" and "--Merger and Acquisition Expenses."
While EBITDA should not be construed as a substitute for income from
operations, net income and cash flows from operating activities in analyzing
operating performance, financial position and cash flows, EBITDA has been
included because it is commonly used by certain investors and analysts to
analyze and compare companies on the basis of operating performance,
leverage and liquidity and to determine a company's ability to service debt.
(4) In the computation of the ratio of earnings to fixed charges, earnings
consist of income before income taxes plus fixed charges minus the
undistributed earnings of Exide Electronics' 50%-owned subsidiary accounted
for by the equity method. Fixed charges consist of interest expense, which
includes amortization of deferred financing costs and one-third of rental
expenses, representing that portion of rental expenses attributable to
interest.
(5) Capitalization of Deltec Power Systems, Inc. on September 27, 1994
significantly impacted shareholders' equity. See Combined/Consolidated
Statements of Shareholders' Equity and Note 12 to the financial statements.
45
<PAGE> 49
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion provides an assessment of the consolidated results
of operations and liquidity and capital resources of the Company and Deltec and
should be read in conjunction with "Selected Historical Consolidated Financial
Data," with the Consolidated Financial Statements of the Company and the related
notes thereto and with the Combined and Consolidated Financial Statements of
Deltec and the related notes thereto included elsewhere in this Prospectus.
OVERVIEW
Over the past five years, the Company's product mix has shifted toward its
lower kVA product lines, which support personal computers, workstations,
client/server platforms, and networks and away from its traditional large
systems products. Sales of small systems products have increased significantly
for the past two fiscal years, while commercial sales of the Company's large
systems products have generally remained flat. This reflects the general
downsizing trend in the computer industry, which has resulted in declines in the
commercial mainframe computer and data center market segments.
Small UPS products are characterized generally by higher unit volumes,
lower average prices and higher unit margins than large UPS products, and are
sold through different distribution channels. The majority of the Company's UPS
products are sold to customers to support computers or similar electronics
products. The electronics market, and particularly the networking,
client/server, workstation, and personal computer markets supported by small UPS
products, is increasingly characterized by intense competition, rapidly changing
technology, and evolving industry standards, frequently resulting in shorter
product life cycles and declines in selling prices. The Company has responded
with reductions in manufacturing costs and purchased components, and has
aggressively introduced new hardware and software products with lower costs and
higher performance levels. The Company believes that its ability to compete
depends on both internal and external factors, including the success and timing
of new product introductions by the Company and its competitors, product
performance and price, distribution, and customer service.
International sales accounted for approximately 22%, 25%, and 31% of the
Company's total revenues for fiscal 1993, 1994, and 1995, respectively. The
Company has focused on these expanding markets by developing versions of its
products to meet international voltage and frequency requirements; by
establishing subsidiaries in selected European countries and in Hong Kong; by
adding distributors and making small acquisitions in other international
regions; and by creating joint ventures with strategic partners for distribution
in Japan, Brazil, and India.
Sales to the federal government accounted for approximately 35%, 33%, and
27% of total revenues for fiscal 1993, 1994, and 1995, respectively. Despite the
large proportion of sales to the federal government, these sales actually
declined by about 12% in fiscal 1995 versus fiscal 1994, reflecting the
scheduled decline in large systems sales due to the completion of most product
shipments under the multi-year FAA Program. While the work yet to be performed
under the FAA Program is scheduled through fiscal 1997, sales to the federal
government in fiscal 1996 are expected to decline by approximately 40-50%. The
Company's contracts with the federal government have no significant minimum
purchase commitments, and the government may cease purchases under these
contracts at any time for any reason. These contracts are subject to termination
at the convenience of the government pursuant to the terms of the contracts.
In June 1995, the Company was awarded a three-year follow-on contract to
the ALC Contract, with up to two additional one-year extensions at the option of
the government. Actual revenues under the follow-on ALC Contract will depend on
the specific purchases, if any, by the Air Force and other governmental agencies
that may use the contract during the contract period. Following the award of the
follow-on ALC Contract, certain competitors filed protests with the General
Accounting Office ("GAO"). In December 1995, the GAO notified the Company that
all of the protests had been dismissed, except the protest of the Air Force's
evaluation of certain discounts offered by the Company in the contract. The GAO
has recommended that the Air Force amend a portion of the request for proposal
that led to the contract award. The GAO further recommended that the Air Force
allow the protesting companies and the Company to submit new proposals
46
<PAGE> 50
regarding such portion, and that the Air Force re-evaluate the award to the
Company based upon these new proposals. In response to the notification, the
Company has filed a motion for reconsideration of the GAO's ruling. In response
to the GAO's ruling, the Air Force has notified the Company that it is in the
process of re-evaluating the follow-on ALC Contract and that it will not issue
orders under the contract pending its re-evaluation process. The Company is
unable to predict at this time what the resolution of the contract protest will
be and no assurances can be given that the Company ultimately will retain the
follow-on ALC Contract.
The Company completed the IPM Acquisition in February 1995. IPM is a
manufacturer of UPS products headquartered in Dallas, Texas with a similar
business in terms of products, services and channels of distribution. The
Company acquired all of the capital stock of IPM for approximately 1,510,000
newly registered shares of Common Stock. The IPM Acquisition was accounted for
as a pooling-of-interests. Accordingly, the Company's Consolidated Financial
Statements and the related notes thereto included in this Offering Memorandum
have been restated to reflect the IPM Acquisition for all periods presented.
In August 1995, the Company completed the Lectro Acquisition. Lectro
specializes in power protection and other transmission enhancement devices for
the cable television and telecommunications markets. While the results of Lectro
did not have a material effect on the Company's results of operations for fiscal
1995, the Company believes that the Lectro Acquisition gives the Company a
significant position in the broadband communications market, which the Company
intends to use as a platform to expand into other newly emerging high-growth
technology markets.
The Company acquired Deltec from Fiskars for a purchase price of
approximately $188.1 million, subject to post-closing adjustment. Under the
agreement, Fiskars received approximately $158.5 million in cash, 825,000 shares
of Common Stock, valued at $14.00 per share, and 1,000,000 shares of the Series
G Preferred Stock, valued at $18.00 per share, in exchange for all of the issued
and outstanding common stock of Deltec. At closing, the Company made a
prepayment of $3.0 million to Fiskars related to the variable purchase price
adjustment, which would have been $6.2 million based on Deltec's net book value
at December 31, 1995. An additional payment of $3.7 million was made to Fiskars,
which represented excess cash that remained in Deltec following the closing. The
Company expects the combination to strengthen the product line offerings of the
Company and enhance its global manufacturing, distribution and service
capabilities. See Note 16 of the Notes to consolidated financial statements.
47
<PAGE> 51
RESULTS OF OPERATIONS
The Company's products and services and its product marketing,
manufacturing, and research and development functions are organized into three
business units: the Small Systems Group ("SSG") for all products below 50 kVA;
the Large Systems Group ("LSG") for products of 50 kVA and above; and the
Worldwide Services Group ("WSG") for all services provided by the Company. In
the fourth quarter of fiscal 1995, the Company announced the formation of the
Emerging Technologies Group ("ETG"). The Company formed this group to more
aggressively position itself in newly emerging high-growth technology markets.
Initially, ETG will focus primarily on the converging interactive communications
markets, such as cable television. ETG results have been included in SSG results
for fiscal 1995.
The following table presents, for the periods shown, statement of
operations data:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED QUARTER ENDED
SEPTEMBER 30, DECEMBER 31,
---------------------------- ---------------
1993 1994 1995 1994 1995
------ ------ ------ ----- -----
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C>
Revenues
Small Systems Products........................ $ 89.1 $115.2 $148.1 $33.1 $37.9
Large Systems Products........................ 131.0 144.2 123.4 30.8 19.7
------ ------ ------ ----- -----
Total Products............................. 220.1 259.4 271.5 63.9 57.6
Services...................................... 97.8 104.6 119.5 28.2 25.7
------ ------ ------ ----- -----
Total Revenues............................. 317.9 364.0 391.0 92.1 83.3
Gross Profit
Products...................................... 54.4 65.8 66.8 14.8 15.2
Services...................................... 31.1 32.9 37.1 8.9 7.0
------ ------ ------ ----- -----
Total Gross Profit......................... 85.5 98.7 103.9 23.7 22.2
Selling, general and administrative expense..... 55.5 65.1 70.0 16.6 17.5
Research and development expense................ 9.6 10.1 9.9 2.5 2.5
Litigation expense.............................. -- 5.0 0.7 -- --
Merger and acquisition expense.................. -- -- 7.0 -- --
------ ------ ------ ----- -----
Income from operations..................... 20.4 18.5 16.3 4.6 2.2
Interest/Other.................................. 4.4 5.0 4.2 1.1 1.6
Provision for income taxes...................... 6.2 4.3 4.7 1.2 0.2
------ ------ ------ ----- -----
Income before the cumulative effect of
accounting change........................ $ 9.8 $ 9.2 $ 7.4 $ 2.3 $ 0.4
====== ====== ====== ===== =====
REVENUE GROWTH:
Small Systems Products.......................... -- 29.3% 28.6% -- 14.5%
Large Systems Products.......................... -- 10.1 (14.4) -- (36.0)
Total Products............................. -- 17.8 4.7 -- (9.8)
Services........................................ -- 6.9 14.3 -- (9.0)
Total Revenues............................. -- 14.5 7.4 -- (9.5)
MARGIN DATA:
Gross Profit
Products...................................... 24.7% 25.4% 24.6% 23.2% 26.3%
Services...................................... 31.8 31.4 31.0 31.4 27.5
Total Gross Profit......................... 26.9 27.1 26.6 25.7 26.7
Selling, general and administrative expense..... 17.5 17.9 17.9 18.0 21.0
Research and development expense................ 3.0 2.8 2.5 2.8 3.0
Income from operations..................... 6.4 5.1 4.2 5.0 2.7
Income before the cumulative effect of
accounting change........................ 3.1 2.5 1.9 2.4 0.5
</TABLE>
48
<PAGE> 52
FIRST QUARTER FISCAL 1996 VERSUS FIRST QUARTER 1995
Several factors had an impact on the Company's results of operations during
the first quarter of fiscal 1996 compared to the first quarter of fiscal 1995,
including the growth in revenues of small UPS products; the overall strong
growth in international sales; the effect of scheduled declines in federal
government product and service revenues; and the Lectro Acquisition.
Revenues
Total revenues decreased by 9.5% to $83.3 million in the first quarter of
fiscal 1996 from $92.1 million in the first quarter of fiscal 1995, due to a
9.8% decrease in product sales and a 9.0% decrease in service revenues.
SSG revenues for the quarter ended December 31, 1995 increased by $4.8
million or 14.5% over the same period of the prior year. The majority of this
increase was in domestic sales channels, which experienced growth of about 36%,
a portion of which was attributable to the Lectro Acquisition. Excluding sales
related to this acquisition, domestic sales increased by approximately 15% over
the prior year. International sales for the quarter were down by about 2% over
the same period of the prior year, reflecting a decline in sales in the Latin
America sales channel of about 41% versus the prior year, offset by strong sales
by the Company's affiliates in Europe. Sales to Latin America were affected by
the devaluation of the Mexican peso in 1995, as well as general economic
instability in that region. Excluding sales to Latin America, international
sales increased by approximately 17% in the first quarter of fiscal 1996 versus
the same quarter in fiscal 1995. Average selling prices for SSG products were
higher than in the prior year, as sales of the larger kVA models, which are
generally higher priced than the small UPS models, represented a larger share of
total SSG revenues.
LSG revenues for the first quarter of fiscal 1996 were 36% lower than in
the same period of fiscal 1995, due primarily to the scheduled decline in sales
under the FAA Program. Product revenues under the FAA Program have been
declining because the Company has completed the shipment of most of the systems
and related ancillary products to the various FAA sites. The Company expects LSG
revenues to decline in fiscal 1996 from fiscal 1995 levels in the range of
15-20% due to the completion of the FAA shipments. Excluding the effect of this
scheduled decline, LSG revenues decreased approximately 7% for the first three
months of fiscal 1996 versus the same period a year ago. The number of LSG UPS
systems sold increased by about 4% compared to the same period in the prior
quarter. The average sales price per system decreased, as sales of the smaller
kVA models continue to represent a larger percentage of total LSG revenues.
International revenues were down by 3%, primarily due to a decline in sales in
the Far East sales channels and the IPM international channels, partially offset
by an increase in sales by the Company's European subsidiaries. The increase in
sales in the European subsidiaries is partially attributable to the success of
the Powerware Plus 80, which is suitable for international use because of its
voltage range.
WSG revenues for the first quarter of fiscal 1996 decreased by $2.5 million
or 9.0% over the same period of the prior fiscal year. WSG's commercial domestic
revenues fell by about 4%, attributable in part to reduced productivity within
the International Parts and Repair Center due to its relocation to a new
facility. International revenues were up about 6%, with growth occurring in most
categories. Federal service revenues decreased over the prior year by
approximately 19%, mainly attributable to a decline in FAA site service
revenues. Federal service revenues were further impacted by government budget
problems and inclement weather that affected the timing of installation
services. The Company expects WSG revenues to decline in the range of 10-15% for
fiscal 1996, due to an anticipated decrease in FAA site service revenues. At
December 31, 1995, the Company was installing systems at eight FAA sites, versus
ten sites in the prior year, and was providing design services at an additional
four sites at December 31, 1995 versus 12 sites at December 31, 1994. As
described below under "--Contingencies--Government Contract Matters," delivery
on the remainder of the FAA orders is currently scheduled through fiscal 1997.
The level of FAA site service revenues will vary depending on site construction
schedules and the types of services required.
Gross Profit
Gross profit decreased by $1.5 million over the first quarter of fiscal
1995 to $22.2 million. Gross profit as a percentage of total revenues increased
to 26.7% in the first three months of fiscal 1996 from 25.7% in the
49
<PAGE> 53
same period of fiscal 1995. Product gross profit margins rose to 26.3% in the
first quarter of fiscal 1996 from 23.2% in the same period of fiscal 1995, while
service margins declined to 27.5% from 31.4% during that same period. Product
gross profit margins rose due to a higher proportion of sales in the newer,
higher margin Powerware Prestige product line and Powerware Plus 80-225 kVA
product. A higher proportion of SSG sales in higher kVA models, which generally
have better margins than the lower kVA models, also contributed to the increase
in product gross profit margins. Service margins decreased for the quarter
primarily due to a decrease in federal margins as higher-margin federal services
relating to training, documentation and start-up services represented a lower
proportion of total federal revenues. Commercial service margins declined
slightly, primarily due to a change in the mix of services provided.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $0.9 million to $17.5
million in the first quarter of fiscal 1996 (21.0% of revenues) from $16.6
million in the same period of fiscal 1995 (18.0% of revenues). Selling and
marketing expenses increased due to investment in the Company's Emerging
Technology Group, which was established after the Lectro Acquisition, in the
fourth quarter of fiscal 1995, the launching of a new international advertising
campaign, and higher commissions and incentives. Total commissions and
incentives spending, and such costs as a percentage of sales, rose in the first
quarter of fiscal 1996 versus 1995 due to a higher mix of commercial revenues to
total revenues in the first quarter of 1996 over the same period in 1995.
General and administrative expenses rose from the prior year due primarily to
the amortization of goodwill generated by the Lectro Acquisition and to
increased spending for improved financial systems as the Company continues to
invest in infrastructure improvements. These expenses are expected to continue
at this higher level (as a percent of revenues) in 1996 due to the newly-formed
Emerging Technology Group and continued sales and marketing initiatives.
Research and Development Expense
Research and development expense decreased slightly in the first quarter of
fiscal 1996 compared to the same period of fiscal 1995, but increased slightly
as a percentage of revenue to 3.0% in fiscal 1996 from 2.8% in fiscal 1995. The
increase in research and development expense as a percentage of sales occurred
as the Company invested in its newly-formed Emerging Technologies Group. In
addition, the level of LSG research and development expenditures increased
slightly while the level of sales declined for the first quarter of fiscal 1996
as compared to the same period of the prior year. Research and development
expenses are incurred to support projected annual sales and do not necessarily
vary proportionately with revenues on a quarterly basis. The Company expects
research and development expenditures for the remainder of the year to decline
slightly as a percentage of sales.
Income from Operations
For the reasons discussed above, income from operations declined $2.4
million to $2.2 million for the first quarter of fiscal 1996 from $4.6 in the
same period of fiscal 1995. As a percentage of revenues, income from operations
declined to 2.7% in the first three months of fiscal 1996 from 5.0% in the same
period of fiscal 1995.
Interest/Other Expense
Interest expense increased slightly to $1.5 million in the first quarter of
fiscal 1996 from $1.4 million in the same period of fiscal 1995. This was
primarily attributable to an increase in debt levels used to fund inventory
levels.
Provision for Income Taxes
The fiscal 1996 provision for first quarter income taxes reflects a
consolidated effective rate of approximately 38% as compared to approximately
35% for the same period of fiscal 1995. The fiscal 1995 rate for the first
quarter was lower due to a lower effective tax rate for the Company's IPM
subsidiary. The Company anticipates that its effective tax rate for the fiscal
year 1996 will be in the range of 38-40%.
50
<PAGE> 54
Net Income
Net income for the first quarter of fiscal 1996 was $0.4 million, or $0.04
per fully diluted share, as compared to net income of $2.2 million, or $0.25 per
fully diluted share, for the same period of fiscal 1995.
Quarterly Operating Results
The Company's quarterly operating results have fluctuated significantly.
Quarterly results depend upon the timing of product shipments and major systems
implementation services, which can be influenced by a number of factors. Some of
these factors are beyond the Company's control, particularly for large,
customized systems. The first quarter has typically produced the smallest
portion of the Company's revenues and income, producing a historical reduction
in the Company's first quarter results as compared to the previous fiscal year's
fourth quarter. During fiscal years 1995, 1994 and 1993, revenues generally
increased for each quarter within the applicable year, but revenues for the
first quarter were lower than revenues for the fourth quarter of the prior year.
Selling, general and administrative, and research and development
expenditures are incurred to support projected annual sales. These expenses do
not necessarily vary proportionately with revenues on a quarterly basis. As a
result, variations in quarterly revenues may not be accompanied by an equivalent
change in expenses. Operating margins therefore may vary significantly between
quarters.
FISCAL 1995 VERSUS 1994
Revenues
Total revenues increased by 7.4% to $391.0 million in fiscal 1995 from
$364.0 million in fiscal 1994 due to a 4.7% increase in product sales and a
14.3% increase in service revenues.
SSG revenues for fiscal 1995 increased by $32.9 million or 28.6% over the
prior fiscal year. The majority of this increase was in international sales
channels, which experienced growth in excess of 40%. This growth was primarily
the result of strong sales by the Company's affiliates in Europe and Canada and
increased product sales to the Company's joint venture in Japan. Domestic
revenues were approximately 13% higher than in the prior year. Excluding SSG
sales generated by Lectro, domestic revenues increased by about 7% over fiscal
1994. Growth in SSG product revenues resulted primarily from continued strong
sales of Powerware Prestige products. Prestige sales were approximately $42.1
million higher than in the prior year, while products being phased out declined
by about $24.2 million, for a net increase of $17.9 million. In fiscal 1995, the
Prestige product line was expanded with the addition of new models, introduction
of additional accessories, and incorporation of new versions of software and
network communications products. The number of SSG units sold increased by
approximately 30% as compared to fiscal 1994. Average selling prices were
slightly lower than in the prior year, reflecting the industry trend of
declining UPS prices.
LSG revenues for fiscal 1995 were $20.8 million or 14.4% lower than in
fiscal 1994, due primarily to the scheduled decline in sales under the FAA
Program. Product revenues under the FAA Program have been declining because the
Company has completed the shipment of most of the systems and related ancillary
products to the various FAA sites. Excluding the effect of this predicted
decline, LSG revenues decreased 3.7% year over year, due primarily to the
nonrecurrence of one significant custom job in excess of $6.0 million for a
major data center in fiscal 1994. International revenues were flat, primarily
due to an increase in sales by the Company's European subsidiaries, offset by a
decline in sales by the Company's Canadian subsidiary. The number of LSG UPS
systems sold increased by about 6% compared to the same period in the prior
year. The average sales price per system decreased, as sales of the smaller kVA
models, which are generally lower-priced than the larger kVA models, represented
a larger percentage of total LSG revenues than in the prior year.
WSG revenues for fiscal 1995 increased by $14.9 million or 14.3% over the
prior fiscal year. WSG's commercial domestic revenues grew by about 9%, with
strong growth occurring in most service categories. International revenues were
up approximately 47%, which was primarily attributable to the three sales and
service acquisitions in the fourth quarter of fiscal 1994 in Canada and Europe.
Federal service revenues increased over the prior year by approximately 13%,
mainly attributable to growth in the Company's federal
51
<PAGE> 55
site implementation business. During fiscal 1995, the Company installed systems
at an average of 11 FAA sites throughout the year versus an average of ten FAA
sites in fiscal 1994. At September 30, 1995, the Company was installing systems
at nine FAA sites and was providing design services at an additional four sites.
Delivery on the remainder of the FAA orders is currently scheduled through
fiscal 1997. See "--Contingencies--Government Contract Matters." WSG revenue
increases in fiscal 1995 resulted principally from a higher quantity of services
provided as opposed to increased prices.
The Company expects that the declines in LSG and WSG revenues in fiscal
1996 versus fiscal 1995 resulting from the scheduled decline in federal revenues
will be offset by a corresponding increase in SSG sales and commercial LSG sales
and service. However, annual revenues depend upon the state of the overall
economy, industry conditions, the competitive environment, the timing of product
shipments, the success and timing of new product introductions, and a variety of
other factors which are beyond the Company's control. See "Risk
Factors--Competition."
Gross Profit
Gross profit increased to $103.9 million in fiscal 1995 from $98.7 in
fiscal 1994. Gross profit as a percentage of total revenues decreased slightly
to 26.6% in fiscal 1995 from 27.1% in fiscal 1994. Product gross profit margins
declined from 25.4% in fiscal 1994 to 24.6% in fiscal 1995, while service
margins declined from 31.4% to 31.0% during that same period. Product gross
profit margins declined from the prior year mainly as a result of sales of
certain discontinued SSG product lines at lower than normal margins, and a
higher proportion of sales in channels with lower margins. The Company also
incurred higher than normal costs related to increased production volumes for
its new Powerware Prestige product lines, and varying sales price reductions
depending upon model and distribution channel. The Company continues its efforts
toward cost reductions and operational efficiencies to maintain competitiveness
and improve margins in response to the industry trend of declining UPS prices.
Service margins decreased slightly as compared to the prior fiscal year,
reflecting a higher proportion of lower margin government service revenues and
the costs of integrating IPM's service business into the Company's service
organization.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $70.0 million in
fiscal 1995 from $65.1 million in fiscal 1994, but remained at about 18% percent
of revenues. Selling and marketing expenses rose to support the Company's higher
commercial sales level and the continued expansion of its worldwide marketing,
distribution, and support capabilities, especially in international markets. New
selling and marketing programs for fiscal 1995 included the realignment of the
North American sales and support operation along customer groups, the launching
of an integrated marketing campaign introducing the concept of Strategic Power
Management, and the opening of an area sales office in Miami, Florida to service
high growth markets in Latin America. General and administrative expense
declined from the prior year due primarily to lower legal expenses as a result
of the settlement of certain litigation and synergies achieved between Exide
Electronics and IPM.
Research and Development Expense
Research and development expense decreased to $9.9 million in fiscal 1995
from $10.1 million in fiscal 1994, and decreased as a percentage of revenues to
2.5% in fiscal 1995 from 2.8% in fiscal 1994. The decrease was related to a
variety of factors, including the ability of the Company to charge certain
custom engineering costs to specific job orders in SSG, cost control efforts by
the Company, and lower research and development expenses at IPM, as significant
expenses were incurred in fiscal 1994 in the development of a new product line
that were not incurred in fiscal 1995. The Company expects research and
development expenditures to remain at this level as a percentage of revenues as
the Company takes advantage of synergies with IPM and Lectro in the development
of new products.
52
<PAGE> 56
Litigation Expense
The Company recorded a $700,000 charge ($424,000 after tax) for the
settlement of two related lawsuits in fiscal 1995. Although the Company believed
that neither suit had merit, it decided to settle as the suits were consuming
significant corporate resources and would have involved substantial legal costs
to pursue further. In fiscal 1994, the Company recorded a charge of $5.0 million
($2.9 million net of tax) for the settlement of litigation. See "Business--Legal
Proceedings" and Note 15 of the Notes to consolidated financial statements.
Merger and Acquisition Expense
The Company incurred $7.0 million of merger and acquisition charges ($5.2
million after tax) in fiscal 1995. In connection with the IPM Acquisition in the
second quarter of fiscal 1995, the Company recorded a nonrecurring pretax charge
of $5.5 million. This charge included approximately $3.0 million for legal,
accounting, financial advisory, and other costs related to the merger. The
Company also expensed approximately $2.5 million for the estimated costs of
closing a duplicate operating facility and discontinuing certain duplicate
product lines manufactured at that facility. In the fourth quarter of fiscal
1995, the Company recorded a pre-tax charge for acquisition expenses of about
$1.5 million after negotiations and due diligence efforts to acquire the UPS
business of Groupe Schneider S.A. were terminated.
Income from Operations
For the reasons discussed above, income from operations declined $2.2
million to $16.3 million in fiscal 1995 from $18.5 million in fiscal 1994. This
decrease reflects the nonrecurring litigation and merger and acquisition
expenses discussed above. Excluding these charges, income from operations in
fiscal 1995 would have been $24.0 million, an increase of $500,000 from $23.5
million in fiscal 1994, and, as a percentage of revenues, would have been 6.1%
in fiscal 1995 versus 6.4% in fiscal 1994. This decrease was primarily
attributable to the decrease in gross profit margins. See "--Gross Profit."
Interest/Other Expense
Interest expense increased to $5.6 million in fiscal 1995 from $5.4 million
in fiscal 1994. The Company expensed $233,000 of remaining debt issuance costs
and a premium related to the redemption of its Industrial Revenue Bonds ("IRBs")
in the first quarter of fiscal 1995, and incurred $204,000 in incremental
interest expenses related to the increased level of borrowings used to finance
the Lectro Acquisition. Excluding these two items, interest expense would have
been about 5% lower than in fiscal 1994. Other income increased by approximately
$971,000. The increase was primarily due to favorable changes in foreign
exchange rates, improved results for the Company's Japanese joint venture, an
increase in royalty income, and a gain on the sale of certain fixed assets in
fiscal 1995.
Provision for Income Taxes
The fiscal 1995 provision for income taxes reflects a consolidated
effective rate of approximately 39% as compared to approximately 32% in fiscal
1994. The higher rate in fiscal 1995 was due primarily to certain non-deductible
acquisition costs, which were partially offset by increased utilization of net
operating losses in certain of the Company's subsidiaries. The fiscal 1994 rate
was lower than usual due to the higher recognition of tax benefits for net
operating losses as certain of the Company's subsidiaries turned profitable, and
the utilization of certain state tax credits.
Net Income
Net income for fiscal 1995 was $7.4 million, or $0.84 per fully diluted
share, as compared to net income of $9.2 million, or $1.03 per fully diluted
share, for fiscal 1994. Excluding the previously discussed litigation and merger
charges in the second quarter of fiscal 1995 and 1994, and the acquisition
charges in the fourth quarter of fiscal 1995, net income would have been $13.0
million or $1.42 per fully diluted share for fiscal 1995, and $12.1 million or
$1.34 per fully diluted share in fiscal 1994.
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FISCAL 1994 VERSUS 1993
Revenues
Total revenues increased 14.5% to $364.0 million in fiscal 1994 from $317.9
million in fiscal 1993. Product sales grew by 17.8% to $259.4 million in fiscal
1994, including increases of $26.1 million (29.3%) for the Company's SSG
products and $13.2 million (10.1%) for the Company's LSG products. Service
revenues increased by $6.8 million (6.9%) over this period.
The revenue growth in SSG products occurred primarily in the Company's
international distribution channels, with particularly strong growth in export
sales to Latin America. In the United States, most of the sales growth was
experienced through the manufacturer's representatives channel. The majority of
the growth in SSG revenue was attributable to new product introductions and to
increased sales of an existing product line, as new applications and methods of
distribution were established. The growth in international export sales was due
primarily to the success of product models designed for the international
markets and to expanded international marketing efforts. SSG revenue included
approximately $16.0 million in sales of new products, which were partially
offset by declines of $7.8 million in sales of discontinued products. For fiscal
1994, total unit sales for SSG were approximately 50% higher than the prior
fiscal year, resulting mainly from higher unit sales of lower kVA models. Higher
unit sales were partially offset by a decrease in the average selling price per
unit, as lower kVA models are generally lower-priced than larger UPS products,
and also by price reductions in the approximate range of 5-10% from the prior
fiscal year.
LSG revenues increased by $13.2 million to $144.2 million in fiscal 1994
from $131.0 million in fiscal 1993 due to growth in both the commercial and
government markets. Commercial growth occurred primarily in the manufacturer's
representatives channel due primarily to one significant custom job in excess of
$6.0 million for a major data center, and from increased sales of facilities
monitoring software. Federal government sales growth came from an increase in
product engineering for the FAA and sales under the Company's multi-year
contracts with the U.S. Navy. The commercial and government revenue increases
were partially offset by declines in the international channels. The reduction
in international sales was due to the non-recurrence of certain large sales in
the prior year and to increased competition in certain regions. The total number
of LSG modules sold decreased moderately from fiscal 1993, but the average sales
price per system increased in fiscal 1994, primarily due to favorable model mix
and increased sales of custom engineering, ancillary equipment, and spare parts.
The $6.8 million increase in WSG revenues for fiscal 1994 occurred
primarily from increases in maintenance contract and other field service
revenues. This growth resulted from increased marketing of battery services and
from increased product sales with accompanying services. This growth occurred
both domestically and internationally. Federal service revenues remained
relatively constant with fiscal 1993 levels, although fiscal 1993 total service
revenues were 62% higher than in fiscal 1992, primarily because of the
significant increase in fiscal 1993 of FAA site services. As of September 30,
1994, the Company was installing systems at ten FAA sites and had 13 sites in
the engineering design stage, as compared to ten sites in construction and 15
sites in engineering design at September 30, 1993. WSG revenue increases
resulted principally from a higher quantity of services provided as opposed to
increases in pricing.
Gross Profit
Gross profit increased to $98.7 million in fiscal 1994 from $85.5 million
in fiscal 1993. Gross profit as a percentage of total revenues increased
slightly to 27.1% in fiscal 1994 from 26.9% in fiscal 1993. Gross profit from
product sales was higher by $11.4 million, as a result of higher revenues and
improved gross profit margins for product sales, which increased to 25.4% in
fiscal 1994 as compared to 24.7% in fiscal 1993. This improvement occurred
primarily from increased sales of SSG products, which generally have higher
gross profit margins than LSG products, and continued cost reduction efforts.
These increases were partially offset by higher LSG ancillary equipment sales,
which generally have lower margins than UPS equipment, sales of certain
discontinued SSG product lines at lower than normal margins, and start-up costs
for the new Powerware Prestige product line. Prices for all power ranges of UPS
equipment have generally declined from the prior fiscal year in the approximate
range of 5-10%. Service margins decreased slightly to 31.4% in fiscal
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1994 from 31.8% in fiscal 1993, due principally to increased battery services
which have lower gross margins, a decrease in margins on systems implementation
services for the FAA, and a decrease in international service margins due to
changes in the mix of services provided.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $65.1 million in
fiscal 1994 from $55.5 million in fiscal 1993, and increased as a percentage of
revenue to 17.9% in fiscal 1994 from 17.5% in fiscal 1993. Selling and marketing
expense accounted for most of this increase. The higher level of spending
reflects the Company's growth strategy of investing in its distribution channels
and promotional activities to improve its market position on a worldwide basis.
The increase in selling and marketing expense supports a higher level of
commercial sales volume and the continued investment in market support and
distribution development programs, particularly for the Company's SSG products.
These programs included the launch of new promotional campaigns, primarily in
the United States, Latin America, China and Europe; expanded customer support
capabilities; participation in several major trade shows; and the introduction
of several new products such as the Powerware Prestige. The Company also
improved its distribution capacity worldwide, mainly through the addition of
several leading distributors in various geographic markets.
Research and Development Expense
Research and development expense increased to $10.1 million in fiscal 1994
from $9.6 million in fiscal 1993, and decreased as a percentage of revenue to
2.8% in fiscal 1994 from 3.0% in fiscal 1993. The increase was due primarily to
the ongoing development of facilities monitoring software as a result of the
acquisition of DataTrax Systems Corporation in fiscal 1993, and to the
introduction of several models of the new Powerware Prestige and Balanced Power
II product lines. Consistent with the Company's strategy to expand its worldwide
market position, many of the Prestige products were developed for international
voltages and frequencies prior to their introduction in the United States. Other
research and development activities in fiscal 1994 included the development of
the new Powerware Plus 80 and the Series 3000M for LSG, both of which have
improved performance at a lower cost than previous models, and to the ongoing
development of other products and models, as well as additional product software
and other product enhancements.
Litigation Expense
In March 1994, a trial jury awarded damages payable by the Company in the
amount of $3.75 million to the plaintiff in the retrial of certain litigation.
While the Company continued to believe that it should have no liability in this
matter and announced its intention to appeal, it recorded a one-time charge in
the second quarter of fiscal 1994 of approximately $5.0 million, or $2.9 million
net of tax, for the jury verdict and the costs of the trial. In July 1994, the
Company announced that a settlement agreement had been reached between the
parties. Following agreement among the parties to settle, the court vacated the
jury award of $3.75 million. To avoid further litigation, including anticipated
post-trial motions and appeals, the Company settled the case by making payments
to the plaintiff and his attorneys. Since the total value of the settlement
payments was less than the one-time charge for the jury verdict, no further
charges were necessary in this matter. See "Business--Legal Proceedings" and
Note 15 of the Notes to consolidated financial statements.
Income from Operations
For the reason discussed above, income from operations was $18.5 million in
fiscal 1994, a decrease from $20.4 million in fiscal 1993. This decrease
reflected the litigation charge discussed above. Excluding this nonrecurring
charge, income from operations would have been $23.5 million, an increase of
$3.1 million over 1993, constant at 6.4% of revenues.
Interest/Other Expense
Interest expense increased by $1.0 million to $5.4 million in fiscal 1994
from $4.4 million in the prior year. Approximately $700,000 was due to higher
average debt balances used to finance increased levels of
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working capital. The remainder of the rise in interest expense was related to an
increase in the average interest rate, the write-off of certain deferred
financing costs associated with refinancing the Company's credit facility, and
the partial prepayment of the Company's IRBs. Other expense improved by
approximately $322,000 during fiscal 1994, primarily as a result of favorable
changes in foreign exchange rates and the loss on disposal of certain fixed
assets in fiscal 1993.
Provision for Income Taxes
The fiscal 1994 provision for income taxes reflected a consolidated
effective tax rate of approximately 32% as compared to 39% in fiscal 1993. The
decrease in the effective rate was due primarily to the higher recognition of
tax benefits for net operating losses in fiscal 1994 than in fiscal 1993 as
certain of the Company's subsidiaries became profitable, and the utilization of
certain state tax credits in fiscal 1994.
Net Income
For fiscal 1994, income before the cumulative effect of an accounting
change was $9.2 million, including the one-time charge in the second quarter of
$5.0 million ($2.9 million after tax) for the previously discussed settlement of
litigation, as compared to income before the cumulative effect of an accounting
change of $9.8 million in fiscal 1993. The Company recorded a cumulative effect
adjustment of $1.0 million for a change in its method of accounting for income
taxes in fiscal 1993, which had no impact on operating results or cash flows.
Fully diluted earnings per share before the cumulative effect of the accounting
change were $1.03 for fiscal 1994 versus $1.10 in fiscal 1993. Excluding the
one-time charge for litigation in fiscal 1994 and the cumulative effect of the
accounting change in fiscal 1993, net income for fiscal 1994 would have been
$12.1 million, up $2.3 million or 23.5% from the prior fiscal year. Fully
diluted earnings per share would have been $1.34 versus $1.10 a year ago, up
22%.
DELTEC -- 1995 VERSUS 1994
Revenues
Revenues increased by $35.7 million, or 36.8%, to $132.9 million in 1995
from $97.2 million in 1994. The increase in revenues includes an increase of
$13.8 million, or 33.8%, in international revenues and an increase of $22.0
million, or 38.9%, in domestic revenues.
The increase in international revenues was partially attributable to the
growth in sales of low-kVA rated small systems introduced in Europe as well as
increases in product sales in China and Latin America. The increase in domestic
revenues was primarily attributable to revenues from small systems products
introduced in 1994 as well as a full year of sales from small systems products
introduced in 1993. These new product introductions were primarily off-line
small systems products designed for network systems and sold through the OEM
channel. Revenue increases were partially offset by reduced large system sales
resulting from Deltec's decision not to continue marketing large system products
in the United States.
Deltec's service revenues increased by $3.0 million, or 17.4%, to $19.9
million in 1995 from 1994. International and domestic service revenues each grew
at approximately the same rate of growth. International service revenues
increased primarily as a result of increased sales of service contracts bundled
with sales of large systems products. Domestic service revenues increased due to
an increased number of contracts to service UPS products manufactured by other
vendors.
Gross Profit
Gross profit increased by $13.6 million to $52.1 million in 1995 from $38.5
million in 1994. As a percent of sales, gross profit declined slightly to 39.2%
in 1995 from 39.6% in 1994. This decline in gross profit margin was due to a
decline in product gross margins, partially offset by an increase in service
gross margins. Product gross margins declined to 36.4% in 1995 from 37.2% in
1994 primarily due to an increase in sales of small systems products sold
through the distribution sales channel in Europe, which have lower margins.
Product gross margins were also adversely affected by delays in the introduction
and higher than expected introduction
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costs of, new products for the mid-power range of small system segment. Service
gross margin improved to 55.0% from 50.9% as a result of improved efficiency
within the field service group supporting increased service revenues.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $33.6 million in
1995 from $26.0 million in 1994 but declined as a percent of sales to 25.3% from
26.8% over that time period. The increase in spending reflects Deltec's strategy
to emphasize small system sales through increased utilization of national
distribution channels. Deltec also increased the size of its direct sales force
and enhanced internal direct sales support services. The decrease as a
percentage of sales was due to increased sales over a relatively fixed cost
base.
Engineering Expense
Engineering expense, which includes research and development expense,
increased $0.8 million to $5.0 million in 1995 from $4.2 million in 1994 while
declining as a percent of sales to 3.7% in 1995 from 4.3% in 1994. This decrease
as a percent of sales was due to higher sales over a relatively fixed cost base.
Royalty Expenses
Royalty expense increased $1.1 million to $3.4 million in 1995 from $2.3
million in 1994. As a percent of sales, royalty expense increased slightly to
2.6% in 1995 from 2.4% in 1994. This increase is the result of increased sales
of products under a royalty agreement under which Deltec paid an affiliate of
Fiskars a royalty for products sold under Fiskars-owned trademarks. Exide has
the royalty-free use of these Fiskars-owned trademarks for two years following
the Deltec Acquisition at which time Exide Electronics will have the option of
continuing to use these trademarks by resuming royalty payments.
Interest Expense
Net interest expense increased $1.5 million to $2.5 million in 1995 from
$1.0 million in 1994 due to borrowings incurred to finance increased levels of
working capital resulting from increased sales. In addition, Deltec paid a
dividend of $5.0 million to Fiskars in the fourth quarter of 1994, which was
paid in the form of a long-term note to Fiskars. The majority of Deltec's
interest expense was related to debt to Fiskars, which was converted to equity
upon the consummation of the Deltec Acquisition.
Provisions for Income Taxes
The effective income tax rate for 1995 was 29.7% for 1995 which was lower
than the effective rate of 37.4% for 1994. The difference in the 1995 effective
rate from the statutory federal rate of 35% was primarily due to lower foreign
effective tax rates. See Note 9 of the Notes to the Deltec Power Systems, Inc.
combined/consolidated financial statements.
DELTEC -- 1994 VERSUS 1993
Revenues
Revenues increased by $21.8 million, or 28.9%, to $97.2 million in 1994
from $75.4 million in 1993. The increase in revenues included increases of $8.7
million, or 21.7%, in international product revenues and $13.1 million, or
30.2%, in domestic product revenues.
The increase in international product revenues was primarily attributable
to increased European sales resulting from improved economic conditions in
certain European countries, the introduction of new low-kVA small systems
products in Europe and Deltec's entry into China. The increase in domestic
revenues was primarily attributable to small system product introductions and to
increased revenues in the OEM channel. The growth in the OEM channel was
primarily attributable to increased penetration of existing accounts and, to a
lesser extent, new OEM accounts.
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Deltec's service revenues increased by $2.0 million, or 13.2%, to $17.0
million in 1994. The increase in service revenues was primarily attributable to
growth in maintenance contracts sold, which are generally bundled with new
product sales and increased contracts to service UPS products manufactured by
other vendors.
Gross Profit
Gross profit increased to $38.5 million in 1994 from $28.7 million in 1993.
Gross profit as a percentage of sales increased to 39.6% in 1994 from 38.1% in
1993. The improvement in gross profit margin was primarily due to the
improvement in product gross margins, which increased to 37.2% in 1994 from
35.1% in 1993, primarily as a result of the increased sales from the
introduction of new, higher margin, small systems products. Additional
improvement resulted from the introduction of new, higher margin large systems
products, which replaced existing large system products in the international
market. Service gross profit increased slightly to 50.9% in 1994 from 50.3% in
1993.
Selling, General and Administrative Expense
Selling, general and administrative expense increased to $26.0 million in
fiscal 1994 from $20.0 million in fiscal 1993, and increased as a percent of
sales to 26.8% in fiscal 1994 from 26.5% in fiscal 1993. This increased spending
reflects Deltec's increased investment in the national direct sales channel,
including the increase in the size of the national direct sales force and its
telemarketing support group as well as increased marketing and promotional
expense for small systems products.
Engineering Expense
Engineering expense, which includes research and development expense,
increased $1.1 million to $4.2 million in 1994 from $3.1 million in 1993. As a
percent of sales, engineering expense increased to 4.3% in 1994 from 4.1% in
1993. This increase was primarily the result of the acquisition and integration
of the software development team of Network Security Systems, Inc. ("NSSI") into
Deltec's research and development group.
Royalty Expenses
Royalty expense increased to $2.3 million in 1994 from $1.5 million in
1993. As a percent of sales, royalty expense increased to 2.4% in 1994 from 2.0%
in 1993. This increase was a result of increased sales of products under a
royalty agreement that paid an affiliate of Fiskars a royalty for product sold
under Fiskars-owned trademarks. Exide Electronics has the royalty-free use of
these Fiskars-owned trademarks for two years following the Deltec Acquisition
after which Exide Electronics will have the option of continuing to use these
trademarks by resuming royalty payments.
Interest Expense
Net interest expense increased to $1.0 million in 1994 from $0.4 million in
1993. This increase was the result of increased levels of debt related to the
acquisition of NSSI in 1994 and to a $5.0 million dividend paid to Fiskars
during the fourth quarter of 1994, which was paid in the form of a long-term
note to Fiskars. The majority of Deltec's interest expense was related to debt
to Fiskars, which was converted to equity upon the consummation of the Deltec
Acquisition.
Provision for Income Taxes
The effective income tax rate for 1994 was 37.4% which was higher than the
1993 rate of 21.5%. The 1994 effective rate differed only slightly from the
statutory federal rate of 35.0%. See Note 9 of the Notes to Deltec Power
Systems, Inc. combined/consolidated financial statements.
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IMPACT OF COMBINATION
Based on preliminary due diligence, the Company believes that some or all
of the following costs savings and revenue enhancement opportunities can be
achieved in the near future: integration of facilities and manufacturing
capacity and comparable product lines; coordination of research and development
activities to leverage product technologies; reduction of selling, general and
administrative expense by consolidation of certain functions; elimination of
purchases of certain sourced low-end products; utilization of Deltec
distribution channels for Exide Electronics products and Exide Electronics
channels for Deltec products; integration of European sales and service
operations.
LIQUIDITY AND FINANCIAL CONDITION
At December 31, 1995, the Company had $108.0 million of working capital, as
compared to $105.5 million at September 30, 1995. The increase of $2.5 million
in working capital from September 30, 1995 was primarily the result of higher
levels of inventory and other current assets, partially offset by lower accounts
receivable balances, due to collections of receivable balances generated by
sales in the fourth quarter of fiscal 1995. The increased levels of working
capital have been financed primarily using the Company's revolving credit
facilities. Cash used in operations was a $0.5 million in the first quarter of
fiscal 1996, as compared to cash provided by operations of $18.3 million in the
first quarter of fiscal 1995.
At September 30, 1995, the Company had $105.5 million of working capital,
as compared to $93.3 million at September 30, 1994. The $12.2 million increase
was primarily the result of higher levels of inventory to support the increased
levels of revenues expected for full fiscal 1996, the introduction of new
product lines and lower than expected revenues for the quarter ended December
31, 1995. Accounts receivable balances, which are typically at their highest
level at year-end due to the higher level of fourth quarter sales, were level
with the prior year. Commercial receivable balances were higher than the prior
year, but were more than offset by a decline in receivables from the United
States government. Accounts payable, short term debt, and other accrued
liability balances were slightly higher than the prior year. The increased
levels of working capital have been financed primarily using the Company's
revolving credit facilities. Cash provided by operations was a positive $1.1
million in fiscal 1995, as compared to $8.5 million in fiscal 1994, and cash
used in operations of $3.3 million in fiscal 1993.
During the first quarter of fiscal 1996, the Company invested approximately
$3.9 million in capital expenditures, as compared to approximately $2.3 million
in the same period of fiscal 1995. Capital expenditures for fiscal 1996 are
expected to approximate $13-14 million, including $2-3 million relating to the
consolidation of the Company's headquarters and for the integration of acquired
companies. During fiscal 1995, the Company invested approximately $12.5 million
in capital expenditures, as compared to approximately $8.7 million in fiscal
1994 and $8.3 million during fiscal 1993. Capital expenditures were higher in
fiscal 1995 due primarily to expansion of SSG's manufacturing facility in
Wilmington, NC, the fit-up of its new Worldwide Logistics Center, new facilities
for ETG, and the relocation of Lectro. The Company also invested approximately
$12.4 million for the acquisition of Lectro in fiscal 1995.
At December 31, 1995, the Company had borrowings of $76.1 million
outstanding under its $145 million package of committed domestic unsecured bank
credit facilities comprised of a $95 million revolving credit facility for
working capital and general corporate purposes, including a sublimit of $30
million which may be used in support of its international subsidiaries, and a
$50 million revolving credit facility to be used for financing certain
acquisitions and refinancing specified existing obligations. The credit
agreement contains certain financial covenants, including a senior debt to cash
flow ratio, a fixed charge ratio, a leverage ratio and a minimum net worth
requirement. At December 31, 1995, the Company was in compliance with all
financial covenants, except that its senior debt to cash flow ratio exceeded the
prescribed ratio; however, the lenders waived the applicability of this covenant
from December 31, 1995 through the date on which the Company refinanced its
previously existing credit facilities with the New Credit Facility. See Note 6
of the Notes to annual consolidated financial statements and Note 3 to interim
consolidated financial statements.
In connection with the Deltec Acquisition, the Company refinanced its
existing bank credit facilities with the New Credit Facility. The New Credit
Facility is a five-year senior bank package of $175.0 million,
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comprised of a $125.0 million revolving credit facility and a $50.0 million term
loan. Amounts outstanding under the New Credit Facility are secured by
substantially all the inventory and accounts receivable of the Company and would
initially bear interest at LIBOR plus 250 basis points, or the bank's base rate
plus 150 basis points, as defined. Under the terms of the New Credit Facility,
the Company is subject to certain customary financial covenants and other
restrictions. See "Description of New Credit Facility."
On July 1, 1995, Japan Storage Battery Co., Ltd. converted its shares of
the Company's Series D and Series E convertible preferred stock into 595,273
shares of the Company's Common Stock. This conversion increased the Company's
common equity by approximately $10 million and will reduce its annual cash
dividend payments by approximately $790,000. See Note 8 of the Notes to
consolidated financial statements.
In September 1995, the Board of Directors reaffirmed the authorized
repurchase program that permits the Company to repurchase up to 5% of the
Company's outstanding Common Stock. As of December 22, 1995, the Company had
repurchased approximately 4.7% of its Common Stock. The Company has no current
plans to repurchase additional shares of its Common Stock.
In October 1995, the holder of the Company's $15.0 million convertible
subordinated notes converted the notes into 1,146,789 shares of the Company's
Common Stock under the terms thereof. Such conversion will save approximately
$1.26 million per year in interest expense. See Note 6 of the Notes to
consolidated financial statements.
Deltec
Working capital at Deltec increased by $3.9 million to $30.2 million in
1995 from $26.3 million in 1994. This increase was primarily the result of
increased sales levels, which resulted in increases in accounts receivable and
inventories of $12.2 million and $4.8 million, respectively, in 1995.
Long-term debt of Deltec, owed primarily to Fiskars, increased to $37.8
million at December 31, 1995 from $33.3 million at December 31, 1994, primarily
as a result of a $6.0 million preferred stock redemption financed with a note to
Fiskars. $36.6 million of the $37.8 million in long-term debt of Deltec
outstanding as of December 31, 1995 is debt to Fiskars, which was converted by
Fiskars into equity upon the consummation of the Deltec Acquisition, leaving
only approximately $1.2 million in long-term debt, which was assumed by the
Company.
Capital expenditures at Deltec increased to $2.4 million in 1995 from $1.6
million in 1994. These investments consisted primarily of manufacturing
equipment and facility improvements. Deltec anticipates its capital expenditures
for fiscal 1996 will be approximately $3 million. Capital financing requirements
have historically been met with cash generated from operations and from
borrowings from Fiskars.
The Company expects to finance the future capital requirements of Exide
Electronics and Deltec through existing cash balances, cash generated from
operations, and borrowings under its credit facilities. Based on the current
level of operations and anticipated growth, management believes that cash flow
from operations, together with available borrowings under its credit facilities
and other sources of liquidity, will be adequate to meet the Company's
anticipated future requirements for working capital, capital expenditures, and
scheduled payments of principal of and interest on its indebtedness, including
the Notes. There can be no assurance, however, that the Company's business will
generate sufficient cash flow from operations or that future working capital
borrowings will be available in an amount sufficient to enable the Company to
service its indebtedness, including the Notes, or make necessary capital
expenditures. See "Risk Factors."
LITIGATION
During fiscal 1994 and 1995, the Company settled certain litigation. See
"--Litigation Expense," "Business--Legal Proceedings" and Note 15 of the Notes
to annual consolidated financial statements.
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CONTINGENCIES
Government Contract Matters
Sales to the United States federal government accounted for approximately
31% and 19% of total revenues for the first three months ended December 31, 1994
and 1995, respectively, and approximately 35%, 33% and 27% of total revenues for
fiscal 1993, 1994 and 1995, respectively. The Company's contracts with the
federal government have no significant minimum purchase commitments, and the
government may cease purchases under these contracts at any time for any reason.
These contracts are subject to termination at the convenience of the government
pursuant to the terms of the contracts. The Company's compliance with government
contract regulations is audited or reviewed from time to time by government
auditors, who have the right to audit the Company's records and the records of
its subcontractors during and after completion of contract performance, and may
recommend that certain charges be treated as unallowable and reimbursement be
made to the government. The Company provides for estimated unallowable charges
and voluntary refunds in its financial statements, and believes that its
provisions are adequate as of December 31, 1995.
Foreign Currency Exposures
International sales accounted for approximately 30% and 33% of total
revenues for the three months ended December 31, 1994 and 1995, respectively,
and approximately 22%, 25%, and 31% of total revenues for fiscal 1993, 1994 and
1995, respectively. A significant portion of the Company's international sales
are denominated in foreign currencies. As of December 31, 1995, approximately
18% of the Company's total assets were located outside the United States,
primarily in Canada and Europe. Significant fluctuations in foreign currency
exchange rates can result in gains or losses on foreign currency transactions,
which are recorded in the consolidated statement of operations. Fluctuations in
the recorded value of the Company's net investment in its international
subsidiaries resulting from changes in foreign exchange rates are recorded in
the cumulative translation adjustments component of common shareholders' equity.
The Company hedges these risks using a combination of natural hedges such as
foreign currency denominated borrowings and, from time to time, foreign currency
financial instruments. European, Canadian, and Japanese currencies have been
especially volatile over the last two years.
As of December 31, 1995, the Company had accounts receivable and accounts
payable totaling approximately $8.2 million that were exposed to fluctuations in
exchange rates. These balances are spread among various currencies, primarily
the French Franc. No foreign currency instruments were outstanding to cover
these balances. As of September 30, 1995, the Company had accounts receivable
and accounts payable totaling approximately $8.8 million that were exposed to
fluctuations in exchange rates, and had one foreign currency financial
instrument, described below, covering approximately 23% of these balances. These
balances were spread among various currencies, primarily the French Franc. As of
September 30, 1995, the Company had one outstanding foreign currency contract
consisting of a foreign currency option which gave the Company the right to sell
approximately 10 million French Francs at predetermined exchange rates. This
contract expired in December 1995, and had no material effect on the Company's
results of operations.
