Item 1. Description of Business The Company American Power Conversion Corporation and its subsidiaries (the "Company") designs, develops, manufactures, and markets a line of uninterruptible power supply products ("UPS"), electrical surge protection devices ("Surge"), power conditioning products, and associated software and accessories for use with personal computers, engineering work stations, file servers, communications and internetworking equipment, and a variety of other sensitive electronic devices which rely on electric utility power. The variation or interruption of power to sensitive parts of a computer system may damage or destroy important data or the computer's set of operating instructions. The Company's UPS products provide protection from disturbances in the smooth flow of power while utility power is available and provide automatic, virtually instantaneous backup power in the event of a loss of utility power. The backup power lasts for a sufficient period of time (from 5 minutes to several hours) to enable the user to continue computer operations or conduct an orderly shutdown of the protected equipment and preserve data. The Company's surge and power management devices provide protection from electrical power surges and noise in the flow of utility power.
The Company markets its products to business users around the world through a variety of distribution channels, including computer distributors and dealers, mass merchandisers, catalog merchandisers, and private label accounts. The Company believes that the proprietary design of its products, its strict quality control systems, and its automated production equipment enable it to provide customers with high-performance, cost-effective products and are primarily responsible for its high rate of growth and its leadership in the markets it serves.
The Company was incorporated under the laws of the Commonwealth of Massachusetts on March 11, 1981. The Company's executive offices are located at 132 Fairgrounds Road, West Kingston, RI 02892 and its telephone number is (401) 789- 5735.
Market Overview The UPS industry's growth is the result of the rapid proliferation of microprocessor-based equipment and related systems in the corporate marketplace as well as in small business and home environments. Personal computers ("PCs") have become an integral part of the overall business strategy of many organizations and are now the workstation of choice in most office environments as well as in many technical and manufacturing settings. Businesses continue to change their computer configurations from mainframe and remote terminals to linked PCs in local area networks ("LANs"). PCs have become increasingly important and it has become necessary to ensure that data stored in, and operating instructions for, PCs are protected from fluctuations in utility power. Businesses are also becoming aware of the need to protect devices such as hubs, routers, bridges, and other "smart" devices that manage and interconnect networks. In addition to the demand that traditional server-based networks create for UPSs, the growth opportunities from the proliferation of peer-to-peer networks (where intelligence is distributed among all the devices in a network rather than a single server) and wide-area networks (such as the Internet) will further stimulate UPS demand.
The Company believes that the increasing awareness of the costs associated with poor power quality has increased demand for power protection products. Complete failures ("blackouts"), surges ("spikes"), or sags ("brownouts") in the electrical power supplied by a utility can cause computers and related electronic systems to malfunction, resulting in costly downtime, damaged or lost data files, and damaged hardware. A UPS protects against these power disturbances by providing continuous power automatically and virtually instantaneously after the electric power supply is interrupted, as well as line filtering and protection against surges or sags while the electric utility is operating. An uninterruptible power source can draw on the energy stored in its internal battery to provide continuous, surge-free, computer power. Power quality in many international regions often results in varied levels of distortions and, as a result, these areas provide the Company with significant opportunities for its products.
After introducing an entirely new Smart-UPSr product line in 1995, the Company re-focused sales efforts back to the server segment of the market. Major trends affecting the Company's business in 1996 included growth of the Internet and associated web servers, the growth of networking and PCs in international
geographies and emerging markets, the onset of electronic commerce, and the commoditization of the server market. The Company's goal is to leverage these trends, to target the sales of UPS to new servers, to have the product and presence to succeed in new geographies and to continue to position itself as the UPS and power solution provider of choice. The Company also continues to target promotional efforts at the Small Office, Home Office (SOHO) market which it has identified as a growth opportunity for the future and continues to target industries that are becoming more dependent on electronic systems, such as the telecommunications industry, as potential market growth opportunities. The Company believes that the overall penetration by UPS products of the server market is approximately 70% and of the PC market remains less than 10%.
Products The Company's strategy has been to design and manufacture products which incorporate high-performance and quality at competitive prices. In addition, certain products are designed to be aesthetically pleasing and appropriate for use in an office environment. The products are engineered and extensively tested for compatibility with many common PCs and small minicomputers.
