<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1997 Commission File No. 0-18106
EXIDE ELECTRONICS GROUP, INC.
(Exact name of registrant as specified in its charter)
Delaware 23-2231834
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
8609 Six Forks Road, Raleigh, North Carolina 27615
(Address of principal executive offices and zip code)
(919) 872-3020
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ x ] No [ ]
As of August 12, 1997, 10,324,619 shares of the Registrant's $0.01 par value
common stock were outstanding.
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------- --------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Products $ 119,184 $ 97,080 $ 328,310 $ 228,558
Services 28,574 33,374 89,208 86,887
------ ------ ------ -------
Total revenues 147,758 130,454 417,518 315,445
------ ------ ------ -------
Cost of revenues
Products 84,179 69,517 230,748 165,604
Services 19,107 21,191 59,464 59,194
------ ------ ------ -------
Total cost of revenues 103,286 90,708 290,212 224,798
------ ------ ------ -------
Gross profit 44,472 39,746 127,306 90,647
Selling, general and administrative expense 31,299 29,716 89,498 68,198
Research and development expense 3,067 3,895 10,586 8,981
Acquisition and restructuring expense -- 3,000 -- 14,621
----- ----- ------ -------
Income (loss) from operations 10,106 3,135 27,222 (1,153)
Interest expense 6,583 7,129 20,656 16,061
Interest income (77) (134) (369) (345)
Other (income) expense 92 (105) 128 80
---- ---- ----- -----
Income (loss) before income taxes 3,508 (3,755) 6,807 (16,949)
Provision (benefit) for income taxes 1,688 (1,062) 3,338 (5,678)
Minority interests in net income (loss) of subsidiaries (65) 285 127 285
----- ----- ------ ------
Income (loss) before extraordinary item 1,885 (2,978) 3,342 (11,556)
Extraordinary item -- -- 2,376 --
----- ----- ------ ------
Net income (loss) $ 1,885 $ (2,978) $ 966 $ (11,556)
Preferred stock dividends and accretion 342 342 1,026 409
---- ---- ---- ----
Net income (loss) applicable to common shareholders $ 1,543 $ (3,320) $ (60) $(11,965)
========= ========= ========== =========
Per Share Amounts
Primary
Net income (loss) before extraordinary item $ 0.15 $ (0.33) $ 0.23 $ (1.26)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) $ 0.15 $ (0.33) $ (0.01) $ (1.26)
========== ========= ========== =========
Weighted average number of common and equivalent
shares outstanding 10,092 9,978 10,085 9,461
====== ===== ======= =====
Fully diluted
Net income (loss) before extraordinary item $ 0.15 $ (0.33) $ 0.23 $ (1.26)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) $ 0.15 $ (0.33) $ (0.01) $ (1.26)
========== ========== ========== =========
Weighted average number of common and equivalent
shares outstanding 10,095 9,980 10,107 9,461
====== ===== ====== =====
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
2
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(unaudited; dollars in thousands)
<TABLE>
<CAPTION>
June 30, September 30, June 30,
1997 1996 1996
---- ---- ----
Assets
Current assets
<S> <C> <C> <C>
Cash and cash equivalents $ 2,775 $ 7,848 $ 9,727
Accounts receivable 137,613 129,423 127,363
Inventories 105,073 90,069 96,522
Other current assets 25,253 20,409 19,873
------ ------ ------
Total current assets 270,714 247,749 253,485
------- ------- -------
Property, plant, and equipment
Land, buildings, and leasehold improvements 17,728 17,539 13,434
Machinery and equipment 76,618 75,768 78,098
------ ------ ------
94,346 93,307 91,532
Accumulated depreciation 44,874 44,386 41,946
------ ------ ------
49,472 48,921 49,586
Goodwill 151,109 154,373 157,287
Other intangible assets 21,098 28,665 27,637
Other assets 14,048 9,766 14,146
------ ------ ------
$ 506,441 $ 489,474 $ 502,141
========= ========= =========
Liabilities, Redeemable Preferred Stock, & Common Shareholders' Equity
Current liabilities
Short-term debt $ 12,024 $ 14,568 $ 12,047
Accounts payable 82,930 71,046 65,432
Deferred revenues 29,460 21,913 22,996
Other accrued liabilities 28,018 24,355 31,501
------ ------ ------
Total current liabilities 152,432 131,882 131,976
------ ------ ------
Long-term debt 98,513 110,347 128,343
------ ------ ------
Subordinated notes 122,165 121,920 121,838
------ ------ ------
Deferred liabilities 19,324 9,912 6,454
----- ----- -----
Minority interests 1,396 762 -
------ ------ ------
Redeemable preferred stock 18,739 18,312 18,170
----- ----- -----
Common shareholders' equity
Common stock, $0.01 par value, 30,000,000
shares authorized; shares issued - 10,373,255
at June 30, 1997, 10,370,505 at September 30,
1996, and 10,367,255 at June 30, 1996 104 104 104
Additional paid-in capital 86,892 87,491 87,406
Retained earnings 21,311 21,372 20,762
Cumulative translation adjustments (4,161) (975) (1,330)
------ ------ ------
104,146 107,992 106,942
Less: Notes receivable from shareholders (5,175) (5,304) (5,233)
Treasury stock, 322,462 shares at June
30, 1997, and 386,668 shares at September
30, 1996 and at June 30, 1996 (5,099) (6,349) (6,349)
----- ----- -----
93,872 96,339 95,360
------ ------ ------
$ 506,441 $ 489,474 $ 502,141
========= ========= =========
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
3
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited; in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-------------------
1997 1996
---- ----
Cash flows from operating activities
<S> <C> <C>
Net income (loss) $ 966 $(11,556)
Adjustments to reconcile net income (loss) to cash provided by operating
activities:
Depreciation expense 7,915 6,317
Amortization expense 8,487 7,413
Write-off of debt issue costs, net of tax 2,376 --
Acquisition and restructuring provisions -- 13,025
Increase in accounts receivable (10,149) (348)
Increase in inventories (14,048) (700)
(Increase) decrease in other current assets (4,813) 196
Increase (decrease) in accounts payable 14,426 (3,952)
Increase in other current liabilities 7,571 2,288
Other, net 5,274 (9,261)
---- ------
Net cash provided by operating activities 18,005 3,422
----- -----
Cash flows from investing activities
Acquisitions of property, plant, and equipment (8,296) (9,496)
Acquisitions, net of cash received (219) (162,976)
Other, net 2,382 (304)
---- ------
Net cash used in investing activities (6,133) (172,776)
------ ------
Cash flows from financing activities
Proceeds from bank credit facilities 84,305 224,640
Payments of bank credit facilities (98,818) (162,210)
Issuance of senior subordinated debt, net of fees -- 116,673
Issuance of common stock warrants -- 3,259
Issuances of common stock 717 187
Purchases of treasury stock -- (6,926)
Payments of notes receivable from shareholders 306 215
Other, net (3,455) 456
----- -----
Net cash provided by (used in) financing activities (16,945) 176,294
------ ------
Net increase (decrease) in cash and cash equivalents (5,073) 6,940
Cash and cash equivalents, beginning of period 7,848 2,787
------ ------
Cash and cash equivalents, end of period $ 2,775 $ 9,727
======== ========
Supplemental cash flow disclosures
Interest paid, net of amounts capitalized $ 16,238 $ 11,036
Income taxes paid $ 2,547 $ 2,157
<FN>
The accompanying notes are an integral part of these financial statements.
</FN>
</TABLE>
4
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of Exide Electronics Group, Inc. (the "Company") and its 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 networking,
financial, medical, industrial, telecommunications, military, and aerospace
applications throughout the world.
The accompanying 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 financial statements presented in the
Company's 1996 Annual Report to Shareholders.
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, results of operations and
cash flows as of and for the nine month periods ended June 30, 1997 and 1996.
The results of operations for the nine month period ended June 30, 1997 are not
necessarily indicative of the results to be expected for the full year.
NOTE 2 - LICENSE AGREEMENTS
In June 1997, the Company entered into three agreements with a major software
company (the "Software Company"). The first agreement consisted of a
non-exclusive, non-transferable source code license for the Company's FORESEER
product for sale and distribution through the Software Company's sales channels
with a royalty payable to the Company of 17.5% of gross sales. The agreement
calls for minimum guaranteed royalties of $20 million, with payments of $10
million, $5 million, and $5 million payable on June 30, 1997, 1998, and 1999,
respectively.
The second agreement provided the Company with the non-exclusive six year right
and license to distribute one of the Software Company's major product lines as a
reseller. The Company is committed to purchase $5 million of such products, with
payment due on June 30, 1998.
5
<PAGE>
The Company also entered into a multi-year, unrestricted license agreement with
the Software Company, covering all of the Software Company's products (including
usage and maintenance fees on such products) on a worldwide basis through June
30, 2003. The Company may only use these products for its internal needs and
cannot provide data processing services to other companies. After the term of
the agreement, the Company will be deemed to have a prepaid license for all such
products deployed during the term of the agreement. The license agreement calls
for guaranteed payments as follows:
June 30, Millions
1998 $ 4
1999 6
2000 8
2001 8
2002 10
2003 10
--
Total $46
For the quarter and nine months ended June 30, 1997, the Company had not
recognized any revenue or expense related to these agreements, and had deferred
the $10 million royalty payment received on that date.
NOTE 3 - INVENTORIES
Inventories, which include materials, labor, and manufacturing overhead, are
stated at the lower of cost or market, and consist of the following (in
thousands):
June 30, Sept. 30, June 30,
1997 1996 1996
---- ---- ----
Raw materials and supplies $ 37,662 $33,328 $37,135
Work in process 5,640 5,883 6,989
Finished goods 41,810 31,712 33,905
Service parts 19,961 19,146 18,493
------ ------ ------
$105,073 $90,069 $96,522
======= ======= =======
6
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 - LONG-TERM DEBT AND EXTRAORDINARY ITEM
In March 1997, the Company entered into an agreement to amend and restate its
domestic bank credit facilities with a $170 million senior secured bank credit
facility (the "Amended and Restated Credit Facility") comprised of a $125
million revolving credit facility and a $45 million term loan. Borrowings under
the revolving credit facility are limited to specified amounts of eligible
accounts receivable and inventories. Outstanding borrowings are secured by
substantially all the inventories and accounts receivable of the Company, and
the pledge of all of the capital stock of all of the Company's material domestic
subsidiaries and 66% of the capital stock of certain of its foreign
subsidiaries. Amounts outstanding under the Amended and Restated Credit
Facility, which was effective April 9, 1997, currently bear interest at LIBOR
plus 150 basis points, or the bank's base rate plus 50 basis points, as defined.
The 30-day LIBOR rate on June 30, 1997 was 5.72%. The average unutilized daily
commitment incurs a commitment fee of .375% per annum, and letters of credit
bear a fee of 1.50% per annum. Interest rates on borrowings under the Amended
and Restated Credit Facility may vary according to the Company's leverage ratio,
as defined. At June 30, 1997, the Company had borrowings of $103.0 million
outstanding under the Amended and Restated Credit Facility, and a remaining
borrowing capacity of approximately $6.5 million.
The amendment and restatement of the credit agreement described above
constituted a substantial modification in the terms of the agreement and has
been treated as an early extinguishment of debt. Accordingly, in March 1997 the
Company wrote off approximately $3.7 million ($2.4 million after tax) of
unamortized debt acquisition costs related to the original credit facility as an
extraordinary item.
Both the term and revolving credit facility portions of the Amended and Restated
Credit Facility require at least quarterly payments of accrued and unpaid
interest. The term loan has scheduled quarterly principal payments. The Company
is permitted to prepay the principal amount of the Amended and Restated Credit
Facility without penalty at any time. Any principal amount of the term loan and
any amounts due under the revolving credit facility that remain unpaid on the
maturity date, April 9, 2002, are required to be repaid in full on that date.
In the event the Company (i) sells certain assets, (ii) incurs certain
additional debt, (iii) issues any equity securities, or (iv) receives certain
casualty insurance proceeds, the Company may be obligated to first repay the
term loan and second permanently reduce commitments under the revolving credit
facility in addition to the scheduled term loan payments.
7
<PAGE>
The Company is subject to certain financial covenants, as defined in the Amended
and Restated Credit Facility, including maintaining specified fixed charge
coverage and leverage ratios and minimum net worth. The Company and its lending
group modified certain covenants in the Amended and Restated Credit Agreement.
The most restrictive of these covenants was the leverage ratio which is defined
as total debt divided by the sum of EBITDA for the four consecutive quarters
ended June 30, 1997. The Company was in compliance with all applicable financial
covenants as of June 30, 1997.
Under the terms of the Amended and Restated Credit Facility, the Company is
required to cap a portion of its interest rate risk. In April 1996, the Company
entered into several two-year interest rate cap agreements for a combined
notional principal amount of $65 million, which capped the Company's floating
rate LIBOR index to a weighted average rate of 6.5%. Premiums paid for the
interest rate cap agreements have been capitalized and are amortized as interest
expense over the terms of the caps. Unamortized premiums are included with other
assets in the accompanying consolidated balance sheet. There are no amounts
receivable under the cap agreements at June 30, 1997. In the future, such
receivable amounts, if any, will be accrued as a reduction of interest expense.
In March 1996, the Company issued 125,000 units (the "Units") comprised of $125
million of 11.5% senior subordinated notes (the "Notes") and warrants (the
"Warrants") to purchase 643,750 shares of the Company's common stock. Each Unit
consists of one $1,000 Note and one detachable Warrant to acquire 5.15 shares of
the Company's common stock at an exercise price of $13.475 per share, subject to
adjustment in certain events.
The Amended and Restated Credit Facility and the Notes contain restrictive
covenants which, among other things, limit the Company's ability to incur
additional debt, pay dividends, consummate certain acquisitions, make certain
asset sales, and incur certain liens.
NOTE 5 - COMMON SHAREHOLDERS' EQUITY
During the first quarter of fiscal 1997, the Company issued approximately 64,000
shares of its common stock for approximately $0.7 million under its Employee
Stock Purchase Plan. This resulted in a reduction of $1.2 million in treasury
stock and $0.5 million in additional paid-in capital.
8
<PAGE>
NOTE 6 - EFFECT OF RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards (SFAS) No. 128, "Earnings Per Share," in February 1997. The
Company is required to adopt SFAS No. 128 for the year ended September 30, 1998.
This statement establishes standards for computing and presenting earnings per
share ("EPS") and makes such standards comparable to international EPS
standards. The statement requires dual presentation of basic and diluted EPS on
the face of the income statement and requires a reconciliation of the numerator
and denominator of the basic EPS calculation to the numerator and denominator of
the diluted EPS calculation. If the Company had been required to report EPS
under SFAS No. 128, EPS for the quarter and nine months ended June 30, 1997 and
1996 would have been the same as shown.
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company's payment obligations under the Notes 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 the Company's
management has determined that they would not be material to investors. The
following supplemental financial information sets forth, on an unconsolidated
basis, statement of operations, balance sheet, and statement of 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. Certain reclassifications
have been made to provide for uniform disclosure of all periods presented. These
reclassifications are not material.