During the first quarter of fiscal 1996, the Company had foreign exchange
transaction losses of approximately $64,000, and the change in the cumulative
translation adjustments account decreased the recorded value of common
shareholders' equity by $52,000 from September 30, 1995 to December 31, 1995.
For fiscal 1995, the Company had foreign exchange transaction losses of
approximately $218,000, and the change in the cumulative translation adjustments
account increased the recorded value of common shareholders' equity by $353,000
from September 30, 1994 to September 30, 1995. For fiscal 1994, the Company had
foreign exchange transaction losses of approximately $257,000, as compared to
losses of approximately $221,000 in fiscal 1993, and the change in the
cumulative translation adjustments account increased the recorded value of
common shareholders' equity by $154,000 from September 30, 1993 to September 30,
1994. See "Risk Factors--Foreign Operations; Risk of Currency Fluctuations."
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Environmental Matters
Exide Electronics' and Deltec's operations are subject to federal, state,
local and foreign environmental laws and regulations relating to the storage,
handling and disposal of hazardous or toxic materials and discharge into the
environment of regulated pollutants. To the best of the Company's knowledge, its
operations and those of Deltec are in material compliance with the terms of all
applicable environmental laws and regulations as currently interpreted. To the
best of the Company's knowledge, there are no existing or potential
environmental claims against Exide Electronics or Deltec that are likely to have
a material adverse effect on the Company's business or financial condition or
its financial statements taken as a whole. However, the Company cannot predict
with any certainty whether future events, such as changes in existing laws and
regulations, will give rise to liability or additional costs that could have a
material adverse effect on the Company's financial condition. Furthermore,
actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the cost of producing the products manufactured by the Company or otherwise
adversely affect the demand for its products. See "Business--Environmental
Regulation."
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BUSINESS
GENERAL
The Company is one of the world's leading manufacturers and marketers of
UPS products and power management software, as well as one of the industry's
largest UPS service providers. UPS products protect microprocessors and other
sensitive electronic equipment against electrical power interruptions by
providing temporary backup power. More sophisticated UPS systems also provide
additional protection against power distortions by continuously cleaning and
conditioning electrical power. The Company believes that it is one of only three
companies providing a full range of UPS products and services on a worldwide
basis. The Company's UPS products include small systems for use with personal
computers, workstations, client/server platforms and local and wide area
networks, and large systems for use with mainframe computers and data centers.
In addition, the Company's UPS products protect other types of sensitive
electronic equipment, including telecommunication systems, medical and
laboratory equipment, automated bank teller machines, industrial process
controls, and air traffic control and other transportation systems. Based on a
recent independent survey that divided domestic UPS product sales into two
segments, one for systems designed for power ratings above 5 kVA and one for
systems at or below 5 kVA , the Company (after giving effect to the Deltec
Acquisition) will have a leading position in each of the two defined segments,
ranking first for products above 5 kVA and second for products at or below 5
kVA. (Source: the VDC Report).
Based on internal research, the Company believes that total worldwide sales
of UPS products and services have grown approximately 20% since 1993 to
approximately $4.2 billion in 1995. The growth in the UPS industry is being
driven by the rapid proliferation of computers and related electronic systems in
a wide range of industries, including manufacturing, financial services,
utilities, telecommunications and transportation. This growth is being
compounded by the on-going transition from single-site mainframe systems to
multi-site network-based systems. To insure continued reliable operations,
computers and other electronic systems require the protection offered by UPS
products. The operations of such systems can be affected by a variety of
distortions in electrical power, including under-voltages (sags), over-voltages
(surges), transients (spikes), temporary power reductions (brownouts) and
complete power interruptions (blackouts). Any of these power distortions can
cause sensitive electronic equipment to malfunction or "crash," increasing the
likelihood of costly system downtime, information loss, and damage to equipment
and software. The need for UPS protection is particularly acute in certain
international markets where the quality of electrical power is poor.
On March 13, 1996, the Company completed the Deltec Acquisition. Deltec is
one of the world's largest manufacturers and marketers of off-line and
line-interactive small UPS systems. Off-line UPS systems provide temporary
back-up power without the power conditioning features of an on-line system,
while line-interactive UPS systems are hybrid systems that provide limited power
conditioning features. The majority of UPS products sold by the Company
historically have been more sophisticated on-line systems, which continuously
condition the power supply in addition to providing a back-up power source.
Off-line and line-interactive products, such as those manufactured by Deltec,
are generally less expensive than on-line systems and are suitable for
applications where system downtime may be less costly, such as personal or small
business uses. With the addition of Deltec's product line and small systems
manufacturing and distribution capabilities, the Company believes that it has
become one of only a few companies that is a leading manufacturer and worldwide
marketer of UPS systems in each of the major product segments of the UPS
industry. On a pro forma basis after giving effect to the Deltec Acquisition,
the Company would have had revenues and EBITDA of $515.2 million and $57.2
million, respectively, for the LTM ended December 31, 1995.
The Company currently manufactures substantially all of its products at its
manufacturing facilities in Raleigh and Wilmington, North Carolina and Dallas,
Texas. Deltec manufactures substantially all of its products at manufacturing
facilities in San Diego, California, Tijuana, Mexico and Espoo, Finland. The
Company also conducts a small amount of manufacturing activity at its European
subsidiaries and through its joint venture in Japan. The Company's large systems
are sold through a direct sales force, while both the Company's and Deltec's
small systems are generally sold through VARs, OEMs and distributors. The
Company currently maintains separate distribution channels for products produced
by IPM to take advantage
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of IPM's historic market acceptance. The Company also intends to maintain
separate distribution channels for Deltec products to leverage Deltec's strong
name recognition. As the Company integrates IPM and Deltec into the Exide brand
name family, the Company will consolidate its distribution groups to cover all
products.
The Company's business began in 1962 as part of Electric Storage Battery,
Inc., which was acquired in 1974 by Inco Limited ("Inco"). In 1982, Inco sold
the business to the Company, which (although incorporated in Delaware in 1979)
commenced operations at that time.
BUSINESS STRATEGY
The Company's business strategy is to continue to expand its sales and
profitability by providing its customers with Strategic Power Management through
a full range of product and service solutions at competitive prices. The Company
believes that its recent strategic acquisitions of Deltec, IPM and Lectro give
the Company one of the broadest product offerings in the global UPS industry,
including a wide range of off-line, line-interactive and on-line products
operating across a broad spectrum of kVA power ratings and applications. These
acquisitions also enable the Company to offer an expanded line of service
options, and provide the Company with one of the industry's largest global
distribution networks. To strengthen its global competitive position and improve
profitability, the Company intends to pursue a business strategy that
incorporates the following elements:
Increase its presence in the small systems segment. As a result of the
trend in the computer industry towards client-server computing and the
proliferation of personal computers, workstations, client/server platforms,
networks, and other microprocessor-based electronic equipment, industry sales of
small UPS systems grew approximately 28% from 1993 to 1995. During the same
period, the Company's sales of small systems products grew approximately 66% and
constituted approximately 38% of the Company's total revenues in fiscal 1995.
According to the VDC Report, sales of small systems in the U.S. are expected to
continue to grow significantly through 1999. The Company believes that the
Deltec Acquisition further improves the Company's competitive position in the
small systems segment because Deltec is particularly strong in sales of off-line
and line-interactive products, segments where the Company has traditionally not
had an extensive product offering. The Company plans to expand Deltec's existing
product line and believes that Deltec's small systems expertise, established
distribution channels and strong OEM relationships provide the Company with a
strategic platform to increase its small systems revenues and profitability.
Expand its international sales. The Company believes that international
markets accounted for approximately two-thirds of the worldwide market for UPS
products and services in 1995. Approximately 31% of the Company's fiscal 1995
sales were derived from products and services sold outside the U.S. The Company
anticipates significant growth in international markets due to the unreliability
of electric power in many foreign countries. Accordingly, the Company plans to
continue to develop products designed specifically to meet the unique power
needs of select international markets and establish joint ventures and other
strategic partnerships to design, manufacture and distribute UPS products to
serve these markets. The Company believes that its global distribution and
service networks, which were expanded through the IPM Acquisition, have been
significantly expanded with the Deltec Acquisition. Deltec's broad line of high
performance products, designed for the international market, enhances the
Company's position as one of the leaders in international UPS sales.
Establish a leading position in emerging technologies. In response to
rapid growth in a number of new technologies that depend upon electrical power,
the Company has created the Emerging Technologies Group. ETG will aggressively
seek out opportunities to develop new small system UPS products utilizing new
technologies or serving new applications. ETG's initial efforts will focus on
low-end rectifiers and power supplies for the broadband cable television and
telecommunications industries, product lines acquired as part of the Lectro
Acquisition. The Company plans to utilize these product lines as a platform to
enter the rapidly expanding wireless and personal communication services
markets.
Redefine its large systems focus. The Company believes that the market for
large UPS products is relatively mature, and that the demand for such systems
will not grow significantly over the next several years. Historically, large UPS
systems were used to support the power requirements of large mainframe
computers.
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With the movement away from mainframe systems to smaller data centers and office
environments, there has been a need for large UPS systems operating at lower kVA
ratings. Accordingly, the Company's future efforts in the large systems segment
will generally be directed at reducing cost and product development time by
incorporating new features and functionality into existing technology rather
than developing entirely new product platforms. The Company is also pursuing new
commercial applications for its large systems products in several markets,
including healthcare and industrial process control.
Expand its service business. WSG is one of the world's leading UPS service
organizations. Due to the scheduled decline in service revenues under one large
contract with the federal government, the Company is projecting a decline in its
total service revenues. Excluding this one contract, however, the Company is
anticipating growth in its commercial service business with the introduction of
new service offerings that complement its Strategic Power Management focus,
including offering support services for non-UPS power equipment such as
generators, switchgear, breakers and power distribution systems, as well as
providing power quality analysis and remote systems monitoring. In addition, the
Company is developing programs to provide service support for OEMs and the
federal government, which have historically provided their own service and
product support, but are increasingly looking to out-source such services. The
Company also plans to target service sales to third party power management
vendors.
Improve financial performance. The Company has implemented several
programs to reduce operating costs and to improve manufacturing productivity,
including programs designed to increase the commonality of parts in product
design in order to reduce inventory levels and the number of suppliers. In
addition, the Company is in the process of consolidating the manufacturing
facilities acquired in the IPM Acquisition and Lectro Acquisition into the
Company's existing manufacturing facilities. The Company also believes that it
can significantly reduce manufacturing costs by manufacturing certain
sub-assemblies and low-end products formerly sourced from Asian contractors at
Deltec's low-cost manufacturing facility in Tijuana, Mexico.
There can be no assurance that the Company will be successful in
implementing its business strategy. See "Risk Factors."
THE UPS INDUSTRY
According to the VDC Report, total U.S. sales of UPS products and services
in 1994 were approximately $1.6 billion. Sales are projected to grow at an
annual compounded rate of 13.1% to approximately $3.1 billion in 1999. (Source:
the VDC Report) Based on internal research, the Company believes that total
worldwide sales of UPS products and services in 1995 were approximately $4.2
billion. The Company expects the market to grow to approximately $6.7 billion in
1999. There can be no assurances, however, that such growth will occur.
Significant geographical growth areas are expected to be Latin America, the
Pacific Rim and Eastern Europe.
Over the last decade, businesses have become more aware not only of the
damage to computer systems and other electronic equipment resulting from
electrical power disruptions, but also the economic losses stemming from downed
computer systems and lost data. UPS products are designed to protect against
electrical power disruptions by providing power protection for personal
computers ("PCs") and workstations, client server platforms, LANs and WANs,
mainframe computers and data centers, and other microprocessor-based systems
present in many industries, including the telecommunications, transportation,
manufacturing, medical and laboratory, financial, and military and aerospace
industries. According to the VDC Report, approximately 78% of the small system
(<5 kVA) products sold in the U.S. in 1994 were used with PC/workstations and
LAN/WAN applications. Computer rooms, centered primarily around a mainframe
computer, and industrial process control applications were the most popular
applications of large system (>5 kVA) UPS products, accounting for approximately
65% of the large system applications. Small systems product sales in the U.S.
are projected to increase at an annual compounded rate of more than 15% through
1999; large systems product sales in the U.S. are projected to grow at an annual
compounded rate of nearly 8% through 1999. (Source: the VDC Report) There can be
no assurances, however, that such growth will occur. Based on internal research,
the Company believes that it is one of only three companies that markets a full
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range of UPS products on a worldwide basis and one of only a few companies in
the industry with leading positions in both the defined small and large system
market segments.
A significant trend driving the growth of the UPS market, and the most
important trend affecting the selection of UPS product type, is the migration
from mainframe, mid-range and minicomputers to client-server computing. This
trend has resulted in the proliferation of PCs, workstations, client/server
platforms, networks and other microprocessor-based equipment, leading to rapid
growth for smaller UPS systems and more modest growth for larger systems. The
shift to UPS products for LAN/WAN file servers and PC/workstations is expected
to generate an increasing demand for lower power UPS products. In addition,
improvements in the design of UPS products have led to declines in manufacturing
costs, which have produced lower sales prices for UPS products and expanded the
market for UPS products to applications where UPS solutions were previously
cost-prohibitive. While computer systems are evolving from mainframes to file
servers, the concept of computer rooms is undergoing a corresponding evolution
to data centers that incorporate large numbers of servers in computer room
settings. Accordingly, the Company is designing its large system UPS products
for use with the new computer technology. The Company believes growth
opportunities still exist in the large systems product segment. Industrial
process control, telecommunications and medical applications are expected to
show particularly strong future growth in both large and small UPS systems.
In addition to large and small systems designations, UPS products are also
classified functionally as utilizing either off-line, line-interactive or
on-line (standby) technology. An off-line UPS product provides a backup power
supply if a power failure occurs. Line-interactive systems, in addition to
providing a backup power source, continuously monitor the power supply and
compensate for any abnormalities such as brownouts, sags, surges or spikes. An
on-line product, in addition to providing a backup power source and compensating
for any abnormalities also conditions the power supply on a continuous basis by
removing voltage fluctuations, frequency variations and electrical noise from
the power supply. The Company believes that on-line technology provides superior
functionality to off-line and line-interactive technology. Off-line and
line-interactive products are adequate for many applications, however, and
generally are available at a lower cost.
PRODUCTS
The Company offers a full range of integrated power protection and
management products for small and large computer systems, telecommunications
systems, medical and laboratory equipment, financial systems, industrial process
control systems and air traffic control and other transportation systems. The
Company's products are used with electronic equipment ranging from small
applications with power requirements of 0.2 kVA to large systems with power
requirements of thousands of kVA. The Company has produced UPS products for more
than 20 years, and has established itself as a leader in the market for on-line
UPS systems, particularly in large UPS systems where on-line technology is more
prevalent. The Company's large system UPS products, all of which currently
incorporate on-line technology, are designed for use with the new client/server
platforms and network-based computer systems. The Company's largest product
line, which can be linked together to support very large power requirements and
provide redundancy, is designed to meet the power protection requirements of
large data centers. Most of the Company's large systems, including almost all
systems for large mainframe computers and data centers, are customized by the
Company's applications and product engineers to meet customers' specific
requirements. The Company offers specialized UPS products designed for medical
imaging applications, such as Magnetic Resonance Imaging and Computer-Assisted
Tomography scanning equipment, transportation applications, including airlines
and subways, and process control applications for manufacturing businesses. In
addition, a significant portion of the Company's sales to the federal government
are customized UPS products with complex manufacturing, system design, delivery
and installation schedules.
In response to the evolution of computer systems from mainframes to
PC/workstations and client/server platforms, the Company introduced its first
small system UPS products in fiscal 1990. The Company's small system products
are used with personal computers, workstations, client/server platforms, LANs
and WANs, minicomputers and other electronic applications, including
telecommunications and medical and laboratory
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equipment. Historically, the Company's strength in small systems has been at the
higher power range of the product market segment, where on-line technology was
in greater demand. With demand for line-interactive products increasing, the
Company initiated development of line-interactive product lines, particularly in
the lower power ranges, and expects to begin marketing its first products during
the second quarter of fiscal 1996. The Company's small system UPS products offer
various options relating to the length of time for which battery power can be
supplied, the level of networking capability and other features. In addition,
the Company has developed small system products specifically to meet the unique
power protection needs of international customers. The Company's sales of small
system products have grown 66% since 1993, and constituted approximately 38% of
the Company's total revenues in fiscal 1995. The Company expects significant
additional growth in small system sales in 1996 with the Deltec Acquisition and
the addition of new small system UPS products, including its new
line-interactive products.
The IPM Acquisition provided the Company with a similar product line. IPM
offers a broad line of on-line UPS products, in power ranges from 600VA to
300kVA. IPM's product line has increased the Company's international presence,
particularly in China. The IPM Acquisition provides the Company with the ability
to increase international sales by utilizing the Company's distribution system
to market IPM's products in geographic areas where IPM did not have a strong
presence, particularly certain areas of Latin America and Europe. IPM also
provides the Company with a stronger presence in the transportation and
telecommunications industries.
The Deltec Acquisition fills an important market niche for the Company.
Deltec is a leader in off-line and line-interactive products at the low power
range of the small system market. Deltec's low-cost manufacturing capabilities
enable the Company to offer a low-cost product sold on a high volume basis
through national distributors, and provide the Company with a manufacturing
source for the Company's low power range small system UPS products, which the
Company has historically sourced from the Far East. The Deltec Acquisition also
provides the Company with a 50 Hertz product to serve the international large
system market, which will complement the Company's 60 Hertz product that is sold
domestically.
Power Management Software. Network monitoring software has become a
significant feature of the Company's small system UPS product line. The
Company's proprietary power management software, OnliNet, and related
connectivity products are designed to monitor power conditions, environmental
events and UPS performance, and initiate automatic shutdown of computers in a
controlled sequence in the event of a prolonged power outage. OnliNet is
compatible with most commercial operating systems software. The Company acquired
DataTrax Systems Corporation ("DataTrax") in September 1993 to expand its
ability to provide fully-integrated power management solutions. DataTrax gave
the Company an innovative software product that monitors critical power,
environmental and security systems for customers with high systems-availability
requirements. DataTrax products are designed to interface with other
manufacturers' UPS products and air conditioners, generators, and other
equipment. In addition, with the Deltec Acquisition, the Company offers a power
management software product that is recognized as having one of the strongest
networking capabilities in the industry. The Company believes that facilities
monitoring products, such as those offered by DataTrax and Deltec, have
significant market growth potential.
Emerging Technologies. In August 1995, the Company formed ETG to
aggressively enter and serve emerging markets for power protection and
management systems, primarily the cable television and telecommunications
industries. The Lectro Acquisition, which served as the catalyst for the
formation of ETG, provided the Company with new technology designed for use in
harsh operating environments. ETG's UPS products are currently sold primarily to
the cable television industry. ETG also sells rectifiers and inverters to the
rapidly expanding wireless and personal communication markets, as well as other
segments of the telecommunications industry.
New Products. The Company continues to develop new products and enhance
existing product lines to remain an innovative leader meeting the needs of the
rapidly evolving power protection and management industry. The Company plans to
introduce new small system products over the next several years, including
enhanced products at the higher end of the power range for small to mid-range
applications, a new generation of off-line products and, in 1996, its first
line-interactive products. The Company also intends to introduce new
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models of existing products containing new features, such as more user-friendly
software and expanded international language capabilities.
The Company devotes significant research and development expenditures to
the development of new small system UPS products that incorporate new
technological developments and offer enhanced performance features. The market
for large UPS products is relatively mature, and the products have relatively
long life cycles. Accordingly, the Company expects to direct its improvement
efforts in the large systems segment at reducing cost and reducing total cycle
time by incorporating new features. The Company also intends to introduce new
combinations of large UPS products, ancillary equipment and services.
SERVICES
WSG offers a wide range of service programs, including preventive,
corrective and contract maintenance services, and emergency services, training
and spare parts. Because a significant portion of the Company's service revenues
come under service contracts, service revenues provide the Company with a
relatively predictable recurring source of revenue. Most of the Company's
service revenues relate to large system UPS products, which often require a
higher level of service, including post-sales applications support, systems
implementation and integration, installation and startup support, and
comprehensive maintenance services. The Company also provides, in connection
with certain significant sales of large UPS products and ancillary equipment to
the federal government, site-specific engineering, construction, installation,
systems implementation and integration, training, documentation and overall
program management services.
The Company recently expanded its UPS product services to include battery
monitoring services. In addition, the Company is developing programs to provide
service support for OEMs and the federal government, which historically have
provided their own service and product support, but are increasingly seeking to
out-source services and support.
Recent acquisitions have contributed significantly to growth in the
Company's service business. The Company is in the process of integrating IPM's
service business, which expanded the Company's North American service revenue
base by nearly 25%. The Company has also experienced high international service
growth as a result of the Company's acquisitions in 1994 of a company in the
United Kingdom and two companies in Canada. The Company also expects to benefit
significantly from its acquisition of Deltec, which has a large service network
in Europe.
Services in the United States are provided from service centers, which are
generally located with sales offices, and are provided by individual field
service engineers strategically located throughout the country. The Company
maintains inventories of spare parts at the service centers and sales offices.
Telephone support is provided 24 hours per day. The Company also provides
various factory and extended warranty services as part of the purchase of UPS
products, and guarantees on-site support within 24 hours in the contiguous
United States and 48 hours anywhere in the world. International services are
provided through the Company's affiliates and distributors. The Company provides
spare parts, training and technical support for its international distributors
to ensure a consistent worldwide customer service ability.
SALES AND DISTRIBUTION
Organizational Approach
The Company's marketing efforts are organized geographically into two
groups: the Americas Group, which covers the United States, Canada, and Latin
America, and the International Group, which covers all other geographic areas.
The Americas Group is further divided into five functional groups: Commercial
Sales; Partner Marketing; the Federal Systems Division; Canada; and Latin
America. The International Group is divided into three geographic areas: Europe,
Middle East, and Africa; Japan; and the Far East. At the present time, the
Company maintains separate distribution channels for Deltec, IPM and Lectro
products. Over time, the Company intends to integrate Deltec and IPM products
into the Company's sales and distribution organization.
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The Americas Group
Commercial Sales. The Company conducts its commercial sales using
manufacturers' representatives, Value-Added Distributors ("VADs") and a
Corporate Accounts sales group. The Company works closely with its
manufacturers' representatives and provides support to their marketing efforts
through ongoing sales and product training programs, advertising and promotional
campaigns, and participation in major trade shows. The Company has approximately
50 manufacturers' representative firms, which offer sales, technical service and
customer support to commercial accounts throughout the U.S. These manufacturers'
representatives are the Company's primary sales channel for large system UPS
products, and have recently begun marketing the Company's small systems product
lines as well. Commercial Sales also includes VADs, which are local or regional
distributors that market both directly to end users and on a resale basis to
Value-Added Resellers ("VARs"). The Company's Corporate Accounts sales group is
responsible for coordinating direct sales efforts for all of its products to
select major customers nationwide. Corporate Accounts may purchase products for
their own use or for resale.
Partner Marketing. The Company's sales effort in Partner Marketing are
conducted through OEMs, resellers, distributors and VARs. The Company has OEM
and reseller relationships with numerous companies, including IBM, AT&T, Digital
Equipment Company, Data General and Unisys, some of which sell the Company's UPS
products on a private-label basis. The Company's OEM/reseller sales relate
primarily to its small system UPS products. OEMs/resellers market the Company's
products separately, as part of a combined product offering with the OEMs'
equipment, or through the OEMs' service organizations. The Company has also
developed a network of distributors and VARs for the sale of small system UPS
products. The Company supports the distributor effort with various VAR marketing
programs, and expects to continue expanding its relationships with distributors
and VARs.
Federal Systems Division. The Federal Systems Division coordinates the
Company's selling efforts to military and civilian agencies of the federal
government. Historically, the majority of sales to the federal government have
consisted of large system UPS products and related services. Sales of small
system UPS products are currently made to the federal government through
distributors, VARs and systems integrators. The Company also offers certain of
its UPS products in the 36 to 375 kVA range through a General Services
Administration ("GSA") schedule. For fiscal 1995, sales to the federal
government declined to 27% of the Company's revenues from 33% for fiscal 1994.
See "-- Federal Government Contracts" for a discussion of sales to the federal
government and certain government contracts.
Canada. The Company's wholly-owned Canadian subsidiary distributes,
services and performs limited modification of the Company's UPS products in
Canada. The subsidiary uses manufacturers' representatives, VARs and direct
sales for distribution. The Company plans to integrate IPM's Canadian
distribution operations into the Company's Canadian distribution organization
during fiscal 1996.
Latin America. The Company maintains a sales office in Miami to support
the Company's sales and marketing efforts in Latin America, which are generally
conducted by distributors and OEMs. The Company's network of distributors in
Latin America are factory-trained to provide service for all products they sell.
In December 1995, the Company announced plans to form a joint venture in Brazil
to better serve that market.
International Group
The International Group is organized into three geographic regions designed
to maximize its participation in certain major international regions using
approaches tailored to each geographic area based upon the market's size, growth
potential and local governmental requirements. The International Group's sales
efforts are focused primarily on small system products and services. The Company
also has introduced several products to meet the specific voltage and frequency
requirements of international customers.
Europe, Middle East and Africa. The Company markets and sells its products
and services in Europe through subsidiaries in France, the United Kingdom and
Germany. In European countries where the Company does not have a local
affiliate, as well as in the Middle East and Africa, the Company markets and
sells its UPS products through local distributors and manufacturers'
representatives. The Company maintains
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a sales office in London to help support those sales. The Company intends to
integrate FPS, Deltec's Espoo, Finland-based subsidiary, into its European
operations. Through FPS, the Company's European operations have expanded to
include Scandinavia and Eastern Europe.
Japan. In Japan, the Company has a joint venture with Japan Storage
Battery Co., Ltd. ("JSB") that sells, markets and distributes UPS products
through a direct sales and service organization, as well as through distributors
and VARs.
Far East. In Pacific Rim countries where the Company does not have a local
affiliate, the Company markets and sells its UPS products through local
distributors. The Company maintains sales offices in Singapore and Beijing,
China to help support those sales. In December 1995, the Company announced plans
to form a joint venture with a strategic partner in India to better serve that
market.
IPM
The Company continues to maintain most of IPM's distribution channels to
market its IPM product lines. In North America, IPM markets its products
primarily through independent manufacturers' representatives, OEM resellers,
national accounts, and direct sales to the federal government. IPM sells its
systems internationally primarily through distributors and manufacturers'
representatives. Additionally, the Company is involved in direct sales
activities from its Hong Kong office, and in China, Germany, and Canada. Over
time, the Company intends to integrate IPM's products into its sales and
distribution organization.
Deltec
Deltec's product marketing is currently divided geographically according to
brand name and sales channel strength. FPS trademarks are well-known in Europe,
including Eastern Europe, the primary market for the FPS brand name UPS
products. Deltec EC, Deltec's San Diego-based subsidiary is strong in North
America, South America and the Far East, areas where the Deltec brand name is
well known. Deltec EC markets its products in North America through a
combination of distributors and VARs, regional and specialty distributors, OEMs
and resellers; and direct sales through in-house personnel and independent sales
representatives. In addition, Deltec EC maintains a national distribution
channel for industrial markets through two large national distributors. FPS
maintains direct sales offices in Stockholm, Oslo, Copenhagen, Baden-Baden,
Berlin, London, Paris, Zurich, Moscow and St. Petersburg. For each country in
which it operates, FPS has a sales force, product program and marketing program
oriented to distribution. Sales channels include Pan European distributors,
local distributors, VARs, OEMs and resellers, and retail computer supermarkets.
FPS and Deltec EC together have over 50 international distributors. In countries
of the former Soviet Bloc where FPS does not have sales offices, it operates
through "franchised" companies. FPS provides training and maintains close
contacts with these franchises and believes that this arrangement gives them a
unique marketing position in the Eastern European market.
RESEARCH AND DEVELOPMENT
The Company believes that it must continue developing new products and
enhancing existing ones to maintain its position as an innovative leader in the
power protection and management industry. Accordingly, the Company conducts
significant research and development activities that employed 131 persons as of
September 30, 1995. The Company's research and development efforts with respect
to small system products relate primarily to the incorporation of new
technological developments, while efforts with respect to large system products
are aimed at reducing cost and total cycle time and improving quality. The
Company has also been expanding its product line to include specialized
offerings for particular applications, such as medical, cable television and
telecommunications equipment, in addition to models that meet international
voltage and frequency requirements. The Company has replaced most of its product
line over the last five years and is currently involved in the development of
additional new products and further advances in its product line. In recent
years, as software has become increasingly important in the operation of the
Company's UPS products, the Company has expanded its software development
capability to produce products that improve customers' ability to manage their
information technology and power networks.
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The Company believes that its relationships with suppliers of
semiconductors, batteries and other primary components give the Company access
to emerging technologies and applications. The Company's relationships with OEMs
also provide it with the opportunity to integrate power and user requirements of
products under development by those OEMs into its research and development
efforts.
During fiscal 1993, 1994 and 1995, the Company spent approximately $9.6
million, $10.1 million and $9.9 million, respectively, on research and
development. The Company's research and development expenditures as a percentage
of revenue were 3.0%, 2.8% and 2.5%, respectively, for fiscal 1993, 1994 and
1995. The Company expects that research and development expenditures will
continue at substantially the same level in relation to revenues for the
foreseeable future as the Company takes advantage of synergies produced by its
recent acquisitions of IPM and Lectro, as well as the synergies expected to be
realized through the Deltec Acquisition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Research and
Development."
MANUFACTURING
The Company currently manufactures substantially all of its UPS products at
three locations: Raleigh and Wilmington, North Carolina and Dallas, Texas. In
the Deltec Acquisition, the Company acquired manufacturing facilities in San
Diego, California, Tijuana, Mexico and Espoo, Finland near Helsinki. In
addition, the Company's international distributors and affiliates can further
customize products for various international markets. The Company also conducts
a small amount of manufacturing activity at its European subsidiaries and
through its joint venture in Japan.
Most of the Company's small system products currently are manufactured at a
facility near Wilmington, North Carolina, and Dallas, Texas. Deltec manufactures
small UPS systems at its facilities in Tijuana and San Diego. The Company's
manufacturing operations for small systems consist primarily of product
assembly, wiring harness fabrication, quality control and product testing. The
small systems manufacturing process involves production of high volumes of
various models of products, which are significantly easier to assemble than
large system products because of standard production runs and fewer discrete
components. The Company has historically out-sourced production of some of its
low-end products in Taiwan. Although the Company does not manufacture these
products directly, they are built to the Company's design specifications. The
Company believes that it can improve margins on such products by moving
production to Deltec's low-cost manufacturing facility in Tijuana.
The Company's large system products are manufactured in Raleigh, North
Carolina, and Dallas, Texas. Deltec manufactures its large system products in
Espoo, Finland and San Diego, California. Manufacturing operations for large
systems consist primarily of transformer fabrication, wiring harness
fabrication, product assembly, painting, quality control and product testing.
Large systems manufacturing involves production of lower volumes of products and
requires a higher level of manufacturing expertise due to a higher number of
components, and in many cases, the need for customization.
As a result of the facilities the Company acquired in the Deltec
Acquisition, the Company is exploring ways to consolidate its manufacturing
operations, including the possibility of relocating manufacturing operations
from Dallas to North Carolina and Deltec's facility in Tijuana.
Although the Company generally uses standard parts and components that are
available from a variety of sources, certain electronic components currently are
available only from single sources. While the Company has generally been able to
obtain adequate supplies of these components, recently UPS manufacturers,
including the Company, have experienced temporary shortages in some components,
such as certain microprocessors, printed circuit boards and capacitors. These
shortages affected the delivery schedule on some products and resulted in lower
margins on some sales as the Company incurred higher costs to procure components
from alternative sources. Generally, any inability to obtain supplies of
sole-source components will temporarily disrupt production as alternatives are
located or developed. In addition, the availability of certain specialized
components used with large UPS products, such as switchgear, batteries and other
ancillary equipment that are not inventoried by the Company, can affect the
timing of delivery of the Company's integrated power protection systems.
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<PAGE> 75
In October 1992, the Company, based upon an audit of its United States
operations, was certified and recognized as a Registered Firm conforming to ISO
9001 quality criteria for the design, manufacture and servicing of its products.
In addition, all of Deltec's manufacturing facilities have been ISO 9000
certified, with the San Diego and Helsinki facilities receiving ISO 9001
certification and the Tijuana facility receiving ISO 9002 certification. ISO
9001 and 9002 certification is becoming increasingly important in the marketing
and selling of products worldwide.
BACKLOG
The Company's backlog as of September 30, 1995 was approximately $107
million as compared with $146 million as of September 30, 1994. Approximately
$20 million of the backlog as of September 30, 1995 is not expected to be
delivered within the next 12 months. Backlog reflects firm customer orders for
products and services scheduled for shipment within 12 months, or firm, funded
government orders. A significant portion of the backlog at September 30, 1995 is
attributable to orders from the federal government, particularly for the FAA
Program.
The level of backlog at any particular time is not necessarily indicative
of future operating performance of the Company. Delivery schedules may be
extended, particularly in the case of large system UPS products, and orders may
be canceled at any time subject to certain cancellation penalties. In addition,
since small systems generally can be shipped shortly after firm customer orders
are received, backlog levels for small system products as of any particular date
may reflect a temporary surge or lull in orders, and may not be indicative of
business trends for subsequent periods.
COMPETITION
The Company believes that it is one of three global companies providing a
full range of UPS products and services worldwide. The Company competes with a
large number of firms with respect to small UPS products, and believes that its
principal competitors in the United States include American Power Conversion
Corporation, the leading manufacturer and seller of small UPS products; a
business unit of General Signal Corp.; a division of Emerson Electric Co.; and
Tripp Manufacturing Company. Since recent growth in the UPS industry has been in
small UPS products and since distribution channels for small UPS products are
rapidly evolving, the Company believes that it is likely to face significant
competition in the sale of small UPS products over the next several years.
The Company believes that its primary competitors in the large UPS product
market include business units of Emerson Electric Co. and Groupe Schneider, S.A.
These companies are much larger than the Company and have greater financial and
other resources. The Company believes that federal government procurements will
be highly competitive, such as the recent procurement process related to the new
ALC Contract discussed under "--Federal Government Contracts."
Many other companies compete successfully in certain countries or
geographic regions and in individual UPS product or application niches. Some of
the Company's competitors have greater financial and other resources than the
Company. The Company believes that product reliability and quality, performance,
service, support and price are the most important factors with respect to sales
of its UPS products. Marketing and brand recognition also play a role in
competing for the sale of UPS products.
FEDERAL GOVERNMENT CONTRACTS
Sales to the federal government accounted for approximately 35%, 33%, and
27% of the Company's revenues for the fiscal years ended September 30, 1993,
1994, and 1995, respectively. A major portion of the Company's sales to the
federal government consists of large, customized UPS products and ancillary
equipment under multi-year programs with complex manufacturing, system design,
delivery and installation schedules. In connection with these programs, the
Company supplies significant services, including site-specific engineering,
integration, systems implementation and startup, training, orientation,
documentation and program management. The Company also sells its products and
services to the federal government through its GSA schedule and frequently
through miscellaneous competitively-awarded and sole-source
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procurement actions. Most of these contracts are subject to termination for the
convenience of the government pursuant to the terms of the contracts. See "Risk
Factors--Government Contract Matters."
A significant portion of the Company's sales to the federal government in
recent years has been under the ALC Contract awarded to the Company in May 1988
following a competitive procurement and, to a much lesser extent, under a
five-year contract with the United States Navy awarded to the Company in June
1991 following a competitive procurement. In April 1992, the Company was awarded
a second five-year contract with the United States Navy for a different range of
UPS products.
A significant portion of orders received by the Company under the ALC
Contract has been for the FAA Program. As of December 31, 1995, the Company has
received approximately $355 million in orders under the FAA Program, which
relate to approximately 25 FAA locations. As of September 30, 1995,
approximately $60 million of the Company's backlog relates to firm, funded
orders received under the FAA Program. The period during which orders could be
placed under the ALC Contract expired in May 1993. Expiration of the ALC
Contract does not affect orders received prior to expiration, and delivery on
the remainder of such orders, which consist primarily of site implementation
services for the FAA, is currently planned through fiscal 1997.
In June 1995, the Company was awarded a three-year follow-on to the ALC
Contract, with up to two additional one-year extensions at the option of the
government. Actual revenues under the follow-on ALC Contract will depend on the
specific purchases, if any, by the Air Force and other governmental agencies
that may use the contract during the contract period. Following the award of the
follow-on ALC Contract, certain competitors filed protests with the GAO. In
December 1995, the GAO notified the Company that all of the protests had been
dismissed, except the protest of the Air Force's evaluation of certain discounts
offered by the Company in the contract. The GAO has recommended that the Air
Force amend a portion of the request for proposal that led to the contract
award. The GAO further recommended that the Air Force allow the protesting
companies and the Company to submit new proposals regarding such portion, and
that the Air Force re-evaluate the award to the Company based upon these new
proposals. In response to the notification, the Company has filed a motion for
reconsideration of the GAO's ruling. In response to the GAO's ruling, the Air
Force has notified the Company that it is in the process of re-evaluating the
follow-on ALC Contract and that it will not issue orders under the contract
pending its re-evaluation process. The Company is unable to predict at this time
what the resolution of the contract protest will be and no assurances can be
given that the Company ultimately will retain the follow-on ALC Contract.
The Company's government contracts require the Company to supply UPS
products and services at the Company's contract prices. A principal benefit of
these types of contracts is that military or civilian agencies may purchase
products from the Company by procuring those products through the contracting
agency. The Company's Federal Systems Division therefore seeks to identify
applications useful to other Department of Defense and civilian agencies within
the federal government.
The Company's federal government business is performed under firm
fixed-price type contracts, time-and-materials type contracts, and at times a
combination of both. Under firm fixed-price contracts, the Company agrees to
deliver products and perform work for a fixed price. Accordingly, the Company
realizes all of the benefit or detriment resulting from decreased or increased
costs of performing under a firm fixed-price contract. Under time-and-materials
contracts, the Company receives an agreed hourly rate for each employee working
under the contract and is reimbursed for the cost of materials and certain
administrative overhead.
The Company's compliance with government contract regulations is audited or
reviewed from time to time by government auditors, who have the right to audit
the Company's records and the records of its subcontractors during and after
completion of contract performance. Under federal government regulations,
certain costs are not costs for which the government will reimburse the Company.
Government auditors may recommend that certain charges be treated as unallowable
and reimbursement be made to the government. In addition, as part of the
Company's internal control practices, the Company performs regular internal
reviews of its charges to the government. In connection with such reviews, the
Company may make voluntary refunds to the government for certain unallowable or
inadvertent charges, that are brought to the government's attention by the
Company. The Company provides for estimated unallowable charges and voluntary
refunds in its financial statements, and believes that its provisions are
adequate as of December 31, 1995.
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The Company recognizes that, in the current federal government contracting
environment, many other contractors are the subject of various investigations
for breach of government contract rules and procedures. The Company is not aware
of any such investigations relating to the Company. However, if the Company were
charged with wrongdoing in connection with its federal government contracts, the
Company could be subject to civil and criminal damages and penalties, and could
be suspended from bidding on or receiving awards of new federal government
contracts pending the completion of legal proceedings. Any federal government
contracts found to be tainted by illegality can be voided by the government and
the contractor can be subject to fine or debarment from new federal government
contracts, and its export licenses could be terminated.
In addition to the right of the federal government to terminate contracts,
federal government contracts are conditioned upon the continuing availability of
budget appropriations. Funds are appropriated on a fiscal-year basis even though
contract performance may take more than one year. Consequently, contracts
usually are partially funded at the outset of multi-year programs; additional
funds normally are committed to contracts by the procuring agency only as
appropriations are made for future fiscal years.
PATENTS, LICENSES AND TRADEMARKS
The Company currently holds various domestic and international patents,
which expire at differing times from 2000 through 2011. In addition, the Company
has various patent applications which are pending. Although the Company believes
that the pending applications relate to patentable devices or concepts, there
can be no assurance that patents will be issued or that any patent issued can be
defended successfully, or that such patent rights, once granted, will provide
competitive advantages to the Company. Although the Company believes that
obtaining patents wherever possible is in its best interests, it also believes
that the legal protections afforded by such patents is of no greater importance
in the UPS industry than such factors as rapid development cycles, technological
expertise, marketing skill and customer support. The Company does not believe
that its patents or its patent applications are essential to the success of the
Company.
The Company has a perpetual, exclusive, royalty-free license for the use of
the name Exide as part of its corporate name and trade name for the manufacture,
sale, and service of UPS products. The Company holds certain licenses required
by federal government agencies for the export from the United States of many of
the Company's products.
The Company has numerous trademarks and service marks effective in the
United States and in several foreign countries. Powerware(R), OnliNet(R),
PowerVision(R), Hot-Tie(R), Strategic Power Management(R) and Cell Saver(R) are
registered trademarks of the Company, and PowerCare(R) is a registered service
mark. Applications for registered trademarks are pending for ONE-UPS(TM) and
DataFrame(TM). Management considers its various trademarks to be valuable assets
but believes that the loss of any one trademark would not have a material
adverse effect on the Company's operations.
Pursuant to a license agreement under the Acquisition Agreement, FPS has
the right to use the Fiskars trademark in certain countries in connection with
the design, manufacture, marketing, sale, distribution and service of UPS
products. FPS has a license to use the trademark for 24 months following the
closing of the Deltec Acquisition, with an option to extend the license for an
additional 12 months.
EMPLOYEES
As of September 30, 1995, the Company employed approximately 1,700 persons.
Approximately 650 are employed in manufacturing and the balance are in customer
support, research and development, sales and marketing, and administration.
Immediately following the Deltec Acquisition, the Company had approximately
2,400 employees, approximately 1,000 of which were in manufacturing. In
addition, the Company uses temporary personnel on an as-needed basis, which it
believes affords operating flexibility. The Company believes that its continued
success depends on its ability to attract and retain highly qualified personnel.
None of the Company's employees is represented by a collective bargaining
agreement. The metal workers, office and technical staff at Deltec's Finland
plant are represented by a collective bargaining
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agreement. Neither the Company nor Deltec has experienced any work stoppages,
and the Company believes that its and Deltec's employee relations are good.
PROPERTIES
The Company's principal facilities are as follows:
<TABLE>
<CAPTION>
SQUARE
LOCATION FEET OPERATIONS
------------------------------------- ------- -------------------------------------
<S> <C> <C>
Raleigh, NC:
Worldwide Headquarters............. 93,000 Corporate offices; sales and
marketing; customer service
LSG Manufacturing Facility......... 170,000 Manufacturing
Advanced Technology Center......... 28,000 Research and development
Federal Systems Division........... 18,000 Federal program management;
engineering
Training and Support Center........ 22,000 Technical training and support
Emerging Technologies Group and
Worldwide Logistics Center...... 185,000 Distribution; manufacturing; repair;
administrative offices
Wilmington, NC....................... 168,000 SSG manufacturing
Louisville, CO....................... 9,000 DataTrax sales; customer support;
administrative offices;
manufacturing; research and
development
Dallas, TX........................... 133,000 IPM manufacturing; sales;
distribution; administrative offices
Toronto, Canada...................... 40,000 Distribution; sales; customer
support; administrative offices
Paris, France........................ 7,000 Distribution; sales; customer
support; administrative offices
London, England...................... 15,000 Distribution; sales; customer
support; administrative offices
-------
Total...................... 888,000
=======
</TABLE>
The Deltec Acquisition added the following facilities:
<TABLE>
<CAPTION>
SQUARE
LOCATION FEET OPERATIONS
------------------------------------- ------- -------------------------------------
<S> <C> <C>
San Diego, CA........................ 89,000 Corporate offices; sales and
marketing; customer service;
manufacturing; distribution
Tijuana, Mexico...................... 64,000 Manufacturing; distribution
Espoo, Finland....................... 78,000 Corporate offices; sales and
marketing; customer service;
manufacturing; distribution
-------
Total...................... 231,000
=======
</TABLE>
All of the Company's principal facilities are occupied under long-term leases,
except for the facility in Wilmington, North Carolina, which is owned. The
Company also leases various sales and service offices worldwide. The Company
believes that its facilities are adequate to meet its current requirements.
LEGAL PROCEEDINGS
In January 1989, a case was filed by a former manufacturer's representative
of the Company, alleging that the Company failed to pay commissions owed to him
on certain sales. In April 1990, a jury awarded the
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plaintiff damages of approximately $14.9 million. The Company appealed the
decision, and in September 1992, the appellate court reversed the judgment
against the Company. In response to various motions filed by the plaintiff, a
new trial was granted, and in March 1994, the jury in the new trial awarded
damages of $3.8 million payable by the Company to the plaintiff. While the
Company continued to believe that it should have no liability in this matter and
announced its intention to appeal, it recorded a one-time charge in the second
quarter of fiscal 1994 of $5.0 million ($2.9 million after tax) for the jury
verdict and for the costs of the trial.
In July 1994, the Company announced that this litigation had been settled.
Following agreement among the parties to settle, the court vacated the jury
award of $3.8 million previously entered and determined that the vacated
judgment cannot be used against the Company in the future. To avoid further
litigation including post-trial motions and appeals, the Company settled the
case by making payments to the plaintiff and his attorneys. The parties
thereafter stipulated that the entire action was dismissed with prejudice. Since
the total value of the settlement payments was less than the one-time charge for
the jury verdict recorded by the Company in the second quarter of fiscal 1994,
no further charges were necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, the Company was served with a complaint in the Delaware Court
of Chancery and in May 1991, a related case was filed in Federal Court in New
York. These complaints alleged, among other things, that the Company's
description of the case involving the manufacturer's representative in its
prospectus dated December 21, 1989 was false and misleading. In April 1995, the
Company announced that it had settled both the Delaware and New York suits. The
Delaware action had been dismissed once for failure to state a claim, but was
reinstated following an appeal and was in the discovery process prior to the
settlement. The Company recorded a charge of $700,000 ($424,000 after tax) for
the settlement of the two related lawsuits in the quarter ended March 31, 1995.
Court approval of the settlement agreement, after notice to affected
shareholders, was granted in August 1995. While the Company believed that
neither suit had merit, it decided to settle as the suits were taking valuable
corporate time and attention and would have involved significant legal costs to
pursue further.
On August 21, 1995, a case entitled National Broadcasting Company, Inc. and
CNBC, Inc. vs. International Power Machines/LorTec Systems Inc. et al, was filed
against IPM in the Supreme Court of New York, New York County. The plaintiffs
allege that IPM negligently manufactured and installed a UPS product that caused
them property and compensatory damages when the equipment malfunctioned during
the installation of the product by third-party contractors. The plaintiffs have
filed seven causes of action, each of which seeks damages in the amount of $1.1
million. Three of those causes of action also seek $3.0 million in punitive
damages. Claims of this nature are generally covered by the Company's insurance
and its insurer has accepted general defense of the matter. The insurer has
notified the Company that while claims based on IPM's negligent manufacture or
design are covered by the insurance policy, damages, if any, caused by IPM's
intentional or careless decision to install a known defective and dangerous
product would be subject to certain exclusions under the policy. While discovery
is at an early stage, the Company believes at this time, based on the advice of
its defense counsel, that no evidence has yet been presented that supports any
allegation of intentional or careless conduct. IPM also believes that it has
meritorious defenses and counter-claims against the third-party co-defendants
who the Company alleges defectively installed the UPS product. The Company
believes that the final outcome of this matter will not have a material adverse
effect on the business or the financial position of the Company and its
subsidiaries taken as a whole.
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
ENVIRONMENTAL REGULATION
The Company's and Deltec's operations are subject to federal, state, local
and foreign environmental laws and regulations relating to the storage, handling
and disposal of hazardous or toxic materials and
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discharge into the environment of regulated pollutants. To the best of the
Company's knowledge, the Company's and Deltec's operations are in material
compliance with the terms of all applicable environmental laws and regulations
as currently interpreted and there are no existing or potential environmental
claims against the Company or Deltec that are likely to have a material adverse
effect on the Company's business or financial condition or on its financial
statements taken as a whole. However, the Company cannot predict with any
certainty whether future events, such as changes in existing laws and
regulations, will give rise to liability or additional costs that could have a
material adverse effect on the Company's financial condition. Furthermore,
actions by federal, state, local and foreign governments concerning
environmental matters could result in laws or regulations that could increase
the cost of producing the products manufactured by the Company or otherwise
adversely affect the demand for its products.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are:
<TABLE>
<CAPTION>
NAME AGE POSITION
-------------------------------------- --- --------------------------------------
<S> <C> <C>
Conrad A. Plimpton.................... 52 Chairman of the Board
Lance L. Knox......................... 51 Vice Chairman of the Board
James A. Risher....................... 53 President, Chief Executive Officer and
Director
Mark A. Ascolese...................... 45 Senior Vice President and General
Manager, the Americas Group
Nicholas J. Costanza.................. 40 Vice President, Chief Administrative
Officer, General Counsel and
Secretary
Warren J. Johnson..................... 47 Vice President and General Manager,
IPM and ETG
Marty R. Kittrell..................... 39 Vice President, Chief Financial
Officer, Treasurer and Assistant
Secretary
Hermann G. P. Metzler................. 54 Vice President, International Group
William J. Raddi...................... 56 Senior Vice President, Chief
Technology Officer, General Manager,
Small Systems Group
Alden R. Schnaidt..................... 47 Vice President and General Manager,
Large Systems Group
Wayne L. Clevenger.................... 52 Director
Ron E. Doggett........................ 61 Director
James E. Fowler....................... 63 Director
David J. McLaughlin................... 59 Director
Chiaki Tanaka......................... 60 Director
</TABLE>
Conrad A. Plimpton has been Chairman of the Board and a director of the
Company since 1982 and was Secretary from 1982 until 1991. Mr. Plimpton has been
a Managing Director of the private investment firm of Plimpton & Company since
1979.
Lance L. Knox has been Vice Chairman of the Board and a director of the
Company since 1982. Mr. Knox is a principal of The Lethbridge Group, Inc., a
private investment firm, which he founded in 1988.
James A. Risher has been President, Chief Executive Officer and a director
since joining the Company in 1986. From 1984 through 1986, Mr. Risher was Senior
Vice President of Distribution Operations of the Computer System Division of
Motorola, Inc. From 1979 to 1984, Mr. Risher was employed by Wang Laboratories,
serving in his last position as Vice President of Marketing for Domestic
Operations. Previously, Mr. Risher spent 12 years with IBM in various sales and
marketing positions.
Mark A. Ascolese joined the Company in 1985 and assumed his current
position as Senior Vice President and General Manager, the Americas Group in
October 1995. Mr. Ascolese has served in various customer service, sales
management and general manager capacities since becoming a Vice President in
1987. He was Vice President and General Manager, Worldwide Services Group from
1992 to January 1995 and Senior Vice President and General Manager, North
American Field Operations from January to October 1995.
Nicholas J. Costanza joined the Company's predecessor in 1980 and assumed
his current position as Vice President, Chief Administrative Officer, General
Counsel and Secretary in November 1995. As Chief Administrative Officer, Mr.
Costanza has assumed worldwide responsibility for Human Resources. Mr. Costanza
held various legal positions prior to being promoted to Vice President and Chief
Legal Counsel in 1986. He was elected Secretary in 1991.
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<PAGE> 82
Warren J. Johnson joined the Company's predecessor in 1978, serving in
various financial and managerial capacities until he assumed his current
position as Vice President and General Manager, International Power Machines and
Emerging Technologies Group in September 1995. From 1989 to 1992, Mr. Johnson
was Vice President and General Manager, Office Systems Group. From 1992 to 1995,
he was Vice President, Corporate Development, and from February to September
1995, he was Vice President and General Manager, International Power Machines.
Marty R. Kittrell joined the Company in 1989 as Vice President and Chief
Financial Officer and Treasurer. He was elected Assistant Secretary in 1991.
Hermann G. P. Metzler joined the Company in 1984 as Manager of
International Sales and Service. From 1985 until 1989, he served as Director of
International Marketing and Sales, at which time he assumed his current position
of Vice President, International Group.
William J. Raddi has been with the Company and its predecessors since 1962
and has served in various engineering, development and manufacturing capacities.
In 1990, he assumed the title of Senior Vice President and Chief Technology
Officer. In 1992, he assumed the additional position of Senior Vice President
and General Manager, Small Systems Group.
Alden R. Schnaidt joined the Company in 1986 as Director of Manufacturing,
was promoted to Vice President, Manufacturing Operations in 1988, and assumed
his current position as Vice President and General Manager, Large Systems Group
in 1992.
Wayne L. Clevenger has been a director since 1982. Mr. Clevenger has been
Managing Director of MidMark Management, Inc., a private investment firm, since
January 1990. He was President of Lexington Investment Company from 1985 to
1989. Mr. Clevenger is a director of United Wholesale, Inc., and Lionheart
Industries, Inc.
Ron E. Doggett has been a director of the Company since 1991. Mr. Doggett
has been Chief Executive Officer since 1985 and Chairman of the Board since 1987
of GoodMark Foods, Inc., a producer of snack foods.
James E. Fowler has been a director since 1985. Mr. Fowler has been a
financial consultant since July 1994. He previously served as Assistant
Comptroller of Inco Limited and as President of Inco Battery Holdings
Corporation from 1983 until his retirement in 1994.
David J. McLaughlin has been a director since 1990. Mr. McLaughlin has been
President of McLaughlin and Company, Inc., a management consulting firm, since
1984. He has also been Executive Director of the Senior Personnel Executive
Forum, a non profit association, since 1979. Mr. McLaughlin is a director of
Scientific Atlanta, Inc., Smart & Final, Inc., Troy Biosciences, Inc. and
Evolve, Inc.
