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 December 31, 1994 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)
8521 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 February 10, 1995, 7,736,929 shares of the Registrant's
$0.01 par value common stock were outstanding.
Exhibit Index on sequential page number: 19
2
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(Unaudited)
(in thousands, except per share amounts)
Three Months Ended
December 31,
1994 1993
-------- --------
Revenues
Products $56,277 $45,761
Services 24,987 24,425
------- -------
Total revenues 81,264 70,186
------- -------
Cost of revenues
Products 43,096 33,718
Services 17,669 17,091
------- -------
Total cost of revenues 60,765 50,809
------- -------
Gross profit 20,499 19,377
------- -------
Selling, general and administrative expense 14,336 14,047
Research and development expense 2,177 1,911
------- -------
Income from operations 3,986 3,419
Interest expense 1,341 1,242
Interest income (139) (129)
Other (income) expense (81) 193
------- -------
Income before income taxes 2,865 2,113
Provision for income taxes 1,119 887
------- -------
Net income $1,746 $1,226
Preferred stock dividends 197 198
------- -------
Net income applicable to common shareholders $1,549 $1,028
======= =======
Primary earnings per share
Net income $0.25 $0.16
======= =======
Weighted average number of common and
equivalent shares outstanding 6,272 6,246
======= =======
Fully diluted earnings per share
Net income $0.23 $0.16
======= =======
Weighted average number of common and
equivalent shares outstanding 7,494 7,440
======= =======
The accompanying notes are an integral part of these financial statements.
3
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED BALANCE SHEET
(dollars in thousands)
December 31, September 30, December 31,
1994 1994 1993
(unaudited) (see note) (unaudited)
------------- ---------- ------------
ASSETS
Current assets
Cash and cash equivalents $959 $5,511 $3,463
Accounts receivable 82,592 97,684 69,960
Inventories 48,893 45,381 51,289
Deferred tax assets 6,548 6,428 5,928
Other current assets 3,899 4,090 2,325
------- ------- -------
Total current assets 142,891 159,094 132,965
------- ------- -------
Property, plant, and equipment
Land, buildings, and leasehold
improvements 8,701 8,714 8,627
Machinery and equipment 46,658 44,634 38,365
------- ------- -------
55,359 53,348 46,992
Accumulated depreciation 27,650 26,301 22,162
------- ------- -------
27,709 27,047 24,830
------- ------- -------
Other assets 15,561 15,534 13,460
-------- -------- --------
$186,161 $201,675 $171,255
======== ======== ========
LIABILITIES, REDEEMABLE PREFERRED STOCK, & COMMON SHAREHOLDERS' EQUITY
Current liabilities
Short-term debt $5,817 $5,802 $2,395
Accounts payable 49,376 41,198 29,050
Deferred revenues 11,741 13,703 8,981
Accrued compensation 4,747 7,780 3,804
Accrued income taxes payable 265 - 514
Other accrued liabilities 5,452 7,134 5,062
------- ------- -------
Total current liabilities 77,398 75,617 49,806
------- ------- -------
Long-term debt 21,000 39,700 42,300
Convertible subordinated notes 15,000 15,000 15,000
Deferred liabilities 2,835 2,781 2,884
Redeemable preferred stock 10,000 10,000 10,000
Common shareholders' equity
Common stock, $0.01 par value,
15,000,000 shares authorized;
shares issued - 6,230,755 at
December 31, 1994, 6,225,505
at September 30, 1994, and
6,162,079 at December 31, 1993 62 62 62
Additional paid-in capital 36,343 36,667 35,398
Retained earnings 31,104 29,556 23,643
Cumulative translation adjustments (2,159) (1,757) (1,980)
------- ------- -------
65,350 64,528 57,123
------- ------- -------
Less: Notes receivable from
shareholders (5,295) (5,951) (5,858)
Treasury stock, at cost (127) - -
------- ------- -------
59,928 58,577 51,265
-------- -------- --------
$186,161 $201,675 $171,255
======== ======== ========
The accompanying notes are an integral part of these financial statements.
Note: The consolidated balance sheet at September 30, 1994 has been derived
from the audited financial statements at that date.
4
EXIDE ELECTRONICS GROUP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
(in thousands)
Three Months Ended
December 31,
------------------
1994 1993
--------- -------
Cash flows from operating activities
Net income $1,746 $1,226
Adjustments to reconcile net income to
cash provided by (used in) operating
activities:
Depreciation expense 1,468 1,377
Amortization expense 633 442
Decrease in accounts receivable 15,839 21,020
Increase in inventories (3,825) (7,105)
(Increase) decrease in other current assets 191 (925)
Increase (decrease) in accounts payable 8,178 (9,224)
Decrease in other current liabilities (6,216) (8,064)
Other, net (138) 807
------- -------
Net cash provided by (used in) operating activities 17,876 (446)
------- -------
Cash flows from investing activities
Acquisitions of property, plant, and equipment (2,187) (1,561)
Other, net (608) (298)
------- -------
Net cash used in investing activities (2,795) (1,859)
------- -------
Cash flows from financing activities
Proceeds from bank credit facilities 18,130 21,018
Payments of bank credit facilities (32,196) (18,077)
Payment of industrial revenue bonds (4,600) (900)
Issuances of common stock 2 93
Purchases of treasury stock (625) -
Preferred stock dividends (395) (445)
Payments of notes receivable from shareholders 104 155
Other, net (53) (263)
-------- -----
Net cash provided by (used in) financing activities (19,633) 1,581
-------- -----
Net decrease in cash and cash equivalents (4,552) (724)
Cash and cash equivalents, beginning of period 5,511 4,187
-------- ------
Cash and cash equivalents, end of period $959 $3,463
======== ======
The accompanying notes are an integral part of these financial statements.
5
Exide Electronics Group, Inc.
Notes to Consolidated Financial Statements
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting
principles and the rules and regulations of the Securities and
Exchange Commission for interim financial statements. Certain
information and footnote disclosures required for complete
financial statements have been condensed or omitted. These
financial statements should be read in conjunction with the
financial statements presented in the company's 1994 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 at
December 31, 1994. The results of operations for the three
months ended December 31, 1994 are not necessarily indicative of
the results to be expected for the full year.
Certain amounts in the consolidated financial statements
presented herein for prior periods have been reclassified to
conform to the method of presentation used in fiscal 1995. These
reclassifications are not material.
Note 2 - Inventories
Inventories, which include materials, labor, and manufacturing
overhead, are stated at the lower of cost or market, and consist
of the following (in thousands):
December 31, September 30, December 31,
1994 1994 1993
------------ ------------- ------------
Raw materials and
supplies $ 17,037 $ 16,253 $ 21,701
Work in process 4,311 4,338 7,807
Finished goods 15,064 13,093 13,111
Service parts 12,481 11,697 8,670
-------- -------- --------
$ 48,893 $ 45,381 $ 51,289
======== ======== ========
Note 3 - Subsequent Event
On February 8, 1995, the company completed the merger of
International Power Machines Corporation (IPM) with a newly
formed subsidiary of the company. IPM develops, manufactures,
sells and services uninterruptible power systems (UPS). The
merger is structured as a tax-free reorganization and will be
accounted for as a pooling of interests. The company
exchanged approximately 1.5 million newly registered shares
of Exide Electronics' common stock for all of IPM's capital
stock. Pro forma unaudited results of operations assuming the
merger had occurred as of October 1, 1993 are as follows:
6
(In thousands, except per share amounts)
Three Months Ended
December 31,
------------------
1994 1993
-------- --------
Revenue $ 92,066 $ 79,672
Net income $ 2,283 $ 1,914
Primary earnings per share $ 0.27 $ 0.22
Fully diluted earnings per share $ 0.25 $ 0.21
The pro forma unaudited results of operations shown above do not
include the effects of potential changes in accounting methods,
which have not been determined at this time.
Note 4 - Litigation
In January 1989, a case entitled "James Hendry d.b.a. Synergy
Sales Engineering v. Exide Electronics Corporation" (Hendry) was
filed by a former manufacturer's representative of the company,
alleging that the company failed to pay commissions owed to him
on certain sales. In April 1990, a jury awarded the plaintiff
damages of approximately $14.9 million. The company appealed the
decision, and in September 1992, the appellate court reversed the
judgment against the company.