9
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $119,277 $ 47,953 $ (48,046) $ 119,184
Service revenues....................... -- 20,719 7,855 -- 28,574
------- ------------ ------------- ------------ ------------
Total revenues............... -- 139,996 55,808 (48,046) 147,758
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 93,882 38,519 (48,222) 84,179
Service cost of revenues............... -- 13,620 5,487 -- 19,107
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 107,502 44,006 (48,222) 103,286
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 32,494 11,802 176 44,472
Selling, general and administrative
expense.............................. 186 20,902 10,211 -- 31,299
Research and development expense....... -- 2,625 442 -- 3,067
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (186) 8,967 1,149 176 10,106
Interest expense....................... 6,041 171 371 -- 6,583
Interest income........................ (65) 19 (31) -- (77)
Other (income) expense................. -- 1,498 (1,406) -- 92
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (6,162) 7,279 2,215 176 3,508
Provision for (benefit from) income
taxes................................ (2,164) 3,101 751 -- 1,688
Minority interests in joint venture.... -- -- (65) -- (65)
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (3,998) 4,178 1,529 176 1,885
Equity in income of consolidated
subsidiaries........................ 5,883 1,529 -- (7,412) --
------- ------------ ------------- ------------ ------------
Net income ........................... $ 1,885 $ 5,707 $ 1,529 $ (7,236) $ 1,885
======= ========= ========== ========= =========
</TABLE>
10
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $ 89,524 $ 29,533 $(21,977) $ 97,080
Service revenues....................... -- 26,482 6,687 205 33,374
------- ------------ ------------- ------------ ------------
Total revenues............... -- 116,006 36,220 (21,772) 130,454
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 69,852 21,838 (22,173) 69,517
Service cost of revenues............... -- 17,705 3,281 205 21,191
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 87,557 25,119 (21,968) 90,708
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 28,449 11,101 196 39,746
Selling, general and administrative
expense.............................. 119 20,619 8,978 -- 29,716
Research and development expense....... -- 3,510 385 -- 3,895
Acquisition and restructuring expense.. -- 3,000 -- -- 3,000
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (119) 1,320 1,738 196 3,135
Interest expense....................... 6,921 (35) 243 -- 7,129
Interest income........................ (70) 27 (91) -- (134)
Other (income) expense................. -- 218 (323) -- (105)
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (6,970) 1,110 1,909 196 (3,755)
Provision for (benefit from) income
taxes................................ (2,296) (141) 1,375 -- (1,062)
Minority interest in joint venture..... -- -- 285 -- 285
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidated subsidiaries......... (4,674) 1,251 249 196 (2,978)
Equity in income of consolidated
subsidiaries......................... 1,696 249 -- (1,945) --
------- ------------ ------------- ------------ ------------
Net income (loss)..................... $ (2,978) $ 1,500 $ 249 $ (1,749) $ (2,978)
======== ========== ========== ========== =========
</TABLE>
11
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $321,935 $132,704 $(126,329) $328,310
Service revenues....................... -- 66,408 22,800 -- 89,208
------- ------------ ------------- ------------ ------------
Total revenues............... -- 388,343 155,504 (126,329) 417,518
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 250,069 106,381 (125,702) 230,748
Service cost of revenues............... -- 44,523 14,941 -- 59,464
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 294,592 121,322 (125,702) 290,212
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 93,751 34,182 (627) 127,306
Selling, general and administrative
expense.............................. 504 59,518 29,476 -- 89,498
Research and development expense....... -- 9,249 1,337 -- 10,586
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (504) 24,984 3,369 (627) 27,222
Interest expense....................... 18,787 566 1,303 -- 20,656
Interest income........................ (206) (10) (153) -- (369)
Other (income) expense................. -- 3,842 (3,714) -- 128
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (19,085) 20,586 5,933 (627) 6,807
Provision for (benefit from) income
taxes................................ (6,689) 8,342 1,685 -- 3,338
Minority interest in joint venture..... -- -- 127 -- 127
------- ------------ ------------- ------------ ------------
Income (loss) before extraordinary
item and equity in income of
consolidated subsidiaries............ (12,396) 12,244 4,121 (627) 3,342
Extraordinary item..................... 2,376 -- -- -- 2,376
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
of consolidate subsidiaries.......... (14,772) 12,244 4,121 (627) 966
Equity in income of consolidated
subsidiaries......................... 15,738 4,121 -- (19,859) --
------- ------------ ------------- ------------ ------------
Net income ........................... $ 966 $ 16,365 $ 4,121 $(20,486) $ 966
======== ========== ========== ========== =========
</TABLE>
12
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product revenues....................... $ -- $225,118 $ 66,913 $(63,473) $228,558
Service revenues....................... -- 73,081 13,806 -- 86,887
------- ------------ ------------- ------------ ------------
Total revenues............... -- 298,199 80,719 (63,473) 315,445
------- ------------ ------------- ------------ ------------
Product cost of revenues............... -- 178,813 50,672 (63,881) 165,604
Service cost of revenues............... -- 51,318 7,876 -- 59,194
------- ------------ ------------- ------------ ------------
Total cost of revenues....... -- 230,131 58,548 (63,881) 224,798
------- ------------ ------------- ------------ ------------
Gross profit...................... -- 68,068 22,171 408 90,647
Selling, general and administrative
expense.............................. 304 51,233 16,661 -- 68,198
Research and development expense....... -- 8,496 485 -- 8,981
Acquisition and restructuring expense.. 1,055 11,866 1,700 -- 14,621
------- ------------ ------------- ------------ ------------
Income (loss) from
operations................. (1,359) (3,527) 3,325 408 (1,153)
Interest expense....................... 12,335 3,192 534 -- 16,061
Interest income........................ (188) (13) (144) -- (345)
Other expense.......................... -- 74 6 -- 80
------- ------------ ------------- ------------ ------------
Income (loss) before income taxes...... (13,506) (6,780) 2,929 408 (16,949)
Provision for (benefit from) income
taxes................................ (4,866) (2,509) 1,697 -- (5,678)
Minority interest in joint venture..... -- -- 285 -- 285
------- ------------ ------------- ------------ ------------
Income (loss) before equity in income
(loss) of consolidated subsidiaries.. (8,640) (4,271) 947 408 (11,556)
Equity in income (loss) of consolidated
subsidiaries......................... (2,916) 947 -- 1,969 --
------- ------------ ------------- ------------ ------------
Net income (loss)..................... $(11,556) $ (3,324) $ 947 $ 2,377 $ (11,556)
======== ========== ========== ========== =========
</TABLE>
13
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ -- $ 1,639 $ 1,136 $ -- $ 2,775
Accounts receivable.................. -- 83,929 53,684 -- 137,613
Intercompany accounts receivable..... 6,753 88,855 20,596 (116,204) --
Inventories.......................... -- 84,060 22,590 (1,577) 105,073
Other current assets................. 5,254 17,340 2,659 -- 25,253
------- ------------ ------------- ------------ ------------
Total current assets......... 12,007 275,823 100,665 (117,781) 270,714
Property, plant, and equipment, net.... -- 42,779 6,693 -- 49,472
Goodwill............................... -- 87,694 63,415 -- 151,109
Noncurrent intercompany receivables.... 62,038 364,431 -- (426,469) --
Investment in affiliates............... 284,614 99,335 -- (383,344) 605
Other assets........................... 5,878 20,013 8,650 -- 34,541
------- ------------ ------------- ------------ ------------
$364,537 $890,075 $179,423 $ (927,594) $506,441
======= ========= =========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 7,000 $ -- $ 5,024 $ -- $ 12,024
Accounts payable..................... 26,376 42,647 13,907 -- 82,930
Intercompany accounts payable........ -- 74,187 42,017 (116,204) --
Deferred revenues.................... -- 26,057 3,403 -- 29,460
Other accrued liabilities............ -- 19,771 8,247 -- 28,018
------- ------------ ------------- ------------ ------------
Total current liabilities.... 33,376 162,662 72,598 (116,204) 152,432
Long-term debt......................... 96,000 -- 2,513 -- 98,513
Subordinated notes..................... 122,165 -- -- -- 122,165
Noncurrent intercompany payables....... -- 426,469 -- (426,469) --
Deferred liabilities................... 385 16,330 2,609 -- 19,324
Minority interests..................... -- -- 1,396 -- 1,396
Redeemable preferred stock............. 18,739 -- -- -- 18,739
Common shareholders' equity............ 93,872 284,614 100,307 (384,921) 93,872
------- ------------ ------------- ------------ ------------
$364,537 $890,075 $179,423 $ (927,594) $506,441
======= ========= =========== ========= =========
</TABLE>
14
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONDENSED CONSOLIDATING BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Current assets
Cash and cash equivalents............ $ -- $ 2,224 $ 5,624 $ -- $ 7,848
Accounts receivable.................. -- 91,197 38,226 -- 129,423
Intercompany accounts receivable..... 12,139 40,848 5,023 (58,010) --
Inventories.......................... -- 71,699 19,321 (951) 90,069
Other current assets................. 398 18,054 1,957 -- 20,409
------- ------------ ------------- ------------ ------------
Total current assets......... 12,537 224,022 70,151 (58,961) 247,749
Property, plant, and equipment, net.... -- 43,159 5,762 -- 48,921
Goodwill............................... -- 90,555 63,818 -- 154,373
Non-current intercompany receivables... 89,585 155,858 -- (245,443) --
Investment in affiliates............... 267,799 93,326 -- (360,473) 652
Other assets........................... 9,820 16,994 10,965 -- 37,779
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= ========== ========= =========
LIABILITIES, REDEEMABLE PREFERRED STOCK AND COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt...................... $ 6,702 $ -- $ 7,866 $ -- $ 14,568
Accounts payable..................... 27,250 26,884 16,912 -- 71,046
Intercompany accounts payable........ -- 39,351 18,659 (58,010) --
Deferred revenues.................... -- 19,556 2,357 -- 21,913
Other accrued liabilities............ -- 17,533 6,822 -- 24,355
------- ------------ ------------- ------------ ------------
Total current liabilities.... 33,952 103,324 52,616 (58,010) 131,882
Long-term debt......................... 108,833 -- 1,514 -- 110,347
Subordinated notes..................... 121,920 -- -- -- 121,920
Non-current intercompany payables....... -- 245,443 -- (245,443) --
Deferred liabilities................... 385 7,348 2,179 -- 9,912
Redeemable preferred stock............. 18,312 -- -- -- 18,312
Minority interests..................... -- -- 536 226 762
Common shareholders' equity............ 96,339 267,799 93,851 (361,650) 96,339
------- ------------ ------------- ------------ ------------
$379,741 $623,914 $150,696 $ (664,877) $489,474
======= ========= ========== ========= =========
</TABLE>
15
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
<S> <C> <C> <C> <C> <C>
Net income ............................... $ 966 $16,365 $ 4,121 $(20,486) $ 966
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense.................... -- 6,640 1,275 -- 7,915
Amortization expense.................... -- 5,487 3,000 -- 8,487
Write-off of debt issue costs,
net of tax............................ 2,376 -- -- -- 2,376
Equity in income of consolidated
subsidiaries.......................... (15,738) (4,121) -- 19,859 --
(Increase) decrease in accounts
receivable............................ 5,386 (42,699) (31,030) 58,194 (10,149)
Increase in inventories................. -- (11,405) (3,270) 627 (14,048)
(Increase) decrease in other current
assets................................ (4,856) 745 (702) -- (4,813)
Increase (decrease) in accounts payable. (874) 53,141 20,353 (58,194) 14,426
Increase in other current liabilities... -- 5,100 2,471 -- 7,571
Other, net.............................. -- 5,556 (282) -- 5,274
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
operating activities............... (12,740) 34,809 (4,064) -- 18,005
--------- ------------ -------- ---------- ------------
Cash flows from investing activities
Acquisitions of property, plant,
and equipment........................... -- (6,563) (1,733) -- (8,296)
Acquisitions, net of cash received........ -- (219) -- -- (219)
Other, net................................ 23,580 (22,551) 1,353 -- 2,382
--------- ------------ -------- ---------- ------------
Net cash provided by (used in)
investing activities............... 23,580 (29,333) (380) -- (6,133)
--------- ------------ -------- ------------ ----------
Cash flows from financing activities
Proceeds from bank credit facilities...... 77,000 -- 7,305 -- 84,305
Payments of bank credit facilities........ (89,500) -- (9,318) -- (98,818)
Issuance of common stock.................. 717 -- -- -- 717
Payments of notes receivable from
shareholders............................ 306 -- -- -- 306
Other, net................................ 637 (6,061) 1,969 -- (3,455)
--------- ------------ -------- ---------- ------------
Net cash used in financing
activities......................... (10,840) (6,061) (44) -- (16,945)
--------- ------------ -------- ---------- ------------
Net decrease in cash and cash equivalents... -- (585) (4,488) -- (5,073)
Cash and cash equivalents, beginning of
period.................................... -- 2,224 5,624 -- 7,848
--------- ------------ -------- ---------- ------------
Cash and cash equivalents, end of period.... $ -- $ 1,639 $ 1,136 $ -- $ 2,775
========= =========== ============ ========= ===========
</TABLE>
16
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 - SUPPLEMENTAL CONDENSED CONSOLIDATING FINANCIAL INFORMATION (CONTINUED)
SUPPLEMENTAL CONSOLIDATING STATEMENT OF CASH FLOWS
NINE MONTHS ENDED JUNE 30, 1996
<TABLE>
<CAPTION>
PARENT
COMPANY GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
--------- ------------ -------------- ------------ ------------
(UNAUDITED; IN THOUSANDS)
Cash flows from operating activities
<S> <C> <C> <C> <C> <C>
Net income (loss)........................ $(11,556) $ (3,324) $ 947 $ 2,377 $ (11,556)
Adjustments to reconcile net income (loss)
to cash provided by (used in) operating
activities:
Depreciation expense................... -- 5,561 756 -- 6,317
Amortization expense................... -- 6,020 1,393 -- 7,413
Acquisition and restructuring provisions -- 12,950 75 -- 13,025
Equity in (income) loss of consolidated
subsidiaries......................... 2,916 (947) -- (1,969) --
(Increase) decrease in accounts
receivable........................... (1,056) 4,855 (11,584) 7,437 (348)
(Increase) decrease in inventories..... -- 233 (523) (410) (700)
(Increase) decrease in other current
assets............................... (169) 1,206 (841) -- 196
Increase (decrease) in accounts
payable.............................. 3,041 (1,621) 2,065 (7,437) (3,952)
Increase (decrease) in other current
liabilities.......................... 5,341 (3,932) 878 1 2,288
Other, net............................. (6) (9,814) 559 -- (9,261)
--------- ------------ ------------- ------------ ------------
Net cash provided by (used in)
operating activities.............. (1,489) 11,187 (6,275) (1) 3,422
--------- ------------ ------------- ------------ ------------
Cash flows from investing activities
Acquisitions of property, plant, and
equipment.............................. -- (8,606) (890) -- (9,496)
Acquisitions, net of cash received....... (162,976) -- -- -- (162,976)
Other, net............................... (108,093) (259,621) (73,284) 440,694 (304)
--------- ------------ ------------- ------------ ------------
Net cash used in investing
activities........................ (271,069) (268,227) (74,174) 440,694 (172,776)
--------- ------------ ------------- ------------ ------------
Cash flows from financing activities
Proceeds from bank credit facilities..... 159,874 57,878 6,888 -- 224,640
Payments of bank credit facilities....... (33,250) (127,108) (1,852) -- (162,210)
Issuance of subordinated debt, net
of fees................................ 116,673 -- -- -- 116,673
Issuance of common stock warrants........ 3,259 -- -- -- 3,259
Issuance of common stock................. 187 -- -- -- 187
Purchases of treasury stock.............. (6,926) -- -- -- (6,926)
Payments of notes receivable from
shareholders........................... 215 -- -- -- 215
Other, net............................... 32,526 329,120 79,503 (440,693) 456
--------- ------------ ------------- ------------ ------------
Net cash provided by financing
activities........................ 272,558 259,890 84,539 (440,693) 176,294
--------- ------------ ------------- ------------ ------------
Net increase in cash and cash
equivalents.............................. -- 2,850 4,090 -- 6,940
Cash and cash equivalents, beginning of
period................................... -- 593 2,194 -- 2,787
--------- ------------ ------------- ------------ ------------
Cash and cash equivalents, end of period... $ -- $ 3,443 $ 6,284 $ -- $ 9,727
========= =========== ============ ============ ===========
17
</TABLE>
<PAGE>
NOTE 8 - SUBSEQUENT EVENTS
On July 22, 1997, the Company's Board of Directors voted unanimously to reject
the tender offer of a subsidiary of Danaher Corporation to acquire all of the
outstanding shares of common stock and Series G preferred stock of the Company
at a price of $20 per share and all of the outstanding warrants to purchase
common stock at a price of $6.525 per warrant. The Board concluded that such
offer was financially inadequate, and authorized management, working with Lazard
Freres & Co. LLC, to explore and pursue alternative strategic options available
for maximizing shareholder value, including a possible sale of or other
extraordinary transaction involving the Company. The Company anticipates
incurring significant costs during the fourth quarter of fiscal 1997 for
financial advisory, legal and accounting costs in defense of the tender offer.