Chiaki Tanaka was elected as a director by the Board of Directors in 1992.
Mr. Tanaka has been Managing Director, Power Supply Systems Division of JSB
since 1990. He has been a director of GS-EE Co., Ltd., the Company's joint
venture with JSB, since 1989.
Mr. Knox was an officer of FGH Corp., which was an inoperative shell
company, when that company filed for protection under Chapter 7 of the
Bankruptcy Code in 1992.
79
<PAGE> 83
PRINCIPAL SHAREHOLDERS
The following table sets forth ownership of the Company's voting securities
as of April 9, 1996 by (i) each person who is known to the Company to own
beneficially more than 5% of the outstanding shares of any class of its voting
securities, (ii) each named executive officer, (iii) each director and (iv) all
directors and executive officers as a group. Except as noted below, each person
or entity has sole voting and investment power with respect to the shares shown.
<TABLE>
<CAPTION>
NAME OF BENEFICIAL OWNER
- -------------------------------------------
SHARES OF OPTIONS EXERCISABLE PERCENT OF
FIVE PERCENT SHAREHOLDERS COMMON STOCK(1)(2) WITHIN 60 DAYS(1) COMMON STOCK(3)
- ------------------------------------------- ------------------ ------------------- ----------------
<S> <C> <C> <C>
Fiskars OY AB.............................. 1,825,000(4) -0- 16.6%
Massachusetts Mutual Life Insurance
Company.................................. 1,146,789(5) -0- 10.4
Duquesne Enterprises, Inc. ................ 1,043,750 -0- 9.5
Japan Storage Battery Co., Ltd. ........... 645,273 -0- 5.9
OFFICERS AND DIRECTORS
- ------------------
Conrad A. Plimpton......................... 353,885(6) 15,500 3.4%
James A. Risher............................ 273,090 60,000(10)(11) 3.0
Lance L. Knox.............................. 186,890 15,500 1.8
Wayne L. Clevenger......................... 10,000 15,500 *
Ron E. Doggett............................. 3,000 10,500 *
James E. Fowler............................ 1,250(7) 4,250(7) *
David J. McLaughlin........................ 3,300 13,000 *
Chiaki Tanaka.............................. -0-(8) 10,500 *
Alden R. Schnaidt.......................... 30,000 12,500(10)(12) *
Mark A. Ascolese........................... 37,222 13,500(13) *
Marty R. Kittrell.......................... 36,814 19,500(10)(13) *
William J. Raddi........................... 115,000 22,000(14) 1.2
All Executive Officers and Directors as a
group
(16 persons)............................. 1,141,832(6)(9) 242,375(10) 12.6%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as indicated in the footnotes to this table, the persons named in
the table have sole voting and investment power with respect to the shares
of Common Stock shown as beneficially owned by them.
(2) Does not include an option to purchase shares of Common Stock, which are
listed separately under the column "Options Exercisable Within 60 Days."
(3) Represents the percent of shares of Common Stock held, options exercisable
within 60 days, and the Series G Preferred Stock issued to Fiskars, each
share of which has the same voting rights as a share of Common Stock.
(4) Includes 1,000,000 shares of the Series G Preferred Stock, which may be
converted into Common Stock on a share-for-share basis at any time.
(5) Massachusetts Mutual Life Insurance Company, MassMutual Corporate
Investors, and MassMutual Participation Investors own 802,752, 229,358 and
114,679 shares of Common Stock of the Company, respectively, which were
converted on October 23, 1995 from $10,500,000, $3,000,000 and $1,500,000,
respectively, of Convertible Subordinated Notes.
(6) Includes 2,300 shares held by custodian for the Conrad A. Plimpton SERP
Trust.
(7) Does not include shares of Common Stock that may be owned directly by Inco
Battery Holdings Corporation ("Inco"). Mr. Fowler, as a former officer of
Inco, shared voting and investment power over any such shares acquired or
granted through June 1993 and disclaims beneficial ownership of such
shares. Mr. Fowler claims sole voting and investment power over 1,250
shares and 2,750 stock options exercisable within 60 days, which were
acquired or granted after June 1993.
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<PAGE> 84
(8) Does not include 595,273 shares of Common Stock which were acquired July 1,
1995 upon conversion of the 5,100 shares of Series D preferred stock and
4,900 shares of Series E preferred stock held by JSB. Mr. Tanaka, as an
officer of JSB, has shared voting and investment power over such shares.
Mr. Tanaka disclaims beneficial ownership of such shares.
(9) Does not include shares of Common Stock owned directly or beneficially by
Inco. Mr. Fowler, as a former officer of Inco, shared voting and investment
power over any such shares acquired or granted through June 1993 and
disclaims beneficial ownership of such shares. Does not include 50,000
shares of Common Stock currently owned by JSB or 595,273 shares of Common
Stock that were acquired upon conversion of 5,100 shares of Series D
preferred stock and 4,900 shares of Series E preferred stock held by JSB.
Mr. Tanaka, as an officer of JSB, has shared voting and investment power
over such shares and disclaims beneficial ownership of such shares.
(10) Does not include Warrants to purchase Common Stock that were acquired in
the Offering.
(11) Does not include an option to purchase 30,000 shares of Common Stock, which
is not exercisable within 60 days.
(12) Does not include an option to purchase 7,500 shares of Common Stock, which
is not exercisable within 60 days.
(13) Does not include an option to purchase 22,500 shares of Common Stock, which
is not exercisable within 60 days.
(14) Does not include an option to purchase 15,000 shares of Common Stock, which
is not exercisable within 60 days.
In connection with the Deltec Acquisition, the Company issued to Fiskars
825,000 shares of Common Stock and 1,000,000 shares of Series G Preferred Stock,
which is convertible at any time into 1,000,000 shares of Common Stock (subject
to adjustment). The Series G Preferred Stock votes (subject to the terms of a
stockholder agreement) on a one-for-one basis with the Common Stock. Assuming
all of the Series G Preferred Stock was converted to Common Stock, as of April
9, 1996, Fiskars would have beneficially owned approximately 16.6% of the
Company's Common Stock. See "Description of Capital Stock--Preferred Stock."
In connection with the Offering, the Company issued 125,000 Warrants to
purchase in the aggregate 643,750 shares of the Company's Common Stock (subject
to adjustment), which represents in the aggregate approximately 5.5% of the
Company's Common Stock on a fully diluted basis, on a pro forma basis after
giving effect to the Deltec Acquisition. The Warrants are exercisable at any
time after the Separation Date (as defined herein).
81
<PAGE> 85
DESCRIPTION OF NEW CREDIT FACILITY
The Company entered into a credit agreement (the "Credit Agreement"), dated
March 13, 1996, with a syndicate of lenders, including Morgan Guaranty Trust
Company of New York, as Administrative Agent (the "Agent"), First Union National
Bank of North Carolina, Bank of America Illinois, NationsBank, N.A., and ABN
AMRO Bank, N.V. (collectively, the "Lenders") for a senior secured credit
facility of up to $175.0 million (the "New Credit Facility"), comprised of a
$50.0 million term loan and a $125.0 million revolving credit facility. Upon
closing of the Offering and the Deltec Acquisition, $50.0 million of the New
Credit Facility was in the form of a term loan, part of the proceeds of which
were used to finance a portion of the purchase price of the Deltec Acquisition.
The remaining $125.0 million of availability under the New Credit Facility as of
the closing of the Offering and the Deltec Acquisition was in the form of a
revolving credit facility, the proceeds of which were used to refinance the
previously existing unsecured credit facility (the "Existing Facility"), to
provide working capital for general corporate purposes, and the issuance of
letters of credit in an aggregate amount at any one time not to exceed $10.0
million. Advances under the revolving credit facility are limited to an amount
not to exceed the sum of (i) 70% of eligible accounts receivables and (ii) 50%
of eligible inventory of the Company and its subsidiaries.
The New Credit Facility is subject to and governed by the Credit Agreement
by and among the Company, the Lenders and certain other obligors.
Both the term portion and the revolver portion of the New Credit Facility
require periodic (not more than quarterly) payments of accrued and unpaid
interest. The Company is permitted to prepay the principal amount of the New
Credit Facility. The Company is obligated to repay during each fiscal year an
aggregate principal amount of the term loan equal to the amount set forth below
opposite each such fiscal year:
<TABLE>
<CAPTION>
FISCAL
YEAR ANNUAL AMOUNT
- -------- -------------
<S> <C>
1996......................................... $ 2,500,000
1997......................................... 6,666,667
1998......................................... 8,333,333
1999......................................... 10,833,333
2000......................................... 14,166,667
2001......................................... 7,500,000
</TABLE>
Any principal amount of the term loan and any amounts due under the revolver
that remain unpaid on the fifth anniversary of the closing of the New Credit
Facility (the "Maturity Date") are required to be repaid in full on the Maturity
Date.
In addition to the scheduled principal payments under the term loan, the
Company is obligated to first repay the term loan and second permanently reduce
commitments under the revolver upon the occurrence of certain events, including
(i) the sale of certain assets by the Company or any of its subsidiaries, (ii)
the incurrence of certain additional debt by the Company or any of its
subsidiaries, (iii) the issuance of any equity securities by the Company or any
of its subsidiaries, or (iv) the receipt of certain casualty insurance proceeds.
The amount required to be repaid varies upon the type of event as follows: (i)
in respect of certain asset sales, 100% of the net cash proceeds thereof in
excess of $1.0 million in any fiscal year, (ii) in respect of the incurrence of
certain additional debt or the receipt of certain casualty insurance proceeds,
100% of the net cash proceeds thereof, (iii) in respect of excess cash flow, 50%
of the amount thereof, and (iv) in respect of the issuance of equity securities,
50% of the net cash proceeds thereof in excess of $200,000 in any fiscal year.
The outstanding principal of the New Credit Facility accrues interest at a
rate per annum equal to either (i) the Prime Rate of interest publicly announced
by the Agent plus the Base Rate Margin, or (ii) the London Interbank Offered
Rate plus the Euro-Dollar Margin. The loans included in each borrowing under the
New Credit Facility bear interest at the type of rate specified by the Company
in the applicable notice of borrowing.
82
<PAGE> 86
The Applicable Leverage Ratio (as that term is defined in the New Credit
Facility) determines the Base Rate Margin and the Euro-Dollar Margin pursuant to
the following pricing schedule:
<TABLE>
<CAPTION>
BASE RATE EURO-DOLLAR COMMITMENT
APPLICABLE LEVERAGE RATIO MARGIN MARGIN FEE RATE
----------------------------------------------------- --------- ----------- ----------
<S> <C> <C> <C>
Less than 2.0........................................ 0.00% 0.75% 0.25 %
Greater than or equal to 2.0 and less than 2.5....... 0.00 1.00 0.375
Greater than or equal to 2.5 and less than 3.0....... 0.50 1.50 0.375
Greater than or equal to 3.0 and less than 3.5....... 1.00 2.00 0.375
Greater than or equal to 3.5 and less than 4.0....... 1.25 2.25 0.5
Greater than or equal to 4.0......................... 1.5 2.5 0.5
</TABLE>
The Company's initial Applicable Leverage Ratio was greater than 4.0.
In addition to the interest charges set forth above, the Company pays to
the Agent (i) for the account of the Lenders a commitment fee on the unused
portion of the revolver at the Commitment Fee Rate set forth in the pricing
schedule to the New Credit Facility, which rate is dependent on the Applicable
Leverage Ratio of the Company, (ii) for the account of the Lenders a letter of
credit fee on the aggregate amount then available for drawing under all letters
of credit at the Letter of Credit Fee Rate set forth in the pricing schedule to
the New Credit Facility, which rate is dependent on the Applicable Leverage
Ratio of the Company, and which rate coincides with the Euro-Dollar Margin, and
(iii) for the account of any issuing Lender a letter of credit fronting fee
accruing on the aggregate amount then available for drawing under all letters of
credit issued by such Lender at a rate per annum equal to 0.25%.
The obligations of the Company under the New Credit Facility are guaranteed
by each domestic subsidiary of the Company. The Company and each such guarantor
are collectively referred to as the Obligors.
The New Credit Facility is secured by a first priority lien in all accounts
receivables and inventory of the Obligors, and the pledge of all of the capital
stock of the Obligors other than the capital stock of certain immaterial
subsidiaries, except that the pledge of the capital stock of each foreign
subsidiary is limited to 66% of the capital stock of such foreign subsidiary. No
foreign subsidiary was required to pledge the capital stock of any foreign
subsidiaries owned by such foreign subsidiary.
The New Credit Agreement contains customary representations, warranties and
events of default and requires the Company to comply with certain affirmative
and negative covenants, including requirements that the Company (i) periodically
deliver certain financial information, (ii) pay and discharge all material
obligations and liabilities, (iii) maintain certain insurance coverages, (iv)
preserve its corporate existence, (v) comply in all material respects with
applicable laws, ordinances, rules and regulations, (vi) not merge or make
certain asset sales, (vii) not permit certain liens to exist on its assets,
(viii) not incur additional debt except as may be permitted under the terms of
the New Credit Facility, (ix) not make capital expenditures in excess of limits
set forth in the New Credit Facility, (x) not declare or make certain dividend
payments and (xi) not make certain investments or consummate certain
acquisitions.
In addition, the Company must comply with a number of financial covenants,
including maintaining specified Minimum Consolidated Net Worth, Fixed Charge
Coverage Ratio, Leverage Ratio and Minimum EBITDA levels (as those terms are
defined in the New Credit Facility) in amounts set forth in the New Credit
Facility. The Company was in compliance with these covenants upon the closing of
the New Credit Facility.
83
<PAGE> 87
DESCRIPTION OF NOTES
GENERAL
The Series B Notes will be issued by the Company pursuant to the Indenture
between the Company and American Bank National Association, as trustee (the
"Trustee"). The Series B Notes will evidence the same indebtedness as the Series
A Notes (which they replace) and will be entitled to the benefits of the
Indenture. The form and terms of the Series B Notes are the same as the form and
terms of the Series A Notes except that (i) the Series B Notes will have been
registered under the Securities Act, and, therefore, the Series B Notes will not
bear legends restricting the transfer thereof and (ii) Holders of the Series B
Notes will not be entitled to certain rights of Holders of the Series A Notes
under the Registration Rights Agreement, which rights will terminate upon the
consummation of the Exchange Offer. The terms of the Notes include those stated
in the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939, as amended (the "Trust Indenture Act"). The Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and the Trust Indenture Act for a statement thereof. The following summary of
certain provisions of the Indenture does not purport to be complete and is
qualified in its entirety by reference to the Indenture, including the
definitions therein of certain terms used below. The definitions of certain
terms used in the following summary are set forth below under "-- Certain
Definitions."
The Notes are general unsecured obligations of the Company, subordinated in
right of payment to all existing and future Senior Debt, and ranking senior in
right of payment to all future subordinated Indebtedness of the Company. The
Company's obligations under the Indenture and the Notes are guaranteed on a
senior subordinated basis (the "Subsidiary Guarantees") by each of the Company's
existing and future domestic Subsidiaries (the "Guarantors"). Each Subsidiary
Guarantee is full, unconditional and made on a joint and several basis with
respect to the other Guarantors. The Subsidiary Guarantees are subordinated to
the guarantees by the Guarantors of Senior Debt. Certain of the Company's
Subsidiaries are foreign Subsidiaries and are not, therefore, Guarantors. See
"Subordination"; "Subsidiary Guarantees" and Note 18 of the Notes to the Exide
Electronics annual consolidated financial statements, Note 6 to the Exide
Electronics Notes to interim consolidated financial statements and Note 13 of
the Notes to the Deltec combined/consolidated financial statements.
The operations of the Company are conducted through its Subsidiaries and,
therefore, the Company is dependent upon the cash flow of its Subsidiaries to
meet its obligations, including its obligations under the Notes. The Notes are
effectively subordinated to all indebtedness and other liabilities and
commitments (including trade payables and lease obligations) of the Company's
Subsidiaries that are not Guarantors. Any right of the Company to receive assets
of any of its Subsidiaries upon the latter's liquidation or reorganization (and
the consequent right of the Holders of the Notes to participate in those assets)
is effectively subordinated to the claims of that Subsidiary's creditors, except
to the extent that the Company is itself recognized as a creditor of such
Subsidiary, in which case the claims of the Company would still be subordinate
to any security in the assets of such Subsidiary and any indebtedness of such
Subsidiary senior to that held by the Company. As of the date of the Indenture,
all of the Company's Subsidiaries were Restricted Subsidiaries. Under certain
circumstances, the Company can designate current or future Subsidiaries as
Unrestricted Subsidiaries. Unrestricted Subsidiaries are not subject to many of
the restrictive covenants set forth in the Indenture and are not Guarantors.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $125.0 million and
will mature on March 15, 2006. Interest on the Notes accrues at the rate of
11 1/2% per annum and is payable semi-annually in arrears on March 15 and
September 15, commencing on September 15, 1996, to Holders of record on the
immediately preceding March 1 and September 1. Interest on the Notes accrues
from the most recent date to which interest has been paid or, if no interest has
been paid, from the date of original issuance. Interest is computed on the basis
of a 360-day year comprised of twelve 30-day months. Principal, premium, if any,
and interest and Liquidated Damages on the Notes are payable at the office or
agency of the Company maintained for such purpose within the City and State of
New York or, at the option of the Company, payment of interest and
84
<PAGE> 88
Liquidated Damages may be made by check mailed to the Holders at their
respective addresses set forth in the register of Holders; provided that all
payments with respect to Notes the Holders of which have given wire transfer
instructions to the Company are required to be made by wire transfer of
immediately available funds to the accounts specified by the Holders thereof.
Until otherwise designated by the Company, the Company's office or agency in New
York is the office of the Trustee maintained for such purpose. The Notes are
issued in denominations of $1,000 and integral multiples thereof.
OPTIONAL REDEMPTION
The Notes are not redeemable at the Company's option prior to March 15,
2001. Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest and Liquidated Damages thereon
to the applicable redemption date, if redeemed during the twelve-month period
beginning on March 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
--------------------------------------------------------------- ----------
<S> <C>
2001........................................................... 105.750%
2002........................................................... 103.833%
2003........................................................... 101.917%
2004 and thereafter............................................ 100.000%
</TABLE>
SELECTION AND NOTICE
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a pro rata basis, by
lot or by such method as the Trustee shall deem fair and appropriate; provided
that no Notes of $1,000 or less shall be redeemed in part. Notices of redemption
shall be mailed by first class mail at least 30 but not more than 60 days before
the redemption date to each Holder of Notes to be redeemed at its registered
address. If any Note is to be redeemed in part only, the notice of redemption
that relates to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. On and after the redemption date, interest
ceases to accrue on Notes or portions of them called for redemption.
MANDATORY REDEMPTION
Except as set forth below under "Repurchase at the Option of Holders," the
Company is not required to make mandatory redemption or sinking fund payments
with respect to the Notes.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder of Notes will have
the right to require the Company to repurchase all or any part (equal to $1,000
or an integral multiple thereof) of such Holder's Notes pursuant to the offer
described below (the "Change of Control Offer") at an offer price in cash equal
to 101% of the aggregate principal amount thereof plus accrued and unpaid
interest and Liquidated Damages thereon to the date of purchase (the "Change of
Control Payment"). Within ten days following any Change of Control, the Company
will mail a notice to each Holder describing the transaction or transactions
that constitute the Change of Control and offering to repurchase Notes pursuant
to the procedures required by the Indenture and described in such notice. The
Company will comply with the requirements of Rule 14e-1 under the Exchange Act
and any other securities laws and regulations thereunder to the extent such laws
and regulations are applicable in connection with the repurchase of the Notes as
a result of a Change of Control.
85
<PAGE> 89
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment all Notes or portions thereof properly tendered
pursuant to the Change of Control Offer, (2) deposit with the Paying Agent an
amount equal to the Change of Control Payment in respect of all Notes or
portions thereof so tendered and (3) deliver or cause to be delivered to the
Trustee the Notes so accepted together with an Officers' Certificate stating the
aggregate principal amount of Notes or portions thereof being purchased by the
Company. The Paying Agent will promptly mail to each Holder of Notes so tendered
the Change of Control Payment for such Notes, and the Trustee will promptly
authenticate and mail (or cause to be transferred by book entry) to each Holder
a new Note equal in principal amount to any unpurchased portion of the Notes
surrendered, if any; provided that each such new Note will be in a principal
amount of $1,000 or an integral multiple thereof. The Indenture provides that,
prior to complying with the provisions of this covenant, but in any event within
90 days following a Change of Control, the Company will either repay all
outstanding Senior Debt or obtain the requisite consents, if any, under all
agreements governing outstanding Senior Debt to permit the repurchase of Notes
required by this covenant. The Company will publicly announce the results of the
Change of Control Offer on or as soon as practicable after the Change of Control
Payment Date.
The Change of Control provisions described above are applicable whether or
not any other provisions of the Indenture are applicable. Except as described
above with respect to a Change of Control, the Indenture does not contain
provisions that permit the Holders of the Notes to require that the Company
repurchase or redeem the Notes in the event of a takeover, recapitalization or
similar transaction.
The New Credit Facility prohibits the Company from purchasing any Notes,
and also provides that certain change of control events with respect to the
Company would constitute a default thereunder. Any future credit agreements or
other agreements relating to Senior Debt to which the Company becomes a party
may contain similar restrictions and provisions. In the event a Change of
Control occurs at a time when the Company is prohibited from purchasing Notes,
the Company could seek the consent of its lenders to the purchase of Notes or
could attempt to refinance the borrowings that contain such prohibition. If the
Company does not obtain such a consent or repay such borrowings, the Company
will remain prohibited from purchasing Notes. In such case, the Company's
failure to purchase tendered Notes would constitute an Event of Default under
the Indenture which would, in turn, constitute a default under the New Credit
Facility. In such circumstances, the subordination provisions in the Indenture
would almost certainly prevent payments to the Holders of Notes.
The Company will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set forth
in the Indenture applicable to a Change of Control Offer made by the Company and
purchases all Notes validly tendered and not withdrawn under such Change of
Control Offer.
"Change of Control" means the occurrence of any of the following: (i) the
sale, lease, transfer, conveyance or other disposition (other than by way of
merger or consolidation), in one or a series of related transactions, of all or
substantially all of the assets of the Company and its Restricted Subsidiaries
taken as a whole to any "person" (as such term is used in Section 13(d)(3) of
the Exchange Act), (ii) the adoption of a plan relating to the liquidation or
dissolution of the Company, (iii) the consummation of any transaction
(including, without limitation, any merger or consolidation) the result of which
is that any "person" (as defined above) becomes the "beneficial owner" (as such
term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly
or indirectly, of more than 50% of the voting stock of the Company, or (iv) the
first day on which a majority of the members of the Board of Directors of the
Company are not Continuing Directors.
The definition of Change of Control includes a phrase relating to the sale,
lease, transfer, conveyance or other disposition of "all or substantially all"
of the assets of the Company and its Subsidiaries taken as a whole. Although
there is a developing body of case law interpreting the phrase "substantially
all," there is no precise established definition of the phrase under applicable
law. Accordingly, the ability of a Holder of Notes to require the Company to
repurchase such Notes as a result of a sale, lease, transfer, conveyance or
other
86
<PAGE> 90
disposition of less than all of the assets of the Company and its Subsidiaries
taken as a whole to another Person or group may be uncertain.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of the Company who (i) was a member of such Board of
Directors on the date of the Indenture or (ii) was nominated for election or
elected to such Board of Directors with the approval of a majority of the
Continuing Directors who were members of such Board at the time of such
nomination or election.
ASSET SALES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, engage in an Asset Sale unless (i) the
Company (or the Restricted Subsidiary, as the case may be) receives
consideration at the time of such Asset Sale at least equal to the fair market
value (evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the Trustee) of the assets or Equity
Interests issued or sold or otherwise disposed of and (ii) at least 75% of the
consideration therefor received by the Company or such Restricted Subsidiary is
in the form of cash; provided that the amount of (x) any liabilities (as shown
on the Company's or such Restricted Subsidiary's most recent balance sheet), of
the Company or any Restricted Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to or pari passu with the Notes
or any guarantee thereof) that are assumed by the transferee of any such assets
pursuant to a customary novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are immediately converted by the Company or such Restricted
Subsidiary into cash (to the extent of the cash received), shall be deemed to be
cash for purposes of this provision.
Within 360 days after the receipt of any Net Proceeds from an Asset Sale,
the Company or such Restricted Subsidiary, as the case may be, may apply such
Net Proceeds, at its option, (a) to permanently reduce Senior Term Debt, (b) to
permanently reduce Senior Revolving Debt (and to correspondingly reduce
commitments with respect thereto), or (c) to the acquisition of a controlling
interest in another business or a division of another Person, the making of a
capital expenditure or the acquisition of other long-term assets, in each case,
in the same or a similar line of business as the Company was engaged in on the
date of the Indenture. Pending the final application of any such Net Proceeds,
the Company may temporarily reduce Senior Revolving Debt or otherwise invest
such Net Proceeds in any manner that is not prohibited by the Indenture. Any Net
Proceeds from Asset Sales that are not applied or invested as provided in the
first sentence of this paragraph will be deemed to constitute "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the Company
will be required to make an offer to all Holders of Notes (an "Asset Sale
Offer") to purchase the maximum principal amount of Notes that may be purchased
out of the Excess Proceeds, at an offer price in cash in an amount equal to 100%
of the principal amount thereof plus accrued and unpaid interest and Liquidated
Damages thereon to the date of purchase, in accordance with the procedures set
forth in the Indenture. To the extent that the aggregate amount of Notes
tendered pursuant to an Asset Sale Offer is less than the Excess Proceeds, the
Company may use any remaining Excess Proceeds for general corporate purposes. If
the aggregate principal amount of Notes surrendered by Holders thereof exceeds
the amount of Excess Proceeds, the Trustee shall select the Notes to be
purchased on a pro rata basis. Upon completion of such offer to purchase, the
amount of Excess Proceeds shall be reset at zero.
SUBORDINATION
The payment of principal of, premium, if any, and interest on the Notes is
subordinated in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Debt, whether outstanding on the date of the
Indenture or thereafter incurred.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property, an
assignment for the benefit of creditors or any marshalling of the Company's
assets and liabilities, the holders of Senior Debt will be entitled to receive
payment in full of all Obligations due in respect of such
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Senior Debt (including interest accruing after the commencement of any such
proceeding at the rate specified in the applicable Senior Debt, whether or not
such interest is allowed as a claim in any such proceeding) before the Holders
will be entitled to receive any payment with respect to the Notes, and until all
Obligations with respect to Senior Debt are paid in full, any distribution to
which the Holders would be entitled shall be made to the holders of Senior Debt
(except that Holders may receive securities that are subordinated at least to
the same extent as the Notes to Senior Debt and any securities issued in
exchange for Senior Debt and distributions from the trust described below under
"-- Legal Defeasance and Covenant Defeasance.").
The Company also may not make any payment upon or in respect of the Notes
(except in such subordinated securities or from the trust described below under
"-- Legal Defeasance and Covenant Defeasance") if (i) a default in the payment
of the principal of, premium, if any, or interest on Designated Senior Debt
occurs and is continuing or (ii) any other default occurs and is continuing with
respect to Designated Senior Debt that permits holders of the Designated Senior
Debt as to which such default relates to accelerate its maturity and the Trustee
receives a notice of such default (a "Payment Blockage Notice") from the Company
or the holders of any Designated Senior Debt. Payments on the Notes may and
shall be resumed (a) in the case of a payment default, upon the date on which
such default is cured or waived and (b) in case of a nonpayment default, the
earlier of the date on which such nonpayment default is cured or waived (unless
another Payment Blockage Notice is then in effect) or 179 days after the date on
which the applicable Payment Blockage Notice is received, unless the maturity of
any Designated Senior Debt has been accelerated. During any consecutive 365-day
period, the aggregate number of days in which payments due on the Notes may not
be made as a result of nonpayment defaults on Designated Senior Debt shall not
exceed 179 days and there shall be a period of at least 186 consecutive days in
each consecutive 365-day period when such payments are not prohibited. If any
holder of Designated Senior Debt delivers a Payment Blockage Notice to the
Trustee in respect of any nonpayment default on such Designated Senior Debt, no
nonpayment default of which such holders or any representative of such holders
was aware that existed or was continuing on the date of delivery of such notice
shall be, or be made, the basis for a subsequent Payment Blockage Notice unless
such default shall have been waived or cured for a period of not less than 90
days. Notwithstanding the foregoing, no subsequent Payment Blockage Notice may
be delivered unless all scheduled payments of principal, premium, if any,
interest and Liquidated Damages on the Notes that have come due have been paid
in full in cash.
The Indenture further requires that the Company promptly notify holders of
Senior Debt if payment of the Notes is accelerated because of an Event of
Default.
As a result of the subordination provisions described above, in the event
of a liquidation or insolvency, Holders may recover less ratably than creditors
of the Company who are holders of Senior Debt. See "Risk
Factors -- Subordination." On a pro forma basis, after giving effect to the
Offering and the application of the proceeds therefrom, the principal amount of
Senior Debt outstanding at December 31, 1995 would have been approximately
$135.2 million. The Indenture limits, subject to certain financial tests, the
amount of additional Indebtedness, including Senior Debt, that the Company and
its subsidiaries can incur. See "-- Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock."
SUBSIDIARY GUARANTEES
The Company's payment obligations under the Notes are fully and
unconditionally guaranteed (the "Subsidiary Guarantees") by the Guarantors on a
joint and several basis. The Subsidiary Guarantee of each Guarantor is
subordinated to the prior payment in full of all Senior Debt of such Guarantor,
which would include approximately $141.8 million of Senior Debt outstanding at
December 31, 1995, and the amounts for which the Guarantors will be liable under
the guarantees issued from time to time with respect to Senior Debt. The
obligations of each Guarantor under its Subsidiary Guarantee are limited so as
not to constitute a fraudulent conveyance under applicable law. See "Risk
Factors -- Fraudulent Conveyance Considerations."
The Indenture provides that no Guarantor may consolidate with or merge with
or into (whether or not such Guarantor is the surviving Person), another
corporation, Person or entity whether or not affiliated with such Guarantor
unless (i) subject to the provisions of the following paragraph, the Person
formed by or
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surviving any such consolidation or merger (if other than such Guarantor)
assumes all the obligations of such Guarantor pursuant to a supplemental
indenture in form and substance reasonably satisfactory to the Trustee, under
the Notes and the Indenture and (ii) immediately after giving effect to such
transaction, no Default or Event of Default exists.
The Indenture provides that in the event of a sale or other disposition of
all or substantially all of the assets of any Guarantor, by way of merger,
consolidation or otherwise, or a sale or other disposition of all of the capital
stock of any Guarantor, then such Guarantor (in the event of a sale or other
disposition, by way of such a merger, consolidation or otherwise, of all of the
capital stock of such Guarantor) or the corporation acquiring the property (in
the event of a sale or other disposition of all or substantially all of the
assets of such Guarantor) will be released and relieved of any obligations under
its Subsidiary Guarantee; provided that the Net Proceeds of such sale or other
disposition are applied in accordance with the applicable provisions of the
Indenture. See "Redemption or Repurchase at Option of Holders -- Asset Sales."
CERTAIN COVENANTS
RESTRICTED PAYMENTS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly: (i) declare or pay
any dividends or make any other payment or distribution on account of the
Company's Equity Interests (including, without limitation, any payment in
connection with any merger or consolidation involving the Company) or to the
direct or indirect holders of the Company's Equity Interests in their capacity
as such (other than dividends or distributions payable in Equity Interests
(other than Disqualified Stock) of the Company or dividends or distributions
payable to the Company or any Restricted Subsidiary of the Company); (ii)
purchase, redeem or otherwise acquire or retire for value any Equity Interests
of the Company or any direct or indirect parent of the Company; (iii) make any
principal payment on, or purchase, redeem, defease or otherwise acquire or
retire for value any Indebtedness that is subordinated to or pari passu with the
Notes, except at the stated final maturity thereof or (iv) make any Restricted
Investment (all such payments and other actions set forth in clauses (i) through
(iv) above being collectively referred to as "Restricted Payments"), unless, at
the time of and after giving effect to such Restricted Payment:
(a) no Default or Event of Default shall have occurred and be
continuing or would occur as a consequence thereof;
(b) the Company would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under caption "-- Incurrence of Indebtedness
and Issuance of Preferred Stock;" and
(c) such Restricted Payment, together with the aggregate of all other
Restricted Payments made by the Company and its Restricted Subsidiaries
after the date of the Indenture (excluding Restricted Payments permitted by
clauses (ii) and (iii) of the next succeeding paragraph), is less than the
sum of (i) 50% of the Consolidated Net Income of the Company for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing after the date of the Indenture to the end of the
Company's most recently ended fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Consolidated Net Income for such period is a deficit, less 100% of
such deficit), plus (ii) 100% of the aggregate net cash proceeds received
by the Company from the issue or sale since the date of the Indenture of
Equity Interests of the Company or of debt securities of the Company that
have been converted into such Equity Interests (other than Equity Interests
(or convertible debt securities) sold to a Subsidiary of the Company and
other than Disqualified Stock or debt securities that have been converted
into Disqualified Stock), plus (iii) to the extent that any Restricted
Investment that was made after the date of the Indenture is sold for cash
or otherwise liquidated or repaid for cash, the lesser of (A) the cash
return of capital with respect to such Restricted
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Investment (less the cost of disposition, if any) and (B) the initial amount of
such Restricted Investment.
If no Default or Event of Default has occurred and is continuing, or would
occur as a consequence thereof, the foregoing provisions will not prohibit:
(i) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the Indenture;
(ii) the defeasance, redemption, repurchase, retirement or other
acquisition of any Equity Interests or subordinated Indebtedness of the
Company in exchange for, or out of the proceeds of, the substantially
concurrent sale (other than to a Restricted Subsidiary of the Company) of
other Equity Interests of the Company (other than any Disqualified Stock);
provided that the amount of any such net proceeds that are utilized for any
such defeasance, redemption, repurchase, retirement or other acquisition
shall be excluded from clause (c) (ii) of the preceding paragraph; and
(iii) the defeasance, redemption or repurchase of subordinated
Indebtedness with the net cash proceeds from an incurrence of Permitted
Refinancing Indebtedness or the substantially concurrent sale (other than
to a Restricted Subsidiary of the Company) of Equity Interests of the
Company (other than Disqualified Stock); provided that the amount of any
such net proceeds that are utilized for any such defeasance, redemption,
repurchase, retirement or other acquisition shall be excluded from clause
(c) (ii) of the preceding paragraph.
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if such designation would not cause a Default. For
purposes of making such determination, all outstanding Investments by the
Company and its Restricted Subsidiaries (except to the extent repaid in cash) in
the Subsidiary so designated will be deemed to be Restricted Payments at the
time of such designation and will reduce the amount available for Restricted
Payments under the first paragraph of this covenant. All such outstanding
Investments will be deemed to constitute Investments in an amount equal to the
greatest of (x) the net book value of such Investments at the time of such
designation, (y) the fair market value of such Investments at the time of such
designation and (z) the original fair market value of such Investments at the
time they were made. Such designation will only be permitted if such Restricted
Payment would be permitted at such time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an Officers' Certificate stating that such Restricted
Payment is permitted and setting forth the basis upon which the calculations
required by the covenant "Restricted Payments" were computed, which calculations
may be based upon the Company's latest available financial statements.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
guaranty or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur") any Indebtedness (including
Acquired Debt) and that the Company will not issue any Disqualified Stock and
will not permit any of its Subsidiaries to issue any shares of preferred stock;
provided, however, that, so long as no Default or Event of Default has occurred
and is continuing, or would occur as a consequence thereof, the Company may
incur Indebtedness (including Acquired Debt) or issue shares of Disqualified
Stock, if the Fixed Charge Coverage Ratio for the Company's most recently ended
four full fiscal quarters for which internal financial statements are available
immediately preceding the date on which such additional Indebtedness is incurred
or such Disqualified Stock is issued would have been at least 2.25 to 1,
determined on a pro forma basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
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The foregoing provisions do not apply to:
(i) the incurrence by the Company of Senior Term Debt (and guarantees
thereof by the Guarantors) in an aggregate principal amount at any time
outstanding not to exceed an amount equal to $50.0 million less the
aggregate amount of all repayments, optional or mandatory, of the principal
of any Senior Term Debt (other than repayments that are reborrowed
immediately or substantially contemporaneously therewith) that have been
made since the date of the Indenture;
(ii) the incurrence by the Company of Senior Revolving Debt and
letters of credit (and guarantees thereof by the Guarantors) in an
aggregate principal amount at any time outstanding (with letters of credit
being deemed to have a principal amount equal to the maximum potential
liability of the Company thereunder) not to exceed an amount equal to
$125.0 million, less the aggregate amount of all Net Proceeds of Asset
Sales applied to permanently reduce the commitments with respect to such
Indebtedness pursuant to the covenant described above under the caption
"-- Asset Sales";
(iii) the incurrence by the Company's Unrestricted Subsidiaries of
Non-Recourse Debt, provided, however, that if any such Indebtedness ceases
to be Non-Recourse Debt of an Unrestricted Subsidiary, such event shall be
deemed to constitute an incurrence of Indebtedness by a Restricted
Subsidiary of the Company;
(iv) the incurrence by the Company and its Subsidiaries of the
Existing Indebtedness;
(v) the incurrence by the Company and the Guarantors of Indebtedness
represented by the Notes and the Subsidiary Guarantees, respectively;
(vi) the incurrence by the Company or any of its Restricted
Subsidiaries of Indebtedness represented by Capital Lease Obligations,
mortgage financings or purchase money obligations, in each case incurred
for the purpose of financing all or any part of the purchase price or cost
of construction or improvement of property, plant or equipment used in the
business of the Company or such Restricted Subsidiary, in an aggregate
principal amount not to exceed $5.0 million at any time outstanding;
(vii) the incurrence by the Company or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to extend, refinance, renew, replace,
defease or refund, Indebtedness that was permitted by the Indenture to be
incurred;
(viii) the incurrence by the Company or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among the Company and
any of its Wholly Owned Restricted Subsidiaries; provided, however, that
(i) if the Company is the obligor on such Indebtedness, such Indebtedness
is expressly subordinate to the payment in full of all Obligations with
respect to the Notes and (ii)(A) any subsequent issuance or transfer of
Equity Interests that results in any such Indebtedness being held by a
Person other than the Company or a Wholly Owned Restricted Subsidiary and
(B) any sale or other transfer of any such Indebtedness to a Person that is
not either the Company or a Wholly Owned Restricted Subsidiary shall be
deemed, in each case, to constitute an incurrence of such Indebtedness by
the Company or such Restricted Subsidiary, as the case may be;
(ix) the incurrence by the Company or any of its Restricted
Subsidiaries of Hedging Obligations that are incurred for the purpose of
fixing or hedging currency exchange or interest rate risk with respect to
any floating rate Indebtedness that is permitted by the terms of the
Indenture to be outstanding;
(x) the incurrence by the Company's foreign Restricted Subsidiaries of
additional Indebtedness in an aggregate principal amount at any time
outstanding not to exceed an amount equal to $50.0 million, less the
aggregate amount of all Existing Indebtedness outstanding at such time, and
Guarantees by the Company and its other Subsidiaries with respect thereto,
provided that the aggregate principal amount of additional Indebtedness
outstanding at any time pursuant to this clause (x) may not exceed $20.0
million unless the Fixed Charge Coverage Ratio for the Company's most
recently ended four full fiscal quarters for which internal financial
statements are available immediately preceding the date on which such
additional Indebtedness is incurred would have been at least 2.25 to 1,
determined on a pro forma basis
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(including a pro forma application of the net proceeds therefrom), as if the
additional Indebtedness had been incurred at the beginning of such four-quarter
period;
(xi) the incurrence by the Company or any Guarantors of Indebtedness
in the form of guarantees of Indebtedness of the Company and its
Subsidiaries permitted to be incurred pursuant to the terms hereof; and
(xii) the incurrence by the Company and its Subsidiaries of
Indebtedness and Guarantees thereof (in addition to Indebtedness permitted
by any other clause of this paragraph) in an aggregate principal amount (or
accreted value, as applicable) at any time outstanding not to exceed the
sum of $20.0 million.
SALE AND LEASEBACK TRANSACTIONS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, enter into any sale and leaseback
transaction; provided that the Company may enter into a sale and leaseback
transaction if (i) the Company could have (a) incurred Indebtedness in an amount
equal to the Attributable Debt relating to such sale and leaseback transaction
pursuant to the covenant described above under the caption "-- Incurrence of
Additional Indebtedness and Issuance of Preferred Stock" and (b) incurred a Lien
to secure such Indebtedness pursuant to the covenant described below under the
caption "--Liens" or (ii) (a) the gross cash proceeds of such sale and leaseback
transaction are at least equal to the fair market value (as determined in good
faith by the Board of Directors and set forth in an Officers' Certificate
delivered to the Trustee) of the property that is the subject of such sale and
leaseback transaction and (b) the transfer of assets in such sale and leaseback
transaction is permitted by, and the Company applies the proceeds of such
transaction in compliance with, the covenant described above under the caption
"-- Asset Sales."
LIMITATION ON LAYERING
The Indenture provides that the Company and the Guarantors will not incur,
create, issue, assume, guarantee or otherwise become liable for any Indebtedness
that is subordinate or junior in right of payment to any Senior Debt and senior
in any respect in right of payment to the Notes or the Subsidiary Guarantees, as
applicable.
LIENS
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or suffer to exist any Lien on any asset now owned or hereafter acquired, or any
income or profits therefrom or assign or convey any right to receive income
therefrom, except Permitted Liens.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, directly or indirectly, create or otherwise
cause or suffer to exist or become effective any encumbrance or restriction on
the ability of any Restricted Subsidiary to (i)(a) pay dividends or make any
other distributions to the Company or any of its Restricted Subsidiaries (1) on
its Capital Stock or (2) with respect to any other interest or participation in,
or measured by, its profits, or (b) pay any indebtedness owed to the Company or
any of its Restricted Subsidiaries, (ii) make loans or advances to the Company
or any of its Restricted Subsidiaries or (iii) transfer any of its properties or
assets to the Company or any of its Restricted Subsidiaries, except for such
encumbrances or restrictions existing under or by reason of (a) Existing
Indebtedness as in effect on the date of the Indenture, (b) the New Credit
Facility as in effect as of the date of the Indenture, and any amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacements or refinancings thereof, provided that such amendments,
modifications, restatements, renewals, increases, supplements, refundings,
replacement or refinancings are no more restrictive with respect to such
dividend and other payment restrictions than those contained in the New Credit
Facility as in effect on the date of the Indenture, (c) the Indenture and the
Notes, (d) applicable law, (e) any instrument
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governing Indebtedness or Capital Stock of a Person acquired by the Company or
any of its Restricted Subsidiaries as in effect at the time of such acquisition
(except to the extent such Indebtedness was incurred in connection with or in
contemplation of such acquisition), which encumbrance or restriction is not
applicable to any Person, or the properties or assets of any Person, other than
the Person, or the property or assets of the Person, so acquired, provided, in
the case of Indebtedness, that such Indebtedness was permitted by the terms of
the Indenture to be incurred, (f) customary non-assignment provisions in leases
entered into in the ordinary course of business and consistent with past
practices, (g) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions of the nature described in clause
(iii) above on the property so acquired, or (h) Permitted Refinancing
Indebtedness, provided that the restrictions contained in the agreements
governing such Permitted Refinancing Indebtedness are no more restrictive than
those contained in the agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION, OR SALE OF ASSETS
The Indenture provides that the Company may not consolidate or merge with
or into (whether or not the Company is the surviving corporation), or sell,
assign, transfer, lease, convey or otherwise dispose of all or substantially all
of its properties or assets in one or more related transactions, to another
corporation, Person or entity unless (i) the Company is the surviving
corporation or the entity or the Person formed by or surviving any such
consolidation or merger (if other than the Company) or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made is a corporation organized or existing under the laws of the United States,
any state thereof or the District of Columbia; (ii) the entity or Person formed
by or surviving any such consolidation or merger (if other than the Company) or
the entity or Person to which such sale, assignment, transfer, lease, conveyance
or other disposition shall have been made assumes all the obligations of the
Company under the Notes and the Indenture pursuant to a supplemental indenture
in a form reasonably satisfactory to the Trustee; (iii) immediately after such
transaction no Default or Event of Default exists; and (iv) except in the case
of a merger of the Company with or into a Wholly Owned Restricted Subsidiary of
the Company, the Company or the entity or Person formed by or surviving any such
consolidation or merger (if other than the Company), or to which such sale,
assignment, transfer, lease, conveyance or other disposition shall have been
made (A) will have Consolidated Net Worth (immediately after the transaction
equal to or greater than the Consolidated Net Worth of the Company immediately
preceding the transaction) and (B) will, at the time of such transaction and
after giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to the Fixed Charge Coverage Ratio
test set forth in the first paragraph of the covenant described above under the
caption "-- Incurrence of Indebtedness and Issuance of Preferred Stock."
TRANSACTIONS WITH AFFILIATES
The Indenture provides that the Company will not, and will not permit any
of its Restricted Subsidiaries to, make any payment to, or sell, lease, transfer
or otherwise dispose of any of its properties or assets to, or purchase any
property or assets from, or enter into or make or amend any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), unless (i) such
Affiliate Transaction is on terms that are no less favorable to the Company or
the relevant Restricted Subsidiary than those that would have been obtained in a
comparable transaction by the Company or such Restricted Subsidiary with an
unrelated Person and (ii) the Company delivers to the Trustee (a) with respect
to any Affiliate Transaction or series of related Affiliate Transactions
involving aggregate consideration in excess of $1.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (i) above and that such Affiliate
Transaction has been approved by a majority of the disinterested members of the
Board of Directors and (b) with respect to any Affiliate Transaction or series
of related Affiliate Transactions involving aggregate consideration in excess of
$5.0 million, an opinion as to the fairness to the Holders of such Affiliate
Transaction from a financial point of view issued by an accounting, appraisal or
investment banking firm of national standing with total assets in excess of $1.0
billion; provided that (x) any employment agreement entered into by the Company
or any of its Restricted Subsidiaries in the ordinary course of business and
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consistent with the past practice of the Company or such Restricted Subsidiary,
(y) transactions between or among the Company and/or its Restricted Subsidiaries
and (z) Restricted Payments and Permitted Investments that are permitted by the
provisions of the Indenture described above under the caption "-- Restricted
Payments," in each case, shall not be deemed Affiliate Transactions.
ADDITIONAL SUBSIDIARY GUARANTEES
The Indenture provides that if (i) the Company shall acquire or create
another domestic Subsidiary after the date of the Indenture or (ii) any
Subsidiary that is not a Guarantor shall Guarantee any Senior Debt, then such
Subsidiary shall execute a Subsidiary Guarantee and deliver an opinion of
counsel, in accordance with the terms of the Indenture.
LIMITATION ON ISSUANCES AND SALES OF CAPITAL STOCK OF WHOLLY OWNED
SUBSIDIARIES
The Indenture provides that the Company (i) will not, and will not permit
any Wholly Owned Restricted Subsidiary of the Company to, transfer, convey,
sell, lease or otherwise dispose of any Capital Stock of any Wholly Owned
Restricted Subsidiary of the Company to any Person (other than the Company or a
Wholly Owned Restricted Subsidiary of the Company), unless (a) such transfer,
conveyance, sale, lease or other disposition is of all the Capital Stock of such
Wholly Owned Restricted Subsidiary and (b) the cash Net Proceeds from such
transfer, conveyance, sale, lease or other disposition are applied in accordance
with the covenant described above under the caption "-- Asset Sales," and (ii)
will not permit any Wholly Owned Restricted Subsidiary of the Company to issue
any of its Equity Interests (other than, if necessary, shares of its Capital
Stock constituting directors' qualifying shares) to any Person other than to the
Company or a Wholly Owned Restricted Subsidiary of the Company.
REPORTS
The Indenture provides that, whether or not required by the rules and
regulations of the Securities and Exchange Commission (the "Commission"), so
long as any Notes are outstanding, the Company will, or will cause the Trustee
to, furnish to the Holders of Notes (i) all quarterly and annual financial
information that would be required to be contained in a filing with the
Commission on Forms 10-Q and 10-K if the Company were required to file such
Forms, including a "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and, with respect to the annual information only, a
report thereon by the Company's certified independent accountants and (ii) all
current reports that would be required to be filed with the Commission on Form
8-K if the Company were required to file such reports. In addition, whether or
not required by the rules and regulations of the Commission, at any time after
the Company files the Exchange Offer Registration Statement, the Company will
file a copy of all such information and reports with the Commission for public
availability (unless the Commission will not accept such a filing) and make such
information available to securities analysts and prospective investors upon
request. In addition, the Company and the Guarantors have agreed that, for so
long as any Notes remain outstanding they will furnish to the Holders and to
securities analysts and prospective investors, upon their request, the
information required to be delivered pursuant to Rule 144A(d)(4) under the
Securities Act.
EVENTS OF DEFAULT AND REMEDIES
The Indenture provides that each of the following constitutes an Event of
Default: (i) default for 30 days in the payment when due of interest on, or
Liquidated Damages with respect to, the Notes (whether or not prohibited by the
subordination provisions of the Indenture); (ii) default in payment when due of
the principal of or premium, if any, on the Notes (whether or not prohibited by
the subordination provisions of the Indenture); (iii) failure by the Company to
comply with the provisions described under the captions "-- Change of Control,"
"-- Asset Sales," "-- Restricted Payments," "-- Incurrence of Indebtedness and
Issuance of Preferred Stock," "-- Limitation on Layering" or "-- Merger,
Consolidation or Sale of Assets"; (iv) failure by the Company for 60 days after
notice from the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then outstanding to comply with any of its other agreements
in the Indenture or the Notes; (v) default under any mortgage, indenture or
instrument under which there may be
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issued or by which there may be secured or evidenced any Indebtedness for money
borrowed by the Company or any of its Restricted Subsidiaries (or the payment of
which is guaranteed by the Company or any of its Restricted Subsidiaries)
whether such Indebtedness or guarantee now exists or is created after the date
of the Indenture, if (A) such default results in the acceleration of such
Indebtedness prior to its express maturity or constitutes a default in the
payment of such Indebtedness at final maturity of such Indebtedness and (B) the
principal amount of any such Indebtedness that has been accelerated or not paid
at maturity, when added to the aggregate principal amount of all other such
Indebtedness, at such time, that has been accelerated or not paid at maturity
that has not theretofore been paid, exceeds $10.0 million; (vi) failure by the
Company or any of its Significant Subsidiaries to pay final judgments
aggregating in excess of $10.0 million, which judgments are not paid, discharged
or stayed for a period of 60 days; (vii) certain events of bankruptcy or
insolvency with respect to the Company or any of its Significant Subsidiaries;
and (viii) except as permitted by the Indenture, any Subsidiary Guarantee shall
be held in any judicial proceeding to be unenforceable or invalid or shall cease
for any reason to be in full force and effect or any Guarantor, or any Person
acting on behalf of any Guarantor, shall deny or disaffirm its obligations under
its Subsidiary Guarantee.
If any Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the then outstanding Notes may
declare all the Notes to be due and payable immediately provided that if any
Senior Term Debt or Senior Revolving Debt is outstanding upon a declaration or
acceleration of the Notes, the principal and interest on the Notes will not be
payable until the earlier of (1) the day which is five business days after the
notice of acceleration is given to the Company and the Agent under the New
Credit Facility or (2) the date of acceleration of the Senior Term Debt or
Senior Revolving Debt. Notwithstanding the foregoing, in the case of an Event of
Default arising from certain events of bankruptcy or insolvency with respect to
the Company, all outstanding Notes will become due and payable without further
action or notice. Holders of the Notes may not enforce the Indenture or the
Notes except as provided in the Indenture. Subject to certain limitations,
Holders of a majority in principal amount of the then outstanding Notes may
direct the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of the Notes notice of any continuing Default or Event of
Default (except a Default or Event of Default relating to the payment of
principal or interest) if it determines that withholding notice is in their
interest.
In the case of any Event of Default occurring by reason of any willful
action (or inaction) taken (or not taken) by or on behalf of the Company with
the intention of avoiding payment of the premium that the Company would have had
to pay if the Company then had elected to redeem the Notes pursuant to the
optional redemption provisions of the Indenture, an equivalent premium shall
also become and be immediately due and payable to the extent permitted by law
upon the acceleration of the Notes. If an Event of Default occurs prior to March
15, 2001 by reason of any willful action (or inaction) taken (or not taken) by
or on behalf of the Company with the intention of avoiding the prohibition on
redemption of the Notes prior to March 15, 2001, then the premium specified in
the Indenture shall also become immediately due and payable to the extent
permitted by law upon the acceleration of the Notes.
The Holders of a majority in aggregate principal amount of the Notes then
outstanding by notice to the Trustee may on behalf of the Holders of all of the
Notes waive any existing Default or Event of Default and its consequences under
the Indenture except a continuing Default or Event of Default in the payment of
interest on, or the principal of, the Notes.