In response to various motions filed by the plaintiff, a new
trial was granted, and in March 1994, the jury in the new trial
awarded damages of $3.75 million to the plaintiff. While the
company continued to believe that it should have no liability in
this matter and announced its intention to appeal, it recorded a
one-time charge in the second quarter of fiscal 1994 of
$4,997,000 ($2,936,000 after tax) for the jury verdict and for
the costs of the trial.
On July 20, 1994, the company announced that this litigation had
been settled. Following agreement among the parties to settle,
the District Court vacated the jury award of $3.75 million
previously entered and determined that the vacated judgment
cannot be used against the company in the future. To avoid
further litigation including post-trial motions and appeals, the
company settled the case by making payments to the plaintiff and
his attorneys. The parties thereafter stipulated that the entire
action was dismissed with prejudice. Since the total value of the
settlement payments was less than the one-time charge recorded by
the company in the second quarter of fiscal 1994, no further
charges will be necessary in this matter. By agreement with the
plaintiff, the terms of the confidential settlement were not disclosed.
In May 1990, following the company's announcement of the verdict
in the first Hendry trial, the company was served with a
complaint entitled "Branson v. Exide Electronics Corporation, et
al." in the Delaware Court of Chancery (Branson-Delaware),
alleging, among other things, that the description of the Hendry
litigation in the company's prospectus dated December 21, 1989
was false and misleading, and seeking unspecified compensatory
damages or rescission of the company's initial public offering.
Branson-Deleware purports to be a class action on behalf of the
purchasers of company stock from December 21, 1989 through May 3,
1990. The company filed a motion to dismiss this action in the
7
Delaware Court of Chancery. Meanwhile, in May 1991, a related
case was filed in the United States District Court for the
Southern District of New York naming as defendants the persons
who were directors of the company at the time of the initial
public offering of the company's stock in December 1989 and
persons who were selling shareholders in such offering (Branson-
New York). Branson-New York, which purports to be a class action
on behalf of all purchasers of company stock from December 21,
1989 through May 2, 1991, basically repeats the allegations made
in the Branson-Delaware case and seeks similar relief. The
plaintiffs in Branson-New York have not pursued that action to
date by agreement of the parties. Such agreement may be lifted by
either party upon notice to the other.
In September 1992, the Delaware Court of Chancery dismissed the
Branson-Delaware complaint for failure to state a claim,
concluding in its written opinion that the plaintiffs'
allegations failed to establish that the company's prospectus
contained material misstatements or omissions actionable under
federal securities laws. In October 1992, the plaintiff filed an
appeal with the Delaware Supreme Court, and in January 1993, the
company and plaintiff filed their appeal briefs. In June 1993,
the Delaware Supreme Court issued an interim ruling, holding that
the lower court, before ruling on the merits of the suit, should
have passed upon whether the lower court had jurisdiction over
the individual defendants. In August 1993, the lower court ruled
that it did not have jurisdiction over the individual defendants
and therefore dismissed the portion of the suit that related to
those defendants. This portion of the lower court's ruling was
not appealed. However, in April 1994, the Delaware Supreme Court
reversed the dismissal by the Delaware Chancery Court as to the
remaining defendants, concluding that the Chancery Court erred in
holding that the plaintiffs' complaint failed to state a claim
upon which relief may be granted. In reaching this conclusion,
the Delaware Supreme Court indicated that in order to withstand a
motion to dismiss, "the plaintiff is only required to state a
claim. . . .Therefore, if a complaint states a claim upon which
the pleader might recover, the complaint should not be dismissed
until the plaintiff has had an opportunity to develop a factual
record." Accordingly, the court held that the plaintiff was
entitled to proceed with discovery and remanded the case for
further proceedings at the Chancery Court level. The company
moved for the Delaware Supreme Court to reconsider its reversal
of the dismissal. The Delaware Supreme Court denied that motion
of the company in May 1994. Discovery in this matter is now in
process. Although the company believes it will prevail in both
Branson suits, there can be no assurance as to the ultimate
outcome of either action. Therefore, there is a possibility that
these actions could have an adverse effect on the company.
Neither the magnitude nor materiality of any potential adverse
effect can be determined at this time.
The company would likely incur significant additional legal fees
if the plaintiffs are successful in their efforts in either
Branson case. Because the company does not believe at this time
that a loss from these legal matters is probable, and because the
effect of such loss, if any, cannot currently be estimated, no
provision for loss in the Branson cases has been recorded in the
accompanying consolidated financial statements.
8
Exide Electronics Group, Inc.
Management's Discussion and Analysis of
Results of Operations and Financial Condition
Overview
Exide Electronics (the company) designs, manufactures, markets,
and services a broad line of uninterruptible power systems (UPS)
and power management products that protect computers and other
sensitive electronic equipment against electrical power
distortions and interruptions. Several factors had a significant
impact on the company's results of operations during the first
quarter of fiscal 1995 compared to the first quarter of fiscal
1994. These factors include strong market acceptance of the
Powerware (R) Prestige product line, the expansion of
international markets, and the effect of Federal government
product and service revenues. The impact of these and other
factors on fiscal 1994 is discussed in more depth in
"Management's Discussion and Analysis of Results of Operations
and Financial Condition" presented in the company's 1994 Annual
Report to Shareholders.
The company's product and service offerings and its marketing,
manufacturing, and research and development functions are
organized into three business units: the Small Systems Group
(SSG) for all products below 50 kilovolt amperes (kVA); the
Large Systems Group (LSG) for products of 50 kVA and above; and
the Worldwide Services Group (WSG) for all services provided by
the company. (A kilovolt ampere is a commonly-used unit of
measure for electricity supplied using alternating current.)
The following table summarizes the contribution to total revenues
of the company by business unit for the quarters ended December
31, 1994 and 1993 (dollars in millions):
Quarter Ended December 31,
1994 1993
-------------- --------------
Small Systems Group $ 29.5 36.3% $ 24.1 34.4%
Large Systems Group 26.8 33.0 21.7 30.9
Worldwide Services Group 25.0 30.7 24.4 34.7
------ ------ ------ -------
$ 81.3 100.0% $ 70.2 100.0%
====== ====== ====== =======
9
Results of Operations
The following table presents, for the quarters ended December 31,
1994 and 1993, the percentage relationship which certain items in
the company's consolidated statement of operations bear to total
revenues, and the percentage increase (decrease) in the dollar
amount of such items:
Quarter Ending
December 31, Percentage
---------------- Increase/
1994 1993 (Decrease)
------- ------- -----------
Revenues
Products 69.3% 65.2% 23.0%
Services 30.7 34.8 2.3
----- ----- -----
Total revenues 100.0 100.0 15.8
----- ----- -----
Cost of revenues
Products 53.0 48.0 27.8
Services 21.8 24.4 3.4
----- ----- -----
Total cost of revenues 74.8 72.4 19.6
----- ----- -----
Gross profit (1)
Products 23.4 26.3 9.4
Services 29.3 30.0 (0.2)
----- ----- -----
Gross profit 25.2 27.6 5.8
----- ----- -----
Selling, general and
administrative expense 17.6 20.0 2.1
Research and development
expense 2.7 2.7 13.9
----- ----- -----
Income from operations 4.9 4.9 16.6
Interest expense 1.7 1.9 8.0
Interest income (0.2) (0.2) 7.8
Other (income) expense (0.1) 0.3 NM
----- ----- -----
Income before income taxes 3.5 3.0 35.6
Provision for income taxes 1.4 1.4 26.2
----- ----- -----
Net income 2.1% 1.7% 42.4%
===== ===== =====
(1) Product and service gross profit margins are expressed as a
percentage of their respective revenues, not a percentage of
total revenues.
NM - not meaningful.
10
Revenues
For the fiscal quarter ended December 31, 1994, total revenues
were $81.3 million, an increase of nearly 16% compared to the
same period in the prior year. Product sales grew by 23% to
$56.3 million. SSG product sales increased by approximately $5.4
million or 22%, and LSG experienced product sales growth of
approximately $5.1 million or 23%, as compared to the first
quarter of fiscal 1994. WSG revenues increased by approximately
$600,000 or 2% as compared to the same period last year.