There are two ongoing legal actions relating to the tender offer. See Item 1,
"Legal Proceedings" for a description of those actions.
18
<PAGE>
Exide Electronics Group, Inc.
Management's Discussion and Analysis
of Results of Operations and Financial Condition
Overview
Exide Electronics (the "Company") provides Strategic Power Management(TM)
solutions to a broad range of businesses and institutions worldwide. The
Company's products are used for networking, financial, medical, industrial,
telecommunications, military, and aerospace applications -- wherever continuous
power is essential to daily operations. Several factors had a significant impact
on the Company's results of operations during the first nine months of fiscal
1997 compared to the first nine months of fiscal 1996. These factors include the
impact of an extraordinary non-cash charge to write off debt acquisition costs
in the second quarter of 1997; the growth in revenues of small uninterruptible
power supply ("UPS") products; the overall strong growth in international sales;
the acquisition of Deltec Power Systems, Inc. ("Deltec") in March 1996 and the
expensing of certain costs associated with the acquisition; the impact of
certain restructuring charges recorded in the third quarter of fiscal 1996 to
integrate recent acquisitions; and the effect of declining Federal government
product and service revenues. The impact of these and other factors on fiscal
1996 is discussed in more depth in "Management's Discussion and Analysis of
Results of Operations and Financial Condition" presented in the Company's 1996
Annual Report to Shareholders.
Results of Operations
The following table presents, for the periods shown, revenues; gross profit;
selling, general and administrative expense; research and development expense;
income from operations; and net income before extraordinary item in millions of
dollars, and certain income statement captions as a percentage of related
revenues or total revenues.
19
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
--------------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------------
Revenues
<S> <C> <C> <C> <C>
Network and Communications 79.1 61.7 217.4 131.4
Systems(1)
Enterprise Systems(1) 40.1 35.4 110.9 97.1
--------------------------------------------------------------
Total products 119.2 97.1 328.3 228.5
Worldwide Services 28.6 33.4 89.2 86.9
--------------------------------------------------------------
Total revenues 147.8 130.5 417.5 315.4
Gross Profit
Products 35.0 27.5 97.6 62.9
Services 9.5 12.2 29.7 27.7
--------------------------------------------------------------
Total gross profit 44.5 39.7 127.3 90.6
Selling, general and administrative 31.3 29.7 89.5 68.2
expense
Research and development expense 3.1 3.9 10.6 9.0
Acquisition and restructuring - 3.0 - 14.6
expense
--------------------------------------------------------------
Income (loss) from operations 10.1 3.1 27.2 (1.2)
Interest/other 6.6 6.9 20.4 15.8
Provision (benefit) for income taxes 1.7 (1.1) 3.3 (5.7)
Minority interests in net income (loss) (0.1) 0.3 0.1 0.3
of subsidiaries
--------------------------------------------------------------
Income (loss) before extraordinary 1.9 (3.0) 3.4 (11.6)
item
Extraordinary item - - (2.4) -
--------------------------------------------------------------
Net income (loss) 1.9 (3.0) 1.0 (11.6)
--------------------------------------------------------------
Revenue Growth:
Network and Communications 28.2% 65.4%
Systems(1)
Enterprise Systems(1) 13.3% 14.2%
------------- -------------
Total products 22.8 43.6
Worldwide Services (14.4) 2.7
------------- -------------
Total revenues 13.3% 32.4%
------------- -------------
</TABLE>
- -------------------
(1) During the second quarter of fiscal 1997, the Company organized into new
business units, which are now aligned by customer and market focus rather than
product lines. The Network and Communications Systems business units have
generally replaced the business unit previously reported as Small Systems Group.
Enterprise Systems has replaced the Large Systems Group. The effects of any
reclassifications were not significant.
20
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------
Three Months Ended Nine Months Ended
June 30, June 30,,
--------------------------------------------------------
1997 1996 1997 1996
--------------------------------------------------------
<S> <C> <C> <C> <C>
Margin Data (as a percent of revenues):
Gross Profit
Products 29.4 28.4 29.7 27.5
Services 33.1 36.5 33.3 31.9
--------------------------------------------------------
Total gross profit 30.1 30.5 30.5 28.7
--------------------------------------------------------
Selling, general and administrative 21.2 22.8 21.4 21.6
expense
Research and development expense 2.1 3.0 2.5 2.8
Acquisition and restructuring expense - 2.3 - 4.6
---------------------------------------------------------
Income (loss) from operations 6.8 2.4 6.5 (0.4)
---------------------------------------------------------
</TABLE>
Three months ended June 30, 1997 versus June 30, 1996
Total revenues increased by 13% to $147.8 million in the third quarter of fiscal
1997 from $130.5 million in the third quarter of fiscal 1996, due to a 23%
increase in product sales offset by a 14% decrease in service revenues.
Network and Communications Systems revenues for the quarter ended June 30, 1997
increased by $17 million or 28% over the same period of the prior year. Revenue
increases were primarily due to continued strong revenue growth in the Prestige
product family and in products for the CATV and broadband communications
markets, and significantly higher sales of new line-interactive NetUPS products.
Sales within the U.S. increased nearly 40% year over year, while sales outside
the U.S. increased 16% over the same period last year. International revenues
were especially strong in Latin America, aided by the operation of the Company's
subsidiary in Brazil. Higher revenues were generally due to a higher number of
units sold, as opposed to increased unit prices.
Enterprise Systems revenues for the third quarter of fiscal 1997 increased $4.7
million or 13% over the same period of the prior year, with commercial growth of
31% offset by a scheduled decline in sales under the Company's program with the
Federal Aviation Administration (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.
Commercial sales growth in Enterprise Systems products occurred primarily in
international channels, especially the Far East and Latin America. Overall, the
number of units shipped increased while the average selling price decreased,
reflecting higher unit sales of lower power range products. This trend is
consistent with the Company's focus on commercial markets, and the growth in the
mid-range market segment.
21
<PAGE>
Service revenues for the third quarter of fiscal 1997 decreased by $4.8 million
or 14% over the same period of the prior fiscal year. Commercial service
revenues in the U.S. declined 3% due to the movement away from large systems
which are more service intensive. International commercial revenues increased
8%, primarily in Canada and Latin America. Federal service revenues declined 59%
over the prior year, mainly attributable to the effect of declining FAA site
service revenues. At June 30, 1997, installation at all FAA sites was complete.
Federal service revenues are expected to decline approximately 50-60% in fiscal
1997 from $35.1 million in fiscal 1996, but the impact is expected to be
substantially offset by growth in commercial segments. Service revenue changes
were primarily a result of the volume of services provided rather than a change
in the price of such services.
Gross Profit
Gross profit increased by $4.8 million in the third quarter of fiscal 1997 over
the third quarter of fiscal 1996 to $44.5 million. Gross profit as a percentage
of total revenues decreased to 30.1% in the third quarter of fiscal 1997 from
30.5% in the same period of fiscal 1996. Product gross profit margins rose to
29.4% in the third quarter of fiscal 1997 from 28.4% in the same period of
fiscal 1996, benefitting from sales of new or lower cost products and improved
sales mix. Service margins declined to 33.1% from 36.5% during that same period
due primarily to lower service volumes, mix issues and integration costs.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $1.6 million to $31.3
million in the third quarter of fiscal 1997 (21.2% percent of revenues) from
$29.7 million in the same period of fiscal 1996 (22.8% of revenues). This
increase was primarily due to expanding operations in Europe and Brazil. SG&A
expenses are expected to remain at approximately 20-22% of revenues for fiscal
1997.
Research and Development Expense
Research and development expense decreased $0.8 million to $3.1 million in the
third quarter of fiscal 1997 compared to the same period of fiscal 1996. As a
percentage of revenues, research and development expense decreased to 2.1% in
fiscal 1997 from 3.0% in fiscal 1996, due to the integration of engineering
efforts. R&D expenses are expected to be approximately 2-3% of revenues for
fiscal 1997.
Acquisition and Restructuring Expense
During the quarter ended June 30, 1996, the Company recorded approximately $3.0
million of non-recurring restructuring expenses related to the closing of its
Dallas manufacturing facility and the relocation of manufacturing to Raleigh,
North Carolina. Restructuring costs consisted primarily of reserves for
severance, facilities shutdown costs, and asset valuations.
22
<PAGE>
Income from Operations
Income from operations increased $7.0 million to $10.1 million for the third
quarter of fiscal 1997 from $3.1 million in the same period of fiscal 1996. The
fiscal 1996 quarter included, as described above, certain one-time restructuring
expense and purchase accounting adjustments related to the acquisition of
Deltec. Excluding such one-time charges, operating income was up 20%, primarily
due to higher revenue volumes. As a percentage of revenues, income from
operations (excluding the one-time charges in fiscal 1996) increased to 6.8% in
the third quarter of fiscal 1997 from 6.5% in the same period of fiscal 1996.
Interest Expense
Interest expense decreased to $6.6 million in the third quarter of fiscal 1997
from $7.1 million in the same period of fiscal 1996. This decline is due to
lower debt balances and reduced interest rates on the Company's domestic credit
facility.
Provision (Benefit) for Income Taxes
The provision for third quarter fiscal 1997 income taxes reflects a consolidated
effective tax provision of approximately 48% as compared to a benefit of
approximately 28% for the same period of fiscal 1996. The fiscal 1996 benefit is
due to the loss generated during the quarter. The Company anticipates that its
effective tax rate for fiscal year 1997 will be 47-52%, which is impacted by
permanent differences, including goodwill related to the acquisition of Deltec.
Income (loss) before Extraordinary Item
Net income for the third quarter of fiscal 1997 was $1.9 million, or $0.15 per
fully diluted share, as compared to a net loss of $3.0 million, or $0.33 per
fully diluted share, for the same period of fiscal 1996. Excluding the
non-recurring items in fiscal 1996 discussed above under "Acquisition and
Restructuring Expense" and the effect of one-time purchase accounting
adjustments, pro forma net income increased over 200% for the current quarter
from $0.5 million in the same quarter of fiscal 1996.
Nine months ended June 30, 1997 versus June 30, 1996
Total revenues increased by 32% to $417.5 million in the nine months ended June
30, 1997 from $315.4 million in the nine months ended June 30, 1996, due to a
44% increase in product sales and a 3% increase in service revenues.
The Company acquired Deltec from Fiskars Oy Ab in March 1996. The acquisition
was accounted for using the purchase method of accounting, therefore, Deltec's
accounts and results of operations have been included in the Company's financial
statements from the closing date forward. The nine month period ended June 30,
1996 includes Deltec's operating results for approximately three and one-half
months. A more complete discussion of this effect can be found in "Management's
Discussion and Analysis of Results of Operations and Financial Condition"
presented in the Company's 10-Q for the quarter ended March 31, 1997.
23
<PAGE>
Network and Communications Systems revenues for the nine months ended June 30,
1997 increased by $86.0 million or 65% over the same period of the prior year.
Both U.S. and international revenues increased over 50%, with sales abroad
accounting for approximately 48% of total Network and Communications Systems
revenues. Sales of the Prestige product family increased approximately 30% for
the first nine months of fiscal 1997 compared to the same period in fiscal 1996.
Sales of the Company's new line-interactive products accounted for over 25% of
Network and Communications Systems revenues in the first nine months of fiscal
1997. Increased revenues were generally due to higher unit sales as opposed to
increased unit prices.
Enterprise Systems revenues for the nine months ended June 30, 1997 were 14%
higher than in the same period of fiscal 1996, due primarily to growth exceeding
50% in international channels, offset by declines 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. International revenue growth was mostly in
Latin America and the Far East.
Service revenues for the first nine months of fiscal 1997 increased by $2.3
million or 3% over the same period of fiscal 1996. Commercial domestic service
revenues grew by about 13% due to increased battery service and UPS module
upgrade sales, coupled with incremental service revenues from the Deltec
acquisition. International service sales increased 51%, due to higher sales in
Europe, including incremental revenues generated by Deltec. As expected, Federal
service revenues decreased over the prior year by approximately 44%, mainly due
to the decline in FAA site service revenues.
Gross Profit
Gross profit increased by $36.7 million in the first nine months of fiscal 1997
over the same period of fiscal 1996 to $127.3 million. Gross profit as a
percentage of total revenues increased to 30.5% for the first nine months of
fiscal 1997 from 28.7% in the same period of fiscal 1996. Product gross profit
margins rose to 29.7% in the first nine months of fiscal 1997 from 27.5% in the
same period of fiscal 1996, while service margins increased to 33.3% from 31.9%
during that same period. Product gross profit margins rose due to new products,
reduced costs and better product mix. Service margins increased primarily due to
higher mix of commercial service revenues.
Selling, General and Administrative Expense
Selling, general and administrative expense increased $21.3 million to $89.5
million in the first nine months of fiscal 1997 (21.4% of revenues) from $68.2
million in the same period of fiscal 1996 (21.6% of revenues). Selling, general
and administrative expenses increased due to incremental costs related to the
consolidation of Deltec, the amortization of intangible assets generated by
recent acquisitions, expanding operations in Europe, and the operations of the
Company's subsidiaries in Brazil and India.