Each of the Company's UPS products contains the following elements necessary to perform its function: Surge suppressors and noise filters for protection from surges in utility power; A rechargeable battery to provide backup power; An inverter to convert battery power to usable AC current; A battery charger; An automatic high-speed switch to transfer to backup power on loss of utility power; and Sensors, control circuits, and indicators to properly sequence operation and provide status information to the user.
Each of the Company's power conditioning products contains the following elements necessary to perform its function: A multi-level tap changing autotransformer that rapidly adjusts output voltage to compensate for line voltage fluctuations; Surge suppressors and noise filters for protection from surges in utility power; and Sensors, control circuits, and indicators to properly sequence operation and provide status information to the user.
Each of the Company's surge protection products contains the following elements necessary to perform its function: Surge suppressors and noise filters for protection from surges in utility power; and Sensors, control circuits, and indicators to provide status information to the user.
The Company currently manufactures over 140 standard domestic and international UPS models designed for different applications. The principal differences among the products are the amount of power which can be supplied during an outage, the length of time for which battery power can be supplied (the "hold time"), the level of intelligent network interfacing capability and the number of brownout and overvoltage correction features. The Company's present line of UPS products ranges from 200 volt-amps (suitable for a small footprint desktop PC) to 5,000 volt-amps (suitable for a minicomputer or file server cluster). The products can also support work groups utilizing either a LAN or a multi-user system consisting of a host computer and linked terminals. List prices to end-users for products ranging from 200 volt-amps to 2,200 volt-amps range from $119 to $2,997. List prices to end-users for products ranging from 3,000 volt-amps to 5,000 volt-amps range from $2,599 to $6,767. In addition to its UPS products designed for the office environment, the Company manufactures rack mount UPS products designed for use in back office and manufacturing operations. The Company offers two sizes of Line-Rr power conditioning products that have list prices to end-users of $179 and $299. The SurgeArrestr, PowerManager and ProtectNet products consist of 44 models with the principal difference among the models being the level of protection available and feature sets. List prices to end-users range from $15 to $135.
The Company also develops a family of software products under the PowerChuter plus name which provides its users with unattended shutdown capabilities, UPS power management, and diagnostic features. List prices to end-users for software products range from $69 to $399.
In addition, the Company offers a range of complimentary accessory products designed to enhance the functionality of the Company's UPS and surge protection products. NetShelter(TM) is a high quality, free standing rack enclosure for storing and protecting network, internetworking, and power protection equipment. Other accessories offered by the Company include Share-UPS(TM) and the SmartSlot(TM) Interface Expander for reliable shutdown of multiple servers connected to a single UPS; Measure-UPS(TM) to provide environmental and security monitoring; SmartSlot Expansion Chassis to connect multiple accessories to a single UPS; Call-UPS(TM) II to provide remote, out of band UPS management via modem; SmartSlot Relay I/O module to integrate UPS control into dry contact environments; Control-UPS/400(TM) to monitor and manage an AS/400 system via UPS; and SwapBox(TM) to enhance UPS maintenance. List prices to end users for accessory products range from $75 to $1,999.
Service Programs The Company provides service programs to its customers for in-warranty and out- of-warranty UPS products. The Company's standard practice is to grant a two- year limited warranty covering its UPS products. The Company offers its customers the opportunity to extend the basic warranty period, at an additional charge, an additional three years. In-warranty service programs allow customers to return their original unit for repair and, if found defective, the Company will replace the original unit with a factory reconditioned unit or, if requested, repair the original unit and return it to the customer. The extended warranty can be purchased anytime during the standard warranty period. Customers who purchase the three-year extension will enjoy warranty coverage for a total of five full years from the original UPS purchase date. For a fixed fee (varying by model), the Company will replace an out-of-warranty UPS unit with a factory reconditioned unit.
The Company has an Equipment Protection Policy (U.S. and Canada only) which provides up to $25,000 for repair or replacement of customers' hardware should a surge or lightning strike pass through a Company unit. The policy applies to all units manufactured after January 1, 1992. Other restrictions also apply. The Company's customers can also register the ProtectNet line of data line surge suppressors for a unique "Double-Up" Supplemental Equipment Protection Policy, under which the total recoverable limit under the Equipment Protection policy is doubled, up to $50,000.