The Company is required to deliver to the Trustee annually a statement
regarding compliance with the Indenture, and the Company is required upon
becoming aware of any Default or Event of Default, to deliver to the Trustee a
statement specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No past, present or future director, officer, employee, incorporator or
stockholder of the Company, as such, shall have any liability for any
obligations of the Company under the Notes, the Indenture or for any claim based
on, in respect of, or by reason of, such obligations or their creation. Each
Holder of Notes by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for
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issuance of the Notes. Such waiver may not be effective to waive liabilities
under the federal securities laws and it is the view of the Commission that such
a waiver is against public policy.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have all of its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance") except for (i) the rights of Holders of outstanding Notes to
receive payments in respect of the principal of, premium, if any, and interest
and Liquidated Damages on such Notes when such payments are due from the trust
referred to below, (ii) the Company's obligations with respect to the Notes
concerning issuing temporary Notes, registration of Notes, mutilated, destroyed,
lost or stolen Notes and the maintenance of an office or agency for payment and
money for security payments held in trust, (iii) the rights, powers, trusts,
duties and immunities of the Trustee, and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "Events of Default" will
no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders of the Notes, cash in U.S. dollars, non-callable Government
Securities, or a combination thereof, in such amounts as will be sufficient, in
the opinion of a nationally recognized firm of independent public accountants,
to pay the principal of, premium, if any, and interest and Liquidated Damages on
the outstanding Notes on the stated maturity or on the applicable redemption
date, as the case may be, and the Company must specify whether the Notes are
being defeased to maturity or to a particular redemption date; (ii) in the case
of Legal Defeasance, the Company shall have delivered to the Trustee an opinion
of counsel in the United States reasonably acceptable to the Trustee confirming
that (A) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling or (B) since the date of the Indenture, there
has been a change in the applicable federal income tax law, in either case to
the effect that, and based thereon such opinion of counsel shall confirm that,
the Holders of the outstanding Notes will not recognize income, gain or loss for
federal income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such Legal Defeasance had not
occurred; (iii) in the case of Covenant Defeasance, the Company shall have
delivered to the Trustee an opinion of counsel in the United States reasonably
acceptable to the Trustee confirming that the Holders of the outstanding Notes
will not recognize income, gain or loss for federal income tax purposes as a
result of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have been
the case if such Covenant Defeasance had not occurred; (iv) no Default or Event
of Default shall have occurred and be continuing on the date of such deposit
(other than a Default or Event of Default resulting from the borrowing of funds
to be applied to such deposit) or insofar as Events of Default from bankruptcy
or insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
will not result in a breach or violation of, or constitute a default under any
material agreement or instrument (other than the Indenture) to which the Company
or any of its Subsidiaries is a party or by which the Company or any of its
Subsidiaries is bound; (vi) the Company must have delivered to the Trustee an
opinion of counsel to the effect that after the 91st day following the deposit,
the trust funds will not be subject to the effect of any applicable bankruptcy,
insolvency, reorganization or similar laws affecting creditors' rights
generally; (vii) the Company must deliver to the Trustee an Officers'
Certificate stating that the deposit was not made by the Company with the intent
of preferring the Holders of Notes over the other creditors of the Company with
the intent of defeating, hindering, delaying or defrauding creditors of the
Company or others; and (viii) the Company must deliver to the Trustee an
Officers' Certificate and an opinion of counsel, each stating that all
conditions precedent provided for or relating to the Legal Defeasance or the
Covenant Defeasance have been complied with.
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TRANSFER AND EXCHANGE
A Holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a Holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
for redemption. Also, the Company is not required to transfer or exchange any
Note for a period of 15 days before a selection of Notes to be redeemed.
The registered Holder of a Note will be treated as the owner of it for all
purposes.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the Indenture or
the Notes may be amended or supplemented with the consent of the Holders of at
least a majority in principal amount of the Notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, Notes), and any existing default or
compliance with any provision of the Indenture or the Notes may be waived with
the consent of the Holders of a majority in principal amount of the then
outstanding Notes (including consents obtained in connection with a purchase of,
or tender offer or exchange offer for, Notes).
Without the consent of each Holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting Holder): (i) reduce the
principal amount of Notes whose Holders must consent to an amendment, supplement
or waiver, (ii) reduce the principal of or change the fixed maturity of any Note
or alter the provisions with respect to the redemption of the Notes (other than
provisions relating to the covenants described above under the caption
"-- Repurchase at the Option of Holders"), (iii) reduce the rate of or change
the time for payment of interest on any Note, (iv) waive a Default or Event of
Default in the payment of principal of or premium, if any, or interest on the
Notes (except a rescission of acceleration of the Notes by the Holders of at
least a majority in aggregate principal amount of the Notes and a waiver of the
payment default that resulted from such acceleration), (v) make any Note payable
in money other than that stated in the Notes, (vi) make any change in the
provisions of the Indenture relating to waivers of past Defaults or the rights
of Holders of Notes to receive payments of principal of or premium, if any, or
interest on the Notes, (vii) waive a redemption payment with respect to any Note
(other than a payment required by one of the covenants described above under the
caption "-- Repurchase at the Option of Holders") or (viii) make any change in
the foregoing amendment and waiver provisions. In addition, any amendment to the
provisions of Article 10 of the Indenture (which relate to subordination) will
require the consent of the Holders of at least 75% in aggregate principal amount
of the Notes then outstanding if such amendment would adversely affect the
rights of Holders of Notes.
Notwithstanding the foregoing, without the consent of any Holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to Holders of Notes in the case of a
merger or consolidation, to make any change that would provide any additional
rights or benefits to the Holders of Notes or that does not adversely affect the
legal rights under the Indenture of any such Holder, or to comply with
requirements of the Commission in order to effect or maintain the qualification
of the Indenture under the Trust Indenture Act.
CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; however, if it acquires any conflicting interest it must eliminate
such conflict within 90 days, apply to the Commission for permission to continue
or resign.
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The Holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
shall occur (which shall not be cured), the Trustee will be required, in the
exercise of its power, to use the degree of care of a prudent man in the conduct
of his own affairs. Subject to such provisions, the Trustee will be under no
obligation to exercise any of its rights or powers under the Indenture at the
request of any Holder of Notes, unless such Holder shall have offered to the
Trustee security and indemnity satisfactory to it against any loss, liability or
expense.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full disclosure of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or became a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a Lien
encumbering any asset acquired by such specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; provided that
beneficial ownership of 10% or more of the voting securities of a Person shall
be deemed to be control.
"Asset Sale" means (i) the sale, lease, conveyance or other disposition of
any assets (including, without limitation, by way of a sale and leaseback) other
than in the ordinary course of business consistent with past practices (provided
that the sale, lease, conveyance or other disposition of all or substantially
all of the assets of the Company and its Subsidiaries taken as a whole will be
governed by the provisions of the Indenture described above under the caption
"-- Change of Control" and/or the provisions described above under the caption
"-- Merger, Consolidation or Sale of Assets" and not by the provisions of the
Asset Sale covenant), and (ii) the issue or sale by the Company or any of its
Subsidiaries of Equity Interests of any of the Company's Subsidiaries, in the
case of either clause (i) or (ii), whether in a single transaction or a series
of related transactions (a) that have a fair market value in excess of $1.0
million or (b) for net proceeds in excess of $1.0 million. Notwithstanding the
foregoing: (i) a transfer of assets by the Company to a Restricted Subsidiary or
by a Restricted Subsidiary to the Company or to another Restricted Subsidiary,
(ii) an issuance of Equity Interests by a Wholly Owned Subsidiary to the Company
or to another Wholly Owned Subsidiary, (iii) a Restricted Payment that is
permitted by the covenant described above under the caption "-- Restricted
Payments" and (iv) the sale of accounts receivable for cash will not be deemed
to be Asset Sales.
"Attributable Debt" in respect of a sale and leaseback transaction means,
at the time of determination, the present value (discounted at the rate of
interest implicit in such transaction, determined in accordance with GAAP) of
the obligation of the lessee for net rental payments during the remaining term
of the lease included in such sale and leaseback transaction (including any
period for which such lease has been extended or may, at the option of the
lessor, be extended).
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" means (i) in the case of a corporation, corporate stock,
(ii) in the case of an association or business entity, any and all shares,
interests, participations, rights or other equivalents (however designated)
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of corporate stock, (iii) in the case of a partnership, partnership interests
(whether general or limited) and (iv) any other interest or participation that
confers on a Person the right to receive a share of the profits and losses of,
or distributions of assets of, the issuing Person.
"Cash Equivalents" means (i) securities issued or unconditionally
guaranteed by the United States of America or any agency or instrumentality
thereof, backed by the full faith and credit of the United States of America and
maturing within one year from the date of acquisition, (ii) securities issued by
any state of the United States of America or any political subdivision or public
instrumentality thereof, maturing within one year from the date of acquisition
and, at the time of acquisition, having a rating of at least A- by Standard &
Poor's Corporation or the equivalent by Moody's Investors Service, Inc., (iii)
commercial paper issued by any Person organized under the laws of the United
States of America, maturing no more than one year from the date of acquisition
and, at the time of acquisition, having a rating of at least A-1 or the
equivalent thereof by Standard & Poor's Corporation or at least P-1 or the
equivalent thereof by Moody's Investors Service, Inc., (iv) time deposits and
certificates of deposit that are insured by the Federal Deposit Insurance
Corporation (the "FDIC") or any successor instrumentality of the government of
the United States of America up to the applicable limit on insurance granted by
the FDIC or such other instrumentality with respect to such instruments (it
being understood that the amount invested in such instrument may not exceed the
limit on such insurance), maturing within one year from the date of issuance and
issued by a bank or trust company organized under the laws of the United States
of America or any state thereof and having combined capital and surplus of at
least $500,000,000, (v) repurchase obligations with a term not exceeding seven
(7) days with respect to underlying securities of the types described in clause
(i) above entered into with any bank or trust company meeting the qualifications
specified in clause (iv) above and (vi) money market funds substantially all of
whose assets are comprised of securities of the types described in clauses (i)
through (v) above.
"Consolidated Cash Flow" means, with respect to any Person for any period,
the Consolidated Net Income of such Person for such period plus (i) an amount
equal to any extraordinary loss plus any net loss (a) realized in connection
with an Asset Sale (to the extent such losses were deducted in computing such
Consolidated Net Income) or (b) the disposition of any securities by such Person
or any of its Restricted Subsidiaries or the extinguishment of any Indebtedness
of such Person or any of its Restricted Subsidiaries, plus (ii) provision for
taxes based on income or profits of such Person and its Subsidiaries for such
period, to the extent that such provision for taxes was included in computing
such Consolidated Net Income, plus (iii) consolidated interest expense of such
Person and its Subsidiaries for such period, whether paid or accrued and whether
or not capitalized (including, without limitation, amortization of original
issue discount, non-cash interest payments, the interest component of any
deferred payment obligations, the interest component of all payments associated
with Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect of
letter of credit or bankers' acceptance financings, and net payments (if any)
pursuant to Hedging Obligations), to the extent that any such expense was
deducted in computing such Consolidated Net Income, plus (iv) depreciation,
amortization (including amortization of goodwill and other intangibles but
excluding amortization of prepaid cash expenses that were paid in a prior
period) and other non-cash charges (excluding any such non-cash charge to the
extent that it represents an accrual of or reserve for cash charges in any
future period or amortization of a prepaid cash expense that was paid in a prior
period) of such Person and its Subsidiaries for such period to the extent that
such depreciation, amortization and other non-cash charges were deducted in
computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization and other non-cash charges of, a Subsidiary of the referent Person
shall be added to Consolidated Net Income to compute Consolidated Cash Flow only
to the extent (and in same proportion) that the Net Income of such Subsidiary
was included in calculating the Consolidated Net Income of such Person and only
if a corresponding amount would be permitted at the date of determination to be
dividended to the Company by such Subsidiary without prior governmental approval
(that has not been obtained), and without direct or indirect restriction
pursuant to the terms of its charter and all agreements, instruments, judgments,
decrees, orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders. Notwithstanding the foregoing, the provision for
taxes based on the income or profits of, and the depreciation and amortization
and other non-cash charges of, a Subsidiary of a Person shall be added to
Consolidated Net
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Income to compute Consolidated Cash Flow only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only if a corresponding amount
would be permitted at the date of determination to be dividended to the Company
by such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Restricted Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent of the amount of dividends or
distributions paid in cash to the referent Person or a Wholly Owned Restricted
Subsidiary thereof, (ii) the Net Income of any Restricted Subsidiary shall be
excluded to the extent that the declaration or payment of dividends or similar
distributions by that Restricted Subsidiary of that Net Income is not at the
date of determination permitted without any prior governmental approval (that
has not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Restricted Subsidiary or its
stockholders, (iii) the Net Income of any Person acquired in a pooling of
interests transaction for any period prior to the date of such acquisition shall
be excluded, (iv) the cumulative effect of a change in accounting principles
shall be excluded and (v) the Net Income of any Unrestricted Subsidiary shall be
excluded, whether or not distributed to the Company or one of its Subsidiaries.
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Stock) that by its terms
is not entitled to the payment of dividends unless such dividends may be
declared and paid only out of net earnings in respect of the year of such
declaration and payment, but only to the extent of any cash received by such
Person upon issuance of such preferred stock, less (x) all write-ups (other than
write-ups resulting from foreign currency translations and write-ups of tangible
assets of a going concern business made within 12 months after the acquisition
of such business) subsequent to the date of the Indenture in the book value of
any asset owned by such Person or a consolidated Subsidiary of such Person, and
(y) all investments as of such date in unconsolidated Subsidiaries and in
Persons that are not Subsidiaries (except, in each case, Permitted Investments
and Investments made prior to the date of the Indenture).
"Default" means any event that is or with the passage of time or the giving
of notice or both would be an Event of Default.
"Designated Senior Debt" means (i) the Senior Term Debt, (ii) the Senior
Revolving Debt and (iii) any other Senior Debt permitted hereunder the principal
amount of which is $25 million or more and that has been designated by the
Company as "Designated Senior Debt."
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable at
the option of the Holder thereof, in whole or in part, on or prior to the date
that the Notes mature.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means up to $10.0 million in aggregate principal
amount of Indebtedness of the Company and its Subsidiaries (other than
Indebtedness under the New Credit Facility) in existence on the date of the
Indenture, until such amounts are repaid.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest payments,
the interest
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component of any deferred payment obligations, the interest component of all
payments associated with Capital Lease Obligations, imputed interest with
respect to Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings, and
net payments (if any) pursuant to Hedging Obligations) and (ii) the consolidated
interest expense of such Person and its Restricted Subsidiaries that was
capitalized during such period, and (iii) without duplication, any interest
expense on Indebtedness of another Person that is Guaranteed by such Person or
one of its Restricted Subsidiaries or secured by a Lien on assets of such Person
or one of its Restricted Subsidiaries (whether or not such Guarantee or Lien is
called upon) and (iv) the product of (a) all cash dividend payments (and
non-cash dividend payments in the case of a Person that is a Subsidiary) on any
series of preferred stock of such Person, times (b) a fraction, the numerator of
which is one and the denominator of which is one minus the then current combined
federal, state and local statutory tax rate of such Person, expressed as a
decimal, in each case, on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any Person for any
period, the ratio of the Consolidated Cash Flow of such Person and its
Restricted Subsidiaries for such period to the Fixed Charges of such Person and
its Restricted Subsidiaries for such period. In the event that the Company or
any of its Restricted Subsidiaries incurs, assumes, Guarantees or redeems any
Indebtedness (other than revolving credit borrowings) or issues preferred stock
subsequent to the commencement of the period for which the Fixed Charge Coverage
Ratio is being calculated but prior to the date on which the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
then the Fixed Charge Coverage Ratio shall be calculated giving pro forma effect
to such incurrence, assumption, Guarantee or redemption of Indebtedness, or such
issuance or redemption of preferred stock, as if the same had occurred at the
beginning of the applicable four-quarter reference period. In addition, for
purposes of making the computation referred to above, (i) acquisitions that have
been made by the Company or any of its Restricted Subsidiaries, including
through mergers or consolidations and including any related financing
transactions, during the four-quarter reference period or subsequent to such
reference period and on or prior to the Calculation Date shall be deemed to have
occurred on the first day of the four-quarter reference period and Consolidated
Cash Flow for such reference period shall be calculated without giving effect to
clause (iii) of the proviso set forth in the definition of Consolidated Net
Income, and (ii) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or businesses
disposed of prior to the Calculation Date, shall be excluded, and (iii) the
Fixed Charges attributable to discontinued operations, as determined in
accordance with GAAP, and operations or businesses disposed of prior to the
Calculation Date, shall be excluded, but only to the extent that the obligations
giving rise to such Fixed Charges will not be obligations of the referent Person
or any of its Restricted Subsidiaries following the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect on the date of the Indenture.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"Guarantors" means each of (i) Exide Electronics Corporation, Exide
Electronics International Corp., International Power Machines Corporation,
Lectro Products, Inc., Deltec Power Systems, Inc., DataTrax Acquisition
Corporation, Exide Electronics USA Holdings Corp., Deltec Electronics Corp. and
Lortec Power Systems, Inc. and (ii) any other Subsidiary that executes a
Subsidiary Guarantee in accordance with the provisions of the Indenture, and
their respective successors and assigns.
"Hedging Obligations" means, with respect to any Person, the obligations of
such Person under (i) currency exchange or interest rate swap agreements,
currency exchange or interest rate cap agreements and currency exchange or
interest rate collar agreements and (ii) other agreements or arrangements
designed to protect such Person against fluctuations in currency exchange rates
or interest rates.
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"Indebtedness" means, with respect to any Person, any indebtedness of such
Person, whether or not contingent, in respect of borrowed money or evidenced by
bonds, notes, debentures or similar instruments or letters of credit (or
reimbursement agreements in respect thereof) or banker's acceptances or
representing Capital Lease Obligations or the balance deferred and unpaid of the
purchase price of any property or representing any Hedging Obligations, except
any such balance that constitutes an accrued expense or trade payable, if and to
the extent any of the foregoing indebtedness (other than letters of credit and
Hedging Obligations) would appear as a liability upon a balance sheet of such
Person prepared in accordance with GAAP, as well as all Indebtedness of others
secured by a Lien on any asset of such Person (whether or not such Indebtedness
is assumed by such Person) and, to the extent not otherwise included, the
Guarantee by such Person of any indebtedness of any other Person.
"Investments" means, with respect to any Person, all investments by such
Person in other Persons (including Affiliates) in the forms of direct or
indirect loans (including guarantees of Indebtedness or other obligations),
advances or capital contributions (excluding commission, travel and similar
advances to officers and employees made in the ordinary course of business),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, together with all items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP;
provided that an acquisition of assets, Equity Interests or other securities by
the Company for consideration consisting of common equity securities of the
Company shall not be deemed to be an Investment. If the Company or any
Subsidiary of the Company sells or otherwise disposes of any Equity Interests of
any direct or indirect Subsidiary of the Company such that, after giving effect
to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Equity Interests of such
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Equity
Interests of such Subsidiary not sold or disposed of.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law
(including any conditional sale or other title retention agreement, any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction other
than financial statements filed in respect of arrangements purporting to be true
leases).
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with (a) any Asset Sale (including, without
limitation, dispositions pursuant to sale and leaseback transactions) or (b) the
disposition of any securities by such Person or any of its Restricted
Subsidiaries or the extinguishment of any Indebtedness of such Person or any of
its Restricted Subsidiaries and (ii) any extraordinary or nonrecurring gain (but
not loss), together with any related provision for taxes on such extraordinary
or nonrecurring gain (but not loss).
"Net Proceeds" means the aggregate cash proceeds received by the Company or
any of its Restricted Subsidiaries in respect of any Asset Sale (including,
without limitation, any cash received upon the sale or other disposition of any
non-cash consideration received in any Asset Sale), net of the direct costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees, and sales commissions) and any relocation expenses
incurred as a result thereof, taxes paid or payable as a result thereof (after
taking into account any available tax credits or deductions and any tax sharing
arrangements), and any reserve for adjustment in respect of the sale price of
such asset or assets established in accordance with GAAP.
"New Credit Facility" means that certain credit facility, dated as of March
13, 1996, by and among the Company, the Guarantors, as guarantors, Bank of
America Illinois, as documentation agent and Morgan Guaranty Trust Company of
New York, as agent bank, in the amount of $175.0 million, which provides for (i)
$50.0 million in term loan borrowings and (ii) up to $125.0 million of revolving
credit borrowings, including any related notes, guarantees, collateral
documents, instruments and agreements executed in
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connection therewith, and in each case as amended, modified, renewed, refunded,
replaced or refinanced from time to time.
"Non-Recourse Debt" means Indebtedness (i) as to which neither the Company
nor any of its Restricted Subsidiaries (a) provides credit support of any kind
(including any undertaking, agreement or instrument that would constitute
Indebtedness), (b) is directly or indirectly liable (as a guarantor or
otherwise), or (c) constitutes the lender; and (ii) no default with respect to
which (including any rights that the holders thereof may have to take
enforcement action against an Unrestricted Subsidiary) would permit (upon
notice, lapse of time or both) any holder of any other Indebtedness (other than
the Notes being offered hereby) of the Company or any of its Restricted
Subsidiaries to declare a default on such other Indebtedness or cause the
payment thereof to be accelerated or payable prior to its stated maturity; and
(iii) as to which the lenders have been notified in writing that they will not
have any recourse to the stock or assets of the Company or any of its Restricted
Subsidiaries.
"Obligations" means any obligation under the documentation governing any
Indebtedness, including without limitation, principal, premium, interest
(including post-petition interest thereon in any proceeding under Bankruptcy
Law), penalties, fees, indemnifications, reimbursements, damages, expenses
(including post-petition expenses in any proceeding under Bankruptcy Law) and
other liabilities payable thereunder (including, without limitation, letter of
credit reimbursement obligations, whether contingent or absolute).
"Permitted Investments" means (a) any Investment in the Company or in a
Restricted Subsidiary of the Company; (b) any Investment in Cash Equivalents;
(c) Investments by the Company or any Subsidiary of the Company in a Person, if
as a result of such Investment (i) such Person becomes a Wholly Owned Restricted
Subsidiary of the Company or (ii) such Person is merged, consolidated or
amalgamated with or into, or transfers or conveys substantially all of its
assets to, or is liquidated into, the Company or a Wholly Owned Restricted
Subsidiary of the Company; (d) any Restricted Investment made as a result of the
receipt of non-cash consideration from an Asset Sale that was made pursuant to
and in compliance with the covenant described above under the caption
"-- Repurchase at the Option of Holders -- Asset Sales"; and (e) other
Investments in any Person having an aggregate fair market value (measured on the
date each such Investment was made and without giving effect to subsequent
changes in value), when taken together with all other Investments made pursuant
to this clause (e) that are at the time outstanding, not to exceed $10.0
million.
"Permitted Liens" means (i) Liens on assets of the Company and its
Restricted Subsidiaries securing Senior Debt that is permitted by the terms of
the Indenture to be incurred and outstanding; (ii) Liens in favor of the
Company; (iii) Liens on property of a Person existing at the time such Person is
merged into or consolidated with the Company or any Subsidiary of the Company;
provided that such Liens were in existence prior to the contemplation of such
merger or consolidation and do not extend to any assets other than those of the
Person merged into or consolidated with the Company; (iv) Liens on property
existing at the time of acquisition thereof by the Company or any Subsidiary of
the Company, provided that such Liens were in existence prior to the
contemplation of such acquisition; (v) Liens to secure the performance of
statutory obligations, surety or appeal bonds, performance bonds or other
obligations of a like nature incurred in the ordinary course of business; (vi)
Liens to secure Indebtedness (including Capital Lease Obligations) permitted by
clauses (vi), (ix), (x) and (xii) of the second paragraph of the covenant
entitled "Incurrence of Indebtedness and Issuance of Preferred Stock" covering
only the assets acquired with such Indebtedness; (vii) Liens existing on the
date of the Indenture; (viii) Liens for taxes, assessments or governmental
charges or claims that are not yet delinquent or that are being contested in
good faith by appropriate proceedings promptly instituted and diligently
concluded, provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor; (ix) Liens
incurred in the ordinary course of business of the Company or any Subsidiary of
the Company with respect to obligations that do not exceed in the aggregate 10%
of the Company's Consolidated Net Worth and that (a) are not incurred in
connection with the borrowing of money or the obtaining of advances or credit
(other than trade credit in the ordinary course of business) and (b) do not in
the aggregate materially detract from the value of the property or materially
impair the use thereof in the operation of business by the Company or such
Subsidiary and (x) Liens on assets of Unrestricted Subsidiaries that secure
Non-Recourse Debt of Unrestricted Subsidiaries.
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"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, defease or
refund other Indebtedness of the Company or any of its Restricted Subsidiaries;
provided that: (i) the principal amount (or accreted value, if applicable) of
such Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, defeased or refunded (plus the amount of reasonable expenses
incurred in connection therewith); (ii) such Permitted Refinancing Indebtedness
has a final maturity date later than the final maturity date of, and has a
Weighted Average Life to Maturity equal to or greater than the Weighted Average
Life to Maturity of, the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded; (iii) if the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded is subordinated in right of
payment to the Notes, such Permitted Refinancing Indebtedness has a final
maturity date later than the final maturity date of, and is subordinated in
right of payment to, the Notes on terms at least as favorable to the Holders of
Notes as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and (iv) such
Indebtedness is incurred either by the Company or by the Restricted Subsidiary
who is the obligor on the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" of a Person means any Subsidiary of the referent
Person that is not an Unrestricted Subsidiary.
"Senior Debt" means (i) the Senior Term Debt, (ii) the Senior Revolving
Debt, (iii) Hedging Obligations relating to Senior Debt and (iv) any other
Indebtedness permitted to be incurred by the Company under the terms of the
Indenture, unless the instrument under which such Indebtedness is incurred
expressly provides that it is on a parity with or subordinated in right of
payment to the Notes. Notwithstanding anything to the contrary in the foregoing,
Senior Debt referred to in clause (iv) above will not include (v) any liability
for federal, state, local or other taxes owed or owing by the Company, (w) any
Indebtedness of the Company to any of its Restricted Subsidiaries or other
Affiliates, (x) any trade payables, (y) any Indebtedness that is incurred in
violation of the Indenture or (z) any Indebtedness that is not fully and
adequately secured; provided that any unexpected diminution of the value of any
collateral securing any Senior Debt shall not cause such Indebtedness to cease
being fully and adequately secured for the purpose of this definition.
"Senior Revolving Debt" means revolving credit borrowings, and
reimbursement obligations (whether contingent or matured) in respect of letters
of credit issued, under the New Credit Facility and/or any successor facility or
facilities.
"Senior Term Debt" means term loans under the New Credit Facility and/or
any successor facility or facilities.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Act, as such Regulation is in effect on the date hereof.
"Subsidiary" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Capital Stock entitled (without regard to the occurrence of
any contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by such
Person or one or more of the other Subsidiaries of that Person (or a combination
thereof) and (ii) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or (b)
the only general partners of which are such Person or of one or more
Subsidiaries of such Person (or any combination thereof).
"Unrestricted Subsidiary" means (i) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary pursuant to a Board
Resolution; but only to the extent that such Subsidiary: (a) has no Indebtedness
other than Non-Recourse Debt; (b) is not party to any agreement, contract,
arrangement or understanding with the Company or any Restricted Subsidiary of
the Company unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to the Company or such Restricted
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Subsidiary than those that might be obtained at the time from Persons who are
not Affiliates of the Company; (c) is a Person with respect to which neither the
Company nor any of its Restricted Subsidiaries has any direct or indirect
obligation (x) to subscribe for additional Equity Interests or (y) to maintain
or preserve such Person's financial condition or to cause such Person to achieve
any specified levels of operating results; (d) has not guaranteed or otherwise
directly or indirectly provided credit support for any Indebtedness of the
Company or any of its Restricted Subsidiaries; and (e) has at least one director
on its board of directors that is not a director or executive officer of the
Company or any of its Restricted Subsidiaries and has at least one executive
officer that is not a director or executive officer of the Company or any of its
Restricted Subsidiaries. Any such designation by the Board of Directors shall be
evidenced to the Trustee by filing with the Trustee a certified copy of the
Board Resolution giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions and was
permitted by the covenant described above under the caption "Certain
Covenants -- Restricted Payments." If, at any time, any Unrestricted Subsidiary
would fail to meet the foregoing requirements as an Unrestricted Subsidiary, it
shall thereafter cease to be an Unrestricted Subsidiary for purposes of the
Indenture and any Indebtedness of such Subsidiary shall be deemed to be incurred
by a Restricted Subsidiary of the Company as of such date (and, if such
Indebtedness is not permitted to be incurred as of such date under the covenant
described under the caption "Incurrence of Indebtedness and Issuance of
Preferred Stock," the Company shall be in default of such covenant). The Board
of Directors of the Company may at any time designate any Unrestricted
Subsidiary to be a Restricted Subsidiary; provided that such designation shall
be deemed to be an incurrence of Indebtedness by a Restricted Subsidiary of the
Company of any outstanding Indebtedness of such Unrestricted Subsidiary and such
designation shall only be permitted if (i) such Indebtedness is permitted under
the covenant described under the caption "Certain Covenants -- Incurrence of
Indebtedness and Issuance of Preferred Stock," and (ii) no Default or Event of
Default would be in existence following such designation.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (i) the sum of the
products obtained by multiplying (a) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (b) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment, by (ii) the then outstanding principal
amount of such Indebtedness.
"Wholly Owned Restricted Subsidiary" of any Person means a Restricted
Subsidiary of such Person all of the outstanding Capital Stock or other
ownership interests of which (other than directors' qualifying shares) shall at
the time be owned by such Person or by one or more Wholly Owned Restricted
Subsidiaries of such Person and one or more Wholly Owned Restricted Subsidiaries
of such Person.
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BOOK-ENTRY, DELIVERY AND FORM
Except as set forth below, the Notes will initially be issued in the form
of one Global Note (the "Global Note"). The Global Note will be deposited on the
date of the closing of the Exchange Offer (the "Closing Date") with, or on
behalf of, The Depository Trust Company (the "Depositary") and registered in the
name of Cede & Co., as nominee of the Depositary (such nominee being referred to
herein as the "Global Note Holder").
Notes that are issued as described below under "-- Certificated Notes" will
be issued in the form of registered definitive certificates (the "Certificated
Notes"). Upon the transfer of Certificated Notes, such Certificated Notes may,
unless the Global Note has previously been exchanged for Certificated Notes, be
exchanged for an interest in the Global Note representing the principal amount
of Notes being transferred.
The Depositary is a limited-purpose trust company that was created to hold
securities for its participating organizations (collectively, the "Participants"
or the "Depositary's Participants") and to facilitate the clearance and
settlement of transactions in such securities between Participants through
electronic book-entry changes in accounts of its Participants. The Depositary's
Participants include securities brokers and dealers (including the Initial
Purchasers), banks and trust companies, clearing corporations and certain other
organizations. Access to the Depositary's system is also available to other
entities such as banks, brokers, dealers and trust companies (collectively, the
"Indirect Participants" or the "Depositary's Indirect Participants") that clear
through or maintain a custodial relationship with a Participant, either directly
or indirectly. Persons who are not Participants may beneficially own securities
held by or on behalf of the Depositary only thorough the Depositary's
Participants or the Depositary's Indirect Participants.
The Company expects that pursuant to procedures established by the
Depositary ownership of the Notes evidenced by the Global Note will be shown on,
and the transfer of ownership thereof will be effected only through, records
maintained by the Depositary (with respect to the interests of the Depositary's
Participants), the Depositary's Participants and the Depositary's Indirect
Participants. Holders of Notes are advised that the laws of some states require
that certain persons take physical delivery in definitive form of securities
that they own. Consequently, the ability to transfer Securities evidenced by the
Global Securities will be limited to such extent.
So long as the Global Note Holder is the registered owner of any Notes, the
Global Note Holder will be considered the sole Holder under the Indenture of any
Notes evidenced by the Global Note. Beneficial owners of Notes evidenced by the
Global Note will not be considered the owners or Holders thereof under the
Indenture for any purpose, including with respect to the giving of any
directions, instructions or approvals to the Trustee thereunder. Neither the
Company nor the Trustee will have any responsibility or liability for any aspect
of the records of the Depositary or for maintaining, supervising or reviewing
any records of the Depositary relating to the Notes.
Payments in respect of the principal of, premium, if any, interest and
Liquidated Damages, if any, on any Notes registered in the name of the Global
Note Holder on the applicable record date will be payable by the Trustee to or
at the direction of the Global Note Holder in its capacity as the registered
Holder under the Indenture. Under the terms of the Indenture, the Company and
the Trustee may treat the persons in whose names Notes, including the Global
Note, are registered as the owners thereof for the purpose of receiving such
payments. Consequently, neither the Company nor the Trustee has or will have any
responsibility or liability for the payment of such amounts to beneficial owners
of Notes. The Company believes, however, that it is currently the policy of the
Depositary to immediately credit the accounts of the relevant Participants with
such payments, in amounts proportionate to their respective holdings of
beneficial interests in the relevant security as shown on the records of the
Depositary. Payments by the Depositary's Participants and the Depositary's
Indirect Participants to the beneficial owners of Notes will be governed by
standing instructions and customary practice and will be the responsibility of
the Depositary's Participants or the Depositary's Indirect Participants.
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Certificated Notes
Subject to certain conditions, any person having a beneficial interest in
the Global Note may, upon request to the Trustee, exchange such beneficial
interest for Notes in the form of Certificated Notes. Upon any such issuance,
the Trustee is required to register such Certificated Notes in the name of, and
cause the same to be delivered to, such person or persons (or the nominee of any
thereof). If (i) the Company notifies the Trustee in writing that the Depositary
is no longer willing or able to act as a depositary and the Company is unable to
locate a qualified successor within 90 days or (ii) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
the form of Certificated Notes under the Indenture, then, upon surrender by the
Global Note Holder of its Global Note, Certificated Notes in such form will be
issued to each person that the Global Note Holder and the Depositary identify as
being the beneficial owner of the related Notes.
Neither the Company nor the Trustee will be liable for any delay by the
Global Note Holder or the Depositary in identifying the beneficial owners of
Notes and the Company and the Trustee may conclusively rely on, and will be
protected in relying on, instructions from the Global Note Holder or the
Depositary for all purposes.
Same-Day Settlement and Payment
The Indenture requires that payments in respect of the Notes represented by
the Global Note (including principal, premium, if any, interest and Liquidated
Damages, if any) be made by wire transfer of immediately available funds to the
accounts specified by the Global Note Holder. With respect to Certificated
Notes, the Company will make all payments of principal, premium, if any,
interest and Liquidated Damages, if any, by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. Secondary trading in long-term notes and debentures of corporate
issuers is generally settled in clearing-house or next-day funds. In contrast,
the Notes represented by the Global Note are expected to be eligible to trade in
the PORTAL Market and to trade in the Depositary's Same-Day Funds Settlement
System, and any permitted secondary market trading activity in such Notes will,
therefore, be required by the Depositary to be settled in immediately available
funds. The Company expects that secondary trading in the Certificated Notes will
also be settled in immediately available funds.
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DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 30,000,000 shares
of Common Stock, par value $0.01 per share, and 2,000,000 shares of preferred
stock, par value $0.01 per share. As of April 9, 1996, the Company had
approximately 9,975,000 shares of Common Stock outstanding and 1,000,000 shares
of the Series G Preferred Stock outstanding. As of April 9, 1996, the Company
also had outstanding 125,000 Warrants to purchase in the aggregate 643,750
shares of Common Stock.
COMMON STOCK
Holders of Common Stock are entitled to one vote for each share held of
record on all matters submitted to a vote of shareholders. There is no
cumulative voting for the election of directors, which means that the holders of
a majority of the shares voted in the election of directors can elect all of the
directors they nominate for election. Except as set forth below, generally the
vote of a majority of the shares voted on a matter at a meeting of shareholders
shall be the act of the shareholders on that matter. The Delaware General
Corporation Law provides generally that the approval of a majority of all
outstanding shares is required for certain extraordinary Company actions. The
Company's Certificate of Incorporation provides, however, that the affirmative
vote of shareholders holding at least 80% of the power to vote is required to
approve such transactions if (a) a majority of the members of the Board of
Directors has not served in such positions for at least 24 months at the time
the Company takes such action or (b) 20% or more of the Company's outstanding
voting securities are acquired by any person or group (other than any person or
group that acquired such voting securities prior to October 1989). The
Certificate of Incorporation also provides that no action may be taken by the
holders of Common Stock by written consent in lieu of holding a meeting of
shareholders. The Company also is subject to the provisions of the Delaware
Anti-Takeover Statute described below.
Subject to the preferences that may be applicable to any outstanding
preferred stock, holders of Common Stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefor. In the event of a liquidation, dissolution or winding up of
the Company, holders of Common Stock are entitled to share ratably in all assets
remaining after payment of liabilities and the liquidation preference that may
be applicable to any outstanding preferred stock. Holders of Common Stock have
no preemptive rights and no rights to convert their Common Stock into any other
securities. Except for shares of Common Stock for which employees of the Company
have given promissory notes, all of the outstanding shares of Common Stock are
fully paid and non-assessable.
PREFERRED STOCK
The authorized preferred stock, par value $0.01 per share, is available for
issuance from time to time in the future at the discretion of the Board of
Directors of the Company, without shareholder approval. The Board of Directors
has authority to prescribe for each series of preferred stock it establishes the
number of shares in that series, the dividend rate, and the voting rights,
conversion privileges, redemption and liquidation rights, if any, and any other
rights, preferences and limitations of the particular series. The issuance of
preferred stock could decrease the amount of earnings and assets available for
distribution to the holders of Common Stock or adversely affect the rights and
powers, including voting rights, of the holders of the Common Stock.
Additionally, the issuance of preferred stock could have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders.
Series G Preferred Stock. The 1,000,000 shares of Series G Preferred Stock
that were issued to Fiskars in connection with the Deltec Acquisition bear
quarterly dividends at a per annum rate of $0.80 per share through March 31,
2001 and $1.20 per share thereafter. The dividends are cumulative from the date
of issuance. The Company may not make any cash or property dividends with
respect to, or purchase or redeem, any Common Stock or other preferred stock of
the Company, unless cumulative dividends on the Series G Preferred Stock have
been paid or set aside. Holders of the Series G Preferred Stock have preference
over the holders of Common Stock and holders of any other preferred stock of the
Company in the event of liquidation, dissolution or winding up of the Company.
The liquidation preference is equal to $20.00 per share of Series G Preferred
Stock plus accrued, but unpaid dividends.
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The Series G Preferred Stock is convertible at any time by the holders
thereof into shares of Common Stock on a share-for-share basis, subject to
adjustment for stock splits, dividends and combinations, and non-cash dividends,
stock purchase rights, capital reorganizations and dissolutions. In the event
that the market price of the Company's Common Stock exceeds $28.00 per share for
30 consecutive trading days at any time after March 31, 1996, the Company may
redeem any of its Series G Preferred Stock at $20.00 per share from March 31,
1996 through March 30, 1997, $26.00 per share from March 31, 1997 through March
30, 1998 and $24.00 per share after March 30, 1998, plus accrued, but unpaid
dividends in each case. The Company's redemption right is subject to the
conversion rights of the holders of the Series G Preferred Stock. At any time
after September 30, 2006, the holders of the Series G Preferred Stock may
require the Company to repurchase the stock at $24.00 per share plus accrued,
but unpaid dividends.
Under the provisions of the New Credit Facility and the Indenture, the
Company is prohibited from redeeming the Series G Preferred Stock during the
terms of such agreements without the consent of the lenders, or the Holders of
the Notes, as the case may be. Furthermore, the New Credit Facility and the
Indenture restrict the Company's ability to pay cash dividends. In the event a
dividend payment on the Series G Preferred Stock would violate this restriction,
such dividend will accrue. The Company presently believes that it will have
sufficient flexibility under such financing agreements to pay currently the
Series G Preferred Stock dividends.
Shares of the Series G Preferred Stock have the same voting rights as
shares of the Company's Common Stock, with each holder of Series G Preferred
Stock entitled to the number of votes that the holder would have if the stock
were converted into Common Stock. The Series G Preferred Stock must be voted in
accordance with a stockholder agreement between the Company and Fiskars (the
"Stockholder Agreement"), the terms of which include agreements regarding board
membership, voting, transfer restrictions and registration rights. The
Stockholder Agreement permits Fiskars to designate two representatives to the
Company's Board of Directors so long as its beneficial ownership of Common Stock
(including Common Stock that Fiskars would own upon conversion of the Series G
Preferred Stock) exceeds 10% of the outstanding Common Stock, one representative
when Fiskars beneficially owns 5% to 10% of the outstanding Common Stock, and no
representative if its beneficial ownership of Common Stock is less than 5%. The
Stockholder Agreement requires Fiskars to vote all securities of the Company
owned or controlled by it in accordance with the recommendations of the
Company's Board of Directors. The Stockholder Agreement contains restrictions on
Fiskars' ability to transfer any securities of the Company owned or controlled
by Fiskars, and grants to Fiskars rights to register its Common Stock for resale
in the event the Company files a registration statement under the Securities Act
with respect to certain offerings of the Common Stock. Fiskars also has the
right after October 1996 to demand that the Company file a registration
statement with respect to the Common Stock owned by Fiskars, subject to certain
limitations.
WARRANTS
In connection with the Offering of Units, which included the Series A
Notes, the Company issued 125,000 Warrants to purchase in the aggregate 643,750
shares of Common Stock, subject to adjustment under certain circumstances. Each
Warrant, when exercised, entitles the holder thereof to receive 5.15 shares of
Common Stock at an exercise price of $13.475 per share, subject to adjustment
under certain circumstances. The Warrants and Series A Notes are not separately
transferable until the earliest to occur of (i) 90 days from the date of
issuance, (ii) such date as Donaldson, Lufkin & Jenrette Securities Corporation
may, in their discretion, deem appropriate (but in no event earlier than 10 days
from the date of issuance), (iii) in the event a Change of Control occurs, the
date the Company mails notice thereof to the holders of Notes and (iv) the date
on which the registration statement of which this Prospectus is a part is
declared effective (such date, the "Separation Date"). The Warrants are
exercisable on and after the Separation Date and prior to March 15, 2006. The
holders of Warrants have no right to vote on matters submitted to the
stockholders of the Company and no right to receive dividends. Pursuant to a
warrant registration rights agreement and subject to applicable federal and
state securities laws, the Company has agreed to file a shelf registration
statement within 120 days of March 13, 1996 (the date on which the Warrants were
issued) covering (i) resales of Warrants and the
109
<PAGE> 113
shares of Common Stock that will be acquired upon exercise of the Warrants and
(ii) the exercise of Warrants (unless such registration is not required).
DELAWARE LAW AND CERTAIN PROVISIONS OF THE COMPANY'S CERTIFICATE OF
INCORPORATION AND BYLAWS
Anti-Takeover Statute. Section 203 of the Delaware General Corporation Law
(the "Delaware Statute") applies to Delaware corporations with a class of voting
stock listed on a national securities exchange, authorized for quotation on an
inter-dealer quotation system, or held of record by 2,000 or more persons, and
restricts transactions that may be entered into by such a corporation and
certain of its shareholders. The Delaware Statute provides, in essence, that a
shareholder acquiring more than 15% of the outstanding voting shares of a
corporation subject to the statute (an "Interested Stockholder") but less than
85% of such shares may not engage in certain "Business Combinations" with the
corporation for a period of three years subsequent to the date on which the
shareholder became an Interested Stockholder unless (i) prior to such date the
corporation's board of directors approved either the Business Combination or the
transaction in which the shareholder became an Interested Stockholder or (ii)
the Business Combination is approved by the corporation's board of directors and
authorized by a vote of at least 66 2/3% of the outstanding voting stock of the
corporation not owned by the Interested Stockholder.
The Delaware Statute defines the term "Business Combination" to encompass a
wide variety of transactions with or caused by an Interested Stockholder in
which the Interested Stockholder receives or could receive a benefit on other
than a pro rata basis with other shareholders, including mergers, certain asset
sales, certain issuances of additional shares to the Interested Stockholder,
transactions with the corporation that increase the proportionate interest of
the Interested Stockholder or transactions in which the Interested Stockholder
receives certain other benefits.
Limitation on Directors' Liability. The Delaware General Corporation Law
authorizes corporations to limit or eliminate the personal liability of
directors to corporations and their stockholders for monetary damages for breach
of directors' fiduciary duty of care. The duty of care requires that, when
acting on behalf of the corporation, directors must exercise an informed
business judgment based on all material information reasonably available to
them. Absent the limitations authorized by Delaware law, directors could be
accountable to corporations and their stockholders for monetary damages for
conduct that does not satisfy their duty of care. Although Delaware law does not
change directors' duty of care, it enables corporations to limit available
relief to equitable remedies such as injunction or rescission. The Company's
Certificate of Incorporation limits the liability of the Company's directors to
the Company and its stockholders to the fullest extent permitted by Delaware
law. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of a director's fiduciary duty as a director, except
for liability (i) for any breach of the director's duty of loyalty to the
Company or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) for
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law, or (iv) for any
transaction from which the director derived an improper personal benefit. The
inclusion of this provision in the Certificate of Incorporation may have the
effect of reducing the likelihood of derivative litigation against directors,
and may discourage or deter stockholders or management from bringing a lawsuit
against directors for breach of their duty of care, even though such an action,
if successful, might otherwise have benefited the Company and its stockholders.
Shareholder Rights Plan. The Company adopted a shareholder rights plan to
deter coercive takeover tactics and to prevent a potential acquirer from gaining
control of the Company without offering a fair price to all of the Company's
shareholders. In connection with the plan, the Board of Directors declared a
dividend distribution of one right for each share of Common Stock outstanding
on, or issued after, December 7, 1992 (the "Right" or "Rights"). Each Right,
when exercisable, entitles the registered holder to purchase from the Company
one one-hundredth of a share of Series F junior participating preferred stock at
a purchase price of $80 per one one-hundredth share, subject to certain
adjustments. The Rights will become exercisable only in the event a person or
group acquires beneficial ownership of 15% or more of the Company's then
outstanding Common Stock, and will expire in December 2002 unless previously
redeemed or exchanged by the Company.
110
<PAGE> 114
In the event that a person becomes the beneficial owner of 15% or more of
the Company's then outstanding shares of Common Stock, except pursuant to an
offer for all outstanding shares of Common Stock that the outside directors
determine to be fair to, and otherwise in the best interests of, the Company and
its shareholders, each holder of a Right, other than the person triggering the
Rights, will have the right to receive Common Stock (or in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. If the Company is acquired
in a merger or similar business combination without the consent of the Company's
Board of Directors, each holder of a Right, except the person triggering the
Rights, will have the right to receive Common Stock of the acquiring Company
having a value equal to two times the exercise price of the Right.
Staggered Board of Directors. The bylaws of the Company divide the
directors into three classes, with one class being elected each year. Directors
are elected to serve for three-year terms and may be removed only for cause upon
the affirmative vote of holders of more than 50% of the outstanding Common
Stock. The staggered Board makes it more difficult for a substantial stockholder
to gain control of the Board of Directors without its consent, thus helping to
assure a measure of continuity in the affairs and business strategies of the
Company. In the event of any vacancy on the Board of Directors, a majority of
the remaining directors may elect a successor to serve for the remainder of the
unexpired term.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is First Union
National Bank of North Carolina, Charlotte, North Carolina.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
In the opinion of Smith Helms Mulliss & Moore, L.L.P., counsel to the
Company, the following discussion describes the material federal income tax
consequences expected to result to Holders whose Series A Notes are exchanged
for Series B Notes in the Exchange Offer. Such opinion is based upon current
provisions of the Internal Revenue Code of 1986, as amended (the "Code"),
applicable Treasury regulations, judicial authority and administrative rulings
and practice. There can be no assurance that the Internal Revenue Service (the
"Service") will not take a contrary view, and no ruling from the Service has
been or will be sought with respect to the Exchange Offer. Legislative, judicial
or administrative changes or interpretations may be forthcoming that could alter
or modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to Holders. Certain Holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations and persons who are not citizens or residents of the Unites States)
may be subject to special rules not discussed below. EACH HOLDER OF SERIES A
NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
OF EXCHANGING SERIES A NOTES FOR SERIES B NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Series A Notes for Series B Notes will be treated as a
"non-event" for federal income tax purposes because the Series B Notes will not
be considered to differ materially in kind or extent from the Series A Notes. As
a result, no material federal income tax consequences will result to Holders
exchanging Series A Notes for Series B Notes.
111
<PAGE> 115
PLAN OF DISTRIBUTION
Each broker-dealer that receives Series B Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such Series B Notes. This
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with the resales of Series B Notes received in
exchange for Series A Notes where such Series A Notes were acquired as a result
of market-making activities or other trading activities. The Company has agreed
that for a period of 365 days from the date on which the Registration Statement
is declared effective, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer that requests such document in the Letter of
Transmittal for use in connection with any such resale.
The Company will not receive any proceeds from any sale of Series B Notes
by broker-dealers or any other persons. Series B Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the Series B Notes or
a combination of such methods of resale, at market prices prevailing at the time
of resale, prices related to such prevailing market prices or negotiated prices.
Any such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such Series B Notes.
Any broker-dealer that resells Series B Notes that were received by it for its
own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Series B Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Series B Notes and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will deliver
and by delivering a prospectus, a broker-dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the Securities Act.
The Company has agreed to pay all expenses incident to the Company's
performance of, or compliance with, the Registration Rights Agreement and will
indemnify the Holders (including any broker-dealers) and certain parties related
to such Holders against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the issuance of the Series B Notes
will be passed upon for the Company by Smith Helms Mulliss & Moore, L.L.P.,
Raleigh, North Carolina.
EXPERTS
The audited financial statements and schedules of Exide Electronics
included in this Prospectus and elsewhere in the registration statement have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included herein in
reliance upon the authority of said firm as experts in giving said reports.
The financial statements of Deltec included in this Prospectus, except as
they relate to the unaudited three-month periods ended December 31, 1994 and
1995 and except as they relate to FPS Power Systems Oy Ab, FPS Power Systems
A/S, Fiskars Power Systems A/S and Fiskars Power Systems AB, have been audited
by Price Waterhouse LLP, independent accountants, and insofar as they relate to
FPS Power Systems Oy Ab, FPS Power Systems A/S, Fiskars Power Systems A/S and
Fiskars Power Systems AB, by KPMG, independent accountants, whose reports
thereon appear herein. Such financial statements have been so included in
reliance on the reports of such independent accountants given on the authority
of such firms as experts in auditing and accounting.
112
<PAGE> 116
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Exide Electronics Group, Inc.
Annual Consolidated Financial Statements
Report of Arthur Andersen LLP, Independent Public Accountants.................... F-2
Consolidated Balance Sheet as of September 30, 1994 and 1995..................... F-3
Consolidated Statement of Operations for the years ended September 30, 1993, 1994
and
1995........................................................................... F-4
Consolidated Statement of Changes in Common Shareholders' Equity for the years
ended September 30, 1993, 1994 and 1995......................................... F-5
Consolidated Statement of Cash Flows for the years ended September 30, 1993, 1994
and 1995....................................................................... F-6
Notes to Consolidated Financial Statements....................................... F-7
Interim Consolidated Financial Statements -- unaudited
Consolidated Balance Sheet as of September 30, 1995 and December 31, 1995........ F-30
Consolidated Statement of Operations for the three months ended December 31, 1994
and 1995........................................................................ F-31
Consolidated Statement of Cash Flows for the three months ended December 31, 1994
and 1995........................................................................ F-32
Notes to Consolidated Financial Statements....................................... F-33
Deltec Power Systems, Inc.
Annual Combined and Consolidated Financial Statements
Report of Price Waterhouse LLP, Independent Accountants.......................... F-40
Reports of KPMG Peat Marwick LLP, Independent Accountants, covering FPS Power
Systems Oy Ab (Finland), FPS Power Systems A/S (Norway), Fiskars Power Systems
A/S (Denmark) and Fiskars Power Systems AB (Sweden)............................. F-41
Consolidated Balance Sheets as of December 31, 1994 and 1995 and September 30,
1995............................................................................ F-45
Combined/Consolidated Statements of Operations for the years ended December 31,
1993, 1994, and 1995 and for the nine months ended September 30, 1995........... F-46
Combined/Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993 and 1994, and for the nine months ended September 30, 1995 and
for the three months ended December 31, 1995.................................... F-47
Combined/Consolidated Statements of Cash Flows for the years ended December 31,
1993, 1994 and 1995 and for the nine months ended September 30, 1995............ F-48
Notes to Financial Statements.................................................... F-49
Interim Consolidated Financial Statements -- unaudited
Consolidated Balance Sheets as of September 30, 1995 and December 31, 1995....... F-69
Consolidated Statements of Operations for the three months ended December 31,
1994 and 1995................................................................... F-70
Consolidated Statements of Cash Flows for the three months ended December 31,
1994 and 1995................................................................... F-71
Notes to the Consolidated Financial Statements................................... F-72
</TABLE>
F-1
<PAGE> 117
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
TO EXIDE ELECTRONICS GROUP, INC.:
We have audited the accompanying consolidated balance sheet of Exide
Electronics Group, Inc. (a Delaware corporation) and subsidiaries as of
September 30, 1994 and 1995, and the related consolidated statements of
operations, changes in common shareholders' equity and cash flows (restated for
the pooling-of-interest transaction as discussed in Note 2) for each of the
three years in the period ended September 30, 1995. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Exide Electronics Group,
Inc. and subsidiaries as of September 30, 1994 and 1995 and the results of their
operations and their cash flows (restated for the pooling-of-interest
transaction as discussed in Note 2) for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 12, in 1993 the Company changed its method of
accounting for income taxes.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina,
October 25, 1995 (except for the matters discussed in Note 16,
as to which the date is December 13, 1995).