24
<PAGE>
Research and Development Expense
Research and development expense increased $1.6 million in the first nine months
of fiscal 1997 compared to the same period of fiscal 1996, to $10.6 million
(2.5% of revenue) from $9.0 million (2.8% of revenue). Increased research and
development expenses were primarily due to incremental costs for the inclusion
of Deltec and the cost of introducing over 30 new products in the second quarter
of fiscal 1997.
Acquisition and Restructuring Expense
During the third quarter of fiscal 1996, the Company recorded approximately $3.0
million of non-recurring restructuring expenses related to the closing of its
Dallas manufacturing facility and the relocation of manufacturing to Raleigh,
North Carolina. Restructuring costs consisted primarily of reserves for
severance, facilities shutdown costs, and asset valuations.
During the second quarter of fiscal 1996, the Company completed its acquisition
of Deltec. In connection with the acquisition, the Company recorded
approximately $11.6 million of non-recurring expenses, including a $5.0 million
charge for purchased in-process research and development and $6.6 million for
restructuring and other costs primarily related to the acquisition.
Restructuring costs consist primarily of reserves for severance and asset
valuations.
Income (loss) from Operations
Income from operations increased $28.4 million to $27.2 million for the first
nine months of fiscal 1997 from an operating loss of $1.2 million in the same
period of fiscal 1996. The fiscal 1996 period included, as described above,
certain one-time acquisition and restructuring expense. Excluding such one-time
charges, operating income was up over 100%, primarily due to improved gross
margins and higher revenue volumes. As a percentage of revenues, income from
operations (excluding the one-time charges in fiscal 1996) increased to 6.5% in
the first nine months of fiscal 1997 from 4.3% in the same period of fiscal
1996.
Interest Expense
Interest expense increased to $20.7 million in the first nine months of fiscal
1997 from $16.1 million in the same period of fiscal 1996, which included a
one-time non-recurring charge of $4.4 million for interest and fees related to
the Deltec acquisition. The Company incurred approximately $15.5 million in
interest expense during the first nine months of fiscal 1997 related to the
financing of the Deltec acquisition, including interest on $125 million of
senior subordinated notes, versus $7.1 million in the corresponding period of
fiscal 1996.
25
<PAGE>
Provision (benefit) for Income Taxes
The provision for income taxes for the first nine months of fiscal 1997 reflects
a consolidated effective tax provision of approximately 49% as compared to a
benefit of approximately 33.5% for the same period of fiscal 1996. The Company
anticipates that its effective tax rate for fiscal year 1997 will be 47-52%,
which is impacted by permanent differences, including goodwill related to the
acquisition of Deltec.
Income (loss) before Extraordinary Item
Income before extraordinary item for the first nine months of fiscal 1997 was
$3.3 million, or $0.23 per fully diluted share, as compared to a net loss of
$11.6 million, or $1.26 per fully diluted share, for the same period of fiscal
1996. Excluding the 1996 non-recurring charges discussed above under
"Acquisition and Restructuring Expense" and the effect of one-time purchase
accounting adjustments, income before extraordinary item for the first nine
months of fiscal 1996 would have been $2.6 million or $0.23 per fully diluted
share.
Extraordinary Item
During the second quarter of fiscal 1997, the Company took a one-time non-cash
charge of $2.4 million, net of tax, or $0.24 per fully diluted share, for the
write-off of debt acquisition costs related to the replacement of the original
credit facility with a new domestic credit facility.
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. The fourth quarter typically has
produced the largest portion of the Company's revenues and income. The Company
believes that the fourth quarter results reflect increased shipments resulting
from management incentives that are tied to annual sales performance, and
increased sales prompted by weather-related power disturbances during the spring
and summer months. The first quarter has typically produced the smallest portion
of the Company's revenues and income, so that there has been a historical
reduction in the Company's first quarter results as compared to the previous
fiscal year's fourth quarter. During fiscal years 1996, 1995 and 1994, revenues
generally increased for each quarter during the fiscal year, but revenues for
the first quarter were lower than revenues for the fourth quarter of the
preceding year.
26
<PAGE>
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; therefore, operating margins can vary significantly between
quarters.
Liquidity and Financial Condition
At June 30, 1997, the Company had $118.3 million of working capital, as compared
to $115.9 million at September 30, 1996 and $121.5 million at June 30, 1996. The
decrease of approximately $3.2 million in working capital from June 30, 1996 is
primarily the result of an increase in accounts receivable and inventory
balances, offset by higher accounts payable and deferred revenues. Inventory
levels are tied to anticipated fourth quarter sales, while accounts receivable
reflect higher sales at the end of the third quarter. Working capital has been
used to pay down the Company's senior debt, which has decreased $30 million
since June 30, 1996. Cash provided by operations was $8.0 million in the third
quarter of fiscal 1997, as compared to $10.6 million in the third quarter of
fiscal 1996, with the reduction primarily due to an increase in accounts
receivable. For the first nine months ended June 30, 1997, the Company generated
$18.0 million of cash from operations compared to $3.4 million for the same
period of fiscal 1996, primarily due to increased current liabilities balances.
During the first nine months of fiscal 1997, the Company invested approximately
$8.3 million in capital expenditures, as compared to approximately $9.5 million
in the same period of fiscal 1996. Capital expenditures for fiscal 1997 are
expected to approximate $10 to $12 million.
In March 1997, the Company entered into an agreement to amend and restate its
domestic bank credit facilities with a $170 million senior secured bank credit
facility (the "Amended and Restated Credit Facility") comprised of a $125
million revolving credit facility and a $45 million term loan. Borrowings under
the revolving credit facility are limited to specified amounts of eligible
accounts receivable and inventories. Outstanding borrowings are secured by
substantially all the inventories and accounts receivable of the Company, and
the pledge of all of the capital stock of all of the Company's material domestic
subsidiaries and 66% of the capital stock of certain of its foreign
subsidiaries. Amounts outstanding under the Amended and Restated Credit
Facility, which was effective April 9, 1997, currently bear interest at LIBOR
plus 150 basis points, or the bank's base rate plus 50 basis points, as defined.
The 30-day LIBOR rate on June 30, 1997 was 5.72%. The average unutilized daily
commitment incurs a commitment fee of .375% per annum, and letters of credit
bear a fee of 1.50% per annum. Interest rates on borrowings under the Amended
and Restated Credit Facility may vary according to the Company's leverage ratio,
as defined. At June 30, 1997, the Company had borrowings of $103.0 million
outstanding under the Amended and Restated Credit Facility, and a remaining
borrowing capacity of approximately $6.5 million.
27
<PAGE>
The amendment and restatement of the credit agreement described above
constituted a substantial modification in the terms of the agreement and was
treated as an early extinguishment of debt. Accordingly, in the second quarter
of fiscal 1997 the Company wrote off approximately $3.7 million ($2.4 million
after tax) of unamortized debt acquisition costs related to the replacement of
the original credit facility as an extraordinary item.
Both the term and revolving credit facility portions of the Amended and Restated
Credit Facility require at least quarterly payments of accrued and unpaid
interest. The term loan has scheduled quarterly principal payments. The Company
is permitted to prepay the principal amount of the Amended and Restated Credit
Facility without penalty at any time. Any principal amount of the term loan and
any amounts due under the revolving credit facility that remain unpaid on the
maturity date, April 9, 2002, are required to be repaid in full on that date.
In the event the Company (i) sells certain assets, (ii) incurs certain
additional debt, (iii) issues any equity securities, or (iv) receives certain
casualty insurance proceeds, the Company may be obligated to first repay the
term loan and second permanently reduce commitments under the revolving credit
facility in addition to the scheduled term loan payments.
The Company is subject to certain financial covenants, as defined in the Amended
and Restated Credit Facility, including maintaining specified fixed charge
coverage and leverage ratios and minimum net worth. The Company and its lending
group modified certain covenants in the Amended and Restated Credit Facility.
The most restrictive of these covenants was the leverage ratio, which is defined
as total debt divided by the sum of EBITDA for the four consecutive quarters
ended June 30, 1997. The Company was in compliance with all applicable financial
covenants as of June 30, 1997.
Under the terms of the Amended and Restated Credit Facility, the Company is
required to cap a portion of its interest rate risk. In April 1996, the Company
entered into several two-year interest rate cap agreements for a combined
notional principal amount of $65 million, which capped the Company's floating
rate LIBOR index to a weighted average rate of 6.5%. Premiums paid for the
interest rate cap agreements have been capitalized and are amortized as interest
expense over the terms of the caps. Unamortized premiums are included with other
assets in the accompanying consolidated balance sheet. There are no amounts
receivable under the cap agreements at June 30, 1997. In the future, such
receivable amounts, if any, will be accrued as a reduction of interest expense.
In March 1996, the Company issued 125,000 units (the "Units") comprised of $125
million of 11.5% senior subordinated notes (the "Notes") and warrants (the
"Warrants") to purchase 643,750 shares of the Company's common stock. Each Unit
consists of one $1,000 Note and one detachable Warrant to acquire 5.15 shares of
the Company's common stock at an exercise price of $13.475 per share, subject to
adjustment in certain events.
The Amended and Restated Credit Facility and the Notes contain restrictive
covenants which, among other things, limit the Company's ability to incur
additional debt, pay dividends, consummate certain acquisitions, make certain
asset sales, and incur certain liens.
28
<PAGE>
The Company expects to finance its capital requirements in the future 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 and
interest on its indebtedness. The Company believes that its cash flow from
operations and its bank facilities will be adequate to meet its short-term
requirements for working capital and capital expenditures, however no assurances
can be given 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, or make
necessary capital expenditures.
License Agreements
In June 1997, the Company entered into three agreements with a major software
company (the "Software Company"). The first agreement consisted of a
non-exclusive, non-transferable source code license for the Company's FORESEER
product for sale and distribution through the Software Company's sales channels
with a royalty payable to the Company of 17.5% of gross sales. The agreement
calls for minimum guaranteed royalties of $20 million, with payments of $10
million, $5 million, and $5 million payable on June 30, 1997, 1998, and 1999,
respectively.
The second agreement provided the Company with the non-exclusive six year right
and license to distribute one of the Software Company's major product lines as a
reseller. The Company is committed to purchase $5 million of such products, with
payment due on June 30, 1998.
The Company also entered into a multi-year, unrestricted license agreement with
the Software Company, covering all of the Software Company's products (including
usage and maintenance fees on such products) on a worldwide basis through June
30, 2003. The Company may only use these products for its internal needs and
cannot provide data processing services to other companies. After the term of
the agreement, the Company will be deemed to have a prepaid license for all such
products deployed during the term of the agreement. The license agreement calls
for guaranteed payments as follows:
June 30, Millions
1998 $ 4
1999 6
2000 8
2001 8
2002 10
2003 10
--
Total $46
For the quarter and nine months ended June 30, 1997, the Company had not
recognized any revenue or expense related to these agreements, and had deferred
the $10 million royalty payment received on that date.
29
<PAGE>
Litigation
For a discussion of pending litigation, see Item 1, "Legal Proceedings"
elsewhere in this Form 10-Q.
Contingencies
Government Contract Matters
Sales to the Federal government accounted for approximately 6% and 14% of total
revenues for the nine months ended June 30, 1997 and 1996, respectively, and
approximately 13% and 27% of total revenues for fiscal years 1996 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 June
30, 1997.
Foreign Currency Exposures
International sales accounted for approximately 43% and 37% of total revenues
for the nine months ended June 30, 1997 and 1996, respectively, and
approximately 37% and 31% of total revenues for fiscal years 1996 and 1995,
respectively. A significant portion of the Company's international sales are
denominated in foreign currencies. As of June 30, 1997, the Company had accounts
receivable totaling approximately $16.2 million that were exposed to
fluctuations in exchange rates. European, Canadian, and Japanese currencies have
been especially volatile over the last two years. Fluctuations in foreign
currency exchange rates adversely impacted the Company's revenues by
approximately $6 million for the nine months ended June 30, 1997. As of June 30,
1997, approximately 35% of the Company's total assets were located outside the
United States, primarily in Canada and Europe. 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.
Environmental Matters
The Company'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. In the last three fiscal years, the Company's capital
expenditures for environmental compliance have not been significant. To the best
of the Company's knowledge, there are no existing or potential environmental
claims against the Company 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.
30
<PAGE>
Subsequent Event
On July 22, 1997, the Company's Board of Directors voted unanimously to reject
the tender offer of a subsidiary of Danaher Corporation (NYSE: DHR) to acquire
all of the outstanding shares of common stock and Series G preferred stock of
the Company at a price of $20 per share and all of the outstanding warrants to
purchase common stock at a price of $6.525 per warrant. The Board concluded that
such offer was financially inadequate, and authorized management, working with
Lazard Freres & Co. LLC, to explore and pursue alternative strategic options
available for maximizing shareholder value, including a possible sale of or
other extraordinary transaction involving the Company. The Company anticipates
incurring significant costs during the fourth quarter of fiscal 1997 for
financial advisory, legal and accounting costs in defense of the tender offer.
For additional information regarding Company activities related to the Danaher
tender offer, see the Company report on Schedule 14D-9, filed with the
Securities and Exchange Commission on July 22, 1997, which Schedule is hereby
incorporated by reference.
Disclosure Regarding Forward-Looking Statements
The disclosures included in this Form 10-Q, including documents incorporated by
reference herein and therein, contain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements are
identified by words such as "expect," "anticipate," "should" and words of
similar import. Forward-looking statements are inherently subject to risks and
uncertainties, many of which cannot be predicted with accuracy and some of which
might not even be anticipated. Future events and actual results, financial and
otherwise, may differ materially from the results discussed in the
forward-looking statements. Factors that might cause such a difference include,
but are not limited to, those discussed in this Form 10-Q and other matters
detailed from time-to-time in the Company's Securities and Exchange Commission
filings, including the Company's Forms 10-Q and 10-K.
31
<PAGE>
PART II - OTHER INFORMATION
JUNE 30, 1997
ITEM 1. Legal Proceedings
In conjunction with the tender offer commenced on July 10, 1997 by PQR
Acquisition Corporation ("Bidder"), a wholly-owned subsidiary of Danaher
Corporation ("Danaher"), to purchase all of the outstanding equity securities of
the Company (the "Danaher Offer") (as discussed in Note 8 of notes to
consolidated financial statements), Danaher and Bidder filed a suit encaptioned
Danaher Corporation and PQR Acquisition Corp. v. Exide Electronics Group, Inc.,
et al. (C.A. No. 15796) in the Court of Chancery of the State of Delaware, New
Castle County, on July 9, 1997, against the Company and the members of the Board
of Directors of the Company (the "Board"). The complaint alleges, among other
things, that the Defendants have refused and will refuse to deal in good faith
with Danaher in negotiating an acquisition of the Company by Bidder and have
taken certain actions in response to Danaher's expression of interest in such an
acquisition, which conduct is alleged to be in breach of the fiduciary duties of
the Board to the Company's shareholders. In particular, the complaint alleges
that the Board acted in violation of its fiduciary duties in amending Exide's
By-Laws to provide for certain time periods with respect to any stockholder call
for a special meeting. The complaint seeks as relief, among other things, (i) to
compel redemption of the Company's preferred stock purchase rights, (ii) to
compel the Board to render Section 203 of the General Corporation Law of the
State of Delaware inapplicable to the proposed acquisition in connection with
the Danaher Offer, (iii) to compel the Board to call a special meeting of its
stockholders at an unspecified future date, (iv) to enjoin the Board from taking
any action that would impede or interfere with the Danaher Offer or the exercise
by Exide's stockholders of their franchise and (v) to enjoin the Board from
taking any actions inconsistent with their fiduciary obligations to Exide's
stockholders. The time for the defendants to move or answer has not yet elapsed.