The Company's products have experienced satisfactory field operating results, and warranty costs incurred to date have not had a significant impact on the Company's consolidated results of operations.
Distribution Channels The Company markets its products through a domestic and international network of computer distributors, computer dealers, mass merchandisers, and catalog merchandisers. The Company also sells directly to some large value added resellers, which typically integrate the Company's products into specialized microcomputer systems and then market turnkey systems to selected vertical markets. The Company also sells certain selected products directly to manufacturers for incorporation into products manufactured or packaged by them. In 1996, the Company sold products to more than 1,700 customers.
In 1996 and 1995, no single customer comprised 10% or more of the Company's net sales. In 1994, sales to one customer, Ingram Micro Corporation, accounted for approximately 11% of the Company's net sales. In 1996, sales to the Company's domestic distributors, value added resellers and private label customers accounted for approximately 58%, 7%, and 3%, respectively, of the Company's net sales. In 1996, sales outside of North America constituted approximately 38% of the Company's net sales.
Sales and Marketing The Company's sales and marketing organization is responsible for four activities: sales, marketing, customer service, and technical support. The Company's sales staff is responsible for relationships with existing distributors and dealers and developing new distribution channels, particularly in geographic areas into which the Company is expanding. The sales group conducts ongoing training and support for dealers and distributors. In order to improve the efficiency and effectiveness of the sales organization, the Company re-organized its domestic sales force in 1995 to provide a much closer focus on the customer by creating customer units dedicated to specific customer groups.
The Company has charged its sales force with providing its customers with product and service solutions to their power management needs.
The Company's marketing activities include market research, product planning, trade shows, sales and pricing strategies, advertising, and product sales literature. The Company also utilizes direct marketing efforts, including direct mailings, advertising in computer trade publications and exhibiting at major computer trade shows, both domestically and internationally. Customer service is responsible for all technical marketing inquiries and customer support. The Company has developed a number of programs and techniques to support the Company's distribution channels. These include a technical assistance "hot line" and formal product demonstrations.
Manufacturing, Quality Control, and Supply The Company's manufacturing operations are located in the United States (Rhode Island and Florida), Ireland, and the Philippines. The Company believes that its long-term success depends on, among other things, its ability to control its costs. The Company utilizes state of the art automated manufacturing techniques and extensive quality control in order to minimize costs and maximize product reliability. In addition, the design of products and the commonality of parts allows for efficient circuit board component insertion, wave soldering, and in- process testing. Quality control procedures are performed at the component, sub- assembly, and finished product levels. To ensure the highest level of quality and product reliability, the Company has implemented 100% product testing at seven discrete levels in its manufacturing process. Product design and efficient manufacturing techniques have enabled the Company to keep its direct and indirect manufacturing labor costs (including incentive bonuses), as a percentage of net sales, below that of similar manufacturing companies in the electronics industry.
The Company is committed to an ongoing effort to enhance the overall productivity of its manufacturing facilities. In 1996, the Company re-organized its manufacturing efforts in its West Kingston, RI, Galway, Ireland, and Philippine locations to move towards leaner, "cell" based manufacturing processes. Such processes will be implemented in the Company's other Rhode Island facilities as well as applied to new international locations over the next several years. The primary goals of the re-organization were to increase efficiency, decrease work in process, and improve the overall quality of the Company's manufacturing processes. The Company has also adopted a "focused factories" philosophy aimed at reducing the number of products built in any given location to increase efficiency and overall quality. The Company is working toward implementing this philosophy in its manufacturing efforts worldwide.
In 1993, National Quality Assurance granted the Company its ISO 9000 quality seal. The Company's systems have been audited to the stringent ISO 9002 level at its manufacturing facilities in West Kingston and Cranston, Rhode Island and Galway, Ireland.
The Company generally purchases devices and components from more than one source where alternative sources are available; however, it does use sole source suppliers for certain components. The Company believes that alternative components for these sole source items could be incorporated into the Company's products, if necessary. While the Company has been able to obtain adequate supplies of its components from sole source suppliers, the future unavailability of components from these suppliers could disrupt production and delivery of products until an alternative source is identified.