F-2
<PAGE> 118
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
-------- --------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.......................................... $ 5,886 $ 2,787
Accounts receivable................................................ 105,712 105,524
Inventories........................................................ 55,529 72,890
Deferred tax assets................................................ 7,532 9,672
Other current assets............................................... 4,549 3,705
-------- --------
Total current assets............................................ 179,208 194,578
-------- --------
Property, plant, and equipment
Land, buildings, and leasehold improvements........................ 8,809 9,931
Machinery and equipment............................................ 51,653 61,519
-------- --------
60,462 71,450
Accumulated depreciation........................................... 32,250 36,393
-------- --------
28,212 35,057
Goodwill............................................................. 8,947 18,738
Other assets......................................................... 8,309 8,078
-------- --------
$224,676 $256,451
======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK, & COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt.................................................... $ 5,802 $ 7,655
Accounts payable................................................... 44,958 46,041
Deferred revenues.................................................. 16,577 15,602
Accrued compensation............................................... 8,153 7,945
Other accrued liabilities.......................................... 10,381 11,792
-------- --------
Total current liabilities....................................... 85,871 89,035
-------- --------
Long-term debt....................................................... 43,400 65,258
-------- --------
Convertible subordinated notes....................................... 15,000 15,000
-------- --------
Deferred liabilities................................................. 2,943 3,391
-------- --------
Redeemable preferred stock........................................... 10,000 --
-------- --------
Commitments and contingencies (Notes 6, 7 and 15)
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued: 7,735,165 in 1994 and 8,376,341 in 1995.......... 77 84
Additional paid-in capital......................................... 48,223 58,190
Retained earnings.................................................. 26,870 32,437
Cumulative translation adjustments................................. (1,757) (1,404)
-------- --------
73,413 89,307
Less: Notes receivable from shareholders............................. (5,951) (5,520)
Treasury stock................................................. -- (20)
-------- --------
67,462 83,767
-------- --------
$224,676 $256,451
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements, which
have been restated to
reflect the merger with International Power Machines on a pooling-of-interests
basis.
F-3
<PAGE> 119
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
------------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Product revenues......................................... $220,143 $259,403 $271,482
Service revenues......................................... 97,799 104,580 119,496
-------- -------- --------
Total revenues...................................... 317,942 363,983 390,978
-------- -------- --------
Product cost of revenues................................. 165,700 193,572 204,683
Service cost of revenues................................. 66,747 71,716 82,430
-------- -------- --------
Total cost of revenues.............................. 232,447 265,288 287,113
-------- -------- --------
Gross profit........................................... 85,495 98,695 103,865
Selling, general and administrative expense.............. 55,506 65,086 69,966
Research and development expense......................... 9,592 10,150 9,929
Litigation expense....................................... -- 4,997 700
Merger and acquisition expense........................... -- -- 7,000
-------- -------- --------
Income from operations................................. 20,397 18,462 16,270
Interest expense......................................... 4,421 5,417 5,575
Interest income.......................................... (466) (488) (485)
Other (income) expense................................... 396 74 (897)
-------- -------- --------
Income before income taxes and the cumulative effect of
accounting change................................... 16,046 13,459 12,077
Provision for income taxes............................... 6,214 4,284 4,692
-------- -------- --------
Income before the cumulative effect of accounting
change.............................................. 9,832 9,175 7,385
Cumulative effect of accounting change for income
taxes.................................................. 1,000 -- --
-------- -------- --------
Net income............................................... $ 10,832 $ 9,175 $ 7,385
======== ======== ========
Preferred stock dividends................................ 1,071 790 592
-------- -------- --------
Net income applicable to common shareholders............. $ 9,761 $ 8,385 $ 6,793
======== ======== ========
PRIMARY EARNINGS PER SHARE
Income before the cumulative effect of accounting
change.............................................. $ 1.21 $ 1.07 $ 0.84
Cumulative effect of accounting change for income
taxes............................................... 0.13 -- --
-------- -------- --------
Net income............................................. $ 1.34 $ 1.07 $ 0.84
======== ======== ========
Weighted average number of common and equivalent shares
outstanding......................................... 7,270 7,814 8,054
======== ======== ========
FULLY DILUTED EARNINGS PER SHARE
Income before the cumulative effect of accounting
change.............................................. $ 1.10 $ 1.03 $ 0.84
Cumulative effect of accounting change for income
taxes............................................... 0.11 -- --
-------- -------- --------
Net income............................................. $ 1.21 $ 1.03 $ 0.84
======== ======== ========
Weighted average number of common and equivalent shares
outstanding......................................... 9,316 9,393 9,673
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements, which
have been restated to
reflect the merger with International Power Machines on a pooling-of-interests
basis.
F-4
<PAGE> 120
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CHANGES IN COMMON SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NOTES
ADDITIONAL CUMULATIVE RECEIVABLE
COMMON PAID-IN RETAINED TRANSLATION FROM TREASURY
STOCK CAPITAL EARNINGS ADJUSTMENTS SHAREHOLDERS STOCK TOTAL
------ ---------- -------- ----------- ------------ -------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
(IN THOUSANDS)
Balance at September 30, 1992,
as restated for merger....... $ 70 $ 40,578 $ 10,215 $ (515) $ (5,847) $ -- $44,501
Issuance of common stock..... 1 597 -- -- -- -- 598
Conversion of Series C
preferred stock........... 5 4,995 -- -- -- -- 5,000
IPM preferred stock
dividends................. -- -- (400) -- -- -- (400)
Exide Electronics preferred
stock dividends........... -- -- (1,071) -- -- -- (1,071)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (262) -- (262)
Other, net................... -- 55 -- (1,396) 160 -- (1,181)
Net income................... -- -- 10,832 -- -- -- 10,832
------ ---------- -------- ----------- ------------ -------- -------
Balance at September 30,
1993......................... 76 46,225 19,576 (1,911) (5,949) -- 58,017
Adjustment to conform fiscal
year of IPM............... -- -- (591) -- -- -- (591)
Issuance of common stock..... 1 1,998 -- -- -- -- 1,999
IPM preferred stock
dividends................. -- -- (500) -- -- -- (500)
Exide Electronics preferred
stock dividends........... -- -- (790) -- -- -- (790)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (278) -- (278)
Other, net................... -- -- -- 154 276 -- 430
Net income................... -- -- 9,175 -- -- -- 9,175
------ ---------- -------- ----------- ------------ -------- -------
Balance at September 30,
1994......................... 77 48,223 26,870 (1,757) (5,951) -- 67,462
Issuance of common stock..... 1 (3) -- -- -- 1,288 1,286
Conversion of Series D and
Series E preferred
stock..................... 6 9,994 -- -- -- -- 10,000
Purchases of treasury
stock..................... -- -- -- -- 605 (1,308) (703)
IPM preferred stock
dividends................. -- -- (1,226) -- -- -- (1,226)
Exide Electronics preferred
stock dividends........... -- -- (592) -- -- -- (592)
Accrued interest income on
notes receivable from
shareholders.............. -- -- -- -- (310) -- (310)
Other, net................... -- (24) -- 353 136 -- 465
Net income................... -- -- 7,385 -- -- -- 7,385
------ ---------- -------- --------- ---------- ------- -------
Balance at September 30,
1995......................... $ 84 $ 58,190 $ 32,437 $(1,404) $ (5,520) $ (20) $83,767
====== ======== ======== ========= ========= ====== =======
</TABLE>
The accompanying notes are an integral part of these financial statements, which
have been restated
to reflect the merger with International Power Machines on a
pooling-of-interests basis.
F-5
<PAGE> 121
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
----------------------------------
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
Cash flows from operating activities
Net income............................................... $ 10,832 $ 9,175 $ 7,385
Adjustment to conform fiscal year of IPM................. -- 49 --
Adjustments to reconcile net income to cash provided by
(used in) operating activities:
Depreciation expense.................................. 5,304 6,105 6,683
Amortization expense.................................. 1,646 2,325 2,762
(Increase) decrease in accounts receivable............ (25,867) (7,351) 2,251
Increase in inventories............................... (14,795) (4,943) (17,131)
(Increase) decrease in other current assets........... 437 (2,549) (360)
Increase (decrease) in accounts payable............... 14,935 2,657 (77)
Increase (decrease) in other current liabilities...... 5,869 1,946 (681)
Cumulative effect of accounting change................ (1,000) -- --
Other, net............................................ (682) 1,064 276
-------- -------- --------
Net cash provided by (used in) operating
activities....................................... (3,321) 8,478 1,108
-------- -------- --------
Cash flows from investing activities
Acquisitions of property, plant, and equipment........... (8,255) (8,735) (12,497)
Acquisitions, net of cash acquired....................... (1,983) (3,580) (13,151)
Other, net............................................... (1,282) (1,576) (50)
-------- -------- --------
Net cash used in investing activities............... (11,520) (13,891) (25,698)
-------- -------- --------
Cash flows from financing activities
Proceeds from bank credit facilities..................... 78,527 91,938 143,713
Payments of bank credit facilities....................... (63,703) (83,629) (116,274)
Payments of industrial revenue bonds..................... (900) (3,500) (4,600)
(Increase) decrease in funds held in trust for future
construction.......................................... (64) 2,600 --
Issuance of common stock................................. 598 1,055 1,342
Purchases of treasury stock.............................. -- -- (703)
Issuance of redeemable preferred stock................... 4,900 -- --
Preferred stock dividends of Exide Electronics........... (1,006) (839) (789)
Preferred stock dividends of IPM......................... (400) (500) (1,226)
Payments of notes receivable from shareholders........... 160 276 136
Other, net............................................... (879) (567) (108)
-------- -------- --------
Net cash provided by financing activities........... 17,233 6,834 21,491
-------- -------- --------
Net increase (decrease) in cash and cash equivalents....... 2,392 1,421 (3,099)
Cash and cash equivalents, beginning of period............. 2,073 4,465 5,886
-------- -------- --------
Cash and cash equivalents, end of period................... $ 4,465 $ 5,886 $ 2,787
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements, which
have been restated
to reflect the merger with International Power Machines on a
pooling-of-interests basis.
F-6
<PAGE> 122
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION The consolidated financial statements include the
accounts of Exide Electronics Group, Inc. (the "Company") and its wholly-owned
subsidiaries. The Company designs, manufactures, markets, and services a broad
line of uninterruptible power systems ("UPS") products that protect computers
and other sensitive electronic equipment against electrical power distortions
and interruptions. The Company's products are used principally for financial,
medical, industrial, telecommunications, military, and aerospace applications
throughout the world. The Company's investment in a joint venture is accounted
for using the equity method. All significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the prior
years' financial statements have been reclassified to conform to the current
year presentation. These reclassifications are not material.
On February 8, 1995, the Company completed the merger of International
Power Machines Corporation ("IPM") with and into a newly formed subsidiary of
the Company. The merger was structured as a tax-free exchange and was accounted
for as a pooling-of-interests. Accordingly, the accompanying consolidated
financial statements and related notes include the accounts and results of
operations of IPM for all periods presented (see Note 2).
REVENUES Revenues from product sales are recognized at the time of
shipment to customers. Service revenues are recognized as services are
performed. Maintenance contract revenues, net of directly associated costs, are
deferred and recognized on a straight-line basis over the terms of the
contracts. All revenues are shown net of provisions for customer returns and
adjustments.
ADVERTISING COSTS Advertising costs are reported in selling, general and
administrative expenses in the accompanying consolidated statement of operations
and include costs of advertising, public relations, trade shows, direct
mailings, customer seminars, and other activities designed to enhance demand for
the Company's products. Advertising costs were $4,356,000 in 1993, $5,972,000 in
1994, and $7,344,000 in 1995. There are no capitalized advertising costs in the
accompanying consolidated balance sheet.
PER SHARE DATA Primary net income per common and equivalent share is
computed using net income after preferred stock dividends and the weighted
average number of shares of common stock and dilutive common stock equivalents.
Fully diluted net income per share is similarly computed but includes the
effect, when dilutive, of assumed conversion of the Company's convertible
subordinated notes, and prior to its conversion, the Company's redeemable
preferred stock (see Note 8).
INVENTORIES Inventories are stated at the lower of cost or market. Cost is
determined by the last-in, first-out ("LIFO") method for certain domestic
inventories and by the first-in, first-out ("FIFO") method for the remaining
inventories.
PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment is stated at
original cost. Depreciation and amortization is calculated using primarily the
straight-line method for financial reporting purposes and primarily accelerated
methods for tax purposes. For financial reporting purposes, equipment is
depreciated over three to ten years and buildings are depreciated over thirty
years. Leasehold improvements are amortized over the shorter of the useful life
of the asset or the term of the lease.
SOFTWARE DEVELOPMENT COSTS Costs of developing new software products and
enhancements to existing software products are capitalized after technological
feasibility is established. The costs of capitalized software are amortized over
the estimated useful lives of the related products, generally one to five years.
The accompanying consolidated balance sheet at September 30, 1994 and 1995
includes unamortized software development costs of $2,128,000 and $2,072,000,
respectively. Related amortization expense was $277,000 in 1993, $683,000 in
1994, and $1,035,000 in 1995.
GOODWILL Goodwill is amortized over periods ranging from ten to forty
years.
F-7
<PAGE> 123
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
TRANSLATION OF FOREIGN CURRENCIES Certain of the Company's non-U.S.
subsidiaries use their local currency as their functional currency. Their asset
and liability accounts are translated into U.S. dollars at the exchange rates in
effect at the balance sheet date, while revenues and expenses are translated
using average exchange rates during the period. Translation adjustments are
recorded directly to the cumulative translation adjustments component of common
shareholders' equity and do not affect the results of operations. Losses on
foreign currency transactions were $221,000 in 1993, $257,000 in 1994, and
$218,000 in 1995.
USE OF ESTIMATES The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and the reported amounts of revenues and expenses. Actual results
may differ from those estimates.
RECENT ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board
recently issued SFAS No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of." This statement requires
long-lived assets to be evaluated for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will adopt SFAS No. 121 in fiscal 1996 and does not
expect its provisions to have a material effect on the Company's consolidated
results of operations.
The Financial Accounting Standards Board also recently issued SFAS No. 123,
"Accounting for Stock-Based Compensation." This statement introduces a
fair-value based method of accounting for stock-based compensation. It
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options and other equity instruments to employees
based on the new fair value accounting rules. However, if the Company chooses
not to recognize compensation expense in accordance with the provisions of this
statement, pro forma disclosures are required in the notes to consolidated
financial statements. The Company will adopt the disclosure provisions of SFAS
No. 123 by fiscal 1997.
NOTE 2: MERGER WITH IPM
On February 8, 1995, the Company completed the merger of IPM with and into
a newly-formed subsidiary of the Company. IPM develops, manufactures, sells, and
services UPS products, and is compatible with Exide Electronics in terms of the
products and services provided and its channels of distribution. Under the terms
of the agreement, the Company issued approximately 1,510,000 newly registered
shares of Exide Electronics' common stock for all of the outstanding shares of
IPM's common and preferred stock. The merger was structured as a tax-free
exchange and was accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements and related notes have been
restated to include the accounts and results of operations of IPM for all
periods presented.
Historically, IPM prepared its financial statements using a December 31
fiscal year end. As of September 30, 1994, IPM's fiscal year end has been
changed to conform to Exide Electronics' September 30 year end. The consolidated
statement of operations for the year ended September 30, 1994, combines Exide
Electronics' historical consolidated statement of operations for the fiscal year
ended September 30, 1994, with IPM's consolidated statement of operations for
the year ended September 30, 1994. In accordance with the accounting rules
prescribed or permitted for pooling-of-interests, the restated financial
statements for the fiscal year ended September 30, 1993 combine the historical
consolidated results of operations of Exide Electronics for the year then ended
with IPM's historical consolidated results of operations for the calendar year
ended December 31, 1993. As a result, IPM's operations for the quarter ended
December 31, 1993, are included in the consolidated statements of income,
changes in shareholders' equity, and cash flows for both of the fiscal years
ended September 30, 1994 and 1993. IPM's revenues were $9,486,000 and net income
was $688,000 for the quarter ended December 31, 1993.
F-8
<PAGE> 124
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The restated balance sheet as of September 30, 1994 combines Exide
Electronics' historical consolidated balance sheet as of September 30, 1994 with
IPM's historical consolidated balance sheet as of that date. The restated
balance sheet as of September 30, 1993 combines Exide Electronics' historical
consolidated balance sheet as of September 30, 1993 with IPM's historical
consolidated balance sheet as of December 31, 1993. An adjustment to conform
IPM's fiscal year is shown in the accompanying consolidated statement of changes
in shareholders' equity. An adjustment is also shown in the accompanying
consolidated statement of cash flows for the year ended September 30, 1994 to
account for IPM's change in cash for the quarter ended December 31, 1993.
Combined and separate results of Exide Electronics and IPM during the periods
preceding the merger were as follows (in thousands):
<TABLE>
<CAPTION>
EXIDE
ELECTRONICS IPM ADJUSTMENTS COMBINED
----------- ------- ----------- --------
<S> <C> <C> <C> <C>
Quarter ended December 31, 1994
Revenues.................................... $ 81,264 $10,802 -- $ 92,066
Net income.................................. $ 1,746 $ 538 $ (35) $ 2,249
----------- ------- ----------- --------
Year ended September 30, 1994
Revenues.................................... $ 326,583 $37,400 -- $363,983
Net income.................................. $ 7,731 $ 1,566 $ (122) $ 9,175
----------- ------- ----------- --------
Year ended September 30, 1993
Revenues.................................... $ 281,949 $35,993 -- $317,942
Net income.................................. $ 9,251 $ 1,814 $ (233) $ 10,832
----------- ------- ----------- --------
</TABLE>
The combined financial results presented above and the accompanying
consolidated financial statements include adjustments to conform the accounting
methodology of IPM for reserving for excess and obsolete service inventories to
the accounting methodology used by Exide Electronics. There were no intercompany
transactions during the periods presented.
In connection with the merger, the Company recorded a nonrecurring charge
of $5.5 million ($4.4 million after tax) in the second quarter of fiscal 1995.
This charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs. The Company also expensed approximately $2.5 million
for the estimated costs of closing a duplicate operating facility and
discontinuing certain duplicate product lines manufactured at that facility. As
of September 30, 1995, all operations at the duplicate facility have ceased, and
the Company has entered into negotiations to sell the remaining fixed assets at
the facility. The Company is also in the process of disposing of excess
inventories related to the duplicate product lines. Other than amounts
sufficient to cover remaining lease payments on the duplicate facilities and
disposal of excess inventory, there are no significant accrued costs related to
the merger included in the consolidated balance sheet at September 30, 1995.
F-9
<PAGE> 125
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3: ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
---------------------
1994 1995
-------- --------
<S> <C> <C>
Accounts Receivable:
Commercial......................................................... $ 73,913 $ 86,936
United States government........................................... 33,947 21,105
-------- --------
107,860 108,041
Less: Allowance for doubtful accounts, customer returns and
adjustments.................................................... 2,148 2,517
-------- --------
$105,712 $105,524
======== ========
</TABLE>
Accounts receivable at September 30, 1994 and 1995 included unbilled
receivables of $12,808,000 and $7,371,000, and retainage receivables of $755,500
and $1,452,000, respectively. Unbilled receivables relate primarily to one
United States government contract with multiple installation sites and are
generally billable in the month following contract performance. Retainage
receivables generally relate to larger customer contracts and become payable at
specified dates after installation and customer acceptance.
Commercial accounts receivable are generally not concentrated in any
geographic region or industry. Collateral is usually not required except for
certain international transactions for which the Company requires letters of
credit to secure payment.
NOTE 4: INVENTORIES
Inventories, which include materials, labor and manufacturing overhead,
consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1995
------- -------
<S> <C> <C>
Raw materials and supplies............................................. $20,149 $27,989
Work in process........................................................ 7,288 6,064
Finished goods......................................................... 14,805 24,054
Service parts.......................................................... 13,287 14,783
------- -------
$55,529 $72,890
======= =======
</TABLE>
Domestic inventories of approximately $37,900,000 and $52,167,000 were
valued using the LIFO method at September 30, 1994 and 1995, respectively. The
LIFO value exceeded the FIFO value of these inventories by approximately
$693,000 at September 30, 1994 and $1,941,000 at September 30, 1995. There was
no liquidation of prior years' LIFO layers in 1995, and the effect of such
liquidation in 1994 was not significant.
NOTE 5: SHORT-TERM DEBT
Certain of the Company's subsidiaries maintain various lines of credit.
These lines, which had interest rates ranging from 7.25% to 8.50% at September
30, 1995, are primarily due on demand and are generally secured by guaranties of
payment by the Company. Approximately $4,902,000 and $7,130,000 were outstanding
under these facilities at September 30, 1994 and 1995, respectively. The
remaining availability under these facilities at September 30, 1995, was
approximately $6,900,000.
F-10
<PAGE> 126
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted average interest rate incurred on the Company's short-term
debt was 8.5% in 1995 and 8.1% in 1994. The short-term debt balance outstanding
at September 30, 1995 approximated fair value for loans with similar terms.
NOTE 6: LONG-TERM DEBT AND CONVERTIBLE SUBORDINATED NOTES
Long-term debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1995
------- -------
<S> <C> <C>
Domestic bank credit facility.......................................... $39,700 $65,000
Industrial revenue bonds............................................... 4,600 --
Other long-term debt................................................... -- 783
------- -------
44,300 65,783
Less current portion................................................... 900 525
------- -------
$43,400 $65,258
======= =======
Convertible subordinated notes......................................... $15,000 $15,000
======= =======
</TABLE>
At September 30, 1995, the Company had $145 million of committed domestic
unsecured bank credit facilities comprised of a $95 million revolving credit
facility ("Facility A") for working capital and general corporate purposes,
which may include letters of credit, and a $50 million revolving credit facility
("Facility B") for financing certain acquisitions and refinancing specified
existing obligations. Facility A includes a sublimit of $30 million which may be
used in support of the Company's international subsidiaries.
Amounts outstanding at September 30, 1995 under both facilities bear
interest at either the agent bank's base rate or, at the Company's option, the
LIBOR rate plus .60%. For the year ended September 30, 1995, the weighted
average interest rate on these facilities was 6.5%. The average daily unutilized
commitment incurs a commitment fee of .20% per annum, and letters of credit bear
a fee of .60% per annum. These rates and fees may be adjusted based on a senior
debt to cash flow ratio, as defined. Balances outstanding on these facilities at
September 30, 1994 and 1995 approximated their fair value. Amounts outstanding
under Facility A are due and payable on September 30, 1997. Amounts outstanding
under Facility B will convert to a term loan on September 30, 1996, with
quarterly principal payments thereafter of 5% of the amount outstanding on
conversion, with the remaining balance due September 30, 1999.
The credit agreement contains certain financial covenants, including a
senior debt to cash flow ratio, a fixed charge coverage ratio, a leverage ratio,
and a minimum net worth requirement. As of September 30, 1995, the Company was
in compliance with all financial covenants, as amended. The agreement also
imposes certain restrictions on mergers, acquisitions, investments in other
companies and liquidations; additional senior indebtedness; disposition of
assets; related party transactions; and prohibits payments of dividends on
common stock if the Company would be in default before or after such dividend
payment.
In December 1995, the Company received a commitment to refinance these
facilities, concurrent with the closing of the Deltec Acquisition (see Note 16).
In fiscal 1990, Industrial Revenue Bonds ("the IRBs") in the aggregate
amount of $9 million were issued to finance a portion of the cost of
constructing a manufacturing facility near Wilmington, North Carolina. The
average interest rate on the IRBs was 7.24%. On June 1, 1994, the Company
executed a partial redemption in the amount of $2.6 million using the excess
project funds held in trust. On December 1, 1994, the Company exercised its
option to redeem the remaining bonds outstanding at a redemption price of 102%.
F-11
<PAGE> 127
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1992, the Company sold $15 million of convertible subordinated
notes (the "Notes"). The Notes bore interest at 8.375% per annum, payable
semi-annually. The Notes were convertible into common stock of the Company at
any time for an initial conversion price of $13.08 per share, subject to
adjustment for certain events. On October 23, 1995, the holder of the Notes
exercised its option to convert the Notes into 1,146,789 shares of the Company's
common stock. The market value of the Notes if they had been converted into the
Company's common stock was approximately $24.9 million and $21.5 million at
September 30, 1994 and 1995, respectively.
Future maturities of long-term debt at September 30, 1995, giving effect to
the October 1995 conversion of the Notes into the Company's common stock, were
(in thousands):
<TABLE>
<S> <C>
1996............................. $ 525
1997............................. 53,469
1998............................. 2,969
1999............................. 8,769
2000............................. 51
Thereafter....................... --
-------
$65,783
=======
</TABLE>
NOTE 7: LEASE COMMITMENTS
The Company leases buildings, equipment and machinery under various
operating leases. Future minimum payments at September 30, 1995 under
noncancellable operating leases were (in thousands):
<TABLE>
<S> <C>
1996............................. $ 6,410
1997............................. 6,175
1998............................. 5,249
1999............................. 4,815
2000............................. 3,909
Thereafter....................... 19,265
-------
$45,823
=======
</TABLE>
Rental expense related to operating leases was $7,165,000 in 1993,
$7,780,000 in 1994, and $8,109,000 in 1995.
NOTE 8: REDEEMABLE PREFERRED STOCK
Authorized preferred stock consists of 2,000,000 shares of $0.01 par value
preferred stock, of which 6,000 shares have been designated as Series D
Preferred Stock, 6,000 shares as Series E Preferred Stock, and 200,000 shares as
Series F Junior Participating Preferred Stock.
In August 1991, the Company issued 5,000 shares of Series C Preferred Stock
(the "Series C shares") at a purchase price of $1,000 per share. The Series C
shares were convertible at the option of the holder into the Company's common
stock at a conversion price per share of $9.5062. The holder exercised this
option in August 1993 and converted the Series C shares into 525,972 shares of
the Company's common stock. In February 1995, authorization for Series C
Preferred Stock was removed from the Company's Certificate of Incorporation.
In July 1992, the Company issued to Japan Storage Battery Co., Ltd. ("JSB")
5,100 shares of the Company's Series D Preferred Stock (the "Series D shares")
at a purchase price of $1,000 per share. JSB had
F-12
<PAGE> 128
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the right to convert some or all of the Series D shares into the Company's
common stock at a conversion price per share of $13.08, subject to adjustment
upon the occurrence of certain events. In December 1992, JSB exercised an option
to purchase 4,900 shares of Series E Preferred Stock (the "Series E shares") at
a purchase price of $1,000 per share. The Series E shares were convertible at
the option of JSB into the Company's common stock at a conversion price per
share of $23.86, subject to adjustment upon the occurrence of certain events. On
July 1, 1995, JSB exercised these options and converted all of the Series D and
Series E shares into 595,273 shares of the Company's common stock.
The Company owns 50% of a joint venture with JSB for distribution of
products in Japan. The carrying value of the Company's investment in the joint
venture at September 30, 1995 was $399,000. Total sales to the joint venture by
the Company were approximately $3.6 million in 1993, $4.1 million in 1994, and
$9.1 million in 1995. Accounts receivable from the joint venture were
approximately $938,000 and $2,806,000 at September 30, 1994 and 1995,
respectively.
NOTE 9: COMMON SHAREHOLDERS' EQUITY
As of September 30, 1995, the Company had notes receivable of $5,520,000
(including accrued interest of $1,917,000) related to the sale of 537,852 shares
of common stock to certain employees. The notes generally bear simple interest
at prime and are payable ten years from the date of issuance or earlier upon
sales of the shares or upon termination of employment. The market value of these
notes receivable was approximately $5,120,000 and $4,956,000 at September 30,
1994 and 1995, respectively.
In November 1992, the Board of Directors adopted a shareholders' rights
plan to deter coercive takeover tactics and to prevent a potential acquirer from
gaining control of the Company without offering a fair price to all of the
Company's shareholders. The Board declared a dividend distribution of one right
for each share of common stock outstanding on or issued after December 7, 1992
(the "Right" or "Rights"). Each Right, when exercisable, entitles the registered
holder to purchase from the Company one one-hundredth of a share of Series F
Junior Participating Preferred Stock at a purchase price of $80 per one
one-hundredth share, subject to certain adjustments. The Rights will become
exercisable only upon the occurrence of a person or group acquiring beneficial
ownership of 15% or more of the Company's then outstanding common stock, and
will expire in December 2002 unless previously redeemed or exchanged by the
Company.
In the event that a person becomes the beneficial owner of 15% or more of
the Company's then outstanding shares of common stock, except pursuant to an
offer for all outstanding shares of common stock which the outside directors
determine to be fair to and otherwise in the best interests of the Company and
its shareholders, each holder of a Right, other than the person triggering the
Rights, will have the right to receive common stock (or in certain
circumstances, cash, property or other securities of the Company) having a value
equal to two times the exercise price of the Right. Similarly, if the Company is
acquired in a merger or other similar business combination without the consent
of the Company's Board of Directors, each holder of a Right, except the person
triggering the Rights, will have the right to receive common stock of the
acquiring Company having a value equal to two times the exercise price of the
Right.
In November 1994, the Board of Directors authorized the repurchase of up to
5% of the Company's outstanding common stock. Purchases may be made from time to
time as management considers appropriate. In October 1995, the Company
repurchased approximately 131,000 shares of its common stock.
NOTE 10: STOCK AND BENEFIT PLANS
1995 EMPLOYEE STOCK OPTION AND RESTRICTED STOCK PLAN This plan provides
for the grant to selected employees of up to 750,000 shares of the Company's
common stock. The purchase price for stock options under this plan shall be no
less than fair market value of the common stock at the date of grant.
F-13
<PAGE> 129
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
1995 DIRECTORS PLAN This plan provides for the grant of up to 150,000
shares of the Company's common stock. Each of the Company's non-employee
directors receives an option to purchase 3,000 shares of common stock on the
date of commencement of service as a director and annually thereafter for as
long as the director remains on the board. The purchase price for stock options
under this plan shall be no less than fair market value of the common stock at
the date of grant.
1989 STOCK OPTION PLAN This plan provides for the grant to selected
employees of options for up to 550,000 shares of the Company's common stock. The
purchase price for stock options under this plan shall be no less than fair
market value of the common stock at the date of grant.
NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN This plan provided for the grant
of 87,500 shares of the Company's common stock. All options available under this
plan have been granted. The purchase price for stock options granted under this
plan was no less than the fair market value of the common stock at the date of
grant.
The following table summarizes the activity under these plans:
<TABLE>
<CAPTION>
SHARES
AVAILABLE OPTIONS EXERCISE
FOR GRANT OUTSTANDING PRICE RANGE
--------- ----------- ------------
<S> <C> <C> <C>
Balances at September 30, 1992....................... 201,270 434,980 $2.99-$18.00
--------- ----------- ------------
Granted............................................ (48,000) 48,000 15.00-20.13
Exercised.......................................... -- (23,375) 6.50-15.00
Forfeited.......................................... 17,250 (17,250) 6.50-15.00
--------- ----------- ------------
Balances at September 30, 1993....................... 170,520 442,355 2.99-20.13
--------- ----------- ------------
Granted............................................ (64,000) 64,000 16.13-23.50
Exercised.......................................... -- (49,059) 2.99-17.38
Forfeited.......................................... 26,285 (26,285) 6.50-15.00
--------- ----------- ------------
Balances at September 30, 1994....................... 132,805 431,011 6.50-23.50
--------- ----------- ------------
1995 Director and Employee Plans................... 900,000 -- --
Granted............................................ (291,987) 291,987 16.38-16.75
Exercised.......................................... -- (42,590) 6.50-17.38
Forfeited.......................................... 29,250 (29,250) 15.00-23.50
--------- ----------- ------------
Balances at September 30, 1995....................... 770,068 651,158 $6.50-$23.50
======== ========= ===========
</TABLE>
As of September 30, 1995, outstanding options to purchase 342,404 common
shares were exercisable. The majority of these options expire ten years after
the grant date if not exercised.
EMPLOYEE STOCK PURCHASE PLAN This plan provides for the grant to employees
of rights to purchase shares of the Company's common stock. Shares are purchased
at the end of an offering period, with a purchase price for the shares equal to
the lower of 85% of the fair market value of the common stock at the beginning
or the end of the offering period. A maximum of 600,000 shares have been
authorized under this plan, and through September 30, 1995, 234,242 shares have
been issued under this plan. Under the current offering, which expires December
31, 1995, the offering price at the beginning of the offering period was $13.84.
BENEFIT PLANS The Company and its subsidiaries have defined contribution
plans that cover substantially all employees. The plans allow for the matching
of voluntary employee contributions, and the Company may
F-14
<PAGE> 130
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
elect to make additional contributions at the discretion of the Board of
Directors. Total expenses related to these plans were $2,097,000 in 1993,
$2,303,000 in 1994, and $1,917,000 in 1995.
NOTE 11: GEOGRAPHIC OPERATIONS
<TABLE>
<CAPTION>
1993 1994 1995
-------- -------- --------
<S> <C> <C> <C>
(IN THOUSANDS)
REVENUES
United States --
Unaffiliated customers
United States..................................... $248,452 $273,087 $268,289
Latin America..................................... 19,962 31,392 36,590
Far East.......................................... 11,958 13,138 23,353
Other............................................. 6,986 8,669 452
Intercompany........................................ 18,171 22,030 37,338
Outside the United States --
Unaffiliated customers
Europe............................................ 13,538 19,193 34,975
Canada............................................ 13,768 14,779 18,523
Other............................................. 3,278 3,725 8,796
Intercompany........................................ 2,341 3,360 6,541
Intercompany eliminations.............................. (20,512) (25,390) (43,879)
-------- -------- --------
Total revenues................................. $317,942 $363,983 $390,978
======== ======== ========
INCOME (LOSS) BEFORE INCOME TAXES AND THE CUMULATIVE
EFFECT OF ACCOUNTING CHANGE
United States.......................................... $ 17,560 $ 13,333 $ 9,035
Europe................................................. (2,630) (218) 2,097
Canada................................................. 1,068 120 419
Other.................................................. 48 224 526
-------- -------- --------
Total income before income taxes and the
cumulative effect of accounting change....... $ 16,046 $ 13,459 $ 12,077
======== ======== ========
IDENTIFIABLE ASSETS
United States.......................................... $179,482 $190,515 $213,541
Europe................................................. 11,011 18,842 24,935
Canada................................................. 11,767 14,019 15,179
Other.................................................. 973 1,300 2,796
-------- -------- --------
Total assets................................... $203,233 $224,676 $256,451
======== ======== ========
</TABLE>
Revenues include sales to unaffiliated customers and the Company's joint
venture (see Note 8). Intercompany sales are made at transfer prices intended to
provide a profit for the purchasing entities after coverage of their selling,
general and administrative expenses. Identifiable assets are those assets
identified with operations in each geographic area.
F-15
<PAGE> 131
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 12: INCOME TAXES
As of the beginning of fiscal 1993, the Company adopted Financial
Accounting Standards Board Statement No. 109, "Accounting for Income Taxes,"
which superseded Statement No. 96, the method of accounting for income taxes
previously used by the Company. Statement No. 109 requires recognition of future
tax benefits, to the extent that realization of such benefits is more likely
than not, attributable to deductible temporary differences between the financial
statement and income tax basis of assets and liabilities and to tax net
operating loss carryforwards ("NOLs"). The Company elected to adopt Statement
No. 109 using the prospective adoption method. Under this method, the Company
recognized an increase in net income of $1.0 million in fiscal year 1993 for the
cumulative effect of the change in accounting principle. The increase resulted
from recording the net benefit of approximately $850,000 in net deferred tax
assets for temporary differences and state income tax NOLs which could not
previously be recognized under Statement No. 96, and approximately $150,000 for
the net benefit of NOLs for certain of the Company's foreign subsidiaries.
Components of the tax provision are shown below (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Provision for (benefit from) income taxes:
Federal
Current................................................ $ 6,770 $ 4,784 $ 4,691
Deferred............................................... (1,736) (1,020) (731)
------- ------- -------
Total federal........................................ 5,034 3,764 3,960
------- ------- -------
State
Current................................................ 1,328 619 653
Deferred............................................... (363) (275) --
------- ------- -------
Total state.......................................... 965 344 653
------- ------- -------
Foreign
Current................................................ 420 228 269
Deferred............................................... (205) (52) (190)
------- ------- -------
Total foreign........................................ 215 176 79
------- ------- -------
Total................................................ $ 6,214 $ 4,284 $ 4,692
======= ======= =======
</TABLE>
Deferred income tax provision (benefit) has been provided for temporary
differences resulting from the recognition of taxable income for tax and
financial statement purposes. The provision (benefit) of the significant
differences consisted of the following (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Deferred income, net........................................ $ (427) $ (775) $ (352)
Provisions for uncollectible accounts....................... (406) 365 (204)
Inventory provisions........................................ (616) (208) (1,310)
Foreign currency gains and losses........................... (231) 5 (104)
Depreciation................................................ (46) 127 515
------- ------- -------
</TABLE>
F-16
<PAGE> 132
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax provision differs from the amount computed by
applying the federal statutory rate of 35% to income before income taxes due to
the following (in thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Income tax expense computed at the federal statutory rate... $ 5,616 $ 4,710 $ 4,227
State taxes, net of federal tax benefit..................... 648 253 424
Effect of permanent differences............................. 132 442 1,413
Operating losses by foreign subsidiaries with no tax
benefit................................................... 692 100 26
Benefit of Foreign Sales Corporation........................ (189) (206) (315)
Change in valuation allowance............................... (603) (534) (995)
Other....................................................... (82) (481) (88)
------- ------- -------
Provision for income taxes................................ $ 6,214 $ 4,284 $ 4,692
------- ------- -------
</TABLE>
The components of the Company's net deferred tax assets (liabilities) were
as follows (in thousands):
<TABLE>
<CAPTION>
SEPTEMBER 30,
-------------------
1994 1995
------- -------
<S> <C> <C>
Current:
Service revenue deferred for financial reporting purposes............ $ 4,189 $ 4,842
Non-deductible accruals.............................................. 4,569 6,491
Accelerated expenses recognized for tax purposes..................... (1,366) (1,548)
Valuation allowance.................................................. (702) (867)
Other................................................................ 842 754
------- -------
7,532 9,672
------- -------
Noncurrent:
NOLs of foreign subsidiaries......................................... 2,215 1,234
Accelerated depreciation for tax purposes............................ (1,464) (1,979)
Accelerated expenses for tax purposes................................ (932) (955)
Valuation allowance.................................................. (1,731) (370)
Other................................................................ 223 212
------- -------
(1,689) (1,858)
------- -------
Net deferred tax assets.............................................. $ 5,843 $ 7,814
======= =======
</TABLE>
The Company's foreign subsidiaries have tax NOLs of approximately $3.4
million, of which $1.3 million expires in fiscal 1998, and $2.1 million has no
expiration date. If the NOLs are fully utilized at current statutory tax rates
of the respective countries, the total asset is estimated to be approximately
$1.2 million. Although the Company anticipates future operating income in these
subsidiaries, because of prior operating losses in these subsidiaries, as well
as general economic conditions, competition, and other factors beyond the
Company's control, there can be no guarantee that these NOLs will be utilized. A
valuation reserve has been established which reduces the net deferred tax asset
of the NOLs to an amount which the Company believes is more likely than not to
be realized.
The Company has not provided for potential U.S. taxes on undistributed
earnings of its foreign subsidiaries of approximately $7.6 million at September
30, 1995, as it does not currently intend to repatriate such earnings.
Calculation of the potential unrecognized deferred tax liability related to
these earnings is not
F-17
<PAGE> 133
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
practicable; however, credits for foreign income taxes already paid may
partially offset potential U.S. income taxes.
NOTE 13: SUPPLEMENTAL CASH FLOW INFORMATION
Cash and cash equivalents consist of cash and short-term investments with
original maturities of three months or less. Cash equivalents are carried at
cost, which approximates market.
Cash flow disclosures, including non-cash investing and financing
activities for the three years ended September 30, 1995, are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Income taxes paid........................................... $ 5,048 $ 9,616 $ 4,665
Interest paid............................................... 4,718 4,990 4,775
Liabilities assumed in exchange for certain assets in
acquisitions of subsidiaries (see Note 14)................ 758 2,505 450
Conversion of preferred stock to common stock (see Note
8)........................................................ 5,000 -- 10,000
Issuance of common stock in the acquisition of a subsidiary
(see Note 14)............................................. -- 944 --
Note receivable repaid with proceeds from treasury stock
purchases................................................. -- -- 605
------- ------- -------
</TABLE>
NOTE 14: ACQUISITIONS
During the fourth quarter of fiscal 1995, the Company acquired Lectro
Products, Inc. ("Lectro"), a broadband industry leader specializing in power
protection and other transmission enhancement devices for converging cable
television and telecommunications networks, for approximately $12.4 million plus
the assumption of certain liabilities. The acquisition was accounted for using
the purchase method of accounting. In connection with the acquisition, the
Company recorded goodwill of approximately $10.2 million, which is being
amortized over 20 years. The Company is evaluating the final purchase price
allocation, which may impact currently recorded goodwill. Lectro's results of
operations are included in the Company's results of operations beginning in July
1995. If Lectro had been consolidated at the beginning of the fiscal year, the
effect on the Company's operations or financial condition would not have been
significant.
During the fourth quarter of fiscal 1994, the Company acquired two
companies in Canada and one in the United Kingdom. These companies are involved
in the sales and service of UPS products. The acquisitions were accounted for
using the purchase method of accounting. Goodwill totaling approximately $4.0
million was recorded and is being amortized over periods ranging from ten to
twenty years. The results of operations of these companies were included in the
Company's consolidated financial statements at various dates beginning in the
fourth quarter of fiscal 1994. If these companies had been consolidated at the
beginning of fiscal 1994, the effect on the Company's operations or financial
condition would not have been significant.
During the fiscal year ended September 30, 1993, the Company completed the
acquisition of DataTrax Systems Corporation ("DataTrax"). DataTrax is a
developer of power, environmental, and security monitoring systems for computer
rooms and other mission-critical applications, and is based in Colorado. The
acquisition was accounted for using the purchase method of accounting. Goodwill
of approximately $1.0 million was recorded and is being amortized over 15 years.
The results of operations of DataTrax were included in the Company's
consolidated financial statements beginning in September 1993. If DataTrax had
been consolidated at the beginning of fiscal 1993, the effect on the Company's
operations or financial condition would not have been significant.
F-18
<PAGE> 134
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In September 1995, the Company wrote off approximately $1.5 million
($813,000 after tax) of costs related to a proposed acquisition that was not
consummated. Such costs were incurred during fiscal 1995, and consisted
primarily of legal, accounting, and other financial advisory services.
NOTE 15: CONTINGENCIES
LITIGATION In January 1989, a case was filed by a former manufacturer's
representative of the Company, alleging that the Company failed to pay
commissions owed to him on certain sales. In April 1990, a jury awarded the
plaintiff damages of approximately $14.9 million. The Company appealed the
decision, and in September 1992, the appellate court reversed the judgment
against the Company. In response to various motions filed by the plaintiff, a
new trial was granted, and in March 1994, the jury in the new trial awarded
damages of $3.75 million to the plaintiff. While the Company continued to
believe that it should have no liability in this matter and announced its
intention to appeal, it recorded a one-time charge in the second quarter of
fiscal 1994 of $4,997,000 ($2,936,000 after tax) for the jury verdict and for
the costs of the trial.
In July 1994, the Company announced that this litigation had been settled.
Following agreement among the parties to settle, the court vacated the jury
award of $3.75 million previously entered and determined that the vacated
judgment cannot be used against the Company in the future. To avoid further
litigation including post-trial motions and appeals, the Company settled the
case by making payments to the plaintiff and his attorneys. The parties
thereafter stipulated that the entire action was dismissed with prejudice. Since
the total value of the settlement payments was less than the one-time charge for
the jury verdict recorded by the Company in the second quarter of fiscal 1994,
no further charges were necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, the Company was served with a complaint in the Delaware Court
of Chancery and in May 1991, a related case was filed in Federal Court in New
York. These complaints alleged, among other things, that the Company's
description of the case involving the manufacturer's representative in its
prospectus dated December 21, 1989, was false and misleading. In April 1995, the
Company announced that it had settled both the Delaware and New York suits. The
Delaware action had been dismissed once for failure to state a claim, but was
reinstated following an appeal and was in the discovery process prior to the
settlement. The Company recorded a charge of $700,000 ($424,000 after tax) for
the settlement of the two related lawsuits in the quarter ended March 31, 1995.
Court approval of the settlement agreement, after notice to affected
shareholders, was granted in August 1995. While the Company believed that
neither suit had merit, it decided to settle as the suits were taking valuable
corporate time and attention and would have involved significant legal costs to
pursue further.
The Company is involved in various litigation proceedings incidental to its
business. The defense of most of these matters is handled by the Company's
insurance carriers. The Company believes that the outcome of such other pending
litigation in the aggregate will not have a material adverse effect on its
financial statements.
GOVERNMENT CONTRACT MATTERS Sales to the United States Federal government
accounted for approximately 35%, 33%, and 27% of total revenues for the years
ended September 30, 1993, 1994, and 1995, respectively. The Company's Federal
government business is currently performed under firm fixed-price type contracts
and time-and-materials type contracts, and at times a combination of both
contract types. The Company's compliance with government contract regulations is
audited or reviewed from time to time by government auditors, who have the right
to audit the Company's records and the records of its subcontractors during and
after completion of contract performance. Under Federal government regulations,
certain costs are not allowable as costs for which the government will reimburse
the Company. Government auditors may recommend that certain charges be treated
as unallowable and reimbursement be made to the government. The Company provides
for estimated unallowable charges and voluntary refunds in its financial
statements, and believes that its provisions are adequate as of September 30,
1995.
F-19
<PAGE> 135
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During fiscal 1993, the Company engaged in discussions with the Federal
government regarding contract interpretation matters relating to certain
time-and-materials charges by the Company under its principal government
contract. In August 1993, the Company reached an agreement with the Federal
government under which these matters were resolved to the satisfaction of the
Company. Under this agreement, there were no adjustments relating to the
Company's past time-and-materials charges, and accordingly there was no effect
on the Company's financial statements for prior periods relating to this matter.
The agreement provided for adjustments to certain hourly labor rates and limited
the recovery of certain general and administrative costs prospectively from
August 1993.
In June 1995, the Company was awarded a follow-on ALC contract. This is a
three-year requirements contract, which permits extension of the ordering period
for up to two additional one-year periods at the option of the Government.
Actual revenues under this contract will depend on the specific purchases, if
any, by the Air Force and other governmental agencies which can use the contract
during the contract period. Following the award of the contract, certain
competitors filed protests with the General Accounting Office ("GAO"). In
December 1995, the GAO notified the Company that all of the protests had been
dismissed, except the protest of the Air Force's evaluation of certain discounts
offered by the Company in the contract. In sustaining this protest on the basis
that it did, the GAO did not recommend termination of the contract or any other
remedy adverse to the interests of the Company at this time. As a result, the
Company retains the contract for the present and the Government can place orders
under the contract. The GAO has, however, recommended that the Air Force amend a
portion of the request for proposal that led to the contract award. The GAO
further recommended that the Air Force allow the protesting companies and the
Company to submit new proposals regarding such portion, and that the Air Force
re-evaluate the award to the Company based upon these new proposals. The Company
has not been advised by the Air Force whether it will contest or accept the
GAO's recommendations. Similarly, the Air Force has not advised the Company of
its plans regarding the issuance of additional orders under the contract, or an
amended request for proposal. No assurances can be given that the Company
ultimately will retain the contract.
NOTE 16: SUBSEQUENT EVENTS
In November 1995, the Company executed a definitive agreement to acquire
Deltec Power Systems, Inc. and its subsidiaries ("Deltec") from Fiskars Oy Ab
("Fiskars") and an affiliated company for a purchase price of approximately $195
million, subject to certain post-closing adjustments. The acquisition will be
accounted for as a purchase. Under the stock purchase agreement, Fiskars will
receive cash of approximately $157.5 million and 1,875,000 shares of the
Company's common stock valued at a fixed price of $20 per share ($37.5 million),
in exchange for all of the issued and outstanding capital stock of Deltec.
Deltec had revenues of $86.8 million and net income of $1.7 million for the nine
months ended September 30, 1995, and revenues of $97.2 million and net income of
$3.2 million for the year ended December 31, 1994. Deltec has two principal
operating subsidiaries: Deltec Electronics Corporation, which is headquartered
in San Diego, California; and FPS Power Systems Oy Ab, which is based in Espoo,
Finland near Helsinki. Deltec is one of the world's largest manufacturers and
marketers of off-line and line-interactive small UPS systems. Off-line and
line-interactive systems are smaller and less expensive than larger on-line
systems, and are suitable for applications where system downtime may be less
costly, such as personal or small business uses. The combination will strengthen
the product line offering of the Company and enhance its global service
capabilities. It is expected that the acquisition will close in the first
calendar quarter of 1996, after completion of due diligence reviews by the
Company and attainment of all required governmental and other regulatory
approvals.
In December 1995, the Company received a commitment from several banks to
establish a five-year senior bank package (the "Facilities") of up to $225
million comprised of a $75 million term loan (the "Term Loan") and a $150
million revolving credit facility (the "Revolver"). The Term Loan would be used
for the Deltec acquisition and to refinance a portion of the Company's existing
debt, while the Revolver would be
F-20
<PAGE> 136
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
used for working capital, letters of credit, and general corporate purposes.
Amounts outstanding under the Facilities would be secured by substantially all
the inventory and accounts receivable of the Company and would initially bear
interest at LIBOR plus 200 basis points, or the bank's base rate plus 100 basis
points, as defined. This commitment is subject to consummation of the Deltec
acquisition by February 28, 1996, and the issuance of at least $75 million of
subordinated debt, or equivalent bridge financing.
NOTE 17: SUMMARIZED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
(UNAUDITED, IN THOUSANDS EXCEPT PER SHARE DATA)
1994
Total revenues....................... $79,675 $88,013 $91,764 $104,531 $363,983
Gross profit......................... 22,241 25,359 24,804 26,291 98,695
Net income........................... 1,887 522 3,176 3,590 9,175
Per share amounts
Primary............................ $ 0.22 $ 0.04 $ 0.38 $ 0.43 $ 1.07
------- ------- ------- -------- --------
Fully diluted...................... $ 0.21 $ 0.04 $ 0.35 $ 0.40 $ 1.03
======= ======= ======= ======== ========
1995
Total revenues....................... $92,066 $91,268 $98,846 $108,798 $390,978
Gross profit......................... 23,684 23,903 27,418 28,860 103,865
Net income (loss).................... 2,249 (2,574) 4,093 3,617 7,385
Per share amounts
Primary............................ $ 0.26 $ (0.36) $ 0.49 $ 0.42 $ 0.84
------- ------- ------- -------- --------
Fully diluted...................... $ 0.25 $ (0.36) $ 0.44 $ 0.39 $ 0.84
======= ======= ======= ======== ========
</TABLE>
The Company completed its merger with IPM during the second quarter of
1995. This merger has been accounted for as a pooling-of-interests, as discussed
in Note 2. Accordingly, the results for all quarterly periods presented include
the results of IPM. Per share amounts have been recalculated after adding the
shares of Exide Electronics common stock issued to effect the merger to weighted
average share amounts.
In connection with the merger, the Company recorded a non-recurring charge
in the second quarter of $5.5 million ($4.4 million after tax). The one-time
charge included approximately $3.0 million for legal, accounting, financial
advisory, and other costs related to the merger. The Company also expensed
approximately $2.5 million for the estimated costs of closing a duplicate
operating facility and discontinuing certain duplicate product lines
manufactured at that facility.
The Company incurred additional nonrecurring charges in the second quarter
of fiscal 1995 for litigation, and in the fourth quarter of fiscal 1995 for
expenses related to a potential acquisition. The amount of these charges was
$700,000, or $424,000 after tax (see Note 15), and $1,500,000, or $813,000 after
tax (see Note 14), respectively.
The Company recorded a one-time litigation charge in the second quarter of
fiscal 1994 of $5.0 million ($2.9 million after tax), which is described in Note
15.
The sum of quarterly per share amounts does not necessarily equal the
annual net income per share due to the rounding effect of the weighted average
common shares outstanding for the individual periods, and for the fully diluted
calculation, to the inclusion of the dilutive effect of convertible securities.
The effective tax rate for the fourth quarter of fiscal 1995 was lower than
the rate for the previous quarters in fiscal 1995. The lower rate reflected the
use in the fourth quarter of foreign NOL's due to a different mix of foreign
versus domestic taxable earnings for the full year than was anticipated in prior
quarters.
F-21
<PAGE> 137
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Series A Senior Subordinated
Notes (see Note 5 to interim consolidated financial statements) are guaranteed
by certain of the Company's wholly-owned subsidiaries (the "Guarantor
Subsidiaries"). Such guarantees are full, unconditional and joint and several.
Separate financial statements of the Guarantor Subsidiaries are not presented
because Exide management has determined that they would not be material to
investors. Separate audited financial statements of Deltec Power Systems, Inc.
("DPSI") have been included elsewhere herein, including supplemental condensed
consolidating financial information related to DPSI and Deltec Electronics
Corporation which have also guaranteed the Series A Senior Subordinated Notes.