The Company believes the claims of Danaher and Bidder are without merit.
On July 9, 1997, a purported class action encaptioned Rima Spielman v. Exide
Electronics Group, Inc. et al. (C.A. No. 15800) was commenced in the Delaware
Chancery Court against the Company and the members of the Board (the
"Shareholder Action"). The Shareholder Action was purportedly brought on behalf
of the public stockholders of the Company. The complaint alleges, among other
things, that (i) the defendants have refused to take the steps necessary to
maximize stockholder value, including properly considering the Danaher Offer,
(ii) by purportedly failing and refusing to take such steps, including
adequately considering the Danaher Offer, the defendants have breached their
fiduciary duty to the plaintiff and the public stockholders and are using their
fiduciary positions of control to thwart others in their legitimate attempts to
acquire the Company and (iii) the members of the Board have purportedly
attempted to entrench themselves in their positions with the Company by
instituting certain By-Law amendments. The Shareholder Action seeks, as relief,
among other things, (i) to require the directors to cooperate with any person or
entity, including Danaher, having a bona fide interest in proposing any
transaction that would maximize stockholder value, including a merger or
acquisition of the Company, (ii) to enhance the value and attractiveness of the
Company as a merger/acquisition candidate, (iii) to take all appropriate steps
to create an active auction of the Company and (iv) to have such By-Law
amendment declared void. The time for the defendants to move or answer has not
yet elapsed. The Company believes the claims of Danaher and Bidder are without
merit.
32
<PAGE>
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 International Power Machines ("IPM"), a subsidiary of the Company, 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 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 in progress, 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,
whom 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 statements 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.
33
<PAGE>
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit
Number Description
10 Exide Electronics Source License agreement, dated June 30, 1997,
among Exide Electronics Group, Inc. and Computer Associates
International, Inc.
10(a) Reseller agreement, dated June 30, 1997, among Exide Electronics
Group, Inc. and Computer Associates International, Inc.
10(b) Computer Associates License agreement, dated June 30, 1997, among
Exide Electronics Group, Inc. and Computer Associates
International, Inc.
11 Statement of Computation of Per Share Earnings.
19 Schedule 14D-9 of Exide Electronics Group, Inc. filed with
the Securities and Exchange Commission on July 22, 1997 (which
Schedule is hereby incorporated by reference).
27 Financial Data Schedule.
(b) Reports on Form 8-K
Report on Form 8-K dated July 9, 1997, containing the Company's news
release with respect to the Danaher tender offer. Also included with this
report were the Company's amended and restated by-laws (as of June 23,
1997).
34
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EXIDE ELECTRONICS GROUP, INC.
(Registrant)
Date: August 14, 1997 By: /s/MARTY R. KITTRELL
Marty R. Kittrell
Vice President and
Chief Financial Officer
35
<PAGE>
EXIDE ELECTRONICS GROUP, INC.
EXHIBIT INDEX - FORM 10-Q
JUNE 30, 1997
Exhibit
Number Description
10 Exide Electronics Source License agreement, dated June 30, 1997,
among Exide Electronics Group, Inc. and Computer Associates
International, Inc.
10(a) Reseller agreement, dated June 30, 1997, among Exide Electronics
Group, Inc. and Computer Associates International, Inc.
10(b) Computer Associates License agreement, dated June 30, 1997, among
Exide Electronics Group, Inc. and Computer Associates
International, Inc.
11 Statement of Computation of Per Share Earnings.
19 Schedule 14D-9 of Exide Electronics Group, Inc. filed with the
Securities and Exchange Commission on July 22, 1997 (which
Schedule is hereby incorporated by reference).
27 Financial Data Schedule.
36
EXHIBIT 10
COMPUTER ASSOCIATES Software superior by design.
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788-7000
1-516-DIAL CAI (342-5224)
FAX 1-516-DIAL FAX (342-5329)
Monday, June 30, 1997
Mr. Marty Kittrell
Vice President and Chief Financial Officer
Exide Electronics
8609 Six Forks Road
Raleigh, North Carolina 27615
Dear Marty:
This letter, when executed and returned by you to CA, will incorporate the
attached license agreement between Exide Electronics and Computer Associates
International, Inc. with an effective Date of June 30, 1997.
* CA will resell Exide's Forseer Technology/Agents and remit to Exide a 17.5%
royalty rate on the actual gross sales of the Forseer Technology/Agents to
CA's client;
* CA will implement a seperate product code for Exide's Forseer Technology/
Agents to facilitate the tracking of Gross Sales.
* CA will commit to $20,000,000 worth of Forseer Technology/Agent royalties,
payable as follows:
$10,000,000 due June 30, 1997
$5,000,000 due June 30, 1998
$5,000,000 due June 30, 1999
All of the above financial commitments will be non-contingent and will be due
and payable by both parties. Please sign your concurrence below to this
Agreement.
Very Truly Yours' Accepted By Exide Electronics
/s/RICHARD P.CHIARELLO /s/MARTY KITTRELL
Richard P. Chiarello Marty Kittrell
Senior Vice President, Vice President & Chief
North American Sales Financial Officer
Computer Associates International, Inc. Exide Electronics
<PAGE>
)
Exide Electronics Source License Agreement
Licensee's Name Computer Associates International
Licensee's Address One Computer Associates Plaza - Islandia, NY 11788-7000
Date 6/30/97
Exide Software License Agreement No. MKM -047-DTX
Exide Electronics grants to Licensee only, and not to any parent, subsidiary, or
affiliate of Licensee, and Licensee accepts a nonexclusive, nontransferable
license to use the Source Code for the Licensed Programs identified on Exhibit
"A", only under the following terms and conditions:
1.0 DEFINITIONS
1.1 "Derivative Work" means a software program, in object code, developed by
Licensee which incorporates portions of Licensed Programs through compiling
and/or linking Exide Electronics - provided code with Licensee's code.
1.2 "Licensed Program" means the software object programs for which Source Code
is obtained.
1.3 "Source Code" means the source code for the Licensed Programs identified on
Exhibit "A" and which consists of the material listed on Exhibit "A"
supplied to Licensee by Exide Electronics
2.0 RIGHTS AND CONDITIONS
2.1 Licensee may use Source Code at Licensee's development locations and will
exercise the same methods and process used to protect the Licensee's own
source code developments and products.
2.2 Licensee may modify Source Code and merge portions of the Source Code into
Licensees' program material for its own use. Programs which incorporate
portions of Source Code are Derivative Source Programs. Object Code
generated from Derivative Source Programs is a Derivative Work.
2.3 Licensee shall keep accurate records of the number of Derivative Works on
the number of Derivative Works distributed.
<PAGE>
3.0 NOTICES
3.1 All notices and requires under this Agreement shall be in writing, shall
reference this Agreement and shall be deemed given upon delivery,
registered receipt requested, to the addresses listed below, which may be
modified upon written request.
Notices to Exide Electronics sent to: Notices to Licensee shall be sent to:
Exide Electronics _SVP North American Sales___________
8609 Six Forks Road ____________________________________
Raleigh, North Carolina 27615 _(Address Above)____________________
Attn: Contract Management ____________________________________
4.0 DISCLAIMER OF WARRANTY AND LIMITATION OF LIABILITY
4.1 EXIDE ELECTRONICS MAKES NO WARRANTY OF ANY KIND WITH REGARD TO SOURCE
CODE. SOURCE CODE IS LICENSED ON AN "AS IS" BASIS. EXIDE ELECTRONICS
SPECIFICALLY DISCLAIMS THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS OF A PARTICULAR PURPOSE.
5.0 PROTECTION AND SECURITY
5.1 Licensee acknowledge that Exide Electronics considers Source Code a trade
secret. Licensee shall not make Source Code or Derivative Programs
available in whole or in part or in any form, to any person other than
Licensee's employees who are designated to work on Licensee's development
effort and who have a specific need for access to Source Code. Licensee
agrees to instruct each such employee of his or her obligations with
respect use, copying, protection, and security of Source Code.
Notwithstanding the earlier termination of this Agreement, the obligations
of this paragraph are to remain in effect until such time as Source Code
becomes publicly known, through no act or failure to act on Licensee's
part.
5.2 Each Licensed Program is copyrighted. Licensee shall include the
appropriate copyright notice on all copies, partial copies, Derivative
Works and their media. Licensee shall use its best efforts to prevent any
violation of these copyrights.
6.0 ASSIGNMENT, SALE OR TRANSFER
6.1 Licensee may not assign, sublicense, or otherwise transfer this Agreement
or any right or obligation hereunder without Exide Electronics written
consent.
7.0 REPRESENTATIONS AND WARRANTIES
7.1 Exide Electronics warrants that it has the right to grant the licenses and
rights granted in this Agreement and it is under no obligation or
restriction, nor will it assume any obligation or restriction, which would
in any way interfere with, be inconsistent with or present a conflict of
interest concerning Exide Electronics obligations under this Agreement.
<PAGE>
7.2 Exide Electronics warrants that the Products do not infringe any
intellectual property rights under any patent, copyright or trademark or
other intellectual property right in the territory and that the exercise by
Licensee and it distributors of the rights granted under this Agreement
shall not infringe on any patent, copyright, trademark or other
intellectual property right of any third party. Supplier further represents
that except as disclosed to Licensee in writing, the Product is original
work of Exide Electronics, does not incorporate any third party products or
code and Exide Electronics is under no royalty obligation to any third
party relating to the Product or Licensee's exercise of it rights under
this Agreement.
7.3 Exide warrants that the product (including all new releases and updates
thereto) will operate substantially in accordance with its functional
specification and published documentation. Should the Product not operate
in the prescribed manner then Exide Electronics shall use its best efforts
to ensure that it does so in as short a time as is possible. Exide
Electronics shall not include any authorizations strings, "time bombs",
license managers or other devices in the Product unless such devices are
specifically disclosed to and accepted by Licensee in writing.
7.4 Exide Electronics represents and warrants that it has or will obtain
appropriate insurance coverage in accordance with generally accepted
commercial practices, covering risk, loss due to errors or omissions in the
Products, as well as general liability. Exide Electronics agrees to notify
Licensee of any significant changes in such policy and agrees to provide
Licensee, upon Licensee's request, copies of the relevant certificates of
insurance pertaining to such insurance.
8.0 INDEMNITY
8.1 Exide Electronics shall fully indemnify Licensee and its distributors
against any and all loss, costs, expenses and liability in connection with,
and defend Licensee and its distributors against any claims (i) that the
product infringes any copyright, patents trademarks, trade secrets or other
intellectual property right of third parties (ii) which result from a
breach of the warranties set forth above in Section 7; or (iii) which is
based on a failure of Exide Electronics to perform its maintenance and
support obligations set forth herein; provided that:
(a) Exide Electronics is given prompt written notice of such claim and
its details by Licensee;
(b) Exide Electronics may, upon Licensee's written consent (which
shall not be unreasonably withheld) have the opportunity of sole
conduct and control of the claim's settlement or compromise.
(c) Licensee shall give Exide Electronics all reasonable assistance in
connection therewith at Exide Electronics expense.
(d) Such infringement is not caused by or contributed to by acts of
Licensee or its Distributors other than use and distribution of
the Product in accordance with this agreement.
8.2 Exide Electronics shall also fully indemnify Licensee against any and all
actual costs, expenses and liability incurred in connection with any
computer software virus introduced to Licensee or its Distributors or
customers via the Product, if the introduction of such virus is the result
of negligence on part of Exide Electronics.
<PAGE>
9.0 BREACH AND TERMINATION
9.1 If Licensee breaches any term of this Agreement, or if Licensee becomes
insolvent or if bankruptcy or receivership proceedings are initiated by or
against Licensee, Exide shall have the right to terminate this Agreement
immediately, and in addition to all other rights of Exide Electronics, all
amounts which would have become due and payable under this agreement will
immediately become due and payable to Exide Electronics.
9.2 Upon termination of this agreement, Licensee shall either return or destroy
source code obtained for this agreement and may not include source code in
any new developments or derivative programs. Licensee may retain any source
code and use any and all derivative works necessary to support existing
customers already using derivative works for a period of five (5) years
following such termination.
10.0 OWNERSHIP OF SOURCE CODE
10.1 Source Code, Derivative Source Code, Derivative Works and all copies, in
whole or in part, are and shall remain the property of Exide Electronics.
This agreement grants no rights other than those set forth herein.
11.0 GENERAL
11.1 This Agreement shall be governed by the laws of the State of North
Carolina.
AGREED:
Exide Electronics Licensee
/s/MARTY KITTRELL /s/RICHARD P. CHIARELLO
Signature Signature
Marty Kittrell Richard P. Chiarello
Printed Name Printed Name
Vice President & Chief Senior Vice President and General
Financial Officer Manager
Title Title
June 30, 1997 June 30, 1997
- ---------------------------------- -----------------------------------
Date Date
<PAGE>
Appendix A
Source Code for the following product(s):
DataTrax Systems Foreseer Enterprise Management Software for foundation
equipment
Current Release: Release 1.4 - June 26, 1997
EXHIBIT 10(a)
COMPUTER ASSOCIATES
Software superior by design.
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788-7000
1-516-DIAL CAI (342-5224)
FAX 1-516-DIAL FAX (342-5329)
Monday, June 30, 1997
Mr. Marty Kittrell
President and Chief Financial Officer
Exide Electronics
8609 Six Forks Road
Raleigh, North Carolina 27615
Dear Marty:
This letter, when executed and returned by you to CA, will amend the attached
Reseller Agreement between Exide Electronics and Computer Associates
International, Inc. with an Effective Date of June 30, 1997.
* Exide will license Unicenter TNG for resale into Energy related focus markets
for use with Exide's Foreseer Agents at a 40% discount off of CA's published
prices;
* Exide will license $5,000,000 worth of TNG power units with a receivables due
date of June 30, 1998;
All of the above financial commitments will be non-contingent and will be due
and payable by both parties. Please sign your concurrence below to this
Agreement.
Very Truly Yours' Accepted by Exide Electronics
/s/RICHARD P. CHIARELLO /s/MARTY KITTRELL
Richard P. Chiarello Marty Kittrell
Senior Vice President, North Vice President & Chief Financial
American Sales Officer
Computer Associates International, Inc. Exide Electronics
<PAGE>
CA Agreement No. _____
COMPUTER ASSOCIATES INTERNATIONAL, INC.
RESELLER AGREEMENT
THIS RESELLER AGREEMENT ("Agreement") is made and entered into on ____June 30_,
1997 (the "Effective Date") between COMPUTER ASSOCIATES INTERNATIONAL, INC. of
One Computer Associates Plaza, Islandia, New York 11788-7000 ("CA") and _EXIDE
ELECTRONICS_____ of ____8609 Six Forks Road, Raleigh, North Carolina 27615____
("Reseller").