Growth in SSG product revenues resulted primarily from strong
sales of the new Powerware Prestige product line. During the
first quarter of fiscal 1995, the product line was expanded with
the addition of the Prestige 650 model, the Prestige 3000 and 6000
product lines were completed with the introduction of certain new
accessories, and additional versions of software and network
communications products were introduced. The increase in revenues
was primarily in the company's international channels, reflecting
the international market's acceptance of the new product line, and
showing the results of the company's expansion efforts in
international markets. SSG's revenue growth included approximately
$11.4 million in sales of new products, which was partially offset
by declines in sales of certain SSG products that are being
discontinued. The number of SSG units sold during the first
quarter of 1995 increased by nearly 70% as compared to the first
quarter of 1994. Higher unit sales were partially offset by a lower
average selling price per unit, as the lower kVA models are generally
lower-priced than the larger UPS products, and also to price
reductions, reflecting the industry trend of declining UPS prices.
The revenue increase for LSG resulted primarily from ancillary
equipment sales to the Federal Aviation Administration (FAA) and
certain large commercial sales. The company is providing the FAA
with large UPS products, ancillary power equipment, and systems
engineering and implementation services at approximately 25
locations under the FAA's Air Route Traffic Control Center
Modernization Program. Despite the increase in this quarter's
LSG sales to the FAA, LSG's sales for fiscal 1995 are expected to
decline by 15% to 20% from fiscal 1994 levels, as most of the
product sales under this program have already been shipped to the
various sites. The total number of LSG UPS systems sold decreased
approximately 7% from the same period from the prior year, while
the average sales price per system in 1995 increased over the first
quarter in 1994, primarily due to favorable model mix and
increased sales of ancillary equipment.
While total service revenues were up by 2%, WSG's commercial
revenues grew by more than 15%, which was primarily attributable
to the acquisition of three sales and service companies in the
fourth quarter of fiscal 1994 in Canada and England. FAA site
services revenues are down slightly from the first quarter of
fiscal 1994, although they were up from the last three quarters,
and have returned to levels from a year ago as site construction
activities increased after a temporary lull. The company was
installing and testing equipment and providing systems
implementation services at ten FAA sites at both December 31,
1994 and 1993, and was developing the engineering design for an
additional twelve locations at December 31, 1994 versus eight
locations in the prior year. WSG revenue increases were a result
of a greater amount of services provided rather than an increase
in the price of the services.
11
Gross Profit
Gross profit grew by $1.1 million to $20.5 million in the first
quarter of fiscal 1995, a 6% increase over the prior year.
Overall gross profit margins decreased from 27.6% in 1994 to 25.2%
in 1995. The increase in gross profits was attributable to
higher product sales, which was partially offset by a decrease in
average product gross profit margins to 23.4% in the first quarter
of fiscal 1995 from 26.3% in 1994. The decline in product gross
profit margins occurred primarily as a result of increased sales of
LSG ancillary products, which generally have lower gross profit
margins than SSG products, and certain start-up costs for the new
Powerware Prestige products. Service margins decreased slightly
from 30% to 29.3%, principally due to changes in the mix of
services provided.
Selling, General and Administrative Expense
Selling, general and administrative expense increased by
approximately $289,000 over the prior year, but decreased as a
percentage of revenues to 17.6% in fiscal 1995 from 20% in fiscal
1994. General and administrative expense declined from the prior
year due to lower legal expenses as a result of the settlement of
certain litigation in fiscal 1994. Selling and marketing
expenses rose as the company continued its program of investing
in market support and distribution development programs, mostly
for the company's SSG products. The investments made in
distribution channel development contributed to overall revenue
growth, especially in international markets, which had growth of
more than 30% over the prior year.
Research and Development Expense
Research and development expense increased by approximately
$266,000 over the first quarter of the prior year, and remained
constant as a percentage of revenue at 2.7%. The company is
continuing its efforts to enhance or develop new products such
as the Powerware Prestige and Powerware Plus product lines and
related software and other accessories that provide premium power
management solutions.
Interest/Other
Interest expense increased approximately $99,000 over the first
quarter of fiscal 1994, but decreased as a percentage of sales
from 1.9% in fiscal 1994 to 1.7% in fiscal 1995. The company
incurred approximately $233,000 in the write-off of remaining
debt issuance costs and a redemption premium related to the
payoff of the remaining balance of its Industrial Revenue Bonds
(IRBs) in December 1994. Without this one-time charge, interest
expense for the quarter would have been 11% less than in the
first quarter of fiscal 1994. Other (income) expense improved by
approximately $274,000, primarily due to improved results for the
company's Japanese joint venture.
Net Income
Net income for the first quarter of fiscal 1995 was $1.7 million,
a 42% improvement from the first quarter of fiscal 1994. Primary
earnings per share were $0.25 as compared to $0.16 a year ago, an
increase of 56%, and fully diluted earnings per share were $0.23,
increasing approximately 44% from $0.16 in the prior year.
12
Quarterly Operating Results
The company's quarterly operating results have fluctuated
significantly. Quarterly results depend upon the timing of
product shipments and major systems implementation services,
which can be influenced by a number of factors. Some of these
factors are beyond the company's control, particularly for large,
customized systems. The company has experienced seasonal
fluctuations in revenues and operating results on a quarter-to-
quarter basis. 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 which 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 1994 and 1993, revenues increased for each quarter
within the applicable year, but revenues for the first quarter
were lower than revenues for the fourth quarter of the prior year.
Selling, general and administrative, and research and development
expenditures are incurred to support projected annual sales.
These expenses do not necessarily vary proportionately with
revenues on a quarterly basis. As a result, variations in
quarterly revenues may not be accompanied by an equivalent change
in expenses; therefore, operating margins can vary significantly
between quarters.
Liquidity and Financial Condition
As of December 31, 1994, the company had $65.5 million of working
capital, as compared to $83.5 million at September 30, 1994 and
$83.2 million at December 31, 1993. The $17.7 million decrease
in working capital from December 31, 1993 is primarily the result
of higher current liabilities incurred to support the increased
operating activities required to produce higher levels of revenues,
offset somewhat by higher accounts receivable balances from
increased sales. Working capital decreased by $18 million between
September 30, 1994 and December 31, 1994. The decrease was due
primarily to the first quarter collection of receivables generated
by fourth quarter 1994 sales. The reduction in working capital
resulted in net cash provided by operations of $17.9 million for
the quarter ended December 31, 1994, which was used to reduce the
company's bank debt by $15 million, and to redeem the company's
remaining IRBs of $4.6 million.
During the first three months of 1995, the company invested
approximately $2.2 million in capital expenditures, as compared
to approximately $1.6 million in the same period of fiscal 1994.
Capital expenditures for fiscal 1995 are expected to approximate
$10 million. The company believes that its cash flow from
operations and its existing bank facilities will be sufficient to
meet its short-term requirements for working capital and capital
expenditures.
13
Subsequent Event
On February 8, the stockholders of Exide Electronics and
International Power Machines Corporation (IPM) voted to approve
the proposed merger between the two companies. The company
exchanged approximately 1.5 million newly registered common
shares for all of IPM's capital stock. The merger will be
accounted for as a pooling of interests. The combination
with IPM will enable Exide Electronics to expand its offerings
of power management and power protection hardware, software
and services. The merger is discussed more fully in Note 3 of
the notes to consolidated financial statements.
Contingencies
Litigation
In September 1992, the 1990 judgment against the company for
$14.9 million in the case entitled James Hendry d.b.a. Synergy
Sales Engineering v. Exide Electronics Corporation (Hendry) was
reversed upon appeal (see Note 4 of the notes to consolidated
financial statements for additional information). In response to
various motions filed by the plaintiff, a new trial was granted,
and in March 1994, the jury awarded damages of $3.75 million to
the plaintiff. While the company continued to believe that it
should have no liability in this matter and announced its
intention to appeal, it recorded a one-time charge in the second
quarter of fiscal 1994 of $4,997,000 ($2,936,000 net of tax) for
the jury verdict and for the costs of the trial.
On July 20, 1994, the company announced that this litigation had
been settled. Following agreement among the parties to settle,
the District Court vacated the jury award of $3.75 million
previously entered and determined that the vacated judgment
cannot be used against the company in the future. To avoid
further litigation including post-trial motions and appeals, the
company settled the case by making payments to the plaintiff and
his attorneys. The parties thereafter stipulated that the entire
action was dismissed with prejudice. Since the total value of
the settlement payments was less that the one-time charge recorded
by the company in the second quarter of fiscal 1994, the company
believes that no further charges will be necessary in this matter.
By agreement with the plaintiff, the terms of the confidential
settlement were not disclosed.