The following supplemental financial information sets forth, on an
unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries"). The supplemental financial information reflects the investments
of the Company and the Guarantor Subsidiaries in the Guarantor and Non-Guarantor
subsidiaries using the equity method of accounting.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON- GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents................. $ -- $ 593 $ 2,194 $ -- $ 2,787
Accounts receivable....................... -- 85,512 20,012 -- 105,524
Intercompany accounts receivable.......... 206 39,843 791 (40,840) --
Inventories............................... -- 62,923 10,473 (506) 72,890
Other current............................. 57 12,124 1,196 -- 13,377
-------- ------------ ------------- ------------ ------------
Total current assets............... 263 200,995 34,666 (41,346) 194,578
Property, plant, and equipment, net......... -- 32,901 2,156 -- 35,057
Goodwill.................................... -- 12,224 6,514 -- 18,738
Noncurrent intercompany receivables......... 26,969 21,972 -- (48,941) --
Investment in affiliates.................... 85,766 18,927 -- (104,295) 398
Other assets................................ 425 6,381 874 -- 7,680
-------- ------------ ------------- ------------ ------------
$113,423 $293,400 $44,210 $ (194,582) $256,451
========= =========== ============= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt........................... $ 456 $ 68 $ 7,131 $ -- $ 7,655
Accounts payable.......................... -- 41,100 4,941 -- 46,041
Intercompany accounts payable............. 9,007 23,599 8,234 (40,840) --
Deferred revenues......................... -- 13,021 2,581 -- 15,602
Other accrued liabilities................. 355 17,153 2,230 (1) 19,737
-------- ------------ ------------- ------------ ------------
Total current liabilities.......... 9,818 94,941 25,117 (40,841) 89,035
Long-term debt.............................. -- 65,258 -- -- 65,258
Noncurrent intercompany payables............ 4,838 44,103 -- (48,941) --
Convertible subordinated notes.............. 15,000 -- -- -- 15,000
Deferred liabilities........................ -- 3,332 59 -- 3,391
Shareholders' equity........................ 83,767 85,766 19,034 (104,800) 83,767
-------- ------------ ------------- ------------ ------------
$113,423 $293,400 $44,210 $ (194,582) $256,451
========= =========== ============= =========== ===========
</TABLE>
F-22
<PAGE> 138
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... $ -- $ 3,754 $ 2,132 $ -- $ 5,886
Accounts receivable................. -- 91,022 14,690 -- 105,712
Intercompany accounts receivable.... -- 34,755 1,587 (36,342) --
Inventories......................... -- 47,389 8,294 (154) 55,529
Other current assets................ 5 11,018 1,058 -- 12,081
-------- ------------ ------------- ------------ ------------
Total current assets........ 5 187,938 27,761 (36,496) 179,208
Property, plant, and equipment, net... -- 26,475 1,737 -- 28,212
Goodwill.............................. -- 2,259 6,688 -- 8,947
Noncurrent intercompany receivables... 26,533 2,226 -- (28,759) --
Investment in affiliates.............. 75,737 14,684 -- (90,290) 131
Other assets.......................... 565 6,566 1,047 -- 8,178
-------- ------------ ------------- ------------ ------------
$102,840 $240,148 $37,233 $ (155,545) $224,676
======== ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND
COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt..................... $ -- $ 900 $ 4,902 $ -- $ 5,802
Accounts payable.................... -- 39,517 5,441 -- 44,958
Intercompany accounts payable....... 9,867 18,724 7,751 (36,342) --
Deferred revenues................... -- 14,199 2,378 -- 16,577
Other accrued liabilities........... 511 16,075 1,948 -- 18,534
-------- ------------ ------------- ------------ ------------
Total current liabilities... 10,378 89,415 22,420 (36,342) 85,871
Long-term debt........................ -- 43,400 -- -- 43,400
Noncurrent intercompany payables...... -- 28,759 -- (28,759) --
Convertible subordinated notes........ 15,000 -- -- -- 15,000
Deferred liabilities.................. -- 2,837 106 -- 2,943
Redeemable preferred stock............ 10,000 -- -- -- 10,000
Common shareholders' equity........... 67,462 75,737 14,707 (90,444) 67,462
-------- ------------ ------------- ------------ ------------
$102,840 $240,148 $37,233 $ (155,545) $224,676
======== ========= =========== ========= =========
</TABLE>
F-23
<PAGE> 139
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $261,101 $54,415 $(44,034) $271,482
Service revenues....................... -- 105,126 14,370 -- 119,496
------- ------------ ------------- ------------ ------------
Total revenues............... -- 366,227 68,785 (44,034) 390,978
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 204,491 43,872 (43,680) 204,683
Service cost of revenues............... -- 73,654 8,776 -- 82,430
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 278,145 52,648 (43,680) 287,113
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 88,082 16,137 (354) 103,865
Selling, general and administrative
expense.............................. 365 57,106 12,495 -- 69,966
Research and development expense....... -- 9,929 -- -- 9,929
Litigation expense..................... 700 -- -- -- 700
Merger and acquisition expense......... 4,500 2,500 -- -- 7,000
------- ------------ ------------- ------------ ------------
Income (loss) from operations..... (5,565) 18,547 3,642 (354) 16,270
Interest expense....................... 1,314 3,828 540 (107) 5,575
Interest income........................ (315) (32) (138) -- (485)
Other (income) expense................. (1,312) 217 204 (6) (897)
------- ------------ ------------- ------------ ------------
Income (loss) before income
taxes........................... (5,252) 14,534 3,036 (241) 12,077
Provision for (benefit from) income
taxes................................ (1,118) 5,730 80 -- 4,692
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (4,134) 8,804 2,956 (241) 7,385
Equity in income of consolidated
subsidiaries......................... 11,519 2,956 -- (14,475) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ 7,385 $ 11,760 $ 2,956 $(14,716) $ 7,385
======= ========= =========== ========= =========
</TABLE>
F-24
<PAGE> 140
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $252,938 $31,855 $(25,390) $259,403
Service revenues....................... -- 94,931 9,649 -- 104,580
------- ------------ ------------- ------------ ------------
Total revenues............... -- 347,869 41,504 (25,390) 363,983
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 193,729 25,131 (25,288) 193,572
Service cost of revenues............... -- 64,893 6,823 -- 71,716
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 258,622 31,954 (25,288) 265,288
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 89,247 9,550 (102) 98,695
Selling, general and administrative
expense.............................. 222 55,652 9,212 -- 65,086
Research and development expense....... -- 10,150 -- -- 10,150
Litigation expense..................... -- 4,997 -- -- 4,997
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (222) 18,448 338 (102) 18,462
Interest expense....................... 1,300 3,918 199 -- 5,417
Interest income........................ (278) (85) (125) -- (488)
Other (income) expense................. (1,305) 1,137 231 11 74
------- ------------ ------------- ------------ ------------
Income before income taxes............. 61 13,478 33 (113) 13,459
Provision for income taxes............. 25 4,074 185 -- 4,284
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
(loss) of consolidated
subsidiaries......................... 36 9,404 (152) (113) 9,175
Equity in income (loss) of consolidated
subsidiaries......................... 9,139 (152) -- (8,987) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ 9,175 $ 9,252 $ (152) $ (9,100) $ 9,175
======= ========= =========== ========= =========
</TABLE>
F-25
<PAGE> 141
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues...................... $ -- $215,040 $25,615 $(20,512) $220,143
Service revenues...................... -- 89,878 7,921 -- 97,799
--------- ------------ ------------- ------------ ------------
Total revenues.............. -- 304,918 33,536 (20,512) 317,942
--------- ------------ ------------- ------------ ------------
Product cost of revenues.............. -- 164,576 21,608 (20,484) 165,700
Service cost of revenues.............. -- 61,758 4,989 -- 66,747
--------- ------------ ------------- ------------ ------------
Total cost of revenues...... -- 226,334 26,597 (20,484) 232,447
--------- ------------ ------------- ------------ ------------
Gross profit..................... -- 78,584 6,939 (28) 85,495
Selling, general and administrative
expense............................. 219 47,048 8,239 -- 55,506
Research and development expense...... -- 9,592 -- -- 9,592
--------- ------------ ------------- ------------ ------------
Income (loss) from
operations................ (219) 21,944 (1,300) (28) 20,397
Interest expense...................... 1,330 2,993 155 (57) 4,421
Interest income....................... (262) (73) (188) 57 (466)
Other (income) expense................ (1,330) 1,382 344 -- 396
--------- ------------ ------------- ------------ ------------
Income (loss) before taxes and
cumulative effect of accounting
change.............................. 43 17,642 (1,611) (28) 16,046
Provision for income taxes............ 9 5,985 220 -- 6,214
--------- ------------ ------------- ------------ ------------
Income (loss) before cumulative
effect.............................. 34 11,657 (1,831) (28) 9,832
Cumulative effect of accounting
change.............................. 9 846 145 -- 1,000
--------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
(loss) of consolidated
subsidiaries........................ 43 12,503 (1,686) (28) 10,832
Equity in income (loss) of
consolidated subsidiaries........... 10,789 (1,686) -- (9,103) --
--------- ------------ ------------- ------------ ------------
Net income (loss)..................... $10,832 $ 10,817 $(1,686) $ (9,131) $ 10,832
======= ========= =========== ========= =========
</TABLE>
F-26
<PAGE> 142
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................ $ 7,385 $ 11,760 $2,956 $(14,716) $ 7,385
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 6,182 501 -- 6,683
Amortization expense................... 57 2,132 573 -- 2,762
Equity in income of consolidated
subsidiaries......................... (11,519) (2,956) -- 14,475 --
(Increase) decrease in accounts
receivable........................... (206) 2,485 (4,526) 4,498 2,251
Increase in inventories................ -- (15,304) (2,179) 352 (17,131)
Increase in other current assets....... (52) (170) (138) -- (360)
Increase (decrease) in accounts
payable.............................. (860) 5,298 (17) (4,498) (77)
Increase (decrease) in other current
liabilities.......................... (156) (1,011) 485 1 (681)
Other, net............................. 83 289 (96) -- 276
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (5,268) 8,705 (2,441) 112 1,108
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (11,553) (944) -- (12,497)
Acquisitions, net of cash acquired....... (250) (13,151) -- 250 (13,151)
Other, net............................... 1,612 555 (63) (2,154) (50)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 1,362 (24,149) (1,007) (1,904) (25,698)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 139,600 4,113 -- 143,713
Payments of bank credit facilities....... -- (114,329) (1,945) -- (116,274)
Payments of industrial revenue bonds..... -- (4,600) -- -- (4,600)
Issuance of common stock................. 1,342 -- -- -- 1,342
Purchases of treasury stock.............. (703) -- -- -- (703)
Preferred stock dividends of Exide
Electronics............................ (789) -- -- -- (789)
Preferred stock dividends of IPM......... -- (1,226) -- -- (1,226)
Payments of notes receivable from
shareholders........................... 136 -- -- -- 136
Other, net............................... 3,920 (7,162) 1,342 1,792 (108)
--------- ------------ ------- ------------ ------------
Net cash provided by financing
activities........................ 3,906 12,283 3,510 1,792 21,491
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- (3,161) 62 -- (3,099)
Cash and cash equivalents, beginning of
period................................... -- 3,754 2,132 -- 5,886
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 593 $2,194 $ -- $ 2,787
========= =========== ============== =========== ===========
</TABLE>
F-27
<PAGE> 143
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1994
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................ $ 9,175 $ 9,252 $ (152) $ (9,100) $ 9,175
Adjustment to conform fiscal year
of IPM................................. -- 49 -- -- 49
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 5,701 404 -- 6,105
Amortization expense................... -- 2,110 215 -- 2,325
Equity in (income) loss of consolidated
subsidiaries......................... (9,139) 152 -- 8,987 --
(Increase) decrease in accounts
receivable........................... -- (3,334) (5,207) 1,190 (7,351)
Increase in inventories................ -- (4,483) (239) (221) (4,943)
(Increase) decrease in other current
assets............................... (4) (2,201) (357) 13 (2,549)
Increase (decrease) in accounts
payable.............................. 63 (1,318) 5,102 (1,190) 2,657
Increase (decrease) in other current
liabilities.......................... (57) 2,032 (52) 23 1,946
Other, net............................. -- 1,000 64 -- 1,064
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. 38 8,960 (222) (298) 8,478
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (8,206) (529) -- (8,735)
Acquisitions, net of cash acquired....... -- -- (3,580) -- (3,580)
Other, net............................... 1,169 1,264 (1,567) (2,442) (1,576)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 1,169 (6,942) (5,676) (2,442) (13,891)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 88,629 3,309 -- 91,938
Payments of bank credit facilities....... -- (83,430) (199) -- (83,629)
Payments of industrial revenue bonds..... -- (3,500) -- -- (3,500)
(Increase) decrease in funds held in
trust for future construction.......... 2,600 -- -- 2,600
Issuance of common stock................. 1,055 -- -- -- 1,055
Preferred stock dividends of Exide
Electronics............................ (839) -- -- -- (839)
Preferred stock dividends of IPM......... -- (500) -- -- (500)
Payments of notes receivable from
shareholders........................... 276 -- -- -- 276
Other, net............................... (1,699) (2,253) 645 2,740 (567)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
financing activities.............. (1,207) 1,546 3,755 2,740 6,834
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- 3,564 (2,143) -- 1,421
Cash and cash equivalents, beginning of
period................................... -- 190 4,275 -- 4,465
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 3,754 $2,132 $ -- $ 5,886
========= =========== ============== =========== ===========
</TABLE>
F-28
<PAGE> 144
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 18: SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED SEPTEMBER 30, 1993
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
COMPANY ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss).................... $ 10,832 $ 10,817 $ (1,686) $ (9,131) $ 10,832
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation expense............... -- 4,925 379 -- 5,304
Amortization expense............... -- 1,475 74 97 1,646
Equity in (income) loss of
consolidated subsidiaries........ (10,789) 1,686 -- 9,103 --
(Increase) decrease in accounts
receivable....................... 1 (19,355) 6,156 (12,669) (25,867)
Increase in inventories............ -- (14,171) (404) (220) (14,795)
(Increase) decrease in other
current assets................... (1) 549 (98) (13) 437
Increase (decrease) in accounts
payable.......................... (7) 10,830 (8,561) 12,673 14,935
Increase (decrease) in other
current liabilities.............. 284 6,153 (543) (25) 5,869
Cumulative effect of accounting
change........................... (9) (846) (145) -- (1,000)
Other, net......................... (214) (652) 184 -- (682)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
operating activities.......... 97 1,411 (4,644) (185) (3,321)
------------ ------------ -------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.......................... -- (7,907) (348) -- (8,255)
Acquisitions, net of cash acquired... -- (1,983) -- -- (1,983)
Other, net........................... (11,674) (11,982) 747 21,627 (1,282)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
investing activities.......... (11,674) (21,872) 399 21,627 (11,520)
------------ ------------ -------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit
facilities......................... -- 73,813 4,714 -- 78,527
Payments of bank credit facilities... -- (60,101) (3,602) -- (63,703)
Payments of industrial revenue
bonds.............................. -- (900) -- -- (900)
(Increase) decrease in funds held in
trust for future construction...... -- (64) -- -- (64)
Issuance of common stock............. 598 -- -- -- 598
Issuance of redeemable preferred
stock.............................. 4,900 -- -- -- 4,900
Preferred stock dividends of Exide
Electronics........................ (1,006) -- -- -- (1,006)
Preferred stock dividends of IPM..... -- (400) -- -- (400)
Payments of notes receivable from
shareholders....................... 160 -- -- -- 160
Other, net........................... 6,925 8,043 5,595 (21,442) (879)
------------ ------------ -------------- ------------ ------------
Net cash provided by (used in)
financing activities.......... 11,577 20,391 6,707 (21,442) 17,233
------------ ------------ -------------- ------------ ------------
Net increase (decrease) in cash and
cash
equivalents.......................... $ -- (70) 2,462 -- 2,392
Cash and cash equivalents, beginning of
period............................... $ -- 260 1,813 -- 2,073
------------ ------------ -------------- ------------ ------------
Cash and cash equivalents, end of
period............................... -- $ 190 $ 4,275 $ -- $ 4,465
============= =========== ============== =========== ===========
</TABLE>
F-29
<PAGE> 145
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1995
------------- ------------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents...................................... $ 2,787 $ 2,001
Accounts receivable............................................ 105,524 95,436
Inventories.................................................... 72,890 76,753
Other current assets........................................... 13,377 15,357
------------- ------------
Total current assets................................... 194,578 189,547
------------- ------------
Property, plant, and equipment
Land, buildings, and leasehold improvements.................... 9,931 10,248
Machinery and equipment........................................ 61,519 64,564
------------- ------------
71,450 74,812
Accumulated depreciation....................................... 36,393 37,561
------------- ------------
35,057 37,251
Goodwill......................................................... 18,738 18,318
Other assets..................................................... 8,078 8,823
------------- ------------
$ 256,451 $253,939
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt................................................ $ 7,655 $ 6,747
Accounts payable............................................... 46,041 43,220
Deferred revenues.............................................. 15,602 15,840
Other accrued liabilities...................................... 19,737 15,707
------------- ------------
Total current liabilities.............................. 89,035 81,514
------------- ------------
Long-term debt................................................... 65,258 76,416
------------- ------------
Convertible subordinated notes................................... 15,000 --
------------- ------------
Deferred liabilities............................................. 3,391 3,421
------------- ------------
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000 shares authorized;
shares issued -- 8,376,341 at September 30, 1995 and
9,537,130 at December 31, 1995.............................. 84 95
Additional paid-in capital..................................... 58,190 72,556
Retained earnings.............................................. 32,437 32,850
Cumulative translation adjustments............................. (1,404) (1,456)
------------- ------------
89,307 104,045
Less: Notes receivable from shareholders....................... (5,520) (5,122)
Treasury stock, 926 shares at September 30, 1995 and
385,899 shares at December 31, 1995....................... (20) (6,335)
------------- ------------
83,767 92,588
------------- ------------
$ 256,451 $253,939
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE> 146
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
---------------------
1994 1995
------- -------
(UNAUDITED)
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNTS)
<S> <C> <C>
Product revenues..................................................... $63,896 $57,659
Service revenues..................................................... 28,170 25,644
------- -------
Total revenues............................................. 92,066 83,303
------- -------
Product cost of revenues............................................. 49,060 42,508
Service cost of revenues............................................. 19,322 18,580
------- -------
Total cost of revenues..................................... 68,382 61,088
------- -------
Gross profit....................................................... 23,684 22,215
Selling, general and administrative expense.......................... 16,557 17,457
Research and development expense..................................... 2,547 2,509
------- -------
Income from operations............................................. 4,580 2,249
Interest expense..................................................... 1,424 1,497
Interest income...................................................... (139) (31)
Other (income) expense............................................... (161) 117
------- -------
Income before income taxes......................................... 3,456 666
Provision for income taxes........................................... 1,207 253
------- -------
Net income......................................................... $ 2,249 $ 413
======= =======
Preferred stock dividends............................................ 198 --
Net income applicable to common shareholders......................... $ 2,051 $ 413
======= =======
Per Share amounts
Primary
Net income......................................................... $ 0.26 $ 0.04
======= =======
Weighted average number of common and equivalent shares
outstanding..................................................... 7,782 9,211
======= =======
Fully diluted
Net income......................................................... $ 0.25 $ 0.04
======= =======
Weighted average number of common and equivalent shares
outstanding..................................................... 9,005 9,500
======= =======
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE> 147
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
DECEMBER 31,
-----------------------
1994 1995
-------- --------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Cash flows from operating activities
Net income......................................................... $ 2,249 $ 413
Adjustments to reconcile net income to cash provided by (used in)
operating activities:
Depreciation expense............................................ 1,562 1,841
Amortization expense............................................ 653 612
Decrease in accounts receivable................................. 15,940 10,088
Increase in inventories......................................... (4,317) (3,863)
Increase in other current assets................................ -- (1,714)
Increase (decrease) in accounts payable......................... 8,518 (2,821)
Decrease in other current liabilities........................... (6,150) (3,792)
Other, net...................................................... (138) (1,276)
-------- --------
Net cash provided by (used in) operating activities........ 18,317 (512)
-------- --------
Cash flows from investing activities
Acquisitions of property, plant, and equipment..................... (2,332) (3,938)
Other, net......................................................... (783) (165)
-------- --------
Net cash used in investing activities...................... (3,115) (4,103)
-------- --------
Cash flows from financing activities
Proceeds from bank credit facilities............................... 18,130 36,925
Payments of bank credit facilities................................. (32,196) (26,504)
Payment of industrial revenue bonds................................ (4,600) --
Issuances of common stock.......................................... 2 142
Purchases of treasury stock........................................ (625) (6,926)
Preferred stock dividends of Exide Electronics..................... (395) --
Preferred stock dividends of IPM................................... (100) --
Payments of notes receivables from shareholders.................... 104 215
Other, net......................................................... (53) (23)
-------- --------
Net cash provided by (used in) financing activities........ (19,733) 3,829
-------- --------
Net decrease in cash and cash equivalents............................ (4,531) (786)
Cash and cash equivalents, beginning of period....................... 5,886 2,787
-------- --------
Cash and cash equivalents, end of period............................. $ 1,355 $ 2,001
======== ========
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized.......................... $ 1,368 $ 1,920
Income taxes paid.................................................. $ 221 $ 1,548
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE> 148
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and the
rules and regulations of the Securities and Exchange Commission for interim
financial statements. Certain information and footnote disclosures required for
complete financial statements have been condensed or omitted. These financial
statements should be read in conjunction with the annual financial statements
included elsewhere herein.
In the opinion of management, the accompanying consolidated financial
statements include all adjustments (which consist of normal recurring
adjustments) necessary to present fairly the financial position at December 31,
1995, and the results of operations and cash flows for the three months ended
December 31, 1994 and 1995. The results of operations for the three months ended
December 31, 1995 are not necessarily indicative of the results to be expected
for the full year.
NOTE 2 -- INVENTORIES
Inventories, which include materials, labor, and manufacturing overhead,
are stated at the lower of cost or market, and consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1995
------------- ------------
(IN THOUSANDS)
<S> <C> <C>
Raw materials and supplies................................. $27,989 $ 31,153
Work in process............................................ 6,064 7,259
Finished goods............................................. 24,054 23,318
Service parts.............................................. 14,783 15,023
------------- ------------
$72,890 $ 76,753
========== ==========
</TABLE>
NOTE 3 -- LONG-TERM DEBT
At December 31, 1995, the Company had borrowings of $76.1 million
outstanding under its $145 million package of committed domestic unsecured bank
credit facilities comprised of a $95 million revolving credit facility for
working capital and general corporate purposes, including a sublimit of $30
million which may be used in support of its international subsidiaries, and a
$50 million revolving credit facility to be used for financing certain
acquisitions and refinancing specified existing obligations. The credit
agreement contains certain financial covenants, including a senior debt to cash
flow ratio, a fixed charge ratio, a leverage ratio and a minimum net worth
requirement. At December 31, 1995, the Company was in compliance with all
financial covenants, except that its senior debt to cash flow ratio exceeded the
prescribed ratio; however, the lenders have waived the applicability of this
covenant from December 31, 1995 through March 30, 1996.
NOTE 4 -- COMMON SHAREHOLDERS' EQUITY
In September 1992, the Company sold $15 million of convertible subordinated
notes (the "Notes"). The Notes bore interest at 8.375% per annum, payable
semi-annually. The Notes were convertible into common stock of the Company at
any time for an initial conversion price of $13.08 per share, subject to
adjustment for certain events. On October 23, 1995, the holder of the Notes
exercised its option to convert the Notes into 1,146,789 shares of the Company's
common stock.
During the three months ended December 31, 1995, the Company's treasury
stock transactions included: (1) the repurchase of approximately 444,000 shares
of its common stock for approximately $7.4 million under a program to repurchase
up to 5% of the Company's outstanding common stock as originally authorized by
the Board of Directors in November 1994 and reaffirmed in September 1995 and (2)
the issuance of
F-33
<PAGE> 149
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
approximately 59,000 shares of its common stock for approximately $.8 million
under its Employee Stock Purchase Plan, which included $1.1 million credited to
treasury stock and $.3 million charged to additional paid-in capital.
NOTE 5 -- SUBSEQUENT EVENTS
Pursuant to a Stock Purchase Agreement dated November 17, 1995, as amended
on February 9, 1996, the Company acquired Deltec Power Systems, Inc. from
Fiskars Oy Ab and Fiskars Holdings, Inc. simultaneously with the closing of the
Offering of Units consisting of $125.0 million of Series A Senior Subordinated
Notes and Warrants to purchase 643,750 shares of the Company's Common Stock as
described elsewhere herein. The purchase price of approximately $188.1 million
was comprised of approximately $158.5 million in cash, 825,000 shares of the
Company's common stock valued at $14.00 per share, and 1,000,000 shares of the
Company's Series G Convertible Preferred Stock valued at $18.00 per share (the
"Series G Preferred Stock"). The purchase price was determined based on an
assumption that the net book value of Deltec on the closing would be
approximately $28.7 million. The purchase price will be adjusted upward or
downward to the extent the closing date net book value (as adjusted for certain
excluded assets and liabilities) differs from this amount. The Series G
Preferred Stock will be convertible into shares of the Company's Common Stock on
a one-for-one basis (subject to adjustment under certain circumstances), will
have a dividend rate of $0.80 per share through March 31, 2001, and $1.20 per
share thereafter, will be subject to redemption at the option of the holder at
$24 per share at any time after September 30, 2006 and will have a liquidation
preference of $20 per share, plus all accrued and unpaid dividends. The Company
financed the cash portion of the purchase price, excluding transaction costs,
with (i) the net proceeds of the Offering (excluding transaction costs) of
$121.3 million, (ii) $36.7 million of borrowings under a new credit facility
(the "New Credit Facility") and (iii) $500,000 payable to Fiskars on January 8,
1997. The New Credit Facility provides for term and revolving credit facilities
in the aggregate amount of up to $175.0 million upon completion of the Offering.
In addition, the Company made certain interest payments to Fiskars of
approximately $4.0 million. At closing, the Company made a prepayment of $3.0
million to Fiskars related to the variable purchase price adjustment, which
would have been $6.2 million based on Deltec's net book value at December 31,
1995. An additional payment of $3.7 million was made to Fiskars which
represented excess cash which remained in Deltec following the closing.
F-34
<PAGE> 150
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (UNAUDITED)
The Company's payment obligations under the Series A Senior Subordinated
Notes are guaranteed by certain of the Company's subsidiaries (the "Guarantor
Subsidiaries"). The following supplemental financial information sets forth, on
an unconsolidated basis, balance sheet, statement of operations and cash flow
information for the Company ("Parent Company Only"), for the Guarantor
Subsidiaries and for the Company's other subsidiaries (the "Non-Guarantor
Subsidiaries").
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents........... $ -- $ 1,160 $ 841 $ -- $ 2,001
Accounts receivable................. 766 72,177 22,493 -- 95,436
Intercompany accounts receivable.... 209 35,340 1,287 (36,836) --
Inventories......................... -- 66,749 10,392 (388) 76,753
Other current....................... 57 13,866 1,434 -- 15,357
-------- ------------ ------------- ------------ ------------
Total current assets........ 1,032 189,292 36,447 (37,224) 189,547
Property, plant, and equipment, net... -- 34,940 2,311 -- 37,251
Goodwill.............................. -- 12,059 6,259 -- 18,318
Noncurrent intercompany receivables... 26,944 12,088 -- (39,032) --
Investment in affiliates.............. 86,110 19,673 -- (105,275) 508
Other assets.......................... 1,071 6,424 820 -- 8,315
-------- ------------ ------------- ------------ ------------
$115,157 $274,476 $45,837 $ (181,531) $253,939
======== ========= =========== ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt..................... $ 459 $ -- $ 6,288 $ -- $ 6,747
Accounts payable.................... -- 38,431 4,789 -- 43,220
Intercompany accounts payable....... 8,893 18,065 9,878 (36,836) --
Deferred revenues................... -- 13,718 2,122 -- 15,840
Other accrued liabilities........... 85 12,632 2,990 -- 15,707
-------- ------------ ------------- ------------ ------------
Total current liabilities... 9,437 82,846 26,067 (36,836) 81,514
Long-term debt........................ -- 76,416 -- -- 76,416
Noncurrent intercompany payables...... 13,132 25,900 -- (39,032) --
Deferred liabilities.................. -- 3,204 217 -- 3,421
Shareholders' equity.................. 92,588 86,110 19,553 (105,663) 92,588
-------- ------------ ------------- ------------ ------------
$115,157 $274,476 $45,837 $ (181,531) $253,939
======== ========= =========== ========= =========
</TABLE>
F-35
<PAGE> 151
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $ 58,633 $15,444 $(16,418) $ 57,659
Service revenues....................... -- 22,695 3,154 (205) 25,644
------- ------------ ------------- ------------ ------------
Total revenues............... -- 81,328 18,598 (16,623) 83,303
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 47,248 11,762 (16,502) 42,508
Service cost of revenues............... -- 16,617 2,168 (205) 18,580
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 63,865 13,930 (16,707) 61,088
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 17,463 4,668 84 22,215
Selling, general and administrative
expense.............................. 121 14,170 3,166 -- 17,457
Research and development expense....... -- 2,509 -- -- 2,509
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (121) 784 1,502 84 2,249
Interest expense....................... 34 1,343 120 -- 1,497
Interest income........................ (31) -- -- -- (31)
Other (income) expense................. -- (237) 354 -- 117
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (124) (322) 1,028 84 666
Provision for (benefit from) income
taxes................................ (44) 48 249 -- 253
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (80) (370) 779 84 413
Equity in income of consolidated
subsidiaries......................... 493 779 -- (1,272) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $ 413 $ 409 $ 779 $ (1,188) $ 413
======= ========= =========== ========= =========
</TABLE>
F-36
<PAGE> 152
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $ 62,315 $11,884 $(10,303) $ 63,896
Service revenues....................... -- 24,812 3,358 -- 28,170
------- ------------ ------------- ------------ ------------
Total revenues............... -- 87,127 15,242 (10,303) 92,066
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 49,623 9,507 (10,070) 49,060
Service cost of revenues............... -- 17,225 2,097 -- 19,322
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 66,848 11,604 (10,070) 68,382
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 20,279 3,638 (233) 23,684
Selling, general and administrative
expense.............................. 82 13,582 2,893 -- 16,557
Research and development expense....... -- 2,547 -- -- 2,547
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (82 ) 4,150 745 (233) 4,580
Interest expense....................... 328 987 109 -- 1,424
Interest income........................ (77 ) (27) (35) -- (139)
Other (income) expense................. -- (163) 9 (7) (161)
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (333 ) 3,353 662 (226) 3,456
Provision for (benefit from) income
taxes................................ (116 ) 1,131 192 -- 1,207
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (217 ) 2,222 470 (226) 2,249
Equity in income of consolidated
subsidiaries......................... 2,466 470 -- (2,936) --
------- ------------ ------------- ------------ ------------
Net income (loss)...................... $2,249 $ 2,692 $ 470 $ (3,162) $ 2,249
======= ========= =========== ========= =========
</TABLE>
F-37
<PAGE> 153
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................ $ 413 $ 409 $ 779 $ (1,188) $ 413
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 1,723 118 -- 1,841
Amortization expense................... -- 242 370 -- 612
Equity in income of consolidated
subsidiaries......................... (493) (779) -- 1,272 --
(Increase) decrease in accounts
receivable........................... (769) 17,838 (2,977) (4,004) 10,088
(Increase) decrease in inventories..... -- (3,826) 81 (118) (3,863)
Increase in other current assets....... -- (1,476) (238) -- (1,714)
Increase (decrease) in accounts
payable.............................. (114) (8,203) 1,492 4,004 (2,821)
Increase (decrease) in other current
liabilities.......................... (270) (3,824) 301 1 (3,792)
Other, net............................. 3 (1,202) (77) -- (1,276)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,230) 902 (151) (33) (512)
--------- ------------ ------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant,
and equipment.......................... -- (3,521) (417) -- (3,938)
Other, net............................... 559 8,972 212 (9,908) (165)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 559 5,451 (205) (9,908) (4,103)
--------- ------------ ------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 36,558 367 -- 36,925
Payments of bank credit facilities....... -- (25,400) (1,104) -- (26,504)
Issuance of common stock................. 142 -- -- -- 142
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 7,240 (16,944) (260) 9,941 (23)
--------- ------------ ------- ------------ ------------
Net cash provided by (used in)
financing
activities........................ 671 (5,786) (997) 9,941 3,829
--------- ------------ ------- ------------ ------------
Net increase (decrease) in cash and cash
equivalents.............................. -- 567 (1,353) -- (786)
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 1,160 $ 841 $ -- $ 2,001
========= =========== ============== =========== ===========
</TABLE>
F-38
<PAGE> 154
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 6 -- SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities
Net income (loss)........................ $ 2,249 $ 2,692 $ 470 $ (3,162) $ 2,249
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense................... -- 1,430 132 -- 1,562
Amortization expense................... -- 528 125 -- 653
Equity in income of consolidated
subsidiaries......................... (2,466) (470) -- 2,936 --
(Increase) decrease in accounts
receivable........................... -- 16,965 (2,723) 1,698 15,940
(Increase) decrease in inventories..... -- (3,021) (1,464) 168 (4,317)
(Increase) decrease in other current
assets............................... 6 (142) 208 (72) --
Increase (decrease) in accounts
payable.............................. (1,745) 10,783 2,315 (2,835) 8,518
Increase (decrease) in other current
liabilities.......................... (549) (4,906) (810) 115 (6,150)
Other, net............................. -- (138) -- -- (138)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (2,505) 23,721 (1,747) (1,152) 18,317
--------- ------------ -------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (2,181) (151) -- (2,332)
Other, net............................... 2,638 (480) 663 (3,604) (783)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
investing activities.............. 2,638 (2,661) 512 (3,604) (3,115)
--------- ------------ -------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... -- 17,116 1,014 -- 18,130
Payments of bank credit facilities....... -- (32,100) (96) (32,196)
Payments of industrial revenue bonds..... -- (4,600) -- -- (4,600)
Issuance of common stock................. 2 -- -- -- 2
Purchases of treasury stock.............. (625) -- -- -- (625)
Preferred stock dividends of Exide
Electronics............................ (395) -- -- -- (395)
Preferred stock dividends of IPM......... -- (100) -- -- (100)
Payments of notes receivable from
shareholders........................... 104 -- -- -- 104
Other, net............................... 781 (4,764) (826) 4,756 (53)
--------- ------------ -------------- ------------ ------------
Net cash provided by (used in)
financing
activities........................ (133) (24,448) 92 4,756 (19,733)
--------- ------------ -------------- ------------ ------------
Net decrease in cash and cash
equivalents.............................. -- (3,388) (1,143) -- (4,531)
Cash and cash equivalents, beginning of
period................................... -- 3,754 2,132 -- 5,886
--------- ------------ -------------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 366 $ 989 $ -- $ 1,355
========= =========== ============== =========== ===========
</TABLE>
F-39
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders of
Deltec Power Systems, Inc.
In our opinion, based upon our audits and the reports of other auditors,
the accompanying consolidated balance sheets and the related
combined/consolidated statements of operations, of shareholders' equity and of
cash flows present fairly, in all material respects, the financial position of
Deltec Power Systems, Inc. and its subsidiaries (the "Company") at December 31,
1994, September 30, 1995 and December 31, 1995, and the results of their
operations and their cash flows for the years ended December 31, 1993, 1994 and
1995 and for the nine months ended September 30, 1995 in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We did not audit the
financial statements of FPS Power Systems Oy Ab, FPS Power Systems A/S, Fiskars
Power Systems A/S and Fiskars Power Systems AB, wholly-owned subsidiaries, which
statements reflect total assets of $13.0, $23.7 and $23.8 million at December
31, 1994, September 30, 1995 and December 31, 1995, respectively, and total
revenues of $20.8, $26.7, $38.6 and $25.8 million for the years ended December
31, 1993, 1994 and 1995 and for the nine months ended September 30, 1995,
respectively. Those statements were audited by other auditors whose reports
thereon have been furnished to us, and our opinion expressed herein, insofar as
it relates to the amounts included for those companies, is based solely on the
reports of the other auditors. We conducted our audits of these statements in
accordance with generally accepted auditing standards which require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for the opinion expressed above.
As discussed in Notes 2 and 9 to the financial statements, effective
January 1, 1993, Statement of Financial Accounting Standards No. 109 was
adopted.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
March 15, 1996
F-40
<PAGE> 156
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
FPS Power Systems Oy Ab
We have audited the accompanying balance sheets of FPS Power Systems Oy Ab
(the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as of
December 31, 1994 and 1995 and September 30, 1995, and the related statements of
income and cash flows for each of the years in the three-year period ended
December 31, 1995 and the nine months ended September 30, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As more fully described in note 1 to the financial statements, the Company
accounts for its investments in wholly-owned subsidiaries using the cost method.
The subsidiaries should be consolidated in order to conform with generally
accepted accounting principles.
In our opinion, except for the effects of accounting for investments in
subsidiaries on the cost method as discussed in the preceding paragraph, the
financial statements referred to above present fairly, in all material respects,
the financial position of FPS Power Systems Oy Ab, as of December 31, 1994, and
1995 and September 30, 1995, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 31, 1995 and
the nine months ended September 30, 1995, in conformity with generally accepted
accounting principles in the United States of America.
KPMG WIDERI OY AB
Helsinki, Finland
March 15, 1996
Sixten Nyman
Authorized Public Accountant
F-41
<PAGE> 157
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
and Shareholder of
Fiskars Power Systems A/S
We have audited the accompanying balance sheets of Fiskars Power Systems
A/S (the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as
of December 31, 1994, September 30, 1995 and December 31, 1995 and the related
statements of income and retained earnings and of cash flows for the nine month
period ended September 30, 1995 and for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of Fiskars Power Systems A/S at
December 31, 1994, September 30, 1995 and December 31, 1995, and the results of
its operations and its cash flows for the nine month period ended September 30,
1995 and for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles in the United States
of America.
KPMG
Oslo, Norway
March 15, 1996
Tom Myhre
State Authorized Public Accountant (Norway)
F-42
<PAGE> 158
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholder of
Fiskars Power Systems A/S
We have audited the accompanying balance sheets of Fiskars Power Systems
A/S, a wholly-owned subsidiary of Deltec Power Systems, Inc., as of December 31,
1994, September 30, 1995 and December 31, 1995 and the related statements of
income and retained earnings and of cash flows for the nine month period ended
September 30, 1995 and for each of the years in the three-year period ended
December 31, 1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We have conducted our audits in accordance with auditing standards
generally accepted in the United States of America. Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As more fully described in summary of significant accounting policies note
to the financial statements, the Company accounts for its wholly owned
subsidiary company, on the equity method. The subsidiary should be consolidated
to conform with generally accepted accounting principles.
In our opinion, except for the effects of accounting for its investment in
subsidiary on the equity method, the financial statements audited by us present
fairly, in all material respects, the financial position of Fiskars Power
Systems A/S at December 31, 1994, September 30, 1995 and December 31, 1995, and
the results of its operations and its cash flows for the nine month period ended
September 30, 1995 and for each of the years in the three-year period ended
December 31, 1995, in conformity with generally accepted accounting principles
in the United States of America.
KPMG C. Jespersen
Copenhagen, Denmark
March 15, 1996
Torben Vonsild
State Authorized
Public Accountant
F-43
<PAGE> 159
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
and Shareholder of
Fiskars Power Systems AB
We have audited the accompanying balance sheets of Fiskars Power Systems AB
(the "Company"), a wholly-owned subsidiary of Deltec Power Systems, Inc., as of
December 31, 1994, September 30, 1995 and December 31, 1995 and the related
statements of income and retained earnings and of cash flows for the nine month
period ended September 30, 1995 and for each of the years in the three-year
period ended December 31, 1995. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements audited by us present fairly, in
all material respects, the financial position of Fiskars Power Systems AB at
December 31, 1994, September 30, 1995 and December 31, 1995 and the results of
its operations and its cash flows for the nine month period ended September 30,
1995 and for each of the years in the three-year period ended December 31, 1995,
in conformity with generally accepted accounting principles.
As discussed in the income taxes note to the financial statements, in 1993
the Company adopted the method of accounting for income taxes prescribed by
Statements of Financial Accounting Standards No. 109.
KPMG Bohlins AB
Stockholm, Sweden
March 15, 1996
Thomas Thiel
Partner
F-44
<PAGE> 160
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash.............................................. $ 6,008,000 $ 8,842,000 $ 5,603,000
Accounts receivable, net.......................... 21,463,000 23,641,000 34,268,000
Inventories, net.................................. 16,379,000 19,923,000 21,633,000
Deferred income taxes............................. 1,681,000 2,007,000 2,518,000
Other current assets.............................. 1,606,000 1,920,000 1,870,000
----------- ----------- -----------
Total current assets...................... 47,137,000 56,333,000 65,892,000
Property and equipment, net......................... 6,611,000 6,927,000 7,135,000
Intangible assets, net.............................. 9,630,000 7,905,000 7,384,000
Other long-term assets.............................. 124,000 436,000 468,000
----------- ----------- -----------
$ 63,502,000 $ 71,601,000 $ 80,879,000
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.................................. $ 5,843,000 $ 8,135,000 $ 11,845,000
Deferred revenue.................................. 4,374,000 4,678,000 4,461,000
Accrued payroll and employee benefits............. 3,350,000 3,552,000 4,840,000
Income taxes payable.............................. 1,576,000 1,778,000 3,281,000
Intercompany payable, net......................... 2,537,000 5,546,000 6,791,000
Accrued commissions............................... 740,000 814,000 1,125,000
Accrued warranty.................................. 504,000 610,000 836,000
Current maturities of long-term debt.............. -- 2,121,000 10,000
Other current liabilities......................... 1,877,000 2,405,000 2,468,000
----------- ----------- -----------
Total current liabilities................. 20,801,000 29,639,000 35,657,000
----------- ----------- -----------
Deferred income taxes............................... 2,941,000 2,307,000 2,252,000
----------- ----------- -----------
Long-term debt (payable primarily to related
parties).......................................... 33,257,000 31,941,000 37,836,000
----------- ----------- -----------
Other long-term liabilities......................... 1,461,000 1,474,000 1,824,000
----------- ----------- -----------
Commitments (Note 11)
Shareholders' equity:
Class A redeemable preferred stock -- $.01 par
value, 1,500 shares outstanding at December 31,
1994 and September 30, 1995 (liquidation value
of $15,000,000); 900 shares outstanding at
December 31, 1995 (liquidation value of
$9,000,000), at ascribed value................. 9,695,000 9,695,000 5,817,000
Common stock -- $.01 par value, 600 shares
outstanding, at ascribed value................. (4,881,000) (4,881,000) (4,881,000)
Retained earnings................................. 269,000 882,000 1,936,000
Cumulative translation adjustment................. (41,000) 544,000 438,000
----------- ----------- -----------
Total shareholders' equity................ 5,042,000 6,240,000 3,310,000
----------- ----------- -----------
$ 63,502,000 $ 71,601,000 $ 80,879,000
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-45
<PAGE> 161
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
DECEMBER 31, 1994 SEPTEMBER 30, DECEMBER 31,
1993 (COMBINED/ 1995 1995
(COMBINED) CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
------------ ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Products........................... $ 60,446,000 $ 80,236,000 $ 72,665,000 $ 113,031,000
Services........................... 14,982,000 16,960,000 14,176,000 19,918,000
------------ ------------ ------------- -------------
Total revenues............. 75,428,000 97,196,000 86,841,000 132,949,000
Cost of revenues:
Products........................... 39,234,000 50,352,000 46,603,000 71,921,000
Services........................... 7,445,000 8,326,000 6,880,000 8,969,000
------------ ------------ ------------- -------------
Total cost of revenues..... 46,679,000 58,678,000 53,483,000 80,890,000
------------ ------------ ------------- -------------
Gross profit......................... 28,749,000 38,518,000 33,358,000 52,059,000
Operating expenses:
Selling and marketing.............. 15,059,000 19,767,000 18,628,000 26,067,000
General and administrative......... 4,904,000 6,236,000 5,037,000 7,580,000
Engineering........................ 3,119,000 4,168,000 3,682,000 4,976,000
Royalty expense (primarily with
related parties)................ 1,478,000 2,298,000 2,209,000 3,411,000
------------ ------------ ------------- -------------
Income from operations............... 4,189,000 6,049,000 3,802,000 10,025,000
Interest income (primarily with
related parties)................... (382,000) (367,000) (580,000) (678,000)
Interest expense (primarily with
related parties)................... 781,000 1,375,000 2,317,000 3,177,000
------------ ------------ ------------- -------------
Income before income taxes and
cumulative effect of change in
accounting principle for income
taxes.............................. 3,790,000 5,041,000 2,065,000 7,526,000
Provision for income taxes........... 815,000 1,885,000 327,000 2,237,000
------------ ------------ ------------- -------------
Income before cumulative effect of
change in accounting principle for
income taxes....................... 2,975,000 3,156,000 1,738,000 5,289,000
Cumulative effect of change in
accounting principle for income
taxes.............................. 1,509,000 -- -- --
------------ ------------ ------------- -------------
Net income........................... 4,484,000 3,156,000 1,738,000 5,289,000
Dividends on preferred stock......... -- 375,000 1,125,000 1,500,000
Premium on redemption of preferred
stock.............................. -- -- -- 2,122,000
------------ ------------ ------------- -------------
Net income allocable to
common shares............ $ 4,484,000 $ 2,781,000 $ 613,000 $ 1,667,000
========== ========== ========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-46
<PAGE> 162
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
CAPITAL IN CUMULATIVE
PREFERRED COMMON EXCESS OF RETAINED TRANSLATION
STOCK STOCK PAR VALUE EARNINGS ADJUSTMENT TOTAL
---------- ------------ ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31,
1992................. $ -- $ 23,164,000 $ 904,000 $(2,370,000) $ -- $21,698,000
Combined net income.... -- -- -- 4,484,000 -- 4,484,000
Group Contribution, net
of tax benefit....... -- -- -- (649,000) -- (649,000)
Translation
adjustments.......... (502,000) (502,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1993................. -- 23,164,000 904,000 1,465,000 (502,000) 25,031,000
Combined/consolidated
net income........... -- -- -- 3,156,000 -- 3,156,000
Group Contribution, net
of tax benefit....... -- -- -- (1,068,000) -- (1,068,000)
Dividends declared:
Common stock......... -- -- -- (5,786,000) -- (5,786,000)
Preferred stock...... -- -- -- (375,000) -- (375,000)
Assumption of Fiskars
Holdings, Inc.
debt................. (6,000,000) -- -- -- (6,000,000)
Capitalization of
DPSI................. 9,695,000 (22,045,000) (904,000) 2,877,000 502,000 (9,875,000)
Translation
adjustments.......... (41,000) (41,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1994................. 9,695,000 (4,881,000) -- 269,000 (41,000) 5,042,000
Consolidated net
income............... -- -- -- 1,738,000 -- 1,738,000
Preferred stock
dividends declared... -- -- -- (1,125,000) -- (1,125,000)
Translation
adjustments.......... 585,000 585,000
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT SEPTEMBER
30, 1995............. 9,695,000.. (4,881,000) -- 882,000 544,000 6,240,000
Consolidated net
income............... -- -- -- 3,551,000 -- 3,551,000
Preferred stock
dividends declared... -- -- -- (375,000) -- (375,000)
Preferred stock
redemption........... (3,878,000) -- -- (2,122,000) -- (6,000,000)
Translation
adjustments.......... -- -- -- -- (106,000) (106,000)
---------- ------------ ---------- ----------- ---------- -----------
BALANCE AT DECEMBER 31,
1995................. $5,817,000.. $ (4,881,000) $ -- $ 1,936,000 $ 438,000 $ 3,310,000
========= =========== ========= ========== ========= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-47
<PAGE> 163
DELTEC POWER SYSTEMS, INC.
COMBINED/CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS
YEAR ENDED DECEMBER 31, ENDED YEAR ENDED
DECEMBER 31, 1994 SEPTEMBER 30, DECEMBER 31,
1993 (COMBINED/ 1995 1995
(COMBINED) CONSOLIDATED) (CONSOLIDATED) (CONSOLIDATED)
-------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................ $ 4,484,000 $ 3,156,000 $ 1,738,000 $ 5,289,000
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation of property and
equipment........................ 1,358,000 1,690,000 1,511,000 2,014,000
Amortization of intangibles........ 1,991,000 2,295,000 1,810,000 2,403,000
Loss on sale of property and
equipment........................ 53,000 47,000 -- --
Deferred income taxes.............. 3,813,000 (1,102,000) (934,000) (1,482,000)
Other.............................. -- 68,000 -- --
Cumulative effect of change in
accounting for income taxes...... (1,509,000) -- -- --
Changes in:
Net accounts receivable.......... (3,031,000) (4,832,000) (1,486,000) (12,199,000)
Net intercompany accounts........ (3,759,000) 6,112,000 1,497,000 2,427,000
Net inventories.................. (77,000) (6,047,000) (2,959,000) (4,822,000)
Other current assets............. (424,000) (70,000) (251,000) (227,000)
Accounts payable................. 803,000 (196,000) 1,858,000 5,773,000
Accrued expenses................. 791,000 1,530,000 1,229,000 4,417,000
Deferred revenue................. 582,000 480,000 239,000 102,000
-------------- ------------- ------------- -------------
Net cash provided by operating
activities............................ 5,075,000 3,131,000 4,252,000 3,695,000
-------------- ------------- ------------- -------------
Cash flows from investing activities:
Purchases of property and equipment... (1,456,000) (1,634,000) (1,663,000) (2,402,000)
Proceeds from sale of property and
equipment.......................... -- 7,000 10,000 10,000
Acquisition of NSSI................... -- (1,751,000) -- --
Other................................. (388,000) (544,000) (378,000) (481,000)
-------------- ------------- ------------- -------------
Net cash used in investing activities... (1,844,000) (3,922,000) (2,031,000) (2,873,000)
-------------- ------------- ------------- -------------
Cash flows from financing activities:
Payments on intercompany note......... (1,500,000) (300,000) (232,000) (1,921,000)
Payments on external debt............. (618,000) -- -- --
Advances on intercompany note......... -- 3,814,000 -- --
Proceeds from external debt........... 211,000 138,000 537,000 537,000
Dividends paid........................ -- (786,000) -- --
Group Contributions, net of tax
benefit............................ (649,000) (1,068,000) -- --
-------------- ------------- ------------- -------------
Net cash provided (used) by financing
activities............................ (2,556,000) 1,798,000 305,000 (1,384,000)
-------------- ------------- ------------- -------------
Effect of exchange rates on cash........ (293,000) 379,000 308,000 157,000
Increase (decrease) in cash............. 382,000 1,386,000 2,834,000 (405,000)
Cash at beginning of period............. 4,240,000 4,622,000 6,008,000 6,008,000
-------------- ------------- ------------- -------------
Cash at end of period................... $ 4,622,000 $ 6,008,000 $ 8,842,000 $ 5,603,000
========== ========== ========== ===========
Supplemental information:
Income taxes paid..................... $ 356,000 $ 795,000 $ 1,441,000 $ 2,128,000
Assumption of Fiskars Holdings, Inc.
debt............................... $ -- $ 6,000,000 $ -- $ --
Dividends to Fiskars Holdings, Inc.
financed by note................... $ -- $ 5,000,000 $ -- $ --
Preferred stock redemption financed by
note............................... $ -- $ -- $ -- $ 6,000,000
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-48
<PAGE> 164
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- THE COMPANY AND DESCRIPTION OF BUSINESS
Deltec Power Systems, Inc. ("DPSI" or the "Company") was organized on
September 27, 1994 by Fiskars Oy Ab ("Fiskars"), a Finnish company, to acquire
the outstanding common shares of FPS Power Systems Oy Ab ("Power Systems") and
Deltec Electronics Corporation ("Deltec"). As discussed in Note 12, DPSI
acquired Power Systems from Fiskars and Deltec was acquired from Fiskars
Holdings, Inc., a wholly-owned subsidiary of Fiskars. This acquisition, between
companies under common control, was treated as a tax-free reorganization. Assets
acquired and liabilities assumed were recorded at approximate historical values.
The accompanying DPSI financial statements include Deltec and Power Systems
on a combined basis prior to the formation of DPSI and on a consolidated basis
thereafter. All significant intercompany transactions and accounts have been
eliminated.
Deltec's financial statements include the accounts of Deltec S.A. de C.V.,
a subsidiary in Mexico. During 1994, Deltec purchased the assets and assumed
certain liabilities of Network Security Systems, Inc. ("NSSI"). The excess of
the purchase price over the market value of the net assets acquired was recorded
as goodwill. NSSI designs, manufactures and markets a line of uninterruptible
power supplies and related software used in computer networking environments.
NSSI's operations are not material. On July 1, 1994, Fiskars Holdings, Inc.
pushed down $6,000,000 of acquisition debt to Deltec; accordingly, an
intercompany note payable was recorded and common stock was reduced by this
amount as a return of capital.
The financial statements of Power Systems include the accounts of the
following wholly-owned subsidiaries:
<TABLE>
<CAPTION>
SUBSIDIARY COUNTRY
-------------------------------------------------------- ---------------
<S> <C>
Fiskars Power Systems GmbH.............................. Germany
Fiskars Power Systems A/S............................... Denmark
FPS Power Systems A/S................................... Norway
Fiskars Power Systems AB................................ Sweden
Fiskars Electronics Limited............................. United Kingdom
</TABLE>
Both Power Systems and Deltec design, manufacture, and distribute
uninterruptible power supply systems and related electronic equipment, and power
management and facilities monitoring software used in computer networking
environments.