The parties agree as follows:
1. SCOPE OF AGREEMENT; DEFINITIONS
1.1 SCOPE OF AGREEMENT. This Agreement provides for the marketing and
distribution by Reseller of the CA software products ("Products" as defined
below) identified on one or more Commercial Terms Schedules ("Commercial Terms")
attached to this Agreement as Exhibit I or subsequently executed by both parties
referencing this Agreement. The parties may, but shall be under no obligation
to, execute multiple Commercial Terms Schedules to provide for the distribution
by Reseller of more than one line of CA software products.
1.2 DEFINITIONS
"Demonstration Software" means the commercially available Products listed in the
Commercial Terms which are used internally by Reseller on the computer(s) listed
in the applicable Demonstration Software order form(s) for demonstration and
support purposes. Demonstration Software includes any Maintenance Releases or
New Versions thereof provided by CA to Reseller under this Agreement.
"Documentation" means technical manuals relating to the end use of the Products.
"End User" means a third party licensed to use the Products internally and not
for redistribution.
"End User Agreement" means CA's then standard form license agreement pursuant to
which an End User may use a Product distributed by Reseller pursuant to this
Agreement.
"First Level Support" means a level of technical support that shall be
substantially similar to CA's first level support services as described in CA's
then current Client Support Handbook.
"Maintenance Releases" means product temporary fixes, error corrections,
work-arounds or other maintenance tapes and corrections made available by CA to
End Users of the Products, but does not include (i) New Versions or (ii) new
products available from CA for an additional fee.
"New Versions" means a new version of the Products containing new features or
functions as well as error corrections, but does not include new products
available from CA for an additional fee.
"Operating Environments" means the hardware platform and operating system
combinations that correspond to specific versions of the Products generally
available from CA.
<PAGE>
"Products" means all or any portion of the commercially available software
products specified in the Commercial Terms on the Operating Environments
specified in the Commercial Terms together with related Documentation and all
corrections, Maintenance Releases and New Versions thereof. If more than one
Commercial Terms Schedule is executed by the parties referencing this Agreement,
"Products" shall refer collectively to the software products listed in all
Commercial Terms Schedules.
"Second Level Support" means technical Support for the Products provided by CA
to Reseller as set forth in Section 4.2 of this Agreement.
"Terms" means the period set forth in Section 6.1 of this Agreement.
"Territory" means the United States of America.
"Upgrade" means any change in the usage of the Products (including, without
limitation the transfer of Products to a computer in a higher price
classification, or an increase in power unit rating or users) that would result
in an increase in price as determined in accordance with CA's then current price
list.
2. APPOINTMENT AND GRANT OF LICENSES
2.1 APPOINTMENT. During the Term and subject to the terms and conditions of this
Agreement, CA hereby grants to Reseller, and Reseller hereby accepts, the
non-exclusive right and license to distribute the Products to End Users in the
Territory. The Products shall be distributed by Reseller under CA's trademarks
and in the same packaging as supplied by CA to Reseller. CA reserves the right
to establish or appoint any number of other resellers, private labelers,
distributors, dealers or third parties, in any area for any purpose and the
right to otherwise grant licenses to use the Products, directly or indirectly,
to end users. CA reserves the right to review and update the Products subject to
this Agreement and the supported Operating Environments at any time upon 30 days
notice to Reseller.
2.2 DEMONSTRATION LICENSES. Reseller may acquire Demonstration Software in
accordance with the terms and conditions set forth in the Commercial Terms.
Reseller must complete CA's then standard Demonstration Software order form and
deliver such order form to CA for each copy of the Demonstration Software
acquired by Reseller under this Agreement. Demonstration Software may not be
used by Reseller for production purposes or transferred or sublicensed to any
third party.
2.3 DISTRIBUTION LIMITATIONS
a) Reseller shall not have any right to establish or appoint any resellers or
dealers of the Products. Except as agreed by CA in writing, Reseller shall not
allow any third party to sublicense, copy, assign, transfer or distribute the
Products.
b) Except as specifically permitted in this Agreement, Reseller shall not (nor
shall it permit any third party to): (i) copy or manufacture the Products or any
portion thereof; (ii) translate, modify, adapt, enhance, extend, decompile,
disassemble or reverse engineer the Products; or (iii) use the Products to
provide any facility management or service bureau service or otherwise use the
Products to process the data of any third party. Reseller may provide other
software products and services in combination with the Products, provided that
no non-CA products shall be placed on Product diskettes or tapes. The
documentation for any such non-CA products may not be included in the
documentation binder for the Products.
c) Reseller agrees not to export or disclose, directly or indirectly, the
Products or related technical information, documents or materials (or any direct
product thereof) without the prior written consent, if required, of the Office
of Export Administration of the US Department of Commerce. Reseller agrees to
comply with any other applicable export laws and regulations.
<PAGE>
d) Any Products provided to the US Government (or any of its agencies) shall be
provided with "Restricted Rights" and Reseller shall affix (if not already
affixed) to any media containing all or any portion of the Product a restricted
rights legend substantially similar to the following: "This Program is provided
with Restricted Rights. Use, duplication or disclosure by the Government is
subject to the restrictions set forth in DFARs 252.227-7013 (c) (1) (ii) and 48
CFR 52.227-19 (c) (1) and (2) or applicable successor provisions."
3. OBLIGATIONS OF THE RESELLER
3.1 MARKETING. Reseller shall use reasonable efforts to actively promote the
Products, and shall maintain the formal name of the Products (with its
appropriate trademark designations) in all advertising and other printed
materials relating to the Products. CA reserves the right to require Reseller to
furnish to CA in advance for review and approval any and all promotional,
advertising and other materials which refer to the Products or which use or
display any trademark, service mark, logo or trade name of CA. CA also reserves
the right to require Reseller to discontinue use of any promotional, advertising
or other materials referring to CA or the Products.
3.2 END USER AGREEMENTS. Reseller shall not deliver any Product to any End User
without the concurrent delivery of: (i) the then current End User Agreement for
the Product and (ii) CA's then current registration form for the Product. The
current versions of the End User Agreement and registration form have been
provided by CA to Reseller. CA may modify the End User Agreement and
registration form from time to time upon notice to Reseller. Reseller shall
promptly notify CA of any and all material breaches of the End User Agreement
that may or should come to its attention and will assist CA in all steps
necessary to terminate any breached license if the breach is not curable or if
it is not cured promptly after notice.
3.3 ORDERS
a) Prior to distributing any Products to any End User, Reseller shall place an
order with CA on CA's then standard Reseller order form. Reseller shall provide
CA with such information as CA may require about how a prospective End User
proposes to use the Products, including, but not limited to, the power rating of
the CPU(s) on which the Products will be operated, the make, model and serial
number of the CPU on which the Products will be used and/or the number of
authorized users on such Reseller order forms. Reseller shall not deliver the
Products to any End User unless the version of the Products delivered has been
authorized by CA for the usage identified by the End User. Reseller understands
anD agrees that CA may delay or withhold issuance of authorization keys for the
Products in the event Reseller or its End User fails to provide the necessary
information to issue the authorization key. No provisions in Reseller's purchase
orders, license agreements or in any other business forms employed by Reseller
shall add to or supersede the terms and conditions of this Agreement, which
shall exclusively govern the relationship of the parties.
b) All orders for the Products (or any Upgrade) shall be pursuant to a Reseller
order form and subject to acceptance by CA at its principal place of business.
In addition to any other right or remedy, CA may, at its option, refuse any
order placed by Reseller, cancel any accepted order or delay shipment thereof,
if Reseller is delinquent in any payments to CA or if Reseller is otherwise in
breach of this Agreement. CA reserves the right to issue only temporary
authorization keys until payment for the license has been received.
c) Upon receipt of orders from Reseller that comply with all requirements of
this Agreement, CA will, unless Reseller is delinquent in its payments or in
breach of its agreements with CA, make reasonable efforts to fill all orders for
the Products, and issue associated authorization keys, to Reseller or its End
Users. CA shall not be liable to Reseller, or to any other person, for CA's
failure to fill any orders, or for any delay in delivery or error in filling any
orders for any reason whatsoever. CA shall have no obligation to export any
Products from the United States. Risk of loss to the Products shall pass to
Reseller on delivery to the specified F.O.B. destination.
<PAGE>
3.4 REPRESENTATIONS. Reseller shall not make (i) any representation or warranty
whatsoever on behalf of CA; (ii) any representation or warranty concerning the
quality, performance or other characteristics of the Products other than those
which are consistent in all respects with, and do not expand the scope of, the
warranties set forth in this Agreement; or (iii) any commitment to modify any of
the Products.
4. CUSTOMER SUPPORT AND UPDATES
4.1 RESELLER FIRST LEVEL SUPPORT. If Reseller is authorized by CA (in the
Commercial Terms) to provide First Level Support for all or any of the Products,
Reseller shall ensure that the number of employees specified in the Commercial
Terms complete the required minimum training for each of the Products and
Operating Environments as necessary to be certified by CA as an authorized
provider of First Level Support services. If Reseller provides First Level
Support, it shall provide First Level Support substantially similar to that
described in CA's Client Support Handbook. CA may provide First Level Support
and other support services directly to End Users, but shall not have any
obligation to do so unless the End User has entered into a maintenance agreement
directly with CA. If CA directly supports an End User, CA shall be entitled to
retain the full amount of maintenance revenue received from such End User.
4.2 SECOND LEVEL SUPPORT. CA shall provide Reseller with Second Level Support
(in accordance with CA's Client Support Handbook) from CA's North American
support centers for Products properly licensed to Reseller's End Users
purchasing First Level Support Services from Reseller for the fees set forth in
the Commercial Terms and provided that Reseller follows the following
procedures:
a) Qualified, trained Reseller technical staff shall review all reported errors
to determine if the error occurs in the Products or in other hardware or
software products not supplied by CA. If Reseller determines that the error
occurs in the Products, Reseller may then submit the error to CA;
b) Reseller shall submit detailed descriptions of any reported errors. If CA is
not able to replicate the errors, Reseller shall provide any additional
information required by CA (which may include a sample program enabling
replication of the error). Reseller will also make its personnel available to
assist in problem identification and resolution; and
c) CA shall provide Reseller with Maintenance Releases made generally available
by CA during the Term of this Agreement. Reseller shall be responsible for
distributing Maintenance Releases to End Users only for computers properly
licensed to use the applicable Products and under a current support contract;
and
d) CA may provide Reseller with New Versions made generally available by CA
during the Term of this Agreement on the terms and conditions set forth in the
Commercial Terms. Reseller may distribute New Versions only to End Users
properly licensed to use the applicable Products in accordance with this
Agreement.
5. LICENSES AND UPGRADE FEES
5.1 LICENSE FEES. The price charged by CA to Reseller for licenses of the
Products acquired by Reseller from CA during the term of this Agreement shall be
the then prevailing suggested list price for the version of the Product (or
<PAGE>
Upgrade) ordered by Reseller, less the discount then available to Reseller under
the Commercial Terms. Alternatively, Reseller may elect to acquire Product
licenses from a distributor of the Products that is authorized by CA to
distribute the Products to CA Resellers ("Authorized Distributor"). If Reseller
elects to purchase Product licenses from an Authorized Distributor, the prices,
payment and shipment terms and other commercial terms shall be agreed between
Reseller and the Authorized Distributor. The price payable by Reseller (for
licenses purchased from CA) includes freight charges to destinations in the
United Stares and represents the price F.O.B. Reseller's facility.
5.2 SUPPORT FEES. Reseller shall pay CA the applicable fees for Second Level
Support and/or New Versions as set forth in the Commercial Terms.
5.3 UPGRADE FEES. For each Upgrade sold by Reseller, Reseller shall order the
Upgrade from CA and pay Upgrade fee set forth in the Commercial Terms.
5.4 PROGRAM FEES. Reseller agrees to pay the program fees set forth in the
Commercial Terms as well as any fees due to CA under the Commercial Terms for
training, education and other services provided by CA to Reseller.
6. GENERAL TERMS AND CONDITIONS
6.1 TERM OF AGREEMENT. The Initial Term of this Agreement shall commence on the
Effective Date and shall continue for a period of seventy-two (72) months from
such date, unless sooner terminated as hereinafter provided. After the Initial
Term, this Agreement may be renewed on an annual basis if mutually agreed by
both parties in writing prior to the end of the Term and subject to Reseller's
payment of the applicable renewal fees set forth in the Commercial Terms. "Term"
shall mean the Initial Term together with any agreed renewal periods.
6.2 RECORDS AND REPORTS. During the Term and for a period of at least one year
following termination of this Agreement, Reseller shall keep full, true and
accurate records and accounts in accordance with generally accepted accounting
practices to show the amount of license and support fees payable to CA under
this Agreement. These records and accounts shall include, at a minimum, for each
Product distributed: (i) the End User name and address; (ii) the date of
shipment, Products shipped and brand and model of the licensed computer; (iii)
the number of users or power units licensed; (iv) a copy of each End User order;
and (v) records concerning Product support provided to End Users and the Terms
of such support contracts. CA shall have the right, on notice to Reseller, to
examine such records or to have such records examined by CA's designated
certified public accountants during normal business hours to determine
Reseller's compliance with the terms of this Agreement. CA shall bear the
expenses of the audit; however, in the event any such audit reveals that
Reseller has understated the amount of fees that it is obligated to pay under
this Agreement by more than five percent (5%) of the amount reported during the
period audited, Reseller shall pay, in addition to any other fees contractually
due, all reasonable costs associated with the audit. Such audit right shall
survive the termination of this Agreement for a period of one year.
6.3 PAYMENTS
a) Terms of payment on all invoices from CA shall be net thirty (30) days. All
payments shall be made in US Dollars to CA's address for payment indicated on
CA's invoice to Reseller or such other address as advised by CA on at least 10
days written notice. In addition to such other rights as CA may have, Reseller
shall pay a monthly late charge equal to the lesser of one and one-half percent
(1.5%) of the outstanding amount or the maximum amount allowed by law on any
invoice rendered by CA that is not paid when due.
<PAGE>
b) All prices listed in the Commercial Terms are exclusive of all taxes,
including sales, use or value added taxes where applicable. Upon presentation of
invoices by CA, Reseller shall pay any and all applicable tariffs, duties or
taxes (other than franchise and income taxes for which CA is responsible)
imposed or levied by any government or agency, including, without limitation,
federal, state and local sales, use, value added and personal property taxes.
Any claimed exemption from such tariffs, duties or taxes must be supported by a
tax exemption certificate and other proper documentary evidence delivered to CA.
6.4 PROPRIETARY INFORMATION AND NON-DISCLOSURE
a) CA (or its licensers) retains ownership of all intellectual property rights
(including patents, copyrights and trademarks) in and relating to the Products.