In May 1990, following the company's announcement of the verdict
in the first Hendry trial, the company was served with a complaint
entitled Branson v. Exide Electronics Corporation, et al. in the
Delaware Court of Chancery (Branson-Delaware), alleging, among
other things, that the description of the Hendry litigation in
the company's prospectus dated December 21, 1989 was false and
misleading, and seeking unspecified compensatory damages or
rescission of the company's initial public offering. Branson-Delaware
purports to be a class action on behalf of the purchasers of
company stock from December 21, 1989 through May 3, 1990. The
company filed a motion to dismiss this action in the Delaware Court
of Chancery. Meanwhile, in May 1991, a related case was filed in the
United States District Court for the Southern District of New York
naming as defendants the persons who were directors of the company
at the time of the initial public offering of the company's stock
in December 1989 and persons who were selling shareholders in such
offering (Branson-New York). Branson-New York, which purports to
14
be a class action on behalf of all purchasers of company stock from
December 21, 1989 through May 2, 1991, basically repeats the
allegations made in the Branson-Delaware case and seeks similar relief.
The plaintiffs in Branson-New York have not pursued that action to
date by agreement of the parties. Such agreement may be lifted by
either party upon notice to the other.
In September 1992, the Delaware Court of Chancery dismissed the
Branson-Delaware complaint for failure to state a claim, concluding
in its written opinion that the plaintiffs' allegations failed to
establish that the company's prospectus contained material
misstatements or omissions actionable under federal securities laws.
In October 1992, the plaintiff filed an appeal with the Delaware
Supreme Court, and in January 1993, the company and plaintiff filed
their appeal briefs. In June 1993, the Delaware Supreme Court
issued an interim ruling, holding that the lower court, before ruling
on the merits of Branson's suit, should have passed upon whether the
lower court had jurisdiction over the individual defendants. In
August 1993, the lower court ruled that it did not have jurisdiction
over the individual defendants and therefore dismissed the portion of
the suit that related to those defendants. This portion of the lower
court's ruling was not appealed. However, in April 1994, the Delaware
Supreme Court reversed the dismissal by the Delaware Chancery Court,
concluding that the Chancery Court erred in holding that the
plaintiff's complaint failed to state a claim upon which relief may
be granted. In reaching this conclusion, the Delaware Supreme Court
indicated that in order to withstand a motion to dismiss, "the
plaintiff is only required to state a claim . . . . Therefore,
if a complaint states a claim upon which the pleader might recover,
the complaint should not be dismissed until the plaintiff has had
an opportunity to develop a factual record." Accordingly, the court
held that the plaintiff was entitled to proceed with discovery and
remanded the case for further proceedings at the Chancery Court level.
The company moved for the Delaware Supreme Court to reconsider its
reversal of the dismissal. The Delaware Supreme Court denied that
motion of the company in May 1994. Discovery in this matter is now in
process. Although the company believes it will prevail in both Branson
suits, there can be no assurance as to the ultimate outcome of either
action. Therefore, there is a possibility that these actions could
have an adverse effect on the company. Neither the magnitude nor
materiality of any potential adverse effect can be determined at
this time.
The company would likely incur significant additional legal fees
if the plaintiffs are successful in their efforts in either
Branson case. Because the company does not believe at this time
that a loss from these legal matters is probable, and because the
effect of such loss, if any, cannot currently be estimated, no
provision for loss in the Branson cases has been recorded in the
accompanying consolidated financial statements.
Government Contract Matters
Sales to the United States Federal government accounted for
approximately 34% and 36% of total revenues for the three months
ended December 31, 1994 and 1993, respectively, and approximately
36%, 39% and 19% of total revenues for the years ended September
30, 1994, 1993 and 1992, respectively. A significant portion of
the company's sales to the Federal government in recent years
has been under a five-year contract awarded to the company by
15
the Air Force Logistics Command in May 1988 following a
competitive procurement. As of December 31, 1994, a significant
portion of the company's backlog relates to orders received under
this contract from the Federal Aviation Administration (FAA).
The period during which orders could be placed under this contract
expired in May 1993. Expiration of this contract does not affect
orders received prior to expiration, and delivery on the remainder
of such orders, which consists primarily of site implementation
services for the FAA, is currently planned through fiscal 1997.
A competitive procurement process for a new five-year contract
is currently underway (although award of the new contract is not
expected to occur before the middle of 1995). The company is
likely to face vigorous competition in the new procurement, and
there can be no assurance that the company will be successful in
obtaining the new contract. However, the company can sell its
products and services to the Federal government through its two
existing Navy contracts, through its General Services Administration
Schedule, and potentially in a subcontractor capacity or through
the award of other new contracts. Nevertheless, failure to win
the new contract would adversely affect the company's ability to
sell to the Federal government in the future. The company's
contracts with the Federal government have no significant minimum
purchase commitments, and the government may cease purchases under
these contracts at any time for any reason. These contracts are
subject to termination for the convenience of the government pursuant
to the terms of the contracts.
The company's compliance with government contract regulations is
audited or reviewed from time to time by government auditors, who
have the right to audit the company's records and the records of
its subcontractors during and after completion of contract
performance. Under Federal government regulations, certain costs
are not allowable as costs for which the government will reimburse
the company. Government auditors may recommend that certain charges
be treated as unallowable and reimbursement be made to the
government. In addition, as part of the company's internal control
practices, the company performs regular internal reviews of its
charges to the government. In connection with such reviews, the
company may make voluntary refunds to the government for certain
unallowable or inadvertent charges, which are brought to the
government's attention by the company. The company provides for
estimated unallowable charges and voluntary refunds in its
financial statements, and believes that its provisions are
adequate as of December 31, 1994.
Foreign Currency Exposures
International sales accounted for approximately 31% and 28% of
total revenues for the three months ended December 31, 1994 and
1993, respectively, and approximately 25%, 22% and 32% of total
revenues for the years ended September 30, 1994, 1993 and 1992,
respectively. A significant portion of these revenues are
denominated in foreign currencies. As of December 31, 1994,
approximately 18% of the company's total assets are located
outside the United States, primarily in Canada and Europe.
Significant fluctuations in foreign currency exchange rates can
result in gains or losses on foreign currency transactions, which
are recorded in the consolidated statement of operations.
Fluctuations in the recorded value of the company's net
investment in its international subsidiaries resulting from
16
changes in foreign exchange rates are recorded in the cumulative
translation adjustments component of common shareholders' equity.
The company manages these risks using a combination of natural
hedges and, from time to time, foreign currency hedges. European
and Canadian currencies have been especially volatile in the last
two years. For the first quarter of fiscal 1995, the company had
foreign exchange transaction losses of approximately $91,000, as
compared to losses of approximately $78,000 in the same period of
fiscal 1994, and the change in the cumulative translation
adjustments account reduced the recorded value of common
shareholders' equity by $402,000 from September 30, 1994 to
December 31, 1994. For fiscal 1994, the company had foreign
exchange transaction losses of approximately $257,000, as
compared to losses of approximately $221,000 in 1993, and the
change in the cumulative translation adjustments account
increased the recorded value of common shareholders' equity by
$154,000 from September 30, 1993 to September 30, 1994. As of
December 31, 1994, the company had accounts receivable and
accounts payable totaling approximately $7.4 million that were
exposed to fluctuations in exchange rates, and had no significant
foreign currency hedges covering these amounts. These balances
are spread among various currencies, primarily the Canadian
dollar, the French franc, the German mark, and the English pound.
17
EXIDE ELECTRONICS GROUP, INC.
PART II - OTHER INFORMATION
December 31, 1994
ITEM 1. Legal Proceedings
See Note 4 of the notes to consolidated financial
statements.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit 2.1: Agreement and Plan of Reorganization (the
"Reorganization Agreement") among Exide Electronics,
Exide Electronics Acquisition, Inc. and International
Power Machines Corporation dated August 25, 1994,
including the First Amendment to the Reorganization
Agreement dated December 14, 1994 and the Second
Amendment to the Reorganization Agreement dated
January 4, 1995 (filed as Exhibit 2.1 to Exide
Electronics' Registration Statement on Form S-4, File
No. 33-88324, and incorporated herein by reference).
Exhibit 10: Employment agreement dated February 3, 1995
between Exide Electronics Corp. and Warren J. Johnson
Exhibit 11: Statement of Computation of Per Share Earnings
Exhibit 27: Financial Data Schedule
(b) Reports on Form 8-K:
The Company filed a report on Form 8-K, for
the event dated September 30, 1994, reporting Item 5,
Other Events, relating to the filing of a press release
announcing the acquisitions of three companies.