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
FOREIGN CURRENCY
Assets and liabilities of the Company's foreign operations are translated
at period-end exchange rates; income and expenses are translated at average
exchange rates prevailing during the year. Gains and losses from the translation
of foreign currency financial statements are accumulated as a separate component
of shareholders' equity. Foreign exchange transaction gains and losses were not
significant.
INVENTORIES
Inventories are valued at the lower of cost or market. Cost is determined
on a first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost and are depreciated over their
estimated useful lives of three to ten years on a straight-line basis for
financial reporting purposes. Expenditures which substantially increase value or
extend useful lives are capitalized. Maintenance and repairs are expensed as
incurred.
F-49
<PAGE> 165
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
INTANGIBLE ASSETS
Intangible assets are amortized using the straight-line method over their
estimated economic lives of three to ten years. The Company reviews the carrying
value of intangibles for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. Measurement of any
impairment would include a comparison of estimated future operating cash flows
anticipated to be generated during the remaining life to the net carrying value
of the intangible.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment. Revenue and the
directly-related costs arising from the sale of maintenance and extended
warranty contracts are recognized ratably over the terms of the individual
contracts.
INCOME TAXES
Deltec was included in the consolidated income tax return of Fiskars
Holdings, Inc. until the formation of DPSI on September 27, 1994; thereafter,
Deltec has been included in the consolidated income tax return of the Company.
Federal and state income tax provisions and related tax balances through
September 27, 1994 were allocated to Deltec on a separate-company basis by its
parent and were settled periodically through the intercompany accounts. The
Company's foreign subsidiaries, both before and after the formation of DPSI,
filed tax returns in their respective countries based on their separate taxable
income.
Domestic income taxes are not provided on undistributed earnings of foreign
subsidiaries which are considered to be permanently invested. If undistributed
earnings were remitted, foreign tax credits would substantially offset any
resulting domestic tax liability.
Effective January 1, 1993, the Company adopted Statement of Financial
Accounting Standards No. 109 ("FAS 109"), "Accounting for Income Taxes". The
adoption of FAS 109 changes the method of accounting for income taxes from the
deferred method to an asset and liability approach, which requires recognition
of deferred tax liabilities and assets for the expected future tax consequences
of temporary differences between the financial reporting and tax bases of the
assets and liabilities.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1994 Consolidated Balance Sheet have been
reclassified to conform to the current financial statement presentation.
F-50
<PAGE> 166
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- COMPOSITION OF CERTAIN FINANCIAL STATEMENT CAPTIONS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
Accounts receivable:
Trade accounts receivable.................. $ 22,249,000 $ 25,219,000 $ 35,990,000
Allowance for doubtful accounts............ (786,000) (1,578,000) (1,722,000)
------------ ------------- ------------
$ 21,463,000 $ 23,641,000 $ 34,268,000
=========== =========== ===========
Inventories:
Raw materials.............................. $ 8,652,000 $ 11,580,000 $ 14,014,000
Work-in-process............................ 1,773,000 304,000 411,000
Finished goods............................. 8,040,000 10,483,000 10,015,000
Allowance for obsolescence................. (2,086,000) (2,444,000) (2,807,000)
------------ ------------- ------------
$ 16,379,000 $ 19,923,000 $ 21,633,000
=========== =========== ===========
Property and equipment:
Machinery and equipment.................... $ 8,766,000 $ 9,307,000 $ 10,228,000
Furniture and fixtures..................... 3,917,000 4,620,000 4,575,000
Leasehold improvements..................... 988,000 1,174,000 1,432,000
Construction in progress................... 395,000 1,103,000 473,000
------------ ------------- ------------
14,066,000 16,204,000 16,708,000
Accumulated depreciation................... (7,455,000) (9,277,000) (9,573,000)
------------ ------------- ------------
$ 6,611,000 $ 6,927,000 $ 7,135,000
=========== =========== ===========
Intangible assets:
Goodwill................................... $ 10,074,000 $ 10,074,000 $ 10,074,000
Other intangible assets.................... 10,773,000 10,256,000 10,299,000
------------ ------------- ------------
20,847,000 20,330,000 20,373,000
Accumulated amortization................... (11,217,000) (12,425,000) (12,989,000)
------------ ------------- ------------
$ 9,630,000 $ 7,905,000 $ 7,384,000
=========== =========== ===========
</TABLE>
NOTE 4 -- TRANSACTIONS WITH RELATED PARTIES
Intercompany balances due to (from) other affiliates within the Fiskars Oy
Ab consolidated group were:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
Fiskars Holdings, Inc.................. $2,611,000 $ 2,867,000 $ 7,847,000
Fiskars Oy Ab.......................... (357,000) 791,000 (1,497,000)
Fiskars AB............................. 225,000 (6,000) 3,000
Fiskars Europe BV...................... 146,000 1,532,000 145,000
Fiskars GmbH........................... 99,000 66,000 --
Fiskars Finance AG..................... (224,000) 54,000 11,000
Fiskars Ltd............................ -- 206,000 7,000
Fiskars S.a.r.1........................ -- 55,000 142,000
Other related entities................. 37,000 (19,000) 133,000
------------ ------------- ------------
$2,537,000 $ 5,546,000 $ 6,791,000
========== ========== ==========
</TABLE>
F-51
<PAGE> 167
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Cash included $5,012,000, $7,701,000 and $4,048,000 in pooled accounts with
various related parties at December 31, 1994, September 30, 1995 and December
31, 1995, respectively. The Company recorded interest income from the pooled
account totaling $135,000, $222,000 and $375,000 for the years ended December
31, 1993, 1994 and 1995, respectively, and $247,000 for the nine month period
ended September 30, 1995.
The Company is obligated to pay royalties to affiliates on sales of certain
product lines bearing the Fiskars name. The Company recorded royalty expense of
$1,478,000, $2,298,000 and $3,411,000 for the years ended December 31, 1993,
1994 and 1995, respectively, and $2,209,000 for the nine month period ended
September 30, 1995.
Interest expense of $687,000, $1,330,000 and $3,061,000 was recorded on
long-term intercompany borrowings for the years ended December 31, 1993, 1994
and 1995, respectively, and $2,253,000 for the nine month period ended September
30, 1995.
Intercompany payables to Fiskars Holdings, Inc. include accrued dividends
relating to the Class A redeemable preferred stock of $375,000, $1,500,000 and
$1,875,000 at December 31, 1994, September 30, 1995 and December 31, 1995,
respectively.
On September 23, 1994, Deltec declared a $5,000,000 dividend to Fiskars
Holdings, Inc., which was financed by a note to Fiskars Holdings, Inc.
During 1994, DPSI entities paid $786,000 in dividends to affiliated
companies.
During 1995, the Company paid management fees to Fiskars totaling $391,000.
These expenses are included in income from operations.
NOTE 5 -- LONG-TERM DEBT
<TABLE>
<CAPTION>
SEPTEMBER
DECEMBER 31, 30, DECEMBER 31,
1994 1995 1995
------------- ------------ ------------
<S> <C> <C> <C>
Note Payable to Fiskars Holdings, Inc........... $ 18,401,000 $ 18,401,000 $ 24,401,000
Notes Payable to Fiskars Oy Ab.................. 11,897,000 12,121,000 10,000,000
Note Payable to Fiskars Limited................. 2,274,000 2,303,000 2,242,000
Other........................................... 685,000 1,237,000 1,203,000
------------- ------------ ------------
33,257,000 34,062,000 37,846,000
Less: Current maturities........................ -- (2,121,000) (10,000)
------------- ------------ ------------
$ 33,257,000 $ 31,941,000 $ 37,836,000
========== ========== ==========
</TABLE>
Interest on the Note Payable to Fiskars Holdings, Inc. is payable quarterly
at an annual rate of 8.4%. The principal amount is due in varying amounts
through 2004.
At September 30, 1995, the Notes Payable to Fiskars Oy Ab is comprised of
two separate notes. A $10,000,000 note which is due in varying amounts through
2004, with interest payable annually at a rate of 8.4%. A $2,121,000 note was
due on January 1, 1996, with interest payable quarterly at a rate of HELIBOR
plus 0.70% (6.5% at September 30, 1995). The $2,121,000 note was paid prior to
December 31, 1995.
The Note Payable to Fiskars Limited is due on December 19, 2004, with
interest payable annually at a rate of LIBOR plus 0.60% (8.35% at September 30,
1995 and 6.91% at December 31, 1995).
Total interest paid on long-term debt was $746,000, $969,000 and $1,795,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and
$1,015,000 for the nine month period ended September 30, 1995.
F-52
<PAGE> 168
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Future annual maturities of long-term debt outstanding at December 31, 1995
are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 10,000
1997........................................................ 8,298,000
1998........................................................ 3,298,000
1999........................................................ 3,298,000
2000........................................................ 3,298,000
Thereafter.................................................. 19,644,000
-----------
$37,846,000
==========
</TABLE>
NOTE 6 -- FINANCIAL INSTRUMENTS
The carrying value of cash, accounts receivable, accounts payable and
long-term debt at December 31, 1994, September 30, 1995 and December 31, 1995
approximates fair value.
Power Systems enters into forward foreign exchange contracts with Fiskars
to hedge certain of its foreign currency commitments. These contracts minimize
the risk from fluctuations in exchange rates. Gains and losses on these
contracts are deferred and accounted for in the same period as the underlying
transactions.
The following forward contracts were outstanding at December 31, 1995:
<TABLE>
<CAPTION>
CURRENCY CURRENCY
SOLD PURCHASED
-------- --------------------------
<S> <C> <C>
German DM................. Finnish Markka............ $293,000
Danish Krone.............. Finnish Markka............ 5,000
Swedish Krona............. Finnish Markka............ 4,000
Finnish Markka............ U.S. Dollar............... 265,000
Others................................................ 67,000
------------
$634,000
==========
</TABLE>
NOTE 7 -- RESEARCH AND DEVELOPMENT
Expenditures for research activities relating to product development and
improvement are charged against income as incurred. Such expenditures amounted
to $1,678,000, $2,136,000 and $2,593,000 for the years ended December 31, 1993,
1994 and 1995, respectively, and $2,023,000 for the nine month period ended
September 30, 1995.
NOTE 8 -- SIGNIFICANT CUSTOMERS, EXPORT SALES AND GEOGRAPHIC SEGMENTS
SIGNIFICANT CUSTOMERS
The Company has an agreement with a customer to supply certain product
lines at market prices. The agreement is for an indefinite term and is
cancelable at any time. Sales under this agreement amounted to 6%, 10% and 21%
of net sales for the years ended December 31, 1993, 1994 and 1995, respectively,
and 16% for the nine month period ended September 30, 1995. Receivables
outstanding from these sales were $1,856,000, $5,310,000 and $11,415,000 at
December 31, 1994, September 30, 1995 and December 31, 1995, respectively.
Receivables outstanding from a foreign distributor were $1,473,000,
$1,208,000 and $1,197,000 at December 31, 1994, September 30, 1995 and December
31, 1995, respectively.
F-53
<PAGE> 169
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
EXPORT SALES
The Company's foreign operations primarily serve markets in their
respective countries. Export sales from the Company's domestic operation were
approximately 21%, 23% and 19% of net sales for the years ended December 31,
1993, 1994 and 1995, respectively, and 21% for the nine month period ended
September 30, 1995.
GEOGRAPHIC SEGMENTS
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Total Revenues
Domestic.............................. $ 43,335,000 $ 56,405,000 $ 49,385,000 $ 78,364,000
European.............................. 32,093,000 40,791,000 37,456,000 54,585,000
------------ ------------ ------------- ------------
$ 75,428,000 $ 97,196,000 $ 86,841,000 $132,949,000
========== ========== ========== ===========
Income from Operations
Domestic.............................. $ 1,786,000 $ 2,586,000 $ 705,000 $ 4,550,000
European.............................. 2,403,000 3,463,000 3,097,000 5,475,000
------------ ------------ ------------- ------------
$ 4,189,000 $ 6,049,000 $ 3,802,000 $ 10,025,000
========== ========== ========== ===========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C> <C>
Total Assets
Domestic............................... $ 46,154,000 $ 45,857,000 $ 56,743,000
European............................... 17,348,000 25,744,000 24,136,000
------------ ------------- ------------
$ 63,502,000 $ 71,601,000 $ 80,879,000
========== ========== ==========
</TABLE>
NOTE 9 -- INCOME TAXES
The components of income before income taxes and cumulative effect of
change in accounting principle for income taxes included the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Domestic................................. $1,387,000 $1,581,000 $ (974,000) $2,093,000
Foreign.................................. 2,403,000 3,460,000 3,039,000 5,433,000
------------ ------------ ------------- ------------
$3,790,000 $5,041,000 $ 2,065,000 $7,526,000
========== ========== ========== ==========
</TABLE>
F-54
<PAGE> 170
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Current
Federal..................... $ (3,567,000) $ 1,828,000 $ 187,000 $ 1,733,000
State....................... 21,000 87,000 100,000 464,000
Foreign..................... 548,000 1,072,000 974,000 1,522,000
------------ ------------ ------------- ------------
(2,998,000) 2,987,000 1,261,000 3,719,000
------------ ------------ ------------- ------------
Deferred
Federal..................... 3,842,000 (990,000) (572,000) (1,221,000)
State....................... 29,000 (214,000) (113,000) (224,000)
Foreign..................... (58,000) 102,000 (249,000) (37,000)
------------ ------------ ------------- ------------
3,813,000 (1,102,000) (934,000) (1,482,000)
------------ ------------ ------------- ------------
$ 815,000 $ 1,885,000 $ 327,000 $ 2,237,000
========== ========== ========== ==========
</TABLE>
An analysis of the effective income tax rates is as follows:
<TABLE>
<CAPTION>
NINE MONTHS
YEAR ENDED YEAR ENDED ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1993 1994 1995 1995
------------ ------------ ------------- ------------
<S> <C> <C> <C> <C>
Federal statutory rate.......... 35.0% 35.0% 35.0% 35.0%
State income taxes, net of
federal benefit............... .1 (1.6) -- 2.1
Foreign tax differential........ (9.3) (.7) (16.4) (5.5)
Other........................... (4.3) 4.7 (2.8) (1.9)
----- ----- ------ -----
21.5% 37.4% 15.8% 29.7%
========== ========== ========== ==========
</TABLE>
Power Systems made Group Contributions to Fiskars and its related entities
of $868,000 and $1,424,000 for the years ended December 31, 1993 and 1994,
respectively, and consequently realized tax benefits of $219,000 and $356,000
for the respective years. The distributions have been recorded as a reduction of
Shareholders' Equity, net of the related tax benefits.
Deferred income tax assets and liabilities are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30, DECEMBER 31,
1994 1995 1995
------------ ------------- ------------
<S> <C> <C> <C>
Current deferred tax asset:
Nondeductible accruals................... $1,681,000 $ 2,007,000 $2,518,000
------------ ------------- ------------
Non-current deferred tax liability:
Amortization on intangible assets........ $2,834,000 $ 2,199,000 $1,988,000
Depreciation on property and equipment... 611,000 537,000 631,000
Net operating loss carryforwards......... (596,000) (587,000) (523,000)
Other.................................... 92,000 158,000 156,000
------------ ------------- ------------
$2,941,000 $ 2,307,000 $2,252,000
========== ========== ==========
</TABLE>
At December 31, 1995, Fiskars Power Systems AB had an operating loss
carryforward of approximately $1,867,000 available to offset future income tax
liabilities for an unlimited time.
F-55
<PAGE> 171
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 10 -- EMPLOYEE BENEFIT PLANS
Deltec maintains a defined contribution retirement savings plan which
covers substantially all full-time domestic employees. Participants may
contribute a percentage of their salaries subject to statutory annual
limitations. Deltec contributes an amount equal to a designated percentage of
its annual operating profits. The percentage is discretionary and is determined
annually by Deltec's board of directors. Contributions totalled $210,000,
$336,000 and $560,000 for the years ended December 31, 1993, 1994 and 1995,
respectively, and $227,000 for the nine month period ended September 30, 1995.
Power Systems has a defined benefit pension plan covering all employees.
Contributions are made to an independent insurance company, which also holds and
invests the plan's assets. Pension expense was $618,000, $684,000 and $958,000
for the years ended December 31, 1993, 1994 and 1995, respectively, and $674,000
for the nine month period ended September 30, 1995. The projected benefit
obligation as of the most recent actuarial valuation date was $783,000, using an
assumed discount rate of 7.4%. The fair value of plan assets available for
payment of benefits was $1,214,000. The expected long-term rate of return on
plan assets was 7%. At December 31, 1995, other assets includes a prepaid
pension asset of $157,000.
NOTE 11 -- LEASE OBLIGATIONS
Deltec leases its San Diego facility under a non-cancelable operating lease
that expires in 2006 and provides options to renew for three additional five
year terms. Deltec leases its Mexico facility under a non-cancelable operating
lease that expires in 2000 and provides the option to renew for two additional
five year terms.
Power Systems leases its facility under a non-cancelable operating lease
which expires in 1996 with options to renew.
Both Deltec and Power Systems also lease office equipment and automobiles.
Future minimum lease payments under non-cancelable agreements at December
31, 1995 are as follows:
<TABLE>
<S> <C>
1996........................................................ $ 2,340,000
1997........................................................ 2,042,000
1998........................................................ 1,423,000
1999........................................................ 822,000
2000........................................................ 620,000
Thereafter.................................................. 3,006,000
-----------
$10,253,000
==========
</TABLE>
Rent expense was $2,344,000, $2,406,000 and $2,821,000 for the years ended
December 31, 1993, 1994 and 1995, respectively, and $2,261,000 for the nine
month period ended September 30, 1995.
NOTE 12 -- SHAREHOLDERS' EQUITY
The Company has authorized 3,000 shares of Class A redeemable preferred
stock and 6,000 shares of common stock, each with a par value of $.01 per share.
On September 27, 1994, the Company issued 1,500 shares of Class A
redeemable preferred stock to Fiskars Holdings, Inc. in exchange for the
outstanding common shares of Deltec Electronics Corporation, a wholly-owned
subsidiary of Fiskars Holdings, Inc. Annual dividends of $1,000 per share are
cumulative from the date of issuance and payable on a quarterly basis. The
preferred stock is redeemable at the option of the Company at any time at a
redemption price of $15,000,000 ($10,000 per share) plus unpaid dividends. The
liquidation value of this stock is $10,000 per share. The amount ascribed to the
Class A redeemable preferred
F-56
<PAGE> 172
DELTEC POWER SYSTEMS, INC.
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock approximates the historical value of Deltec's net assets at the date of
issuance. On December 29, 1995, DPSI redeemed 600 shares of its Class A
preferred stock for $6,000,000.
On September 27, 1994, the Company also issued 600 shares of common stock
and a $10,000,000 note (discussed in Note 5) to Fiskars in exchange for the
common stock of Fiskars Power Systems Oy Ab. No dividend will be paid or
declared on shares of common stock as long as the Class A redeemable preferred
stock is outstanding. The amount ascribed to the common stock represents the
excess of the $10,000,000 note over the historical value of the net assets of
Power Systems at the date of issuance.
NOTE 13 -- STOCK PURCHASE TRANSACTION
Pursuant to the Stock Purchase Agreement dated November 17, 1995, as
amended February 9, 1996, Fiskars and Fiskars Holdings, Inc. sold 100% of DPSI's
capital stock and certain intangible assets to Exide Electronics Group, Inc.
("Exide") for approximately $195,000,000, subject to certain post closing
adjustments. The purchase price was settled on March 13, 1996 as follows:
(A) 825,000 shares of Exide's common stock (valued at a fixed price of
$20 per share under the agreement).
(B) 1,000,000 shares of Exide's Series G convertible preferred stock
(valued at a fixed price of $20 per share under the agreement).
(C) Redemption of all of DPSI's Class A preferred stock owned by
Fiskars Holdings, Inc. for $10,000 per share plus accrued dividends.
(D) Repayment of certain DPSI notes payable and intercompany amounts
to Fiskars and Fiskars Holdings, Inc.
(E) The balance paid in cash.
In conjunction with the stock purchase transaction discussed above, Exide
issued Senior Subordinated Notes, principal amount of $125,000,000, due 2006.
The Senior Subordinated Notes are guaranteed, jointly and severally, by domestic
subsidiaries of Exide ("guarantor subsidiaries"). The following supplemental
combining/consolidating Balance Sheets, Statements of Operations and Statements
of Cash Flows, present condensed financial information for the guarantor
subsidiaries and the non-guarantor subsidiaries of DPSI. The supplemental
financial information reflects the investment of the Company in the Guarantor
and Non-Guarantor Subsidiaries using the equity method of accounting.
F-57
<PAGE> 173
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $ -- $ 1,055,000 4,548,000 $ -- $ 5,603,000
Accounts receivable,
net.................. -- 25,519,000 8,749,000 -- 34,268,000
Inventories, net........ -- 13,934,000 7,699,000 -- 21,633,000
Other current assets.... -- 2,951,000 1,437,000 -- 4,388,000
----------- ----------- -------------- ------------- -------------
Total current
assets............. -- 43,459,000 22,433,000 -- 65,892,000
Property and equipment,
net..................... -- 5,424,000 1,711,000 -- 7,135,000
Intangible assets, net.... -- 7,155,000 229,000 -- 7,384,000
Investment in
affiliates.............. 22,452,000 -- -- (22,452,000) --
Other long-term assets.... 81,000 246,000 141,000 -- 468,000
----------- ----------- -------------- ------------- -------------
$22,533,000 $56,284,000 $ 24,514,000 $ (22,452,000) $ 80,879,000
========== ========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ -- $ 7,502,000 $ 4,343,000 $ -- $ 11,845,000
Deferred revenue........ -- 3,103,000 1,358,000 -- 4,461,000
Intercompany, net....... 3,223,000 3,854,000 (286,000) -- 6,791,000
Other current
liabilities.......... -- 7,181,000 5,379,000 -- 12,560,000
----------- ----------- -------------- ------------- -------------
Total current
liabilities........ 3,223,000 21,640,000 10,794,000 -- 35,657,000
Deferred income taxes..... -- 2,450,000 (198,000) -- 2,252,000
Long-term debt............ 16,000,000 18,401,000 3,435,000 -- 37,836,000
Other long-term
liabilities............. -- 1,741,000 83,000 -- 1,824,000
Shareholders' equity...... 3,310,000 12,052,000 10,400,000 (22,452,000) 3,310,000
----------- ----------- -------------- ------------- -------------
$22,533,000 $56,284,000 $ 24,514,000 $ (22,452,000) $ 80,879,000
========== ========== =========== =========== ==========
</TABLE>
F-58
<PAGE> 174
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $ -- $ 1,517,000 $ 7,325,000 $ -- $ 8,842,000
Accounts receivable,
net.................. -- 15,970,000 7,671,000 -- 23,641,000
Inventories, net........ -- 12,495,000 7,428,000 -- 19,923,000
Other current assets.... -- 2,594,000 1,333,000 -- 3,927,000
----------- ----------- -------------- ------------- -------------
Total current
assets............. -- 32,576,000 23,757,000 -- 56,333,000
Property and equipment,
net..................... -- 5,171,000 1,756,000 -- 6,927,000
Intangible assets, net.... -- 7,739,000 166,000 -- 7,905,000
Investment in
affiliates.............. 18,550,000 -- -- (18,550,000) --
Other long-term assets.... 83,000 288,000 65,000 -- 436,000
----------- ----------- -------------- ------------- -------------
$18,633,000 $45,774,000 $ 25,744,000 $ (18,550,000) $ 71,601,000
========== ========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ -- $ 4,992,000 $ 3,143,000 $ -- $ 8,135,000
Deferred revenue........ -- 3,093,000 1,585,000 -- 4,678,000
Intercompany, net....... 2,393,000 1,380,000 1,773,000 -- 5,546,000
Other current
liabilities.......... -- 4,110,000 7,170,000 -- 11,280,000
----------- ----------- -------------- ------------- -------------
Total current
liabilities........ 2,393,000 13,575,000 13,671,000 -- 29,639,000
Deferred income taxes..... -- 2,641,000 (334,000) -- 2,307,000
Long-term debt............ 10,000,000 18,401,000 3,540,000 -- 31,941,000
Other long-term
liabilities............. -- 1,389,000 85,000 -- 1,474,000
Shareholders' equity...... 6,240,000 9,768,000 8,782,000 (18,550,000) 6,240,000
----------- ----------- -------------- ------------- -------------
$18,633,000 $45,774,000 $ 25,744,000 $ (18,550,000) $ 71,601,000
========== ========== =========== =========== ==========
</TABLE>
F-59
<PAGE> 175
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEETS
DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash.................... $ -- $ 3,192,000 $ 2,816,000 $ -- $ 6,008,000
Accounts receivable,
net.................. -- 14,411,000 7,052,000 -- 21,463,000
Inventories, net........ -- 11,345,000 5,034,000 -- 16,379,000
Other current assets.... -- 2,735,000 552,000 -- 3,287,000
----------- ----------- -------------- ------------- -------------
Total current
assets............. -- 31,683,000 15,454,000 -- 47,137,000
Property and equipment,
net..................... -- 4,918,000 1,693,000 -- 6,611,000
Intangible assets, net.... -- 9,490,000 140,000 -- 9,630,000
Investment in
affiliates.............. 15,630,000 -- -- (15,630,000) --
Other long-term assets.... 63,000 -- 61,000 -- 124,000
----------- ----------- -------------- ------------- -------------
$15,693,000 $46,091,000 $ 17,348,000 $ (15,630,000) $ 63,502,000
========== ========== =========== =========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable........ $ -- $ 3,354,000 $ 2,489,000 $ -- $ 5,843,000
Deferred revenue........ -- 3,219,000 1,155,000 -- 4,374,000
Intercompany, net....... 651,000 3,034,000 (1,148,000) -- 2,537,000
Other current
liabilities.......... -- 3,661,000 4,386,000 -- 8,047,000
----------- ----------- -------------- ------------- -------------
Total current
liabilities........ 651,000 13,268,000 6,882,000 -- 20,801,000
Deferred income taxes..... -- 3,265,000 (324,000) -- 2,941,000
Long-term debt............ 10,000,000 18,401,000 4,856,000 -- 33,257,000
Other long-term
liabilities............. -- 1,385,000 76,000 -- 1,461,000
Shareholders' equity...... 5,042,000 9,772,000 5,858,000 (15,630,000) 5,042,000
----------- ----------- -------------- ------------- -------------
$15,693,000 $46,091,000 $ 17,348,000 $ (15,630,000) $ 63,502,000
========== ========== =========== =========== ==========
</TABLE>
F-60
<PAGE> 176
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Products................. $ -- $72,305,000 $ 49,513,000 $ (8,787,000) $ 113,031,000
Services................. -- 11,777,000 8,141,000 -- 19,918,000
----------- ----------- -------------- ------------- -------------
Total revenues........ -- 84,082,000 57,654,000 (8,787,000) 132,949,000
Cost of revenues:
Products................. -- 47,934,000 32,774,000 (8,787,000) 71,921,000
Services................. -- 4,453,000 4,516,000 -- 8,969,000
----------- ----------- -------------- ------------- -------------
Total cost of
revenues............ -- 52,387,000 37,290,000 (8,787,000) 80,890,000
----------- ----------- -------------- ------------- -------------
Gross profit............... -- 31,695,000 20,364,000 -- 52,059,000
Operating expenses:
Selling and marketing.... -- 15,296,000 10,771,000 -- 26,067,000
General and
administrative........ 869,000 4,826,000 1,885,000 -- 7,580,000
Engineering.............. -- 3,330,000 1,646,000 -- 4,976,000
Royalty expense
(primarily with
related parties)...... -- 2,824,000 587,000 -- 3,411,000
----------- ----------- -------------- ------------- -------------
Income from operations..... (869,000) 5,419,000 5,475,000 -- 10,025,000
Interest income (primarily
with related parties).... -- (68,000) (610,000) -- (678,000)
Interest expense (primarily
with related parties).... 887,000 1,638,000 652,000 -- 3,177,000
----------- ----------- -------------- ------------- -------------
Income (loss) before income
taxes.................... (1,756,000) 3,849,000 5,433,000 -- 7,526,000
Provision for (benefit
from) income taxes....... (702,000) 1,569,000 1,370,000 -- 2,237,000
----------- ----------- -------------- ------------- -------------
Income (loss) before equity
income, wholly-owned
subsidiaries............. (1,054,000) 2,280,000 4,063,000 -- 5,289,000
Equity income, wholly-owned
subsidiaries............. 6,343,000 -- -- (6,343,000) --
----------- ----------- -------------- ------------- -------------
Net income (loss).......... 5,289,000 2,280,000 4,063,000 (6,343,000) 5,289,000
Dividends on preferred
stock.................... 1,500,000 -- -- -- 1,500,000
Premiums on redemptions of
preferred stock.......... 2,122,000 -- -- -- 2,122,000
----------- ----------- -------------- ------------- -------------
Net income (loss)
allocable to common
shares................ $ 1,667,000 $ 2,280,000 $ 4,063,000 $ (6,343,000) $ 1,667,000
========== ========== =========== ========== ===========
</TABLE>
F-61
<PAGE> 177
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Products................. $ -- $45,007,000 $ 33,983,000 $ (6,325,000) $ 72,665,000
Services................. -- 8,570,000 5,606,000 -- 14,176,000
----------- ----------- -------------- ------------- -------------
Total revenues........ -- 53,577,000 39,589,000 (6,325,000) 86,841,000
Cost of revenues:
Products................. -- 30,891,000 22,037,000 (6,325,000) 46,603,000
Services................. -- 3,448,000 3,432,000 -- 6,880,000
----------- ----------- -------------- ------------- -------------
Total cost of
revenues............ -- 34,339,000 25,469,000 (6,325,000) 53,483,000
----------- ----------- -------------- ------------- -------------
Gross profit............... -- 19,238,000 14,120,000 -- 33,358,000
Operating expenses:
Selling and marketing.... -- 10,537,000 8,091,000 -- 18,628,000
General and
administrative........ 334,000 3,706,000 997,000 -- 5,037,000
Engineering.............. -- 2,372,000 1,310,000 -- 3,682,000
Royalty expense
(primarily with
related parties)...... -- 1,584,000 625,000 -- 2,209,000
----------- ----------- -------------- ------------- -------------
Income from operations..... (334,000) 1,039,000 3,097,000 -- 3,802,000
Interest income (primarily
with related parties).... -- (132,000) (448,000) -- (580,000)
Interest expense (primarily
with related parties).... 651,000 1,160,000 506,000 -- 2,317,000
----------- ----------- -------------- ------------- -------------
Income (loss) before income
taxes.................... (985,000) 11,000 3,039,000 -- 2,065,000
Provision for (benefit
from) income taxes....... (392,000) 16,000 703,000 -- 327,000
----------- ----------- -------------- ------------- -------------
Income (loss) before equity
income, wholly-owned
subsidiaries............. (593,000) (5,000) 2,336,000 -- 1,738,000
Equity income, wholly-owned
subsidiaries............. 2,331,000 -- -- (2,331,000) --
----------- ----------- -------------- ------------- -------------
Net income (loss).......... 1,738,000 (5,000) 2,336,000 (2,331,000) 1,738,000
Dividends on preferred
stock.................... 1,125,000 -- -- -- 1,125,000
----------- ----------- -------------- ------------- -------------
Net income (loss)
allocable to common
shares................ $ 613,000 $ (5,000) $ 2,336,000 $ (2,331,000) $ 613,000
========== ========== =========== ========== ==========
</TABLE>
F-62
<PAGE> 178
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING/CONSOLIDATING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Products.................. $ -- $49,222,000 $ 37,119,000 $ (6,105,000) $ 80,236,000
Services.................. -- 11,190,000 5,770,000 -- 16,960,000
--------- ----------- -------------- ------------- -------------
Total revenues......... -- 60,412,000 42,889,000 (6,105,000) 97,196,000
Cost of revenues:
Products.................. -- 33,151,000 23,306,000 (6,105,000) 50,352,000
Services.................. -- 4,476,000 3,850,000 -- 8,326,000
--------- ----------- -------------- ------------- -------------
Total cost of
revenues............. -- 37,627,000 27,156,000 (6,105,000) 58,678,000
--------- ----------- -------------- ------------- -------------
Gross profit................ -- 22,785,000 15,733,000 -- 38,518,000
Operating expenses:
Selling and marketing..... -- 11,320,000 8,447,000 -- 19,767,000
General and
administrative......... 3,000 4,636,000 1,597,000 -- 6,236,000
Engineering............... -- 2,728,000 1,440,000 -- 4,168,000
Royalty expense (primarily
with related
parties)............... -- 1,512,000 786,000 -- 2,298,000
--------- ----------- -------------- ------------- -------------
Income from operations...... (3,000) 2,589,000 3,463,000 -- 6,049,000
Interest income (primarily
with related parties)..... -- (141,000) (226,000) -- (367,000)
Interest expense (primarily
with related parties)..... 210,000 936,000 229,000 -- 1,375,000
--------- ----------- -------------- ------------- -------------
Income (loss) before income
taxes..................... (213,000) 1,794,000 3,460,000 -- 5,041,000
Provision for (benefit from)
income taxes.............. (93,000) 804,000 1,174,000 -- 1,885,000
--------- ----------- -------------- ------------- -------------
Income (loss) before equity
income, wholly-owned
subsidiaries.............. (120,000) 990,000 2,286,000 -- 3,156,000
Equity income, wholly-owned
subsidiaries.............. 857,000 -- -- (857,000) --
--------- ----------- -------------- ------------- -------------
Net income (loss)........... 737,000 990,000 2,286,000 (857,000) 3,156,000
Dividends on preferred
stock..................... 375,000 -- -- -- 375,000
--------- ----------- -------------- ------------- -------------
Net income (loss)
allocable to common
shares................. $ 362,000 $ 990,000 $ 2,286,000 $ (857,000) $ 2,781,000
========= ========== =========== ========== ==========
</TABLE>
F-63
<PAGE> 179
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Revenues:
Products.................. $ -- $34,682,000 $ 27,301,000 $ (1,537,000) $ 60,446,000
Services.................. -- 10,159,000 4,823,000 -- 14,982,000
--------- ----------- -------------- ------------- -------------
Total revenues......... -- 44,841,000 32,124,000 (1,537,000) 75,428,000
Cost of revenues:
Products.................. -- 25,464,000 15,307,000 (1,537,000) 39,234,000
Services.................. -- 4,063,000 3,382,000 -- 7,445,000
--------- ----------- -------------- ------------- -------------
Total cost of
revenues............. -- 29,527,000 18,689,000 (1,537,000) 46,679,000
--------- ----------- -------------- ------------- -------------
Gross profit................ -- 15,314,000 13,435,000 -- 28,749,000
Operating expenses:
Selling and marketing..... -- 7,851,000 7,208,000 -- 15,059,000
General and
administrative......... -- 3,570,000 1,334,000 -- 4,904,000
Engineering............... -- 1,883,000 1,236,000 -- 3,119,000
Royalty expense (primarily
with related
parties)............... -- 224,000 1,254,000 -- 1,478,000
--------- ----------- -------------- ------------- -------------
Income from operations...... -- 1,786,000 2,403,000 -- 4,189,000
Interest income (primarily
with related parties)..... -- (32,000) (350,000) -- (382,000)
Interest expense (primarily
with related parties)..... -- 431,000 350,000 -- 781,000
--------- ----------- -------------- ------------- -------------
Income before income taxes
and cumulative effect of
change in accounting
principle for income
taxes..................... -- 1,387,000 2,403,000 -- 3,790,000
Provision for income
taxes..................... -- 325,000 490,000 -- 815,000
--------- ----------- -------------- ------------- -------------
Income before cumulative
effect of change in
accounting principle for
income taxes.............. -- 1,062,000 1,913,000 -- 2,975,000
Cumulative effect of change
in accounting principle
for income taxes.......... -- 560,000 949,000 -- 1,509,000
--------- ----------- -------------- ------------- -------------
Net income............. $ -- $ 1,622,000 $ 2,862,000 $ -- $ 4,484,000
========= ========== =========== ========== ==========
</TABLE>
F-64
<PAGE> 180
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............ $ 5,289,000 $ 2,280,000 $ 4,063,000 $ (6,343,000) $ 5,289,000
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation expense...... -- 1,230,000 784,000 -- 2,014,000
Amortization of
intangibles............. 14,000 2,335,000 54,000 -- 2,403,000
Equity income,
wholly-owned
subsidiaries............ (6,343,000) -- -- 6,343,000 --
Loss on sale of property
and equipment........... -- -- -- -- (1,482,000)
Deferred income taxes..... -- (1,445,000) (37,000) -- --
Other..................... -- -- -- -- --
Changes in:
Net accounts
receivable........... -- (11,108,000) (1,091,000) -- (12,199,000)
Net intercompany
accounts............. 1,072,000 820,000 535,000 -- 2,427,000
Net inventories......... -- (2,589,000) (2,233,000) -- (4,822,000)
Other current assets.... -- 414,000 (641,000) -- (227,000)
Accounts payable........ -- 4,148,000 1,625,000 -- 5,773,000
Accrued expenses........ -- 3,809,000 608,000 -- 4,417,000
Deferred revenue........ -- (48,000) 150,000 -- 102,000
----------- ------------ -------------- ------------- -------------
Net cash provided (used) by
operating activities......... 32,000 (154,000) 3,817,000 -- 3,695,000
----------- ------------ -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment................. -- (1,747,000) (655,000) -- (2,402,000)
Proceeds from sale of
property and equipment.... -- 10,000 -- -- 10,000
Acquisition of NSSI.......... -- -- -- -- --
Other........................ (32,000) (246,000) (203,000) -- (481,000)
----------- ------------ -------------- ------------- -------------
Net cash used in investing
activities................... (32,000) (1,983,000) (858,000) -- (2,873,000)
----------- ------------ -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany
note...................... -- -- (1,921,000) -- (1,921,000)
Payments on external debt.... -- -- -- -- --
Advances on intercompany
note...................... -- -- -- -- --
Proceeds from external
debt...................... -- -- 537,000 -- 537,000
Dividends paid............... -- -- -- -- --
Group contributions, net of
tax....................... -- -- -- -- --
----------- ------------ -------------- ------------- -------------
Net cash provided (used) by
financing activities......... -- -- (1,384,000) -- (1,384,000)
----------- ------------ -------------- ------------- -------------
Effect of exchange rates on
cash......................... -- -- 157,000 -- 157,000
Increase (decrease) in cash.... -- (2,137,000) 1,732,000 -- (405,000)
Cash at beginning of period.... -- 3,192,000 2,816,000 -- 6,008,000
----------- ------------ -------------- ------------- -------------
Cash at end of period.......... $ -- $ 1,055,000 $ 4,548,000 $ -- $ 5,603,000
========== =========== =========== ========== ==========
</TABLE>
F-65
<PAGE> 181
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............. $ 1,738,000 $ (5,000) $ 2,336,000 $ (2,331,000) $ 1,738,000
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation expense....... -- 980,000 531,000 -- 1,511,000
Amortization of
intangibles.............. 12,000 1,751,000 47,000 -- 1,810,000
Equity income, wholly-owned
subsidiaries............. (2,331,000) -- -- 2,331,000 --
Loss on sale of property
and equipment............ -- -- -- -- --
Deferred income taxes...... -- (685,000) (249,000) -- (934,000)
Other...................... -- -- -- -- --
Changes in:
Net accounts
receivable............ -- (1,559,000) 73,000 -- (1,486,000)
Net intercompany
accounts.............. 710,000 (2,299,000) 3,086,000 -- 1,497,000
Net inventories.......... -- (1,150,000) (1,809,000) -- (2,959,000)
Other current assets..... -- 202,000 (453,000) -- (251,000)
Accounts payable......... -- 1,638,000 220,000 -- 1,858,000
Accrued expenses......... (97,000) 1,095,000 231,000 -- 1,229,000
Deferred revenue......... -- (122,000) 361,000 -- 239,000
----------- ----------- -------------- ------------- -------------
Net cash provided (used) by
operating activities.......... 32,000 (154,000) 4,374,000 -- 4,252,000
----------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment.................. -- (1,243,000) (420,000) -- (1,663,000)
Proceeds from sale of property
and equipment.............. -- 10,000 -- -- 10,000
Acquisition of NSSI........... -- -- -- -- --
Other......................... (32,000) (288,000) (58,000) -- (378,000)
----------- ----------- -------------- ------------- -------------
Net cash used in investing
activities.................... (32,000) (1,521,000) (478,000) -- (2,031,000)
----------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany
note....................... -- -- (232,000) -- (232,000)
Payments on external debt..... -- -- -- -- --
Advances on intercompany
note....................... -- -- -- -- --
Proceeds from external debt... -- -- 537,000 -- 537,000
Dividends paid................ -- -- -- -- --
Group contributions, net of
tax........................ -- -- -- -- --
----------- ----------- -------------- ------------- -------------
Net cash provided by financing
activities.................... -- -- 305,000 -- 305,000
----------- ----------- -------------- ------------- -------------
Effect of exchange rates on
cash.......................... -- -- 308,000 -- 308,000
Increase in cash................ -- (1,675,000) 4,509,000 -- 2,834,000
Cash at beginning of period..... -- 3,192,000 2,816,000 -- 6,008,000
----------- ----------- -------------- ------------- -------------
Cash at end of period........... $ -- $ 1,517,000 $ 7,325,000 $ -- $ 8,842,000
========== ========== =========== ========== ==========
</TABLE>
F-66
<PAGE> 182
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING/CONSOLIDATING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)............ $ 737,000 $ 990,000 $ 2,286,000 $ (857,000) $ 3,156,000
Adjustments to reconcile net
income to net cash
provided by operating
activities:
Depreciation expense...... -- 1,000,000 690,000 -- 1,690,000
Amortization of
intangibles............. 3,000 2,248,000 44,000 -- 2,295,000
Equity income,
wholly-owned
subsidiaries............ (857,000) -- -- 857,000 --
Loss on sale of property
and equipment........... -- 47,000 -- -- 47,000
Deferred income taxes..... -- (1,205,000) 103,000 -- (1,102,000)
Other..................... -- -- 68,000 -- 68,000
Changes in:
Net accounts
receivable........... -- (3,420,000) (1,412,000) -- (4,832,000)
Net intercompany
accounts............. 183,000 7,098,000 (1,169,000) -- 6,112,000
Net inventories......... -- (4,241,000) (1,806,000) -- (6,047,000)
Other current assets.... -- (372,000) 302,000 -- (70,000)
Accounts payable........ -- (562,000) 366,000 -- (196,000)
Accrued expenses........ -- 468,000 1,062,000 -- 1,530,000
Deferred revenue........ -- 237,000 243,000 -- 480,000
--------- ----------- -------------- ------------- -------------
Net cash provided by operating
activities................... 66,000 2,288,000 777,000 -- 3,131,000
--------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment................. -- (1,204,000) (430,000) -- (1,634,000)
Proceeds from sale of
property and equipment.... -- 7,000 -- -- 7,000
Acquisition of NSSI.......... -- (1,751,000) -- -- (1,751,000)
Other........................ (66,000) -- (478,000) -- (544,000)
--------- ----------- -------------- ------------- -------------
Net cash used in investing
activities................... (66,000) (2,948,000) (908,000) -- (3,922,000)
--------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany
note...................... -- (300,000) -- -- (300,000)
Payments on external debt.... -- -- -- -- --
Advances on intercompany
note...................... -- 1,751,000 2,063,000 -- 3,814,000
Proceeds from external
debt...................... -- -- 138,000 -- 138,000
Dividends paid............... -- -- (786,000) -- (786,000)
Group contributions, net of
tax....................... -- -- (1,068,000) -- (1,068,000)
--------- ----------- -------------- ------------- -------------
Net cash provided by financing
activities................... -- 1,451,000 347,000 -- 1,798,000
--------- ----------- -------------- ------------- -------------
Effect of exchange rates on
cash......................... -- -- 379,000 -- 379,000
Increase in cash............... -- 791,000 595,000 -- 1,386,000
Cash at beginning of period.... -- 2,401,000 2,221,000 -- 4,622,000
--------- ----------- -------------- ------------- -------------
Cash at end of period.......... $ -- $ 3,192,000 $ 2,816,000 $ -- $ 6,008,000
========= ========== =========== ========== ==========
</TABLE>
F-67
<PAGE> 183
DELTEC POWER SYSTEMS, INC.
SUPPLEMENTAL COMBINING STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1993
<TABLE>
<CAPTION>
GUARANTOR GUARANTOR NON-GUARANTOR
DPSI DELTEC SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ----------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................... $ -- $ 1,622,000 $ 2,862,000 $ -- $ 4,484,000
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation expense.......... -- 860,000 498,000 -- 1,358,000
Amortization of intangibles... -- 1,981,000 10,000 -- 1,991,000
Loss on sale of property and
equipment................... -- 53,000 -- -- 53,000
Deferred income taxes......... -- 3,871,000 (58,000) -- 3,813,000
Other......................... -- -- -- -- --
Cumulative effect of change in
accounting for income
taxes....................... -- (560,000) (949,000) -- (1,509,000)
Changes in:
Net accounts receivable..... -- (2,302,000) (729,000) -- (3,031,000)
Net intercompany accounts... -- (3,435,000) (324,000) -- (3,759,000)
Net inventories............. -- 409,000 (486,000) -- (77,000)
Other current assets........ -- (118,000) (306,000) -- (424,000)
Accounts payable............ -- 995,000 (192,000) -- 803,000
Accrued expenses............ -- 366,000 425,000 -- 791,000
Deferred revenue............ -- 432,000 150,000 -- 582,000
--------- ----------- -------------- ------------- -------------
Net cash provided by operating
activities...................... -- 4,174,000 901,000 -- 5,075,000
--------- ----------- -------------- ------------- -------------
Cash flows from investing
activities:
Purchases of property and
equipment..................... -- (1,161,000) (295,000) -- (1,456,000)
Proceeds from sale of property
and equipment................. -- -- -- -- --
Acquisition of NSSI............. -- -- -- -- --
Other........................... -- -- (388,000) -- (388,000)
--------- ----------- -------------- ------------- -------------
Net cash used in investing
activities...................... -- (1,161,000) (683,000) -- (1,844,000)
--------- ----------- -------------- ------------- -------------
Cash flows from financing
activities:
Payments on intercompany note... -- (1,500,000) -- -- (1,500,000)
Payments on external debt....... -- -- (618,000) -- (618,000)
Advances on intercompany note... -- -- -- -- --
Proceeds from external debt..... -- -- 211,000 -- 211,000
Dividends paid.................. -- -- -- -- --
Group contributions, net of
tax........................... -- -- (649,000) -- (649,000)
--------- ----------- -------------- ------------- -------------
Net cash used by financing
activities...................... -- (1,500,000) (1,056,000) -- (2,556,000)
--------- ----------- -------------- ------------- -------------
Effect of exchange rates on
cash............................ -- -- (293,000) -- (293,000)
Increase in cash.................. -- 1,513,000 (1,131,000) -- 382,000
Cash at beginning of period....... -- 888,000 3,352,000 -- 4,240,000
--------- ----------- -------------- ------------- -------------
Cash at end of period............. $ -- $ 2,401,000 $ 2,221,000 $ -- $ 4,622,000
========= ============ ============== ============ ============
</TABLE>
F-68
<PAGE> 184
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1995 1995
------------- ------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash.......................................................... $ 8,842,000 $ 5,603,000
Accounts receivable, net...................................... 23,641,000 34,268,000
Inventories, net.............................................. 19,923,000 21,633,000
Deferred income taxes......................................... 2,007,000 2,518,000
Other current assets.......................................... 1,920,000 1,870,000
----------- -----------
Total current assets.................................. 56,333,000 65,892,000
Property and equipment, net..................................... 6,927,000 7,135,000
Intangible assets, net.......................................... 7,905,000 7,384,000
Other long-term assets.......................................... 436,000 468,000
----------- -----------
$ 71,601,000 $ 80,879,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.............................................. $ 8,135,000 $ 11,845,000
Deferred revenue.............................................. 4,678,000 4,461,000
Accrued payroll and employee benefits......................... 3,552,000 4,840,000
Income taxes payable.......................................... 1,778,000 3,281,000
Intercompany payable, net..................................... 5,546,000 6,791,000
Accrued commissions........................................... 814,000 1,125,000
Accrued warranty.............................................. 610,000 836,000
Current maturities of long-term debt.......................... 2,121,000 10,000
Other current liabilities..................................... 2,405,000 2,468,000
----------- -----------
Total current liabilities............................. 29,639,000 35,657,000
----------- -----------
Deferred income taxes........................................... 2,307,000 2,252,000
----------- -----------
Long-term debt.................................................. 31,941,000 37,836,000
----------- -----------
Other long-term liabilities..................................... 1,474,000 1,824,000
----------- -----------
Shareholders' equity:
Class A redeemable preferred stock -- $.01 par value, 1,500
shares outstanding at September 30, 1995 (liquidation value
of $15,000,000); 900 shares outstanding at December 31,
1995 (liquidation value of $9,000,000), at ascribed
value...................................................... 9,695,000 5,817,000
Common stock -- $.01 par value, 600 shares outstanding, at
ascribed value............................................. (4,881,000) (4,881,000)
Retained earnings............................................. 882,000 1,936,000
Cumulative translation adjustment............................. 544,000 438,000
----------- -----------
Total shareholders' equity............................ 6,240,000 3,310,000
----------- -----------
$ 71,601,000 $ 80,879,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-69
<PAGE> 185
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER
31,
-----------------------------
1994 1995
----------- -----------
(UNAUDITED)
<S> <C> <C>
Revenues:
Products.................................................... $24,620,000 $40,366,000
Services.................................................... 4,854,000 5,742,000
----------- -----------
Total revenues...................................... 29,474,000 46,108,000
Cost of revenues:
Products.................................................... 14,997,000 25,318,000
Services.................................................... 2,977,000 2,089,000
----------- -----------
Total cost of revenues.............................. 17,974,000 27,407,000
----------- -----------
Gross profit.................................................. 11,500,000 18,701,000
Operating expenses:
Selling and marketing....................................... 5,255,000 7,439,000
General and administrative.................................. 1,607,000 2,543,000
Engineering................................................. 1,145,000 1,294,000
Royalty expense (primarily with related parties)............ 714,000 1,202,000
----------- -----------
Income from operations........................................ 2,779,000 6,223,000
Interest income (primarily with related parties).............. (121,000) (98,000)
Interest expense (primarily with related parties)............. 665,000 860,000
----------- -----------
Income before income taxes.................................... 2,235,000 5,461,000
Provision for income taxes.................................... 685,000 1,910,000
----------- -----------
Net income.................................................... 1,550,000 3,551,000
Dividends on preferred stock.................................. 375,000 375,000
Premium on redemption of preferred stock...................... -- 2,122,000
----------- -----------
Net income allocable to common shares............... $ 1,175,000 $ 1,054,000
========== ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-70
<PAGE> 186
DELTEC POWER SYSTEMS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED DECEMBER 31,
-------------------------------
1994 1995
------------ ------------
(UNAUDITED)
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................. $ 1,550,000 $ 3,551,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation of property and equipment................... 530,000 503,000
Amortization of intangibles.............................. 675,000 593,000
Deferred income taxes.................................... (547,000) (548,000)
Changes in:
Net accounts receivable................................ (5,808,000) (10,713,000)
Net intercompany accounts.............................. (914,000) 930,000
Net inventories........................................ 794,000 (1,863,000)
Other current assets................................... (21,000) 24,000
Accounts payable....................................... 293,000 3,915,000
Accrued expenses....................................... 778,000 3,188,000
Deferred revenue....................................... (51,000) (137,000)
------------ ------------
Net cash used by operating activities......................... (2,721,000) (557,000)
------------ ------------
Cash flows from investing activities:
Purchases of property and equipment......................... (570,000) (739,000)
Proceeds from sale of property and equipment................ -- --
Other....................................................... (399,000) (103,000)
------------ ------------
Net cash used in investing activities......................... (969,000) (842,000)
------------ ------------
Cash flows from financing activities:
Payments on intercompany note............................... -- (1,689,000)
Payments on external debt................................... -- --
Advances on intercompany note............................... 2,274,000 --
Proceeds from external debt................................. -- --
Dividends paid.............................................. -- --
Group Contributions, net of tax benefit..................... (1,068,000) --
------------ ------------
Net cash provided (used) by financing activities.............. 1,206,000 (1,689,000)
------------ ------------
Effect of exchange rates on cash.............................. 24,000 (151,000)
Increase (decrease) in cash................................... (2,460,000) (3,239,000)
Cash at beginning of period................................... 8,468,000 8,842,000
------------ ------------
Cash at end of period......................................... $ 6,008,000 $ 5,603,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-71
<PAGE> 187
DELTEC POWER SYSTEMS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles. Certain
information and footnote disclosures required for complete financial statements
have been condensed or omitted. These financial statements should be read in
conjunction with the audited financial statements presented elsewhere herein.
In the opinion of management, the accompanying consolidated financial
statements include all adjustments (which consist only of normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows for the periods presented. The results of operations
for the quarter ended December 31, 1995 are not necessarily indicative of the
results to be expected for the full year.