Product Development The Company's research and development staff includes engineers and support persons who develop new products and provide engineering support for existing products. The Company's research and development efforts are also aimed at reducing cost and total cycle time and improving product and component quality. Most of these employees are located in a Billerica, Massachusetts facility and devote their efforts to research and development. Employees devoted to the improvement and development of software products are located in the West Kingston, Rhode Island facility. The Company believes that the technical expertise of its research and development staff is very important to its growth as technological change is rapid in the UPS field.
During 1996, the Company's new product offerings included the Back-UPS Office (TM) which was introduced in the second quarter. This product was designed to be solution specific to the end-user, especially those using the Internet. The
Company also added additional products which strengthen the Company's position as an overall network solution provider. These products include web management capability with PowerChuter plus software, a network manageable power distribution unit, and Masterswitch(TM), which enables a network manager to control attached loads independent of each other.
During 1995, the Company introduced 155 new products, including a major transition of its flagship product line, the Smart-UPSr, from its five year old design to a new third generation product feature set, including automatic voltage regulation and adjustment, a user-replaceable battery replacement system, and an internal accessory option slot. The Company also introduced its Back-UPSr Pro product, which was the first UPS product to be "plug & play" compatible with Windows 95, and the Smart-UPS v/s products, a line of UPS products for departmental server applications. Software product introductions included the Company's first advanced UPS/Power Management software package tailored specifically for the IBM AS/400 environment.
During 1994, the Company expanded its Smart-UPS and Back-UPS families of products. The Back-UPS Pro series of products provide enhanced Back-UPS power protection for advanced workstations. The Smart-UPS v/s products are designed to provide power protection for small business and departmental local-area networks. In addition, the Company developed new Smart-UPS products in the 700, 1000, 1400, 2200 and 3000 volt-amp category. The Company also introduced data line surge protection with its ProtectNet product line. Software development achievements resulted in the introduction of new and enhanced versions of the Company's software applications by adding to the number of operating systems with which the Company's software applications are compatible.
The Company's design center includes a UPS test facility with a custom-made AC power fault simulator. This test facility is used to evaluate and extensively test new designs and to provide comparative data on competitive products.
During the years ended December 31, 1996, 1995 and 1994, expenditures for the Company's research and development were $14,784,362, $13,193,037, and $9,742,553, respectively. The Company expects its research and development expenditures to remain at substantially the same level as a percentage of sales for the foreseeable future.
Intellectual Property The Company protects certain proprietary rights in its products as well as certain proprietary technology developments by seeking patent protection. The loss of such rights concerning these developments would not have a material adverse effect on the Company's business. With respect to protection of those areas of its technology for which patent protection has not been sought, the Company relies on the complexity of its technology, trade secrecy law, and employee confidentiality agreements.
The Company has numerous trademarks registered in the United States and in several foreign countries. The Company also has trademark applications pending domestically and internationally. The Company believes that its trademarks are valuable intangible assets but also believes that the loss of any one trademark would not have a material adverse effect on its operations.
Competition The Company believes that it is one of five global companies providing a full range of UPS products and services worldwide in the 0 to 5 kVA UPS market. The Company's principal competitors in the United States include Exide Electronics Group, Inc., Best Power, a business unit of General Signal Corporation, and Trippe Manufacturing Company. The Company also competes with a number of other companies which offer UPS products similar to the Company's products. Some of these competitors have greater financial and other resources than the Company. Furthermore, other well-established companies which manufacture and market UPS products for the mainframe and large minicomputer markets, and do not presently compete directly with the Company, could develop products competitive with those of the Company. The Company competes in the sale of its products on the basis of several factors, including product performance and quality, marketing and access to distribution channels, customer service, product design, and price.
International Operations The Company plans to continue to expand its international marketing efforts and manufacturing operations. With a full line of internationally-positioned products already available, the Company continues to staff personnel to serve the geographical markets of interest. The Company presently utilizes third party warehouses in Australia, Japan, Canada, Singapore, the Netherlands, South Africa, and Uruguay for distribution into its international markets. The Company's primary manufacturing operations outside of the United States are located in Galway, Ireland and in the Philippines. American Power Conversion Europe, S.A.R.L., the Company's subsidiary located in France, provides sales and marketing support to customers in Europe, the Middle East, the former Soviet Union, and Africa and its revenues are in the form of commissions from the Galway operations. The Company's consolidated financial statements include the accounts of all of its wholly-owned subsidiaries.