The Company filed a report on Form 8-K, for
the event dated September 30, 1994, reporting Item 5,
Other Events, relating to the filing of a press release
announcing that it had closed a new senior unsecured
$145.0 million package of domestic credit facilities.
18
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: February 13, 1995 By:
Marty R. Kittrell
Marty R. Kittrell
Vice President and
Chief Financial Officer
19
EXIDE ELECTRONICS GROUP, INC.
EXHIBIT INDEX - FORM 10-Q
December 31, 1994
EXHIBITS Page
- -------- ----
Exhibit 2.1: Agreement and Plan of Reorganization (the
"Reorganization Agreement") among Exide Electronics, Exide
Electronics Acquisition, Inc., and International Power
Machines Corporation dated August 25, 1994, including the
First Amendment to the Reorganization Agrement dated
December 14, 1994 and the Second Amendment to the Reorganization
Agreement dated January 4, 1995 (filed as Exhibit 2.1 to Exide
Electronics' Registration Statement of Form S-4, File No.
33-88324, and incorporated herein by reference). -
Exhibit 10: Employment agreement dated February 3, 1995
between Exide Electronics Corp. and Warren J. Johnson. 20
Exhibit 11: Statement of Computation of Per Share Earnings. 33
Exhibit 27: Financial Data Schedule. 35
20
Exhibit 10
EMPLOYMENT AGREEMENT
AGREEMENT, made and entered into as of the 3rd day of
February, 1995, by and between EXIDE ELECTRONICS CORPORATION, a
Delaware corporation (the "Company") and WARREN J. JOHNSON (the
"Employee").
W I T N E S S E T H:
WHEREAS, the Company currently employs Employee pursuant to
the terms and conditions of an Employment Agreement entered into
as of November 1, 1982 (the "1982 Agreement");
WHEREAS, the Company desires to reassign Employee and
Employee desires to accept such reassignment with the Company;
and
WHEREAS, in connection with such reassignment, the Company
and Employee desire to terminate the 1982 Agreement and to enter
into a new agreement embodying the terms of such reassignment and
Employee's employment with the Company;
NOW, THEREFORE, in consideration of the premises, the rights
granted to Employee (including rights to receive incentive
payments and a relocation bonus) and the mutual covenants
contained herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby expressly
acknowledged, the Company and Employee agree as follows:
Position and Duties. Employee shall be employed as the
Company's Transition Coordinator for International Power Machines
Corporation, a publicly-held company with its corporate
headquarters located in Garland, Texas ("IPM"), which the Company
expects to acquire by means of a stock for stock exchange on or
before February 10, 1995. Employee's title shall be Vice
President and General Manager of IPM. In such position, Employee
shall report to James A. Risher, President and Chief Executive
Officer. Employee's duties shall generally include, but not be
limited to, management and supervision of the daily operations
and integration of IPM into the Company's corporate structure.
Employee agrees to perform such other services on behalf of the
Company as may be assigned from time to time to Employee. The
Company and Employee agree that in the event the "Effective Time"
(as such term is defined in that certain Agreement and Plan of
Reorganization, dated August 25, 1994 by and among Exide
Electronics Group, Inc., Exide Electronics Acquisition Inc. and
International Power Machines Corporation) does not occur before
February 28, 1995, or if prior to such date the Board of
Directors determines that it is not in the best interests of the
Company to consummate the acquisition of IPM, then: (i) the
Employee shall resign, in writing, from the employ of the
Company, effective February 28, 1995; and (ii) the Company shall
accept such resignation subject to the terms of Attachment 1
hereto. In the event the "Effective Time" (as such term is
defined in that certain Agreement and Plan of Reorganization,
dated August 25, 1994 by and among Exide Electronics Group, Inc.,
Exide Electronics Acquisition Inc. and International Power
Machines Corporation) does occur before February 28, 1995, then
the terms of Attachment 1 shall automatically, and without
further notice, be null and void and of no binding effect
whatsoever on the Company.
21
Reassignment and Continued Employment. The Company
hereby agrees to reassign and continue the employment of
Employee, and Employee hereby accepts such reassignment and
continued employment, all on the terms and conditions set forth
herein. Employee acknowledges that his rights to receive
incentive payments, the relocation bonus and the other rights and
benefits provided for herein constitute additional consideration
for this Agreement, including Employee's agreement to be bound by
the covenants not to compete set forth in Section 10 hereof.
Employee agrees that such consideration is adequate for
Employee's agreement to be bound by such covenants not to compete
and by signing this Agreement acknowledges receipt of such
consideration.
Compensation.
(a) In consideration of the services to be rendered by
Employee to the Company, and in consideration of Employee's other
covenants hereunder, the Company agrees to pay Employee a salary
at the rate of $135,000 per year, payable at such intervals as
may be established by the Company from time to time for salary
payments to its salaried employees generally. That salary rate
shall not be increased for merit increases, cost of living
adjustments or for any other reason during the term of this
Agreement.
(b) Employee may earn incentive payments depending on
performance
to goals, payable within ninety (90) days following: (i) the
last day of December, 1995; and (ii) the last day of
December, 1996, based on a comparison of the Actual Sales,
Synergies and Net Income Applicable to the Business
Combination between IPM and the Company for such years and
the Scenarios for Most Likely Case and Best Case Projected
Sales, Synergies and Net Income Applicable to the Business
Combination between IPM and the Company set forth in, and
subject to the conditions and limitations of, Exhibit A
(including Schedule I) hereto. Notwithstanding anything to
the contrary in this Agreement or otherwise, Employee shall
not be entitled to receive any incentive payment whatsoever
for any fiscal year in which the Employee's employment is
terminated for any reason prior to the end of the fiscal
year. "Actual Sales, Synergies and Net Income Applicable to
the Business Combination between IPM and the Company" shall
mean the actual sales, synergies and net income of IPM as
determined by the financial statements of the Company (and
IPM as appropriate) prepared in the ordinary course of
business. The Employee may earn total incentive
compensation up to, but not in excess of, the maximum
amounts set forth in Exhibit A for the period from the
effective date of this Agreement through September 30, 1995
for sales and net income and through December 31, 1995 for
synergies ("1995 Incentive Payment"), as particularly set
forth in Exhibit A hereto. The Employee may earn total
incentive compensation up to, but not in excess of, the
maximum amounts set forth in Exhibit A for the period
beginning October 1, 1995 and ending September 30, 1996 for
sales and net income, and ending December 31, 1996 for
synergies ("1996 Incentive Payment"), as particularly set
forth in Exhibit A, except that if the Employee does not
earn the maximum amounts set forth in Exhibit A for the 1995
22
Incentive Payment and the performance of Employee for the
1996 Incentive Payment is greater that the performance
earning the maximum amounts set forth in Exhibit A for the
1996 Incentive Payment, then Employee may earn in the 1996
Incentive Payment the maximum amount for that period and the
amount not earned in the 1995 Incentive Payment as set forth
in Exhibit A and Schedule I. Notwithstanding anything to the
contrary in this Agreement or otherwise, the total incentive
compensation paid to Employee in connection with this
Agreement will in no event exceed, for the term of this
Agreement, the maximum incentive compensation amounts set
forth in Exhibit A for the 1995 Incentive Payment and 1996
Incentive Payment added together (i.e $350,000).
(c) Employee shall not be entitled to participate in,
or receive any compensation as a result of, the Company
Management Incentive Plan or any other bonus or incentive
plan of the Company.
(d) The total compensation due Employee shall be
limited to the salary and incentive payments set forth in
paragraph 3 of this Agreement and Exhibit A thereto.
(e) In the event of a conflict between the provisions
of paragraph 3 of this Agreement and Exhibit A and Schedule
I hereto, then the terms of Exhibit A and Schedule I of this
Agreement shall govern.
Relocation. Employee agrees to relocate to the
Garland, Texas area on or before February 13, 1995, at such
time requested by the Company. In connection with such
relocation, and as the sole benefit provided to Employee for
the relocation, the Company agrees to:
(a) pay Employee a relocation bonus of $25,000 within
seven days of Employee's relocation; and
(b) reimburse Employee for all reasonable and customary
expenses actually incurred and documented for (w) the moving
of the personal belongings of Employee and his spouse; (x)
coach airfare from Raleigh to Dallas for Employee and his
spouse; (y) closing costs associated with the sale of
Employee's Raleigh residence; and (z) the costs associated
with the obtaining of an initial rental residence in Texas.