The Products, the Documentation and other proprietary information provided by CA
to Reseller hereunder contain and constitute trade secrets, information and data
proprietary to and copyrighted by CA. Neither Reseller or its employees shall
cause or allow such information or data to be disclosed to third parties or
duplicated except as expressly allowed in this Agreement. Any customizations,
enhancements, improvements, translations, derivative works or other
modifications of the Products made by Reseller shall belong to CA and CA shall
have all right, title and intellectual property interest to such work. CA shall
have no obligation to support any customizations, extensions or modifications
made to the Products by any third party unless otherwise agreed by CA in
writing.
b) Reseller acknowledges and agrees that the unauthorized disclosure, use or
copying of the Products may cause CA serious financial loss. Accordingly, in the
event of any unauthorized disclosure, use or copying of the Products, Reseller
agrees that CA shall have the right to obtain injunctive or other equitable
relief without the posting of any bond.
c) Reseller may use the trademarks, trade names, service marks and logos that
relate to CA or the Product (the "Marks") solely in connection with this
Agreement; provided that Reseller clearly identifies CA's ownership of such
Marks. The Marks remain the exclusive property of CA and Reseller will not
register the Marks or take any action that jeopardizes CA's proprietary rights
in the Marks. Reseller agrees to cooperate with CA's instructions and quality
control procedures relating to the Marks and shall only use the Marks in
unaltered form. CA reserves the right to require Reseller to discontinue use of
any advertising or marketing materials relating to CA, the Marks or the
Products.
6.5 LIMITED WARRANTY
a) Both parties represent and warrant that they have the right to enter into
this Agreement. CA warrants that the then current, unmodified version of the
Products will substantially perform the functions or generally conform to the
then current version of their published Documentation for a period of ninety
(90) days from delivery to the End User. If it is determined that the Products
do not perform as warranted, CA's only responsibility will be to use reasonable
efforts, consistent with industry standards, to cure the defect. CA does not
represent that the Products are error free or will satisfy all of Reseller's or
its End User's requirements. THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES.
TO THE MAXIMUM EXTENT PERMITTED UNDER APPLICABLE LAW, ALL OTHER WARRANTIES,
CONDITIONS AND REPRESENTATIONS, WHETHER EXPRESS OR IMPLIED, VERBAL, STATUTORY OR
OTHERWISE, AND WHETHER ARISING UNDER THIS AGREEMENT OR OTHERWISE ARE HEREBY
EXCLUDED, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES, OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CA SHALL NOT BE BOUND BY
OR LIABLE FOR ANY REPRESENTATIONS OR WARRANTIES, WHETHER WRITTEN OR ORAL, WITH
RESPECT TO THE PRODUCTS MADE BY RESELLER OR ITS AGENTS, EMPLOYEES OR
REPRESENTATIVES.
b) Except for the Indemnification set forth below in Section 6.6, CA'S maximum
liability for damages under this Agreement (regardless of the form of action,
whether in contract or tort) shall not exceed the amount paid by Reseller to CA
for the Products or services as to which the claim relates.
<PAGE>
c) IN NO EVENT SHALL CA BE LIABLE TO RESELLER OR ANY OTHER PARTY, WHETHER IN
CONTRACT OR TORT, FOR ANY INCIDENTAL, INDIRECT, SPECIAL, OR CONSEQUENTIAL LOSS
OR DAMAGES (INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS, REVENUE OR DATA),
THAT MAY ARISE FROM THE USE, OPERATION OF MODIFICATION OF THE PRODUCTS, EVEN IF
ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES BEING INCURRED.
6.6 INDEMNIFICATION
a) CA, at its expense, shall defend any action brought against Reseller to the
extent that is based on a claim that any Product infringes a third party's
copyright or a patent duly issued by the United States of America. CA shall pay
all damages and costs finally awarded against Reseller in such action, provided
that CA is notified in writing of the existence of such claim against Reseller
within seven (7) days of Reseller's first learning of the same; and provided
that CA is given full authority to control the defense, costs and settlement of
the claim and that CA receives reasonable cooperation and assistance from
Reseller. CA will not be obligated to defend or otherwise indemnify Reseller in
any lawsuit or as to any claim which arises from or relates to any combination
of the Product with another product not supplied by CA, or if such claim is
based upon a use of the Product for a purpose for which it was not designed or
if the Product has been modified by any party other than CA. In lieu of the
foregoing indemnification obligations, CA shall have the option, at its expense,
either to procure for an End User the right to continue using the Product or to
replace or modify the Product so that it is no longer infringing, or, if such
options are not reasonably available, to refund to Reseller the amount actually
paid by Reseller to CA for the Product. The foregoing states the entire
obligation of CA with respect to the infringement of intellectual property
rights of any third party.
b) Reseller shall indemnify and hold CA harmless from and against all claims,
judgments, awards, costs, expenses, damages and liabilities (including
reasonable attorney's fees) of whatsoever kind and nature that may be asserted,
granted or imposed against CA directly or indirectly arising from or in
connection with (i) any claims that any software supplied by Reseller (other
than any unmodified Products provided by CA) infringes any third party
intellectual property rights; (ii) any misrepresentation made by Reseller
regarding CA or the Products; and (iii) any warranty, condition, representation,
guarantee or indemnity granted by Reseller with respect to the Products in
addition to the limited warranty specified in the Section 6.5 of this Agreement
titled "Limited Warranty."
6.7 DEFAULT AND TERMINATION
a) If this agreement expires or is terminated by either party, for any reason,
Reseller will immediately pay all sums due and owing to CA. All Product licenses
properly distributed by Reseller shall survive termination of this Agreement.
b) Either party may terminate this Agreement, with or without cause, on thirty
(30) days written notice to the other party.
c) If Reseller fails to pay any sum of money due and owing under this Agreement
within ten (10) days of written notice thereof from CA, CA shall have the right
to terminate this Agreement without further notice to Reseller. If either party
breaches any of the terms, conditions or provisions of this Agreement, and fails
to cure such breach within thirty (30) days after written notice thereof, the
other party shall have the right to terminate this Agreement without any further
notice.
d) This Agreement may be immediately terminated by CA if: (i) Reseller violates
any of the conditions of Section 6.4; (ii) Reseller shall cease business, file
for bankruptcy, be adjudged bankrupt or insolvent or commit any other act of
bankruptcy; (iii) there is a sale or transfer, whether by operation of law or
otherwise, of the direct or indirect control of Reseller; or (iv) there is an
attempt by Reseller to assign this Agreement or any right or obligation
hereunder CA's prior written consent.
<PAGE>
e) In the event of a party's uncured breach of this Agreement, the non-breaching
party may, in addition to the right to withhold its performance under and/or
terminate this Agreement, avail itself of all other rights, remedies and causes
of action available at law, in equity or otherwise, against such party for
damages as a result of such breach. Unless otherwise provided in this Agreement,
remedies shall be cumulative and there shall be no obligation to exercise a
particular remedy.
f) Except as set forth below in Section 6.7 (g), on expiration or termination of
this Agreement, Reseller shall immediately return to CA, at Reseller's expense,
all copies of the Product not yet distributed, all demonstration copies of the
Product, all Documentation and all Product brochures, marketing collateral and
materials, together with a certified statement by a duly authorized officer of
Reseller stating that all such Products and materials and any other confidential
information of CA have been returned to CA.
g) In the event of any termination of this Agreement (other than termination by
CA under Sections 6.7 (c) or (d) above), Reseller shall be entitled to: (i)
retain one Demonstration Software license solely for purposes of providing
support to End Users for the remainder of any then current support contracts;
and (ii) to distribute, for a period not to exceed ninety (90) days, any
Products already paid for and held in its inventory as of the termination date,
subject to its continuing compliance with all terms of this Agreement,
including, but no limited to, the requirements of Section 3.
h) Any expiration or termination of this Agreement shall not prejudice, limit or
restrict any other rights or remedies either party may have arising prior to
such expiration or termination. CA shall be under no obligation to refund any
amounts paid to CA by Reseller for any undistributed copies of the Product held
by Reseller upon any expiration or termination of this Agreement, including,
without limitation any copies of the Product returned by Reseller to CA pursuant
to Section 6.7 (f) above, except in the event that CA terminates this Agreement
without cause under Section 6.7 (b).
i) In addition to this Section 6.7, Sections 6.4, 6.5, 6.6 and 6.8 shall survive
termination of this Agreement.
6.8 MISCELLANEOUS
a) The laws of the State of New York shall govern the construction and
enforceability of this Agreement. The parties agree that any action arising
under or relating to this Agreement or the Products shall lie within the
exclusive jurisdiction of the State and Federal Courts located in New York, New
York. Reseller consents to the exercise of jurisdiction by any such court and
agrees that process may be served on Reseller in any such action by mailing same
to Reseller at the address set forth above. If either party is compelled to seek
judicial enforcement of its rights under this Agreement, the prevailing party in
any such action shall be entitled to recover its costs incurred in such action,
including reasonable attorney's fees.
b) Each provision of this Agreement is severable from the entire Agreement, and
in the event that any provision is declared invalid or unenforceable, that
provision shall be amended if possible to be enforceable, but in any event, the
remaining provisions hereof shall remain in effect.
c) All notices and demands of any kind or nature which any party to this
Agreement may be required or may desire to serve upon any other in connection
with is Agreement shall be in writing and may be served personally or by prepaid
certified United States mail (return receipt requested) or by private mail
service (e.g., Federal Express) if a confirmation of delivery is obtained, in
either case to the addresses shown on page 1 of this Agreement. Any party hereto
may from time to time, by notice in writing served upon the other parties as
aforesaid, designate a different mailing address or a different person to which
following such service all further notices or demands are thereafter to be
addressed.
d) The parties shall be deemed for all purposes to be independent contractors.
This Agreement shall not constitute either party the employee, legal
representative or agent of the other, nor shall either party have the right or
authority to assume, create, or incur any liability or any obligation of any
kind, express or implied, against or in the name of or on behalf of the other
party.
<PAGE>
e) No waiver by either party of any default shall operate as a waiver of any
other default or of a similar default on a future occasion. No waiver of any
term or condition shall be effective unless in writing and signed by the party
against whom enforcement of the waiver is sought. Neither party shall be
responsible for any failure to perform any obligation hereunder (except a
failure to pay) due to causes beyond its reasonable control.
f) This Agreement (including any attached Exhibits and subsequently executed
Commercial Terms Schedules referencing this document) is the complete and
exclusive statement of the understanding between the parties and supersedes all
prior agreements and representations between them relating to the subject matter
of this Agreement. The following order of precedence shall control in the event
of a conflict between the terms and conditions of this Agreement and the terms
and conditions of any Commercial Terms Schedule: (i) the Commercial Terms
Schedule for the applicable Product; and (ii) the terms of this Agreement.
Amendments to this Agreement shall not be effective unless they are in writing
and signed by authorized representatives of both parties. Reseller may not
assign this Agreement or any of its rights hereunder by operation of law or
otherwise.
IN WITNESS WHEREOF, the undersigned authorized representatives of the parties
have affixed their signatures as of the Effective Date.
RESELLER Computer Associates International, Inc.
Name: Exide Electronics
By: /s/MARTY KITTRELL By: /s/RICHARD P. CHIARELLO
(Authorized Signature) (Authorized Signature)
Vice President & Senior Vice President,
Chief Financial Officer North American Sales
(Title) (Title)
June 30, 1997 June 30, 1997
(Date) (Date)
<PAGE>
EXHIBIT I
COMMERCIAL TERMS SCHEDULE
(UNICENTER)
This Commercial Terms Schedule is attached and incorporated by reference into
the Reseller Agreement between Computer Associates and Reseller. Capitalized
terms not defined in these Commercial Terms shall have the same meaning as set
forth in the Agreement.
1. PRODUCTS AND OPERATING ENVIRONMENTS.
A. PRODUCTS. The Products which are the subject of this Agreement are the
following object code software programs owned or licensed by CA: UNICENTER TNG.
The term "Products" shall include only software products generally available
from CA on the Operating Environments that are supported by CA and shall not
include beta, pre-release, foreign language or other special release products.
No right to use, modify or distribute the source code of the Products or any
mainframe version of the Products is granted under this Agreement.
B. OPERATING ENVIRONMENTS. Reseller may only remarket the Product on the
Operating Environments for which Reseller sales and technical employees undergo
and successfully complete the training and Certification program described in
Section 4.A below.
2. PROGRAM FEES
A. Training is available from CA at CA's standard rate per person, per day for
regularly scheduled training conducted at a CA training facility. Reseller shall
bear its own travel and subsistence expenses in connection with such training.
3. PRODUCT PRICES
A. In the event that Reseller purchases Products (and Upgrades thereto) from an
Authorized Distributor, the prices payable by Reseller and other commercial
terms (such as Products and quantities ordered, delivery dates, etc.) shall be
agreed by Reseller and the applicable Authorized Distributor of the Products.
B. The price charged by CA to Reseller for the Products ordered directly from CA
shall be CA's then prevailing suggested list price for the version of the
Products (or Upgrade) ordered by Reseller, less a forty percent (40%) discount.
C. Subject to completing the necessary training and certification set forth
below in Sections 4A, 4B and 4C of these Commercial Terms, Reseller may offer
First Level Support for the Products and may receive Second Level Support from
CA as set forth in the Agreement. For each End User receiving First Level
Support from Reseller, Reseller shall pay CA an annual Second Level Support fee
equal to thirty two percent (32%) of CA's then current list price for
Maintenance for all Products licensed by the End User. The Second Level Support
fee for the first year shall be paid together with Reseller's initial order for
the Products. Maintenance renewals shall be reported and payable by Reseller to
CA quarterly no later than fifteen (15) days following the end of each calendar
quarter during the Term of this Agreement based on all Maintenance renewals
during the prior quarter.
<PAGE>
D. New Versions of the Products generally available from CA are provided as part
of Maintenance services provided by CA to Reseller and its End User. New
Versions may not be provided by Reseller to any End User not then in active
maintenance status and, if the End User is receiving First Level Support from
Reseller, Reseller shall have paid CA the above Second Level Support fee.
4. TRAINING AND CERTIFICATION REQUIREMENTS
Reseller acknowledges that proper usage, sales and marketing of the Product is
largely dependent on appropriate training of Reseller's sales and technical
staff. Reseller agrees to implement the following minimum training program to
ensure sufficient technical knowledge of the Product by its staff:
A. Initial Certification requires that at least two Reseller employees complete
a minimum of 2 days of Product sales and marketing training.
B. Within 6 months of execution of this Agreement, Reseller is also required to
have at least two employees technically certified for the Product Technical
certification of an employee requires the following:
1. The employee must successfully complete the TNG Basis course;
2. The employee must successfully complete a five day mentoring program
with CA;
3. The employee must also successfully complete the TNG Advanced course.
C. Prior to offering First Level Support on any Operating Environment and
thereafter during any period Reseller continues to offer First Level Support to
End Users, Reseller must have at least two employees that have successfully
completed the Technical Certification for the Product.
D. In the event that trained staff are reassigned to other duties or leave the
employ of Reseller, Reseller shall promptly cause other employees to undergo the
necessary minimum training programs.
The parties have executed this Commercial Terms Schedule (Exhibit I) effective
as of the date set forth below. In the event of conflict between the terms of
this Exhibit I and the Agreement the terms of this Exhibit I shall control with
respect to the subject matter hereof. This Exhibit I and the Agreement
represents the entire agreement of the parties.
Reseller: Computer Associates International, Inc.