NOTE 2 -- STOCK PURCHASE TRANSACTION
Pursuant to the Stock Purchase Agreement dated November 17, 1995, as
amended February 9, 1996, Fiskars and Fiskars Holdings, Inc. sold 100% of DPSI's
capital stock and certain intangible assets to Exide Electronics Group, Inc.
("Exide") for approximately $195,000,000, subject to certain post closing
adjustments. The purchase price was settled on March 13, 1996 as follows:
(A) 825,000 shares of Exide's common stock (valued at a fixed price of
$20 per share under the agreement).
(B) 1,000,000 shares of Exide's Series G convertible preferred stock
(valued at a fixed price of $20 per share under the agreement).
(C) Redemption of all of DPSI's Class A preferred stock owned by
Fiskars Holdings, Inc. for $10,000 per share plus accrued dividends.
(D) Repayment of certain DPSI notes payable and intercompany amounts
to Fiskars and Fiskars Holdings, Inc.
(E) The balance paid in cash.
F-72
<PAGE> 188
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON IS AUTHORIZED IN CONNECTION WITH ANY
OFFERING MADE HEREBY TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT
CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION
OF AN OFFER TO BUY ANY SECURITY OTHER THAN THE SECURITIES OFFERED HEREBY, NOR
DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF
THE SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN WHICH IT IS
UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO SUCH PERSON. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................. 3
Information Incorporated by
Reference........................... 4
Prospectus Summary.................... 5
Risk Factors.......................... 16
The Exchange Offer.................... 21
The Deltec Acquisition................ 29
Use of Proceeds....................... 30
Capitalization........................ 30
Unaudited Pro Forma Combined Financial
Statements.......................... 31
Selected Historical Consolidated
Financial Data...................... 44
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 46
Business.............................. 63
Management............................ 78
Principal Shareholders................ 80
Description of New Credit Facility.... 82
Description of Notes.................. 84
Book-Entry, Delivery and Form......... 106
Description of Capital Stock.......... 108
Certain Federal Income Tax
Considerations...................... 111
Plan of Distribution.................. 112
Legal Matters......................... 112
Experts............................... 112
Index to Financial Statements......... F-1
</TABLE>
---------------------
UNTIL , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE SERIES B
NOTES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER
A PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[EXIDE ELECTRONICS LOGO]
EXIDE ELECTRONICS
GROUP, INC.
OFFER TO EXCHANGE ITS
11 1/2% SENIOR SUBORDINATED NOTES
DUE 2006, SERIES B,
WHICH HAVE BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED,
FOR ANY AND ALL
OF ITS OUTSTANDING
11 1/2% SENIOR SUBORDINATED NOTES
DUE 2006, SERIES A
-------------------------
PROSPECTUS
-------------------------
, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 189
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Under Section 145 of the General Corporation Law of the state of Delaware
("Delaware Law"), a corporation may indemnify its directors, officers, employees
and agents and its former directors, officers, employees and agents and those
who serve, at the corporation's request in such capacities with another
enterprise, against expenses (including attorney's fees), as well as judgments,
fines and settlements in nonderivative lawsuits, actually and reasonably
incurred in connection with the defense of any action, suit or proceeding in
which they or any of them were or are made parties or are threatened to be made
parties by reason of their serving or having served in such capacity. Delaware
Law provides, however, that such person must have acted in good faith and in a
manner he or she reasonably believed to be in (or not opposed to) the best
interests of the corporation and, in the case of a criminal action, such person
must have had no reasonable cause to believe his or her conduct was unlawful. In
addition, Delaware Law does not permit indemnification of any action or suit by
or in the right of the corporation, where such person has been adjudged liable
to the corporation, unless, and only to the extent that, a court determines that
such person fairly and reasonably is entitled to indemnity for costs the court
deems proper in light of liability adjudication. Indemnity is mandatory to the
extent a claim, issue or matter has been successfully defended.
Article 11 of the Company's Certificate of Incorporation and Article 10 of
the Company's Bylaws provide, under certain circumstances, for the
indemnification of the Company's present or former directors, officers,
employees, agents and persons who, at the request of the Company, are or were
serving in a similar capacity for another corporation or entity. These Articles
also allow the Board of Directors to purchase and maintain insurance on behalf
of the Company's present or former directors, officers or persons who are or
were serving at the request of the Company as a director or officer of another
corporation or entity. Copies of the Company's Certificate of Incorporation and
Bylaws are filed as Exhibits 3.1 and 3.3, respectively, and are incorporated
herein by reference.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
2.1 -- Stock Purchase Agreement by and between Exide Electronics Group, Inc. and Fiskars
Oy Ab, Fiskars Holdings, Inc. and Deltec Power Systems, Inc., dated November 16,
1995 (filed as Exhibit 10 to the Company's Form 8-K, File No. 000-18106, filed on
November 17, 1995 and incorporated herein by reference).
2.2 -- Letter Agreement to Amend Stock Purchase Agreement by and between Exide
Electronics Group, Inc. and Fiskars Oy Ab, Fiskars Holdings, Inc. and Deltec
Power Systems, Inc., dated February 9, 1996 (filed as Exhibit 10.2 to the
Company's Form 8-K, File No. 000-18106, filed on February 21, 1996 and
incorporated herein by reference).
3.1 -- Certificate of Incorporation of the Company, as amended (filed as Exhibit 3 to
the Company's Form 10-Q, File No. 000-18106, for the quarter ended March 31, 1995
and incorporated herein by reference).
3.2 -- Form of Certificate of Designation of the Series G Preferred Stock of the Company
(filed as attachment to Schedule 2.1(d) of Exhibit 10.2 to the Company's Form
8-K/A, File No. 000-18106, filed on March 22, 1996 and incorporated herein by
reference).
3.3 -- Bylaws of the Company, as amended (filed as Exhibit 3b to the Company's Form
10-K, File No. 000-18106, for the fiscal year ended September 30, 1992 and
incorporated herein by reference).
</TABLE>
II-1
<PAGE> 190
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
4.1 -- Indenture, dated as of March 13, 1996, among the Company, the Guarantors and
American Bank National Association, as trustee, relating to $125,000,000
principal amount of 11 1/2% Senior Subordinated Notes due 2006.
4.2 -- Form of 11 1/2% Series A and Series B Senior Subordinated Notes due 2006
(included in Exhibit 4.1 hereof).
4.3 -- Registration Rights Agreement, dated as of March 13, 1996, among the Company, the
Guarantors and the Initial Purchasers.
4.4 -- Warrant Agreement, dated as of March 13, 1996, between the Company and American
Bank National Association, as warrant agent, relating to 125,000 Warrants to
purchase in the aggregate 643,750 shares of Common Stock.
4.5 -- Warrant Registration Rights Agreement, dated March 13, 1996, between the Company
and the Initial Purchasers.
4.6 -- Stockholder Agreement, dated March 13, 1996, between the Company and Fiskars Oy
Ab.
4.7 -- Rights Agreement, dated as of November 25, 1992, by and between Exide Electronics
Group, Inc. and First Union National Bank of North Carolina (filed as Exhibit 1
to the Company's Current Report on Form 8-K, File No. 000-18106, for the event on
November 25, 1992, and incorporated by reference herein).
4.8 -- Stockholder Agreement between Exide Electronics and Duquesne Enterprises, Inc.,
dated August 25, 1994, including amendments by a letter agreement dated December
14, 1994 and a letter agreement dated January 4, 1995 (filed as Exhibit 2.4 to
Exide Electronics' Registration Statement on Form S-4, File No. 33-88324, and
incorporated by reference herein).
4.9 -- Stockholder Agreement between Exide Electronics and Shenkman Capital Management,
Inc., dated August 25, 1994, including an Amendment Agreement dated December 14,
1994 and an Amendment Agreement dated January 4, 1995 (filed as Exhibit 2.5 to
Exide Electronics' Registration Statement on Form S-4, File No. 33-88324, and
incorporated by reference herein).
4.10 -- Registration Rights Agreement between Exide Electronics Group, Inc. and Gilbert
Stuart Goodchild, dated September 29, 1994 (filed as Exhibit 4.1 to Exide
Electronics' Registration Statement on Form S-3, File No. 33-63969, and
incorporated by reference herein).
4.11 -- Registration Rights Agreement between Exide Electronics Group, Inc. and Carol
Elizabeth Amans, dated September 29, 1994 (filed as Exhibit 4.2 to Exide
Electronics' Registration Statement on Form S-3, File No. 33-63969, and
incorporated by reference herein).
4.12 -- Registration Rights Agreement between Exide Electronics Group, Inc. and Tony
Peter Stuart Goodchild, dated September 29, 1994 (filed as Exhibit 4.3 to Exide
Electronics' Registration Statement on Form S-3, File No. 33-63969, and
incorporated by reference herein).
4.13 -- Registration Rights Agreement by and among Exide Electronics, Duquesne and
Shenkman Investment Partners L.P., dated as of January 5, 1995 (filed as Exhibit
4.7 to Exide Electronics' Registration Statement on Form S-3, File No. 33-88466,
and incorporated by reference herein).
4.14 -- Note Agreement by and among Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation Investors, and Exide
Electronics Group, Inc., dated September 2, 1992, relating to the 8.375%
Guaranteed Convertible Subordinated Notes due June 30, 2000 (filed as Exhibit 4m
to the Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal
year ended September 30, 1992, and incorporated by reference herein).
5.1* -- Opinion of Smith Helms Mulliss & Moore, L.L.P., regarding the legality of the
Series B Notes.
</TABLE>
II-2
<PAGE> 191
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
10.1 -- Credit Agreement, dated as of March 13, 1996, among the Company, the Guarantors
and Morgan Guaranty Trust Company of New York, First Union National Bank of North
Carolina, Bank of America Illinois, NationsBank, N.A., ABN AMRO Bank, N.V., as
lenders, and Morgan Guaranty Trust Company of New York, as administrative agent,
and Bank of America Illinois, as documentation agent.
10.2 -- Amendment to Credit Agreement, dated as of March 25, 1996, among the Company and
the Lenders, the Administrative Agent, the Swing Lender (as defined therein), the
Issuing Lender (as defined therein) and the lenders listed on Schedule 2 thereto.
10.3 -- Security Agreement, dated March 13, 1996, among the Company, the Guarantors and
Morgan Guaranty Trust Company of New York, as administrative agent (included in
Exhibit 10.1 hereof).
10.4 -- Pledge Agreement, dated March 13, 1996, among the Company, Exide Electronics
Corporation, Exide Electronics USA Holdings Corp., International Power Machines
Corporation and Deltec Power Systems, Inc., as pledgors, and Morgan Guaranty
Trust Company of New York, as administrative agent (included in Exhibit 10.1
hereof).
10.5 -- Lease Agreement, dated August 15, 1994 between E.L.E. Properties and Exide
Electronics Corporation relating to Registrant's manufacturing facility in
Raleigh, North Carolina (filed as Exhibit 10a to the Company's Annual Report on
Form 10-K, File No. 000-18106, for the fiscal year ended September 30, 1994, and
incorporated by reference herein).
10.6 -- Lease Agreement, dated June 20, 1985, between Corporate Property Associates 5 and
Exide Electronics Corporation and First Amendment thereto, relating to
Registrant's engineering facility in Raleigh, North Carolina (filed as Exhibit
10c to Registration Statement No. 33-31872 on Form S-1 and incorporated by
reference herein).
10.7 -- Lease Agreement, dated May 12, 1994, between Forum Office Partners Three and
Exide Electronics Group, Inc., relating to Registrant's corporate headquarters
(filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q, File No.
000-18106, for the quarter ended March 31, 1994, and incorporated by reference
herein).
10.8 -- Contract, dated May 6, 1988, between the Directorate of Contracting and
Manufacturing, Sacramento Air Logistics Center and Exide Electronics Corporation,
and Amendment/Modification Nos. P00001 through P00008 (filed as Exhibit 10c to
Registration Statement No. 33-31872 on Form S-1 and incorporated by reference
herein).
10.9 -- Amendment/Modification Nos. P00009 through P000012, between the Directorate of
Contracting and Manufacturing, Sacramento Air Logistics Center and Exide
Electronics Corporation (filed as Exhibits 10g-j to the Company's Annual Report
on Form 10-K, File No. 000-18106, for the fiscal year ended September 30, 1990,
and incorporated by reference herein).
10.10 -- Amendment/Modification Nos. P000013 through P000023 between the Directorate of
Contracting and Manufacturing, Sacramento Air Logistics Center and Exide
Electronics Corporation (filed as Exhibit 10h to the Company's Annual Report on
Form 10-K, File No. 000-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10.11 -- Amendment/Modification Nos. P000024 through P000028 between the Directorate of
Contracting and Manufacturing, Sacramento Air Logistics Center and Exide
Electronics Corporation (filed as Exhibit 10g to the Company's Annual Report on
Form 10-K, File No. 000-18106, for the fiscal year ended September 30, 1993, and
incorporated by reference herein).
</TABLE>
II-3
<PAGE> 192
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
10.12 -- Amendment/Modification No. P000029 between the Directorate of Contracting and
Manufacturing, Sacramento Air Logistics Center and Exide Electronics Corporation
(filed as Exhibit 10(h) to the Company's Annual Report on Form 10-K, File No.
000-18106, for the fiscal year ended September 30, 1995, and incorporated by
reference herein).
10.13 -- Contract dated June 20, 1991 between the United States Navy and Exide Electronics
Corporation, and Modifications Nos. P00001 through P00003 (filed as Exhibit 10i
to the Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal
year ended September 30, 1992, and incorporated by reference herein).
10.14 -- Modifications Nos. P00004 through P00005 to the contract dated June 20, 1991
between the United States Navy and Exide Electronics Corporation (filed as
Exhibit 10a to the Company's Quarterly Report on Form 10 -Q, File No. 000-18106,
for the quarter ended June 30, 1994, and incorporated by reference herein).
10.15 -- Modification No. P00006 to the contract dated June 20, 1991 between the United
States Navy and Exide Electronics Corporation (filed as Exhibit 10k to the
Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal year
ended September 30, 1994, and incorporated by reference herein).
10.16 -- Contract dated April 13, 1992 between the United States Navy and Exide
Electronics Corporation, and Amendments Nos. 0001 through 0006 and Modification
No. P00001 (filed as Exhibit 10j to the Company's Annual Report on Form 10-K,
File No. 000-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10.17 -- Modifications Nos. P00002, P00003, P00006 and P00007 to the contract dated April
13, 1992 between the United States Navy and Exide Electronics Corporation (filed
as Exhibit 10m to the Company's Annual Report on Form 10-K, File No. 000-18106,
for the fiscal year ended September 30, 1994, and incorporated by reference
herein).
10.18 -- Modifications Nos. P00004 through P00005 to the contract dated April 13, 1992
between the United States Navy and Exide Electronics Corporation (filed as
Exhibit 10b to the Company's Quarterly Report on Form 10-Q, File No. 000-18106,
for the quarter ended June 30, 1994, and incorporated by reference herein).
10.19 -- Agreement, dated as of July 1, 1982, between Exide Corporation and Exide
Electronics Corporation relating to the use of the name Exide (filed as Exhibit
10f to the Registration Statement No. 33-31872 on Form S-1 and incorporated by
reference herein).
10.20 -- Exide Electronics Group, Inc. 1989 Stock Option Plan (filed as Exhibit 10g to
Registration Statement No. 33-31872 on Form S-1 and incorporated by reference
herein).
10.21 -- Employment Agreement, dated February 3, 1995, with Warren J. Johnson (filed as
Exhibit 10 to the Company's Quarterly Report on Form 10-Q, File No. 000-18106,
for the quarter ended December 31, 1994, and incorporated by reference herein).
10.22 -- Employment Agreement, dated September 30, 1989, with James A. Risher (filed as
Exhibit 10o to the Company's Annual Report on Form 10-K, File No. 000-18106, for
the fiscal year ended September 30, 1990, and incorporated by reference herein).
10.23 -- Employment Agreement, dated March 15, 1990, with William J. Raddi (filed as
Exhibit 10p to the Company's Annual Report on Form 10-K, File No. 000-18106, for
the fiscal year ended September 30, 1990, and incorporated by reference herein).
10.24 -- Severance Compensation Plan After Change of Control (filed as Exhibit 10o to
Amendment No. 1 of Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10.25 -- Revised form of Stock Purchase Agreement for fiscal 1989 Common Stock sales to
the Registrant's employees (filed as Exhibit 101 to Amendment No. 3 of
Registration Statement No. 33-31872 on Form S-1 and incorporated by reference
herein).
</TABLE>
II-4
<PAGE> 193
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
10.26 -- 1989 Stock Option Plan, as amended on August 11, 1992 (filed as Exhibit 10t to
the Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal year
ended September 30, 1992, and incorporated by reference herein).
10.27 -- Non-employee Directors' Stock Option Plan, as amended on August 11, 1992 (filed
as Exhibit 10u to the Company's Annual Report on Form 10-K, File No. 000-18106,
for the fiscal year ended September 30, 1992, and incorporated by reference
herein).
10.28 -- Contract, dated June 5, 1995, between the United States Air Force Sacramento Air
Logistics Command and Exide Electronics Corporation (filed as Exhibit P to the
Company's Quarterly Report on Form 10-Q, File No. 000-18106, for the quarter
ended June 30, 1995, and incorporated by reference herein).
10.29 -- Exide Electronics Group, Inc. 1995 Directors Stock Option Plan (filed as Appendix
B to the Company's Proxy Statement dated January 30, 1995, issued in connection
with the Company's Annual Meeting of Stockholders held on February 28, 1995, and
incorporated by reference herein).
10.30 -- Exide Electronics Group, Inc. 1995 Employee Stock Option and Restricted Stock
Plan (filed as Appendix A to the Company's Proxy Statement dated January 30,
1995, issued in connection with the Company's Annual Meeting of Stockholders held
on February 28, 1995, and incorporated by reference herein).
10.31 -- Exide Electronics Corporation 401 (k) Retirement Benefit Plan Summary Plan
Description (filed as Exhibit 4c to Registration Statement No. 33-64121 on Form
S-8 and incorporated by reference herein).
10.32 -- Commercial Lease Agreement dated June 23, 1987 between Northgate V Business Park
Associates and the registrant, as amended November 11, 1987, and as supplemented
by Supplemental Lease Agreement dated December 9, 1992 (filed as Exhibit 10.1 to
International Power Machines Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated by reference herein).
10.33 -- Agreement dated February 20, 1987 between William L. Zang and the registrant
(filed as Exhibit 10.10 to International Power Machines Corporation's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, and incorporated
by reference herein).
10.34 -- Company Employee Capital Accumulation and Savings Plan (filed as Exhibit 10.12 to
International Power Machines Corporation's Annual Report on Form 10-K for the
fiscal year ended December 31, 1992, and incorporated by reference herein).
10.35 -- Lease Agreement, dated June 8, 1995, between Banks D. Kerr and Exide Electronics
Corporation relating to the registrant's offices in Raleigh, North Carolina
(filed as Exhibit 10(ff) to the Company's Annual Report on Form 10-K, File No.
000-18106, for the fiscal year ended September 30, 1995, and incorporated by
reference herein).
10.36 -- Summary Description of 1995 Management Incentive Plan (filed as Exhibit 10(gg) to
the Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal year
ended September 30, 1995, and incorporated by reference herein).
12.1 -- Statement of Computation of Ratios.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Smith Helms Mulliss & Moore, L.L.P. (included in their opinion filed
as Exhibit 5.1 hereof).
23.2* -- Consent of Arthur Andersen LLP.
23.3* -- Consent of Price Waterhouse LLP.
23.4(a)* -- Consent of KPMG as.
23.4(b)* -- Consent of KPMG C. Jespersen.
</TABLE>
II-5
<PAGE> 194
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ---------------------------------------------------------------------------------
<C> <C> <S>
23.4(c)* -- Consent of KPMG WIDERI OY AB.
23.4(d)* -- Consent of KPMG Bohlins AB.
24.1+ -- Power of Attorney (included on the signature pages of this registration
statement).
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust Indenture
Act of 1939 of American Bank National Association.
99.1 -- Form of Letter of Transmittal and related documents to be used in conjunction
with the Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
+ Powers of Attorney for the Guarantors are filed herewith on the signature
pages of such Guarantors
(b) Financial Statement Schedules
The following Financial Statement Schedule is filed as part of the
Registration Statement.
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
SCHEDULES OMITTED
Schedules not listed above are omitted because of the absence of the
conditions under which they are required or because the information required by
such omitted schedules is set forth in the financial statements or the notes
thereto.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes that insofar as
indemnification for liabilities arising under the Securities Act of 1933, as
amended (the "Act"), may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise,
the registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes:
(1) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11, or 13 of this
form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
(2) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
(3) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act
of 1933; (ii) to reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement;
II-6
<PAGE> 195
(iii) to include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(4) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(5) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(6) That, for purposes of determining any liability under the
Securities Act of 1933, each filing of the registrant's annual report
pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934
(and, where applicable, each filing of an employee benefit plan's annual
report pursuant to Section 15(d) of the Securities Exchange Act of 1934)
that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(7) To file an application for the purpose of determining the
eligibility of the trustee to act under subsection (a) of Section 310 of
the Trust Indenture Act in accordance with the rules and regulations
prescribed by the Commission under Section 305(b)(2) of the Act.
II-7
<PAGE> 196
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
EXIDE ELECTRONICS GROUP, INC.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
Chairman of the Board of May , 1996
- --------------------------------------------- Directors
Conrad A. Plimpton
/s/ LANCE L. KNOX Vice Chairman of the Board of May 7, 1996
- --------------------------------------------- Directors
Lance L. Knox
/s/ MARTY R. KITTRELL Vice President, Chief May 7, 1996
- --------------------------------------------- Financial Officer, and
Marty R. Kittrell Treasurer (Principal
Accounting Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
/s/ WAYNE L. CLEVENGER Director May 7, 1996
- ---------------------------------------------
Wayne L. Clevenger
/s/ RON E. DOGGETT Director May 7, 1996
- ---------------------------------------------
Ron E. Doggett
/s/ JAMES E. FOWLER Director May 7, 1996
- ---------------------------------------------
James E. Fowler
/s/ DAVID J. MCLAUGHLIN Director May 7, 1996
- ---------------------------------------------
David J. McLaughlin
Director May , 1996
- ---------------------------------------------
Chiaki Tanaka
</TABLE>
II-8
<PAGE> 197
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
EXIDE ELECTRONICS CORPORATION
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Exide Electronics Corporation, hereby severally constitute James A.
Risher and Marty R. Kittrell and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Exide Electronics Corporation to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President, Chief May 7, 1996
- --------------------------------------------- Financial Officer and
Marty R. Kittrell Treasurer (Principal
Accounting Officer)
Director May , 1996
- ---------------------------------------------
Conrad A. Plimpton
/s/ LANCE L. KNOX Director May 7, 1996
- ---------------------------------------------
Lance L. Knox
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
</TABLE>
II-9
<PAGE> 198
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
EXIDE ELECTRONICS INTERNATIONAL
CORP.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Exide Electronics International Corp., hereby severally constitute
James A. Risher and Marty R. Kittrell and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, to sign for
us and in our names in the capacities indicated below, the Registration
Statement filed herewith and any and all amendments to said Registration
Statement, and generally to do all such things in our names and in our
capacities as officers and directors to enable Exide Electronics International
Corp. to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President and Treasurer May 7, 1996
- --------------------------------------------- (Principal Accounting
Marty R. Kittrell Officer)
Director May , 1996
- ---------------------------------------------
Conrad A. Plimpton
/s/ LANCE L. KNOX Director May 7, 1996
- ---------------------------------------------
Lance L. Knox
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
</TABLE>
II-10
<PAGE> 199
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
INTERNATIONAL POWER MACHINES
CORPORATION
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of International Power Machines Corporation, hereby severally
constitute James A. Risher and Marty R. Kittrell and each of them singly, our
true and lawful attorneys with full power to them, and each of them singly, to
sign for us and in our names in the capacities indicated below, the Registration
Statement filed herewith and any and all amendments to said Registration
Statement, and generally to do all such things in our names and in our
capacities as officers and directors to enable International Power Machines
Corporation to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President -- Finance May 7, 1996
- --------------------------------------------- (Principal Accounting
Marty R. Kittrell Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
/s/ NICHOLAS J. COSTANZA Director May 7, 1996
- ---------------------------------------------
Nicholas J. Costanza
Director May , 1996
- ---------------------------------------------
Warren J. Johnson
</TABLE>
II-11
<PAGE> 200
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
LECTRO PRODUCTS, INC.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Lectro Products, Inc., hereby severally constitute James A. Risher
and Marty R. Kittrell and each of them singly, our true and lawful attorneys
with full power to them, and each of them singly, to sign for us and in our
names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Lectro Products, Inc. to comply with the provisions of
the Securities Act of 1933, and all requirements of the Securities and Exchange
Commission, hereby ratifying and confirming our signatures as they may be signed
by our said attorneys, or any of them, to said Registration Statement and any
and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President and Chief May 7, 1996
- --------------------------------------------- Financial Officer
Marty R. Kittrell (Principal Accounting
Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
</TABLE>
II-12
<PAGE> 201
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
DELTEC POWER SYSTEMS, INC.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Deltec Power Systems, Inc., hereby severally constitute James A.
Risher and Marty R. Kittrell and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Deltec Power Systems, Inc. to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
/s/ MARTY R. KITTRELL Director, Senior Vice May 7, 1996
- --------------------------------------------- President and Chief
Marty R. Kittrell Financial Officer
(Principal Accounting
Officer)
/s/ NICHOLAS J. CONSTANZA Director May 7, 1996
- ---------------------------------------------
Nicholas J. Costanza
</TABLE>
II-13
<PAGE> 202
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
DATATRAX ACQUISITION CORPORATION
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Datatrax Acquisition Corporation, hereby severally constitute James
A. Risher and Marty R. Kittrell and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Datatrax Acquisition Corporation to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President and Chief May 7, 1996
- --------------------------------------------- Financial Officer
Marty R. Kittrell (Principal Accounting
Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
</TABLE>
II-14
<PAGE> 203
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
EXIDE ELECTRONICS USA HOLDINGS CORP.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Exide Electronics USA Holdings Corp., hereby severally constitute
James A. Risher and Marty R. Kittrell and each of them singly, our true and
lawful attorneys with full power to them, and each of them singly, to sign for
us and in our names in the capacities indicated below, the Registration
Statement filed herewith and any and all amendments to said Registration
Statement, and generally to do all such things in our names and in our
capacities as officers and directors to enable Exide Electronics USA Holdings
Corp. to comply with the provisions of the Securities Act of 1933, and all
requirements of the Securities and Exchange Commission, hereby ratifying and
confirming our signatures as they may be signed by our said attorneys, or any of
them, to said Registration Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Vice President and Chief May 7, 1996
- --------------------------------------------- Financial Officer
Marty R. Kittrell (Principal Accounting
Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
</TABLE>
II-15
<PAGE> 204
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
DELTEC ELECTRONICS CORPORATION
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
Chief Executive Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Deltec Electronics Corporation, hereby severally constitute James
A. Risher and Marty R. Kittrell and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Deltec Electronics Corporation to comply with the
provisions of the Securities Act of 1933, and all requirements of the Securities
and Exchange Commission, hereby ratifying and confirming our signatures as they
may be signed by our said attorneys, or any of them, to said Registration
Statement and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
/s/ MARTY R. KITTRELL Director, Senior Vice May 7, 1996
- --------------------------------------------- President and Chief
Marty R. Kittrell Financial Officer
(Principal Accounting
Officer)
/s/ NICHOLAS J. COSTANZA Director May 7, 1996
- ---------------------------------------------
Nicholas J. Costanza
</TABLE>
II-16
<PAGE> 205
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Raleigh, State of North
Carolina, on May 7, 1996.
LORTEC POWER SYSTEMS, INC.
By: /s/ JAMES A. RISHER
------------------------------------
James A. Risher
President and Chief Executive
Officer
KNOW ALL MEN BY THESE PRESENTS, that we, the undersigned officers and
directors of Lortec Power Systems, Inc., hereby severally constitute James A.
Risher and Marty R. Kittrell and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement filed
herewith and any and all amendments to said Registration Statement, and
generally to do all such things in our names and in our capacities as officers
and directors to enable Lortec Power Systems, Inc. to comply with the provisions
of the Securities Act of 1933, and all requirements of the Securities and
Exchange Commission, hereby ratifying and confirming our signatures as they may
be signed by our said attorneys, or any of them, to said Registration Statement
and any and all amendments thereto.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------------------- ----------------------------- ----------------
<C> <S> <C>
/s/ MARTY R. KITTRELL Senior Vice President and May 7, 1996
- --------------------------------------------- Chief Financial Officer
Marty R. Kittrell (Principal Accounting
Officer)
/s/ JAMES A. RISHER Director May 7, 1996
- ---------------------------------------------
James A. Risher
/s/ NICHOLAS J. COSTANZA Director May 7, 1996
- ---------------------------------------------
Nicholas J. Costanza
</TABLE>
II-17
<PAGE> 206
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Exide Electronics Group, Inc.:
We have audited, in accordance with generally accepted auditing standards,
the financial statements of Exide Electronics Group, Inc. included in this
registration statement and have issued our report thereon dated October 25, 1995
(except with respect to the matters discussed in Note 16 to the annual
Consolidated Financial Statements, as to which the date is December 13, 1995).
Our audit was made for the purpose of forming an opinion on the basic financial
statements taken as a whole. The information contained on Schedule II is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Raleigh, North Carolina
October 25, 1995
S-1
<PAGE> 207
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS AND
CUSTOMER RETURNS AND ADJUSTMENTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE BALANCE
BEGINNING END
FISCAL YEAR OF PERIOD ADDITIONS DEDUCTIONS OF PERIOD
- -------------------------------------------- --------- --------- ---------- ---------
<S> <C> <C> <C> <C>
1993........................................ $ 1,745 $ 1,714 $ (599) $ 2,860
1994........................................ $ 2,860 $ 1,475 $ (2,187) $ 2,148
1995........................................ $ 2,148 $ 1,495 $ (1,126) $ 2,517
</TABLE>
S-2
<PAGE> 208
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
2.1 -- Stock Purchase Agreement by and between Exide Electronics Group, Inc. and
Fiskars Oy Ab, Fiskars Holdings, Inc. and Deltec Power Systems, Inc.,
dated November 16, 1995 (filed as Exhibit 10 to the Company's Form 8-K,
File No. 000-18106, filed on November 17, 1995 and incorporated herein by
reference).
2.2 -- Letter Agreement to Amend Stock Purchase Agreement by and between Exide
Electronics Group, Inc. and Fiskars Oy Ab, Fiskars Holdings, Inc. and
Deltec Power Systems, Inc., dated February 9, 1996 (filed as Exhibit 10.2
to the Company's Form 8-K, File No. 000-18106, filed on February 21, 1996
and incorporated herein by reference).
3.1 -- Certificate of Incorporation of the Company, as amended (filed as Exhibit
3 to the Company's Form 10-Q, File No. 000-18106, for the quarter ended
March 31, 1995 and incorporated herein by reference).
3.2 -- Form of Certificate of Designation of the Series G Preferred Stock of the
Company (filed as attachment to Schedule 2.1(d) of Exhibit 10.2 to the
Company's Form 8-K/A, File No. 000-18106, filed on March 22, 1996 and
incorporated herein by reference).
3.3 -- Bylaws of the Company, as amended (filed as Exhibit 3b to the Company's
Form 10-K, File No. 000-18106, for the fiscal year ended September 30,
1992 and incorporated herein by reference).
4.1 -- Indenture, dated as of March 13, 1996, among the Company, the Guarantors
and American Bank National Association, as trustee, relating to
$125,000,000 principal amount of 11 1/2% Senior Subordinated Notes due
2006.
4.2 -- Form of 11 1/2% Series A and Series B Senior Subordinated Notes due 2006
(included in Exhibit 4.1 hereof).
4.3 -- Registration Rights Agreement, dated as of March 13, 1996, among the
Company, the Guarantors and the Initial Purchasers.
4.4 -- Warrant Agreement, dated as of March 13, 1996, between the Company and
American Bank National Association, as warrant agent, relating to 125,000
Warrants to purchase in the aggregate 643,750 shares of Common Stock.
4.5 -- Warrant Registration Rights Agreement, dated March 13, 1996, between the
Company and the Initial Purchasers.
4.6 -- Stockholder Agreement, dated March 13, 1996, between the Company and
Fiskars Oy Ab.
4.7 -- Rights Agreement, dated as of November 25, 1992, by and between Exide
Electronics Group, Inc. and First Union National Bank of North Carolina
(filed as Exhibit 1 to the Company's Current Report on Form 8-K, File No.
000-18106, for the event on November 25, 1992, and incorporated by
reference herein).
4.8 -- Stockholder Agreement between Exide Electronics and Duquesne Enterprises,
Inc., dated August 25, 1994, including amendments by a letter agreement
dated December 14, 1994 and a letter agreement dated January 4, 1995
(filed as Exhibit 2.4 to Exide Electronics' Registration Statement on Form
S-4, File No. 33-88324, and incorporated by reference herein).
4.9 -- Stockholder Agreement between Exide Electronics and Shenkman Capital
Management, Inc., dated August 25, 1994, including an Amendment Agreement
dated December 14, 1994 and an Amendment Agreement dated January 4, 1995
(filed as Exhibit 2.5 to Exide Electronics' Registration Statement on Form
S-4, File No. 33-88324, and incorporated by reference herein).
</TABLE>
<PAGE> 209
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
4.10 -- Registration Rights Agreement between Exide Electronics Group, Inc. and
Gilbert Stuart Goodchild, dated September 29, 1994 (filed as Exhibit 4.1
to Exide Electronics' Registration Statement on Form S-3, File No.
33-63969, and incorporated by reference herein).
4.11 -- Registration Rights Agreement between Exide Electronics Group, Inc. and
Carol Elizabeth Amans, dated September 29, 1994 (filed as Exhibit 4.2 to
Exide Electronics' Registration Statement on Form S-3, File No. 33-63969,
and incorporated by reference herein).
4.12 -- Registration Rights Agreement between Exide Electronics Group, Inc. and
Tony Peter Stuart Goodchild, dated September 29, 1994 (filed as Exhibit
4.3 to Exide Electronics' Registration Statement on Form S-3, File No.
33-63969, and incorporated by reference herein).
4.13 -- Registration Rights Agreement by and among Exide Electronics, Duquesne and
Shenkman Investment Partners L.P., dated as of January 5, 1995 (filed as
Exhibit 4.7 to Exide Electronics' Registration Statement on Form S-3, File
No. 33-88466, and incorporated by reference herein).
4.14 -- Note Agreement by and among Massachusetts Mutual Life Insurance Company,
MassMutual Corporate Investors, MassMutual Participation Investors, and
Exide Electronics Group, Inc., dated September 2, 1992, relating to the
8.375% Guaranteed Convertible Subordinated Notes due June 30, 2000 (filed
as Exhibit 4m to the Company's Annual Report on Form 10-K, File No.
000-18106, for the fiscal year ended September 30, 1992, and incorporated
by reference herein).
5.1* -- Opinion of Smith Helms Mulliss & Moore, L.L.P., regarding the legality of
the Series B Notes.
10.1 -- Credit Agreement, dated as of March 13, 1996, among the Company, the
Guarantors and Morgan Guaranty Trust Company of New York, First Union
National Bank of North Carolina, Bank of America Illinois, NationsBank,
N.A., ABN AMRO Bank, N.V., as lenders, and Morgan Guaranty Trust Company
of New York, as administrative agent, and Bank of America Illinois, as
documentation agent.
10.2 -- Amendment to Credit Agreement, dated as of March 25, 1996, among the
Company and the Lenders, the Administrative Agent, the Swing Lender (as
defined therein), the Issuing Lender (as defined therein) and the lenders
listed on Schedule 2 thereto.
10.3 -- Security Agreement, dated March 13, 1996, among the Company, the
Guarantors and Morgan Guaranty Trust Company of New York, as
administrative agent (included in Exhibit 10.1 hereof).
10.4 -- Pledge Agreement, dated March 13, 1996, among the Company, Exide
Electronics Corporation, Exide Electronics USA Holdings Corp.,
International Power Machines Corporation and Deltec Power Systems, Inc.,
as pledgors, and Morgan Guaranty Trust Company of New York, as
administrative agent (included in Exhibit 10.1 hereof).
10.5 -- Lease Agreement, dated August 15, 1994 between E.L.E. Properties and Exide
Electronics Corporation relating to Registrant's manufacturing facility in
Raleigh, North Carolina (filed as Exhibit 10a to the Company's Annual
Report on Form 10-K, File No. 000-18106, for the fiscal year ended
September 30, 1994, and incorporated by reference herein).
10.6 -- Lease Agreement, dated June 20, 1985, between Corporate Property
Associates 5 and Exide Electronics Corporation and First Amendment
thereto, relating to Registrant's engineering facility in Raleigh, North
Carolina (filed as Exhibit 10c to Registration Statement No. 33-31872 on
Form S-1 and incorporated by reference herein).
</TABLE>
<PAGE> 210
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
10.7 -- Lease Agreement, dated May 12, 1994, between Forum Office Partners Three
and Exide Electronics Group, Inc., relating to Registrant's corporate
headquarters (filed as Exhibit 10 to the Company's Quarterly Report on
Form 10-Q, File No. 000-18106, for the quarter ended March 31, 1994, and
incorporated by reference herein).
10.8 -- Contract, dated May 6, 1988, between the Directorate of Contracting and
Manufacturing, Sacramento Air Logistics Center and Exide Electronics
Corporation, and Amendment/Modification Nos. P00001 through P00008 (filed
as Exhibit 10c to Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10.9 -- Amendment/Modification Nos. P00009 through P000012, between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibits 10g-j to the
Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal
year ended September 30, 1990, and incorporated by reference herein).
10.10 -- Amendment/Modification Nos. P000013 through P000023 between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibit 10h to the
Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal
year ended September 30, 1992, and incorporated by reference herein).
10.11 -- Amendment/Modification Nos. P000024 through P000028 between the
Directorate of Contracting and Manufacturing, Sacramento Air Logistics
Center and Exide Electronics Corporation (filed as Exhibit 10g to the
Company's Annual Report on Form 10-K, File No. 000-18106, for the fiscal
year ended September 30, 1993, and incorporated by reference herein).
10.12 -- Amendment/Modification No. P000029 between the Directorate of Contracting
and Manufacturing, Sacramento Air Logistics Center and Exide Electronics
Corporation (filed as Exhibit 10(h) to the Company's Annual Report on Form
10-K, File No. 000-18106, for the fiscal year ended September 30, 1995,
and incorporated by reference herein).
10.13 -- Contract dated June 20, 1991 between the United States Navy and Exide
Electronics Corporation, and Modifications Nos. P00001 through P00003
(filed as Exhibit 10i to the Company's Annual Report on Form 10-K, File
No. 000-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10.14 -- Modifications Nos. P00004 through P00005 to the contract dated June 20,
1991 between the United States Navy and Exide Electronics Corporation
(filed as Exhibit 10a to the Company's Quarterly Report on Form 10 -Q,
File No. 000-18106, for the quarter ended June 30, 1994, and incorporated
by reference herein).
10.15 -- Modification No. P00006 to the contract dated June 20, 1991 between the
United States Navy and Exide Electronics Corporation (filed as Exhibit 10k
to the Company's Annual Report on Form 10-K, File No. 000-18106, for the
fiscal year ended September 30, 1994, and incorporated by reference
herein).
10.16 -- Contract dated April 13, 1992 between the United States Navy and Exide
Electronics Corporation, and Amendments Nos. 0001 through 0006 and
Modification No. P00001 (filed as Exhibit 10j to the Company's Annual
Report on Form 10-K, File No. 000-18106, for the fiscal year ended
September 30, 1992, and incorporated by reference herein).
</TABLE>
<PAGE> 211
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
10.17 -- Modifications Nos. P00002, P00003, P00006 and P00007 to the contract dated
April 13, 1992 between the United States Navy and Exide Electronics
Corporation (filed as Exhibit 10m to the Company's Annual Report on Form
10-K, File No. 000-18106, for the fiscal year ended September 30, 1994,
and incorporated by reference herein).
10.18 -- Modifications Nos. P00004 through P00005 to the contract dated April 13,
1992 between the United States Navy and Exide Electronics Corporation
(filed as Exhibit 10b to the Company's Quarterly Report on Form 10-Q, File
No. 000-18106, for the quarter ended June 30, 1994, and incorporated by
reference herein).
10.19 -- Agreement, dated as of July 1, 1982, between Exide Corporation and Exide
Electronics Corporation relating to the use of the name Exide (filed as
Exhibit 10f to the Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10.20 -- Exide Electronics Group, Inc. 1989 Stock Option Plan (filed as Exhibit 10g
to Registration Statement No. 33-31872 on Form S-1 and incorporated by
reference herein).
10.21 -- Employment Agreement, dated February 3, 1995, with Warren J. Johnson
(filed as Exhibit 10 to the Company's Quarterly Report on Form 10-Q, File
No. 000-18106, for the quarter ended December 31, 1994, and incorporated
by reference herein).
10.22 -- Employment Agreement, dated September 30, 1989, with James A. Risher
(filed as Exhibit 10o to the Company's Annual Report on Form 10-K, File
No. 000-18106, for the fiscal year ended September 30, 1990, and
incorporated by reference herein).
10.23 -- Employment Agreement, dated March 15, 1990, with William J. Raddi (filed
as Exhibit 10p to the Company's Annual Report on Form 10-K, File No.
000-18106, for the fiscal year ended September 30, 1990, and incorporated
by reference herein).
10.24 -- Severance Compensation Plan After Change of Control (filed as Exhibit 10o
to Amendment No. 1 of Registration Statement No. 33-31872 on Form S-1 and
incorporated by reference herein).
10.25 -- Revised form of Stock Purchase Agreement for fiscal 1989 Common Stock
sales to the Registrant's employees (filed as Exhibit 101 to Amendment No.
3 of Registration Statement No. 33-31872 on Form S-1 and incorporated by
reference herein).
10.26 -- 1989 Stock Option Plan, as amended on August 11, 1992 (filed as Exhibit
10t to the Company's Annual Report on Form 10-K, File No. 000-18106, for
the fiscal year ended September 30, 1992, and incorporated by reference
herein).
10.27 -- Non-employee Directors' Stock Option Plan, as amended on August 11, 1992
(filed as Exhibit 10u to the Company's Annual Report on Form 10-K, File
No. 000-18106, for the fiscal year ended September 30, 1992, and
incorporated by reference herein).
10.28 -- Contract, dated June 5, 1995, between the United States Air Force
Sacramento Air Logistics Command and Exide Electronics Corporation (filed
as Exhibit P to the Company's Quarterly Report on Form 10-Q, File No.
000-18106, for the quarter ended June 30, 1995, and incorporated by
reference herein).
10.29 -- Exide Electronics Group, Inc. 1995 Directors Stock Option Plan (filed as
Appendix B to the Company's Proxy Statement dated January 30, 1995, issued
in connection with the Company's Annual Meeting of Stockholders held on
February 28, 1995, and incorporated by reference herein).
10.30 -- Exide Electronics Group, Inc. 1995 Employee Stock Option and Restricted
Stock Plan (filed as Appendix A to the Company's Proxy Statement dated
January 30, 1995, issued in connection with the Company's Annual Meeting
of Stockholders held on February 28, 1995, and incorporated by reference
herein).
</TABLE>
<PAGE> 212
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ----------- -------------------------------------------------------------------------- ----
<C> <C> <S> <C>
10.31 -- Exide Electronics Corporation 401 (k) Retirement Benefit Plan Summary Plan
Description (filed as Exhibit 4c to Registration Statement No. 33-64121 on
Form S-8 and incorporated by reference herein).
10.32 -- Commercial Lease Agreement dated June 23, 1987 between Northgate V
Business Park Associates and the registrant, as amended November 11, 1987,
and as supplemented by Supplemental Lease Agreement dated December 9, 1992
(filed as Exhibit 10.1 to International Power Machines Corporation's
Annual Report on Form 10-K for the fiscal year ended December 31, 1992,
and incorporated by reference herein).
10.33 -- Agreement dated February 20, 1987 between William L. Zang and the
registrant (filed as Exhibit 10.10 to International Power Machines
Corporation's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992, and incorporated by reference herein).
10.34 -- Company Employee Capital Accumulation and Savings Plan (filed as Exhibit
10.12 to International Power Machines Corporation's Annual Report on Form
10-K for the fiscal year ended December 31, 1992, and incorporated by
reference herein).
10.35 -- Lease Agreement, dated June 8, 1995, between Banks D. Kerr and Exide
Electronics Corporation relating to the registrant's offices in Raleigh,
North Carolina (filed as Exhibit 10(ff) to the Company's Annual Report on
Form 10-K, File No. 000-18106, for the fiscal year ended September 30,
1995, and incorporated by reference herein).
10.36 -- Summary Description of 1995 Management Incentive Plan (filed as Exhibit
10(gg) to the Company's Annual Report on Form 10-K, File No. 000-18106,
for the fiscal year ended September 30, 1995, and incorporated by
reference herein).
12.1 -- Statement of Computation of Ratios.
21.1 -- Subsidiaries of the Company.
23.1* -- Consent of Smith Helms Mulliss & Moore, L.L.P. (included in their opinion
filed as Exhibit 5.1 hereof).
23.2* -- Consent of Arthur Andersen LLP.
23.3* -- Consent of Price Waterhouse LLP.
23.4(a)* -- Consent of KPMG as.
23.4(b)* -- Consent of KPMG C. Jespersen.
23.4(c)* -- Consent of KPMG WIDERI OY AB.
23.4(d)* -- Consent of KPMG Bohlins AB.
24.1+ -- Power of Attorney (included on the signature pages of this registration
statement).
25.1 -- Statement of Eligibility and Qualification (Form T-1) under the Trust
Indenture Act of 1939 of American Bank National Association.
99.1 -- Form of Letter of Transmittal and related documents to be used in
conjunction with the Exchange Offer.
</TABLE>
- ---------------
* Filed herewith
+ Powers of Attorney for the Guarantors are filed herewith on the signature
pages of such Guarantors
<PAGE> 1
EXHIBIT 5.1
May 7, 1996
Exide Electronics Group, Inc.
8609 Six Forks Road
Raleigh, North Carolina 27615
Re: Registration Statement on Form S-4; File No. 333-2471;
$125,000,000 Aggregate Principal Amount of 11 1/2% Senior Subordinated
Notes due 2006
- --------------------------------------------------------------------------------
Ladies/Gentlemen:
In connection with the registration of $125,000,000 aggregate principal
amount of 11 1/2% Senior Subordinated Notes due 2006 (the "Notes") by Exide
Electronics Group, Inc. (the "Company") under the Securities Act of 1933, as
amended (the "Act"), on Form S-4 filed with the Securities and Exchange
Commission on April 12, 1996 (File No. 333-2471) (the "Registration Statement")
and the concurrent registration of guarantees (the "Subsidiary Guarantees") of
the Notes by Exide Electronics Corporation, Exide Electronics International
Corp., International Power Machines Corporation, Lectro Products, Inc., Deltec
Power Systems, Inc., Datatrax Acquisition Corporation, Exide Electronics USA
Holdings Corp., Deltec Electronics Corporation and Lortec Power Systems, Inc.
(collectively, the "Guarantors"), you have requested our opinion with respect to
the matters set forth below. The Notes and Subsidiary Guarantees will be issued
pursuant to an indenture (the "Indenture") among the Company, the Guarantors and
American Bank National Association, as Trustee (the "Trustee").
In our capacity as your special counsel in connection with such
registration, we are familiar with the proceedings taken and proposed to be
taken by the Company and the Guarantors in connection with the authorization and
issuance of the Notes and Subsidiary Guarantees, and, for the purposes of this
opinion, have assumed such proceedings will be timely completed in the manner
presently proposed. In addition, we have made such legal and factual
examinations and inquiries, including an examination of originals or copies,
certified or otherwise identified to our satisfaction, of such documents,
corporate records and instruments, as we have deemed necessary or appropriate
for purposes of this opinion.
In our examination, we have assumed the genuineness of all signatures, the
authenticity of all documents submitted to us as originals, and the conformity
to authentic original documents of all documents submitted to us as copies.
We are opining herein as to the effect on the subject transaction only of
the internal laws of the State of North Carolina and the Delaware General
Corporation Law, and we express no opinion with respect to the applicability
thereto, or the effect thereon, of the laws of any other jurisdiction or as to
any matters of municipal law or the laws of any other local agencies within any
state.
Subject to the foregoing and the other matters set forth herein, it is our
opinion that, as of the date hereof:
1. When executed and delivered by or on behalf of the Company and
authenticated by the Trustee in accordance with the terms of the Indenture,
the Notes will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms.
2. When executed and delivered by or on behalf of the Guarantors, the
Subsidiary Guarantees will constitute valid and binding obligations of the
Guarantors, enforceable against the Guarantors in accordance with their
terms.
The opinions rendered in paragraphs 1 and 2 above relating to the
enforceability of the Notes and Subsidiary Guarantees are subject to the
following exceptions, limitations and qualifications: (i) the effect of
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
other similar laws now or hereafter in effect relating to or affecting the
rights and remedies of creditors generally; (ii) the effect of
<PAGE> 2
general principles of equity, whether enforcement is considered in a proceeding
in equity or at law, and the discretion of the court before which any proceeding
therefor may be brought; and (iii) we express no opinion concerning the
enforceability of any waivers of rights or defenses or indemnification
provisions of the Indenture where such waivers or provisions are contrary to
public policy.
To the extent that the obligations of the Company and Guarantors under the
Indenture may be dependent upon such matters, we assume for purposes of this
opinion that the Trustee is duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization; that the Trustee is
duly qualified to engage in the activities contemplated by the Indenture; that
the Indenture has been duly authorized, executed and delivered by the Trustee
and constitutes the legally valid and binding obligation of the Trustee,
enforceable against the Trustee in accordance with its terms; that the Trustee
is in compliance, generally and with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
We consent to your filing this opinion as an exhibit to the Registration
Statement and to the reference to our firm contained therein under the heading
"Legal Matters."
Very truly yours,
SMITH HELMS MULLISS & MOORE, L.L.P.
<PAGE> 1
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and all references to our firm) included in or made a part of this
registration statement (Registration Statement File No. 333-2471).
Arthur Andersen LLP
Raleigh, North Carolina,
May 7, 1996.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Exide Electronics Group, Inc. of our
report dated March 15, 1996 relating to the combined/consolidated financial
statements of Deltec Power Systems, Inc. which appears in such Prospectus. We
also consent to the reference to us under the heading "Experts" in such
Prospectus.
PRICE WATERHOUSE LLP
Milwaukee, Wisconsin
May 7, 1996
<PAGE> 1
EXHIBIT 23.4(A)
To the Board of Directors
and Shareholder of
Fiskars Power Systems AS
We consent to the inclusion of our report dated March 15, 1996 with respect
to the balance sheets of Fiskars Power Systems AS as of December 31, 1994,
September 30, 1995 and December 31, 1995, and the related statements of income
and retained earnings and of cash flows for the nine months ended September 30,
1995 and for each of the years in the three-year period ended December 31, 1995,
which report appears in the registration statement on Form S-4 of Exide
Electronics Group, Inc. and to the reference to our firm under the heading
"Experts" in the prospectus.
Oslo, Norway
May 7, 1996
KPMG as
Tom Myhre
State Authorized Public Accountant (Norway)
<PAGE> 1
EXHIBIT 23.4(B)
To the Board of Directors
and Shareholders of
Fiskars Power Systems A/S
We consent to the inclusion of our report dated March 15, 1996 with respect
to the balance sheets of Fiskars Power Systems A/S as of December 31, 1994,
September 30, 1995 and December 31, 1995, and the related statements of income
and retained earnings and of cash flows for the nine months ended September 30,
1995 and for each of the years in the three-year period ended December 31, 1995,
which report appears in the registration statement on Form S-4 of Exide
Electronics Group, Inc. and to the reference to our firm under the heading
"Experts" in the prospectus.
KPMG C. Jespersen
Copenhagen, Denmark
May 7, 1996
Torben Vonsild
State Authorized
Public Accountant
<PAGE> 1
EXHIBIT 23.4(C)
To the Board of Directors
and Shareholders of
FPS Power Systems Oy Ab
We consent to the inclusion of our report dated March 15, 1996 with respect
to the balance sheets of FPS Power Systems Oy Ab as of December 31, 1994 and
1995 and September 30, 1995, and the related statements of income and of cash
flows for each of the years in the three-year period ended December 31, 1995 and
the nine months ended September 30, 1995, which report appears in the
registration statement on Form S-4 of Exide Electronics Group, Inc. and to the
reference to our firm under the heading "Experts" in the prospectus.
KPMG WIDERI OY AB
Helsinki, Finland
May 7, 1996
Sixten Nyman
Authorized Public Accountant
<PAGE> 1
EXHIBIT 23.4(D)
To the Board of Directors
and Shareholder of
Fiskars Power Systems AB
We consent to the inclusion of our report dated March 15, 1996 with respect
to the balance sheets of Fiskars Power Systems AB as of December 31, 1994,
September 30, 1995 and December 31, 1995, and the related statements of income
and of cash flows for the nine months ended September 30, 1995 and for each of
the years in the three-year period ended December 31, 1995, which report appears
in the registration statement on Form S-4 of Exide Electronics Group, Inc. and
to the reference to our firm under the heading "Experts" in the prospectus.
KPMG Bohlins AB
Stockholm, Sweden
May 7, 1996
Thomas Thiel
Partner