Employee understands and agrees that the Company shall not
be required to purchase his house in Raleigh, North
Carolina, pay any mortgage differential benefit or provide
any other payments or benefits in connection with his
relocation to the Garland, Texas area. Employee further
understands that the Company shall not be required to
relocate Employee from the Garland, Texas area to Raleigh,
North Carolina or any other location upon the termination
of his employment, for whatever reason.
Termination and Release. The Company and Employee
agree that:
(a) the 1982 Agreement shall be, and is hereby,
terminated and of no further force and effect;
(b) that this Agreement shall terminate on December 31,
1996; and
23
(c) after December 31, 1996, Employee shall no longer
be an employee of the Company (or any affiliate thereof),
and the Company shall have no further obligation to Employee
except as set forth in this Agreement. Employee does hereby
release and hold harmless the Company, its officers,
directors, employees and agents, from and against any claim,
action, suit, demand, cost, expense for liability of any
kind, whether known or unknown, relating in any way to the
1982 Employment Agreement, any communications or dealings
between Employee and the Company through the date of this
Agreement, the employment relationship between Employee and
the Company through the date of this Agreement, the
termination of the 1982 Agreement, the termination of this
Agreement on December 31, 1996, or any refusal by the
Company to reassign, hire or continue an employment
relationship with Employee after December 31, 1996,
including specifically any and all claims under the Age
Discrimination in Employment Act, 29 U.S.C. 621, et seq.
Other Employee Benefits. Employee shall be entitled to
participate in the employee benefits plans in which the Company
permits its employees generally to participate, as in effect from
time to time, and in accordance with the provisions thereof;
provided, however, that Employee shall not be entitled to receive
any such benefits in connection with his relocation to Garland,
Texas, except as provided in Section 4 hereof. Employee shall be
reimbursed for either the membership dues and business expenses
related costs to a country club and/or eating club during the
term of this Agreement, actually paid by the Employee in the
Garland, Texas area or in Raleigh, North Carolina, provided,
that, such dues/costs do not exceed the amount actually paid by
the Company as of the date of this Agreement in Raleigh, North
Carolina. Employee shall be: (i) paid the standard car allowance
paid by the Company to its other senior executives; (ii)
permitted to continue Employee's participation in the Executive
"split dollar" insurance arrangement; and (iii) eligible for the
benefits set forth in the Company "MIP-Plus Program" dated
December 7, 1995.
Conditions of Employment.
Employee agrees that Employee's employment
hereunder shall be full time, to the exclusion of all other
employment whatsoever, and Employee further agrees to devote
Employee's full and undivided time, energy, knowledge, skill
and ability during business hours exclusively to the
business and affairs of the Company. Employee shall
conscientiously and diligently perform all responsibilities
and duties entrusted to Employee to the best of Employee's
ability, and in a manner satisfactory to the Company.
Employee agrees to abide by the Company's policies
and rules, as in effect from time to time. Employee shall
conduct himself at all times so as to maintain and improve
the credit, reputation and interests of the Company and
shall not do or permit to be done any acts, statements or
things of any nature contrary thereto.
Employee shall accurately keep and maintain such
records and make such reports as the Company may require
from time to time. Employee shall make available to the
Company: (i) any and all information of which Employee has
24
knowledge relevant or important to the Company's and IPM's
operations; and (ii) make suggestions and recommendations
that Employee believes may be of benefit to the Company
and/or IPM. Employee shall be considered, for all purposes
of this Agreement, an employee of the Company. Employee
shall not be, nor deemed to be, an employee of IPM and shall
not be entitled to any salary, incentive or bonus payments,
benefits, or compensation of any other kind afforded an
employee of IPM.
Limitation of Authority. It is understood that,
without the prior written permission of the Company,
Employee cannot, and has no authority to, impose any
obligation upon the Company or IPM or to bind the Company
or IPM to the performance of any obligations whatsoever,
except that with respect to IPM, Employee shall be
authorized to take such actions set forth in a written
Delegation of Authority Policy and Procedure approved in
writing by the President and Chief Executive Officer of the
Company, covering the Employee and all IPM employees.
Employee shall not be, nor be deemed to be, an officer, of
the Company for any purpose whatsoever.
Termination of Employment.
Death. In the event of the death of Employee
during his employment under this Agreement, his base salary
and such bonuses and incentive payments (if any) as have
been earned by the Employee and not paid to him at the time
of his death shall be made to Employee's designated
beneficiary, or, in the absence of such designation, to the
estate or other legal representative of Employee. Any
rights and benefits Employee or his estate or any other
person may have under employee benefit plans and programs of
the Company generally in the event of Employee's death shall
be determined in accordance with the terms of such plans and
programs. Except as provided in this Section 9(a), neither
Employee's estate nor any other person shall have any rights
or claims against the Company in the event of the death of
Employee during his employment hereunder.
Long-Term Disability. In the event of Employee's
disability (as hereinafter defined) during his employment
under this Agreement, the employment of Employee may be
terminated by the Company by written notice to Employee.
Employee shall be entitled to benefits in accordance with
and subject to the terms and provisions of the Company's
long-term disability plan for management employees, as in
effect at the time of the commencement of disability. For
purposes of this Agreement, "disability" shall have the same
meaning as given that term under the Company's long-term
disability plan for management employees, as in effect from
time to time. Any rights and benefits Employee may have
under employee benefit plans and programs of the Company
generally in the event of Employee's disability shall be
determined in accordance with the terms of such plans and
programs. Upon termination of Employee's employment by
reason of disability under this Section 9(b), Employee shall
be entitled, in addition to the other payments provided for
in this Section 9(b), to payment of such bonuses and
25
incentive payments (if any) as have been earned by Employee
and not paid to him at the time of such termination. Except
as provided in this Section 9(b), neither the Employee nor
his estate, or any other person, shall have any rights or
claims against the Company in the event of the termination
of Employee's employment by reason of disability.
Termination for Cause. The Company may terminate
Employee's employment for Cause (as hereinafter defined) by
written notice to Employee. Upon termination for Cause,
Employee shall receive his base salary only through the date
of termination, and neither Employee nor any other person
shall be entitled to any further payments from the Company,
for salary, unpaid bonuses, unpaid incentive payments or any
other amounts. Any rights and benefits Employee may have
under employee benefit plans and programs of the Company
generally following a termination of Employee's employment
for Cause shall be determined in accordance with the terms
of such plans and programs. For purposes of this Agreement,
termination for Cause shall mean (i) termination due to (w)
failure to meet quarterly or annual performance criteria of
IPM as such criteria may be established from time to time by
the President and CEO of the Company (or his designates),
including budgeted revenues, expenses, profit and related
synergies between IPM and the Company; (x) material breach
of any policies of the Company or IPM; (y) willful or gross
neglect of duties for which employed, or (z) misconduct in
the performance of duties for which employed, all such facts
to be determined in good faith by the President and Chief
Executive Officer, or Board of Directors, of the Company,
(ii) termination due to Employee's committing fraud,
misappropriation or embezzlement in the performance of his
duties as an employee of the Company, or (iii) termination
due to Employee's committing any felony for which he is
convicted.
Termination Other Than For Cause. Notwithstanding
any other term or provision of this Agreement, the Company
may terminate Employee's employment at any time and for
whatever reason it deems appropriate, or for no reason, by
written notice to Employee. In the event such termination
by the Company occurs and is not due to disability as
provided in Section 9(b) above or for Cause as provided in
Section 9(c) above, Employee shall be entitled to payment of
his base salary, at the rate in effect at the time of such
termination, until the expiration of sixty (60) days from
the date of such termination. Employee shall also be
entitled to such bonuses and incentive payments (if any) as
have been earned by Employee and not paid to him at the time
of such termination. Any rights and benefits Employee may
have under employee benefit plans and programs of the
Company generally following a termination of Employee's
employment under the circumstances described in this Section
9(d) shall be determined in accordance with the terms of
such plans and programs. Except as provided in this Section
9(d), neither Employee nor any other person shall have any
rights or claims against the Company by reason of the
termination of Employee's employment under the circumstances
described in this Section 9(d).
26
Voluntary Termination. Employee may terminate his
employment under this Agreement at any time upon sixty (60)
days' prior written notice to the Company; provided,
however, that the Company, in its discretion, may cause such
termination to be effective at any time during the 60-day
period. In the event of such a voluntary termination of
employment, Employee will be entitled to receive only his
salary through the date on which his termination becomes
effective. Neither Employee nor any other person shall be
entitled to any further payments from the Company, for
salary, unpaid bonuses, unpaid incentive payments or any
other amounts, upon a voluntary termination by Employee of
his employment hereunder.