Name: Exide Electronics
By: /s/MARTY KITTRELL By: /s/RICHARD P. CHIARELLO
Vice President & Senior Vice President,
Chief Financial Officer North American Sales
June 30, 1997 June 30, 1997
EXHIBIT 10(b)
COMPUTER ASSOCIATES
Software superior by design.
Computer Associates International, Inc.
One Computer Associates Plaza
Islandia, NY 11788-7000
1-516-DIAL CAI (342-5224)
FAX 1-516-DIAL FAX (342-5329)
Monday, June 30, 1997
Mr. Marty Kittrell
President and Chief Financial Officer
Exide Electronics
8609 Six Forks Road
Raleigh, North Carolina 27615
Dear Marty:
This letter, when executed and returned by you to CA, will amend the existing
license agreement (#0329607) between Exide Electronics and Computer Associates
International, Inc. with an Effective Date of June 30, 1997. In return for
Exide's payment of the fees outlined below, CA shall upgrade Exide's CA licenses
to include generally available CA products for use on a worldwide basis without
any restriction to MIPS, location or size of CPU. These products may be used
only for Exides's internal data processing needs and not to provide data
processing services to non-Exide companies. These fees are inclusive of Usage
and Maintenance Fees through June 29, 2003. After the term of this Agreement,
Exide shall be deemed to have a prepaid license for all CA products deployed
during the term of this Agreement. Exide may elect to then receive maintenance
on any or all of these CA licenses by paying the then current CA maintenance fee
for each product.
The fees due by Exide Electronics under this upgrade total $46,000,000 and are
payable as follows:
PAYMENT # DUE DATE AMOUNT DUE
#1 June 30, 1998 $ 4,000,000
#2 June 30, 1999 $ 6,000,000
#3 June 30, 2000 $ 8,000,000
#4 June 30, 2001 $ 8,000,000
#5 June 30, 2002 $10,000,000
#6 June 30, 2003 $10,000,000
Any maintenance invoices paid within the last 12 months by Exide Electronics
will be amortized on a flat line basis and have any "unearned" portions applied
as a credit against the first invoice due under this Agreement.
If Exide Electronics agrees to this upgrade, please sign your concurrence below
as I know both of our companies are eager to begin implementation of this
significant Agreement.
Very Truly Yours' Exide Accepts This Upgrade
/s/RICHARD P. CHIARELLO /s/MARTY KITTRELL
Richard P. Chiarello Marty Kittrell
Senior Vice President, North Vice President & Chief Financial
American Sales Officer
Computer Associates International, Inc. Exide Electronics
<PAGE>
Computer Associates
Software Superior by design
Computer Associates International, Inc.
711 Stewart Avenue
Garden City, NY 11530-4787
516-227-3300
FAX 516-229-4092
LICENSE AGREEMENT
This License Agreement between Exide Electronics, The Forum II, 8521 Six Forks
Road ("Licensee") located at Raleigh, North Carolina 27615 and Computer
Associates International, Inc. ("CA") covers Program Products to be licensed by
Licensee pursuant to Order Forms which may be submitted and accepted from time
to time.
When CA accepts an Order Form, Licensee will have subject to the terms and
conditions of this Agreement, a nontransferable and nonexclusive license to use
the Program Product(s), optional features, if any, and related-materials
(collectively the "Licensed Program") described in the Order Forms(s)
referencing this Agreement. This Agreement applies to all program code,
documentation, training materials, and enhancements embodying or related to the
Licensed Program and any subsequent versions or releases of the Licensed Program
which may be delivered to Licensee and the definition of Licensed Program
includes all such code, documentation, materials and enhancements.
USE OF LICENSED PROGRAM
This Agreement authorizes Licensee to use the Licensed Program(s), covered by
Order Form(s) accepted by CA, only with the Designated CPU(s) of Licensee at the
installation site of Licensee identified on the Order Form and only for the
internal operations of Licensee and for the processing of its own data.
TITLE, CONFIDENTIALITY AND RESTRICTIONS
Title to the Licensed Program remains with CA, and the Licensed Program is a
trade secret and the proprietary property of CA. Licensee and its employees will
keep the Licensed Program strictly confidential, and Licensee will not disclose
or otherwise distribute the Licensed Program to anyone other than Licensee's
authorized employees. Licensee will not remove or destroy any proprietary
markings of CA. Licensee will not permit anyone except its authorized employees
to have access to the Licensed Program. Except for archive purposes, Licensee
will not make or permit others to make copies of or reproduce any part of the
Licensed Program in any form without the prior written consent of CA. In no
event will Licensee decompile, disassemble or otherwise reverse engineer any
Licensed Program.
If Licensee moves its computer installation, the Licensed Program can be
transferred to Licensee's new location for use on the Designated CPU(s) without
a relocation charge to Licensee, but Licensee must give prior written notice to
CA of such move and confirm to CA that the old computer installation has been
closed. If Licensee desires, subject to obtaining CA's prior written consent, to
operate the Licensed Program subsequent to a change of control of Licensee or
other than with the Designated CPU(s) or other than at Licensee's installation
site identified on the Order Form. Licensee will be required to pay CA the then
applicable upgrade, supplemental, transfer and replacement fees of CA. In no
event can the Licensed Program be transferred outside of country boundaries.
<PAGE>
If this Agreement should terminate for any reason, Licensee shall certify in
writing to CA that all copies or partial copies of the Licensed Program have
been either returned to CA or otherwise destroyed and deleted from any computer
libraries or storage devices and are no longer in use by Licensee.
ENTIRE AGREEMENT AND MODIFICATIONS
This Agreement, including the reverse side of this Agreement, the Order Form(s)
and any other exhibits attached to this Agreement represents the entire
agreement between CA and Licensee with respect to the Licensed Program, and CA
and Licensee agree that all other agreements, proposals, purchase orders,
representations and other understandings concerning the Licensed Program,
whether oral or written, between the parties are superseded in their entirety by
this Agreement. No alteration or modifications of this Agreement will be valid
unless made in writing and signed by the parties. No attachment, supplement or
exhibit to this Agreement shall be valid unless initialed by an authorized
signatory of CA.
(See Reverse Side For Additional Important Provisions)
COMPUTER ASSOCIATES INTERNATIONAL, INC. LICENSEE:
By:/s/COLLEEN M. DIEMER By:/s/JOHN JALOT
(Authorized Signature) (Authorized Signature)
Colleen M. Diemer, Sales Acctg. Div. Mgr. John Jalot
(Name of Person Signing) (Name of Person Signing)
December 30, 1992
(Date) (Title)
3 29607 December 30, 1992
(License Agreement No.) (Date)
<PAGE>
LIMITED WARRANTY
CA warrants that it can grant the license described in this Agreement and the
Order Form(s) and CA will defend or, at its option, settle any action at law
against Licensee based upon a claim that Licensee's use of the Licensed Program
in accordance with this Agreement infringes any patent, copyright or other
intellectual property right of any third party. CA also represents that the
Licensed Program will operate according to the specifications published by CA
for the Licensed Program. If it is determined that the Licensed Program does not
operate according to specifications, CA's only responsibility will be to use its
best efforts, consistent with industry standards, to cure the defect.
Any warranties made by CA (other than that of noninfringement) will extend and
be in effect only for the period that Licensee is entitled to use the Licensed
Program and for which Licensee shall have paid the Usage and Maintenance Fee, if
applicable. With respect to hardware and equipment supplied by CA, CA will, upon
request, assign to Licensee any warranties which may be made by the original
manufacturer of such hardware equipment.
In the event that Licensee makes any changes or modifications to the Licensed
Program, Licensee agrees that such changes and modifications shall be the
property of CA, unless CA shall have given its prior written consent to the
contrary. Furthermore, any such changes or modifications made by Licensee to a
Licensed Program will mean that the foregoing limited warranty of CA with
respect to such Licensed Program shall no longer apply, and CA shall have the
right to charge Licensee for additional support services at CA's then prevailing
service rate, but CA shall have no obligation to provide such services.
WARRANTY AND LIABILITY LIMITATIONS
EXCEPT AS SET FORTH ABOVE, NO OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED,
INCLUDING, WITHOUT LIMITATION, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR A PARTICULAR PURPOSE, ARE MADE BY CA AND CA MAKES NO WARRANTIES WITH
RESPECT TO ANY HARDWARE EQUIPMENT WHICH CA MAY SUPPLY TOGETHER WITH THE LICENSED
PROGRAM OR FOR THE IMPLEMENTATION THEREOF. IN NO EVENT WILL CA BE LIABLE TO
LICENSEE OR ANY OTHER PARTY FOR ANY LOSS, INCLUDING TIME, MONEY, GOODWILL AND
CONSEQUENTIAL DAMAGES, WHICH MAY ARISE FROM THE USE, OPERATION OR MODIFICATION
OF THE LICENSED PROGRAM.
DISASTER RECOVERY
In the event that Licensee certifies in writing to CA that it has a bona fide
disaster recovery plan with respect to the computer software programs used in
its operations, Licensee may make one copy of the Licensed Program for archival
purposes and use such archival copy on a CPU other than the Designated CPU or at
an installation site other than that identified on the Order Form, such other
CPU or installation site to be owned or controlled by Licensee. The use of such
archival copy shall be limited (a) for the purpose of conducting limited testing
of the disaster recovery plan's procedures and effectiveness (which testing
shall not exceed one week in any three month period) and (b) during any period
subsequent to the occurrence of an actual disaster during which the Licensee
cannot operate the Licensed Program on the Designated CPU or at the installation
site identified on the Order Form. Licensee agrees to furnish such further
documentation with respect to its disaster recovery plan and procedures as CA
may request from time to time.
<PAGE>
ASSIGNMENT
Licensee may not assign this Agreement, the use of any Licensed Program or its
rights and obligations under this Agreement without the prior written consent of
CA. CA, however, may assign this Agreement to any third party, provided that
such party assumes the obligations of CA under this Agreement. CA may also
assign its right to payment under this Agreement or grant a security interest in
this Agreement or such payment right to any third party without requiring that
such third party be liable for the obligations of CA under this Agreement.
ESCROW OF SOURCE CODE
CA has deposited a copy of the source code of the Licensed Program with
Mendelsohn, Kary, Bell & Natoli, 656 Fifth Avenue, New York, N.Y. 10103. Such
source code will be updated with each new release of the Licensed Program which
will also be deposited with the escrow agent. Such copies of the source code
will be held in escrow and in the event of a final adjudication of CA as
bankrupt, Licensee will, upon payment of the duplication cost and other handling
charges of the escrow agent, be entitled to obtain a copy of such source code
from the escrow agent. Licensee will, however, only use such copy of the source
code internally to support the Licensed Program. The escrow agent's only
responsibility will be to use its good faith efforts to cause a copy of the
source code, in the form as delivered by CA, to be delivered to Licensee at the
appropriate time.
TAXES AND DUTIES
The amounts set forth on any Order Form are exclusive of any tariffs, duties or
taxes imposed or levied by any government or governmental agency including,
without limitation, federal, state and local sales, use, value added and
personal property taxes, and Licensee agrees to pay any such tariffs, duties or
taxes (other than franchise and income taxes for which CA is responsible) upon
presentation of invoices by CA. Any claimed exemption from such tariffs, duties
or taxes must be supported by proper documentary evidence delivered to CA.
BREACH AND TERMINATION
If Licensee breaches any term of this Agreement or any Order Form or fails to
pay when due any valid invoice rendered by CA, or if the Licensee becomes
insolvent or if bankruptcy or receivership proceedings are initiated by or
against Licensee, CA shall have the right to terminate this Agreement
immediately and, in addition to all other rights of CA, all amounts which would
have become due and payable under this Agreement and any Order Form will
immediately become due and payable to CA. Any invoice which is unpaid by
Licensee when due shall be subject to an interest charge of 2% per month or part
thereof plus such late payment charge as CA may reasonably require to cover its
additional costs of administration and collection.
EXHIBIT 11
EXIDE ELECTRONICS GROUP, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
PRIMARY
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income (loss) before extraordinary item $ 1,885 $(2,978) $ 3,342 $(11,556)
Preferred stock dividends and accretion 342 342 1,026 409
--- --- --- ---
Net income (loss) applicable to common shareholders
before extraordinary item $ 1,543 $(3,320) $ 2,316 $(11,965)
Extraordinary item -- -- 2,376 --
----- ----- ----- -----
Net income (loss) applicable to common shareholders $ 1,543 $(3,320) $ (60) $(11,965)
======= ======= ======= ========
Income (loss) per share before extraordinary item $ 0.15 $ (0.33) $ 0.23 $ (1.26)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) per common and equivalent share $ 0.15 $ (0.33) $ (0.01) $ (1.26)
======= ======= ======= ========
Primary Share Base:
Weighted average number of common and
equivalent shares outstanding 10,092 9,978 10,085 9,461
====== ===== ====== =====
</TABLE>
<PAGE>
FULLY DILUTED(1)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
------------------ ------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Income (loss) before extraordinary item $ 1,885 $(2,978) $ 3,342 $(11,556)
Extraordinary item -- -- 2,376 --
----- ----- ----- -----
Net income (loss) applicable to common shareholders $ 1,885 $(2,978) $ 966 $(11,556)
======= ======= ======= ========
Income (loss) per share before extraordinary item $ 0.15 $ (0.27) $ 0.23 $ (1.15)
Extraordinary item -- -- (0.24) --
----- ----- ----- -----
Net income (loss) per common and equivalent share $ 0.15 $ (0.27) $ (0.01) $ (1.15)
======= ======= ======= ========
Fully Diluted Share Base:
Number of common shares outstanding,
end of period 10,052 9,980 10,052 9,561
Assumed conversion of preferred stock 1,000 1,000 1,000 398
Weighted average number of common
stock equivalents 43 64 55 79
--- --- --- ---
Weighted average number of common and
equivalent shares outstanding 11,095 11,044 11,107 10,038
====== ====== ====== ======
(1) This calculation is submitted in accordance with Regulation S-K item 601
(b)(11), although it is contrary to APB Opinion No. 15 because it includes
the conversion of all convertible securities, even though the conversion of
certain of these securities produces an anti-dilutive effect on fully
diluted earnings per share.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE EXIDE
ELECTRONICS GROUP, INC. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS AS OF
JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CAPTION>
<S> <C>
<MULTIPLIER> 1000
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-START> OCT-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 2775
<SECURITIES> 0
<RECEIVABLES> 137613
<ALLOWANCES> 0
<INVENTORY> 105073
<CURRENT-ASSETS> 270714
<PP&E> 49472
<DEPRECIATION> 44874
<TOTAL-ASSETS> 506441
<CURRENT-LIABILITIES> 152432
<BONDS> 220678
0
18739
<COMMON> 104
<OTHER-SE> 93768
<TOTAL-LIABILITY-AND-EQUITY> 506441
<SALES> 328310
<TOTAL-REVENUES> 417518
<CGS> 290212
<TOTAL-COSTS> 390296
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20656
<INCOME-PRETAX> 6807
<INCOME-TAX> 3338
<INCOME-CONTINUING> 3342
<DISCONTINUED> 0
<EXTRAORDINARY> 2376
<CHANGES> 0
<NET-INCOME> 966
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
</TABLE>