Covenants Not To Compete.
Employee promises and agrees that, until the
expiration of one year following the termination or expira
tion for any reason of his employment with the Company, he
shall not, either directly or indirectly: (i) own, manage,
operate, control, be employed by, render advisory services
to, participate in or be connected in any management or
control of any business in the United States that is then
engaged, in competition with the Company or any of its
subsidiaries or affiliates, in the manufacture and/or sale
of any products manufactured and/or sold by the Company or
any of its subsidiaries or affiliates at the time of such
termination; (ii) influence or attempt to influence any
customer of the Company or any of its subsidiaries or
affiliates to discontinue its purchases of any product
designed, manufactured, or sold by the Company or any of its
subsidiaries or affiliates at the time of termination of his
employment or to divert such purchases to any other person,
firm, or corporation; (iii) interfere with, disrupt or
attempt to disrupt the relationship, contractual or
otherwise, between the Company or any of its subsidiaries or
affiliates and any of their respective suppliers,
distributors, lessors, or licensors; or (iv) solicit any
employee of the Company or any of its subsidiaries or
affiliates, to work for any other person, firm or
corporation.
For purposes of this Section 10(a), "competition with the
Company or any of its subsidiaries or affiliates" shall mean
direct competition for customers of products of the kind
manufactured or sold by the Company, its subsidiaries or
affiliates or competitive therewith, in any geographic area
in which the Company or any of its subsidiaries or
affiliates is engaged, directly or indirectly, in selling or
attempting to sell such products.
It is the desire and intent of the parties that
the provisions of this Section 10 shall be enforced to the
fullest extent permitted under the laws and public policies
of each jurisdiction in which enforcement is sought.
Accordingly, if any particular portion of this Section 10
shall be adjudicated to be invalid or unenforceable, such
adjudication shall apply only with respect to the operation
of that portion in the particular jurisdiction in which such
adjudication is made, and all other portions shall continue
in full force and effect.
27
Confidential Information; Rights to Materials;
Discoveries.
Confidential Information. Employee promises and
agrees that he shall not, either while in the Company's
employ or at any time thereafter, disclose to any person not
employed by the Company, or not engaged to render services
to the Company, or use, for himself or any other person,
firm, corporation or entity, any confidential information of
the Company obtained by him while in the employ of the
Company, including, without limitation, any of the Company's
methods, processes, techniques, shop practices, formulae,
research data, marketing and sales information, personnel
data, customer lists, financial data, plans, know-how, trade
secrets, and proprietary information of the Company;
provided, however, that this provision shall not preclude
the Employee from use or disclosure of information known
generally to the public (other than information known
generally to the public as a result of a violation of this
paragraph 11(a) by Employee), from use or disclosure of
information acquired by Employee outside of his affiliation
with the Company, from disclosure required by law or court
order, or from disclosure or use appropriate and in the
ordinary course of carrying out his duties as an employee of
the Company.
Rights to Materials. Employee further promises
and agrees that, upon termination of his employment for
whatever reason and at whatever time, he shall not take with
him, without the prior written consent of an officer
authorized to act in the matter by the Board of Directors of
the Company, any records, files, memoranda, reports, price
lists, customer lists, drawings, plans, sketches, documents,
specifications, and the like (or any copies thereof)
relating to the business of the Company or any of its
subsidiaries or affiliates.
Discoveries. All inventions, discoveries and
improvements, whether patentable or unpatentable, made,
devised or discovered by Employee, whether by Employee alone
or jointly with other, during his employment by the Company,
that relate or pertain in any way to the business of the
Company shall be promptly disclosed in writing to the
President and Chief Executive Officer of the Company and
shall inure to the benefit of the Company and become and
remain its sole and exclusive property. Employee hereby
agrees to execute an assignment to the Company, or its
nominee, of Employee's entire right, title and interest in
and to such inventions, discoveries, and improvements and to
execute any other instruments and documents requested by the
Company for the purpose of applying for and obtaining
patents with respect thereto in the United State and all
foreign countries. Employee further agrees, whether or not
in the employment of the Company, to cooperate to the extent
and in a manner reasonably requested by the Company in a
prosecution or defense in any patent claims or any
litigation or other proceedings involving any such
inventions, discoveries, or improvements.
28
12. Other Agreements of Employee. For a period of two
years from the termination of this Agreement for any reason, or
until such time that any legal proceedings arising out of
circumstances occurring during the Employee's employment with the
Company are finally and conclusively adjudicated under the law,
whichever is longer, the Employee hereby agrees:
(a) Except as required by law, Employee shall not
appear for anyone except the Company as a witness
or a deponent in any litigation, any administrative
hearing, government investigation, or other legal
proceeding of any type involving the Company.
(b) If Employee is subpoenaed in connection with any
litigation, administrative proceeding, government
investigation, or other legal proceeding of any type
that involves in any way the Company or any of the
matters in connection with, arising out of or in any
way related to Employee's employment with the Company,
Employee shall notify the Company immediately of any
such requirement and of all facts and circumstances
relevant to such required testimony reasonably in
advance of giving any such required testimony.
(c) If the Company determines that it wants Employee
to assist or testify in any litigation, administrative
proceeding, government investigation, claim, or
potential or actual legal proceeding of any type,
Employee shall remain available and cooperate with
any request by the Company upon reasonable notice.
(d) Employee shall not communicate, directly or
indirectly, with the plaintiff in any litigation naming
the Company as a defendant or with any party (including
the U.S. government or any political subdivision
thereof) making any claim against the Company in any
potential or actual legal proceeding of any type, or
their attorneys, agents, or representatives, unless
required to do so as a matter of law. Prior to any
such communication, Employee will advise the Company of
the circumstances and any relevant testimony to be
given and allow the Company, at its option, to be
present during any such communication.
13. Injunctive Relief. Employee acknowledges and agrees
that the Company would suffer irreparable injury in the event of
a breach by him of any of the provisions of Section 10, 11, or 12
of this Agreement and that the Company shall be entitled to an
injunction restraining him from any breach or threatened breach
thereof. Employee further agrees that, in the event of his
breach of any provision of Section 10 or Section 11 hereof, the
Company shall be entitled to cease any payments otherwise due and
payable to Employee hereunder. Nothing herein shall be
construed, however, as prohibiting the Company from pursuing any
other remedies at law or in equity which it may have for any such
breach or threatened breach of any provision of Section 10, 11,
or 12 hereof, including the recovery of damages from the
Employee.
14. Notices. Any notice to be given hereunder shall be in
writing and delivered personally, or sent by certified or
registered mail, postage prepaid, return receipt requested,
addressed to the party concerned at the following address:
If to the Company:
Exide Electronics Corporation
8521 Six Forks Road
Raleigh, North Carolina 27615
Attention: Vice President and Chief Legal Officer
If to the Employee, at the address last shown for the
Employee in the Company's records.
Either party may change its address for purposes of this
Agreement by notice given in compliance with this Section.
29
15. Waiver. No failure or delay by the Company in
exercising any right or remedy under this Agreement shall operate
as a waiver of any such right or remedy. No waiver shall be
binding on the Company unless it is exchanged for good and
valuable consideration received by the Company and acknowledged
in writing by a Vice President of the Company. If the Company
shall waive a breach of any provision of this Agreement by
Employee, such waiver shall not operate or be construed as a
waiver of any subsequent breach by Employee. A waiver by the
Company of any condition or term in this Agreement shall not be
construed to have any effect on the remaining terms and
conditions.
16. Entire Agreement; Amendment. This Agreement
constitutes the sole and complete agreement between Employee and
the Company with respect to the employment of Employee by the
Company and supersedes and replaces all other understandings and
agreements, whether oral or in writing, previously entered into
by the parties with respect to such employment (including,
without limitation, the 1982 Agreement, which is terminated
pursuant to Section 5 hereof). Employee acknowledges that no
verbal or other statement, inducement or representation has been
made to Employee that is a part of this Agreement. No
modification of this Agreement shall be binding upon the Company
unless in writing and signed by the President and Chief Executive
Officer or Vice President and Chief Financial Officer of the
Company.
17. Assignment. The Company reserves the right to assign
this Agreement to an affiliated company or to any successor in
interest of its business without notice, and all the terms and
conditions of this Agreement shall remain in full force and
effect upon such affiliate or successor assuming the Company's
obligations hereunder. Employee may not assign any of Employee's
rights, duties and obligations under this Agreement without the
prior written consent of the Company.
18. Severability. The provisions of this Agreement
(including, without limitation, the various provisions of Section
10 hereof) constitute separate and independent covenants, and the
invalidity or unenforceability of one or more of the provisions
hereof shall not affect the validity or enforceability of the
remaining provisions. If any provision of this Agreement is
invalid or unenforceable in any jurisdiction, then, to the
fullest extent permitted by law:
(a) the other provisions hereof shall remain in full
force and effect in such jurisdiction and shall be liberally
construed in favor of the Company in order to carry out as
nearly as possible the purpose and intent of this Agreement;
and
(b) the invalidity of or unenforceability of any such
provision in such jurisdiction shall not affect the validity
or enforceability of such provision in any other
jurisdiction.
19. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of North
Carolina.
30
20. Jurisdiction Venue and Trial. For purposes of any
lawsuit or legal action arising out of the employment
relationship between the parties or the termination of the
relationship, and for purposes of any action brought under or as
the result of a breach of this Agreement, each party agrees as
follows:
(a) The State and Federal Court of Wake County, North
Carolina, shall have exclusive jurisdiction and any
objection thereto is hereby waived;
(b) Venue shall be proper only in the State and
Federal Court of Wake County, North Carolina, and any
objection thereto is hereby waived; and
(c) Any and all rights to trial by jury and any
objections to proceeding solely before a judge of the State
and Federal Court of Wake County, North Carolina, are hereby
waived.
21. Headings. The descriptive phrases at the head of the
various sections of this Agreement are for the convenience of
reference only and shall not be considered terms of the
Agreement. They are in no way intended to define, limit or
describe the scope or intent of the particular section in which
they appear.
22. Counterparts. This Agreement may be executed and
delivered in two or more counterparts, all of which when so
executed and delivered shall have the full force and effect of an
original.
23. Signing and Revocation Periods. Employee shall have a
period of at least 21 days from the date this Agreement is
delivered to him to sign this Agreement and return it to the
Company. If the Agreement is not signed and returned to the
President and Chief Executive Officer, or alternatively, the Vice
President and Chief Legal Officer before the close of business on
February 10, 1995, the Agreement shall be void and of no effect.
Employee shall have seven days after the date on which he signs
and returns the Agreement to the Company in which to revoke.
Upon return by the Employee of the signed Agreement to the
Company and after the close of business on the twenty-first day
(or the next business day if the twenty-first day is a Saturday,
Sunday or legal holiday) following the date on which Employee
receives this Agreement, this Agreement shall be in full force
and effect. Employee acknowledges that prior to the execution of
this Agreement, the Employee was given a reasonable amount of
time to approve the same with his attorney(s), accountant(s) and
tax advisor(s) of Employee's choice, as advised and encouraged by
the Company.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
EXIDE ELECTRONICS CORPORATION
Marty R. Kittrell
By: Marty R. Kittrell
Title: Vice-President and Chief
Financial Officer
Warren J. Johnson
Warren J. Johnson
31
EXHIBIT A
Incentive payments in the amounts set forth below may be earned
by the Employee, subject to and as set forth at length in
paragraph 3 (entitled "Compensation") of that Agreement:
INCENTIVE PAYMENTS
(dollars in thousands)
1995 Incentive 1996 Incentive '95-'96 Aggregate
Payment Payment Not To Exceed*
-------------- -------------- -----------------
I. Actual Sales, Synergies and -0- -0- -0-
Net Income Applicable
to the Business Combination
between IPM and the Company
("ASSNI") equal to or less than
the Most Likely Case
Projected Sales, Synergies
and Net Income Applicable to
the Business Combination between
IPM and the Company ("PSSNI")
(see Schedule I hereto)
OR
ASSNI greater than **50 ***100 150
PSSNI Most Likely Case Scenario,
but less than the PSSNI set
forth in the Best Case Scenario
(see Schedule I hereto)
OR
II. (i) ASSNI greater than PSSNI **70 ***160 230
Most Likely Case Scenario, but
less than the PSSNI set forth
in the Best Case Scenario
(see Schedule I hereto), AND
(ii) ASSNI equal to or greater
than 60% (but less than 80%)
of the difference between
pssni most likely case
scenario and PSSNI best case
scenario
OR
III. (i) ASSNI greater than the Most **80 ***190 270
Likely Case Scenario, but
less than the PSSNI set forth
in the Best Case Scenario
(see Schedule I hereto), AND
(ii) ASSNI EQUAL TO OR GREATER THAN 80%
(BUT LESS THAN 100%) OF THE
DIFFERENCE BETWEEN PSSNI MOST
LIKELY CASE SCENARIO AND PSSNI
BEST CASE SCENARIO
OR
IV. ASSNI equal to or greater than **100 ***250 350
the PSSNI set forth in the Best
Case Scenario, (see Schedule I hereto)
*Notwithstanding Employee's actual performance or anything else
to the contrary, the Employee agrees that in no event under any
circumstances will total incentive compensation payable pursuant
to this Agreement exceed:
(i) for 1995 Incentive Payment, $100,000;
(ii) for the entire term of this Agreement, $350,000
**Notwithstanding Employee's actual performance or anything else
to the contrary, the Employee agrees that in no event under any
circumstances will total incentive compensation payable pursuant
to this Agreement exceed the figures stated.
***Notwithstanding Employee's actual performance or anything else
to the contrary, the Employee agrees that in no event under any
circumstances will total incentive compensation payable pursuant
to this Agreement exceed the figures stated, except in the event
that if the Employee does not earn the maximum amounts of the
1995 Incentive Payment set forth in this Exhibit A AND THE
PERFORMANCE OF THE EMPLOYEE FOR THE 1996 INCENTIVE PAYMENT IS
MORE THAN 15% GREATER THAN THE PSSNI IN THE BEST CASE SCENARIO,
then the Employee may earn as the 1996 Incentive Payment the
maximum amount for that year and the amount not earned as part of
the 1995 Incentive Payment, subject to the limitation that in no
event under any circumstances will total incentive compensation
payable pursuant to this Agreement exceed $350,000.
BOTTOM OF SYNERGIES (PAGE 2) CHART
*All synergies are stated in pre-tax dollars and are not
reflected in current Exide Electronics or IPM budgets.
W. Johnson will submit to the Vice President and Chief Financial
Officer of Exide Electronics, every three months from the
effective date of this Agreement, the operating synergies claimed
to have been achieved together with all documentation in support
of such claims. The Vice President and Chief Financial Officer
of Exide Electronics will approve, or reject, some or all of
those operating synergies. Only operating synergies approved by
the Vice President and Chief Financial Officer of Exide
Electronics will count toward calculation of incentive
compensation under this Agreement. All disputes will be
submitted to the President and Chief Executive Officer of Exide
Electronics and IPM for resolution, and the decision of that
person will be binding on all parties.
33
EXIDE ELECTRONICS GROUP, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
EXHIBIT 11
PRIMARY
Three Months Ended
December 31,
--------------------
1994 1993
------- -------
Net income $ 1,746 $ 1,226
Preferred stock dividends 197 198
------- -------
Net income applicable to common shareholders $ 1,549 $ 1,028
======= =======
Net income per common and equivalent share $ 0.25 $ 0.16
======= =======
Primary share base:
Weighted average number of common shares outstanding 6,167 6,111
Weighted average number of common stock equivalents 105 135
----- -----
Weighted average number of common and equivalent
shares outstanding 6,272 6,246
===== =====
34
EXIDE ELECTRONICS GROUP, INC.
STATEMENT OF COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share data)
EXHIBIT 11
FULLY DILUTED (1)
Three Months Ended
December 31,
-------------------
1994 1993
------- -------
Net income $ 1,746 $ 1,226
Add interest on convertible notes, net of taxes 192 182
------- -------
Net income applicable to common shareholders $ 1,938 $ 1,408
======= =======
Net income per common and equivalent share $ 0.24 $ 0.18
======= =======
Fully diluted share base:
Number of common shares outstanding, end of period 6,225 6,162
Assumed conversion of preferred stock and
convertible notes 1,735 1,735
Weighted average number of common stock
equivalents 123 132
------- -------
Weighted average number of common and
equivalent shares outstanding 8,083 8,029
======= =======
(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.