The Company continues to investigate potential sites for manufacturing expansion in international locations. During the second quarter of 1996, the Company established a manufacturing operation in the Philippines which is operating within a designated economic zone which provides certain economic incentives, primarily in the form of tax exemptions. In 1996, this facility manufactured certain Back-UPS products sold in the Company's domestic markets. In the future, this operation will also provide manufacturing and technical support to better serve the Company's markets in the Asia Pacific region. In January 1997, the Company purchased a second location in the Philippines for approximately $3 million. The Company expects to begin manufacturing selected products at this facility beginning in the third quarter of 1997.
In 1994, the Company established operations in Galway, Ireland through its subsidiary, American Power Conversion Corporation (A.P.C.) B.V. The facility is providing manufacturing and technical support to better serve the Company's markets in Europe, the Middle East, Africa, and Russia.
The Company executed an agreement with the Industrial Development Authority of Ireland ("IDA") under which the Company will receive grant monies equal to 40% of the costs incurred for machinery, equipment and building improvements for the Galway facility. The maximum amount attainable under the agreement is approximately $13.1 million. The grant monies would be repayable, in whole or in part, should (a) the Company fail to meet certain employment goals established under the agreement which are to be achieved over a five year implementation period and/or (b) the Company discontinues operations in Ireland prior to the termination of the agreement. The agreement terminates eight years from the date of the last claim made by the Company for grant monies. The total cumulative amount of capital grant claims submitted through December 31, 1996 was approximately $10.2 million. The total cumulative amount of capital grants received through December 31, 1996 amounted to approximately $7.9 million. Under a separate agreement with the IDA, the Company will also receive up to $3,000 per new employee hired for the direct reimbursement of training costs. The total cumulative amount of training grant claims submitted through December 31, 1996 was approximately $2.0 million. The total cumulative amount of training grants received through December 31, 1996 amounted to approximately $.7 million.
The Company is continuing negotiations with the IDA for financial incentives in connection with the future expansion of the Company's manufacturing operations to an additional site within Ireland.
Financial Information About Foreign and Domestic Operations and Export Sales The information required under this section is included in note 8 of Notes to Consolidated Financial Statements in Item 8 of this Report and is incorporated herein by reference.
Employees As of December 31, 1996, the Company had approximately 2,650 full-time employees worldwide, approximately 1,530 of whom are located in the United States and Canada. The Company also engages other personnel on a part-time basis. The Company considers its relations with employees to be good.
Executive Officers of the Company Executive officers of the Company are elected annually and hold office until the next Annual Meeting of the Board of Directors and until their successors are duly elected and qualified. As of February 27, 1997, the executive officers of the Company were as follows: Name Age Positions Rodger B. Dowdell, 47 Chairman of the Board of Directors, President, and Jr. Chief Executive Officer Neil E. Rasmussen 42 Vice President of Engineering and Director Edward W. Machala 43 Vice President of Operations and Treasurer Donald M. Muir 40 Chief Financial Officer Emanuel E. Landsman 60 Vice President, Clerk and Director Darrell A. Lucente 37 Vice President of Sales John P. DiPippo 31 Vice President of Marketing David P. Vieau 46 Vice President of Worldwide Business Development Aaron L. Davis 30 Vice President of Marketing Communications
Rodger B. Dowdell, Jr. joined the Company in August 1985 and has been the President and a Director since that time. From January to August 1985, Mr. Dowdell worked for the Company as a consultant, developing a marketing and production strategy for UPS products. From 1978 to December of 1984 he was President of Independent Energy, Inc., a manufacturer of electronic temperature controls.
Neil E. Rasmussen has been Vice President and a Director of the Company since its inception. From 1979 to 1981, Mr. Rasmussen worked in the Energy System Engineering Group at Massachusetts Institute of Technology's Lincoln Laboratory.
Edward W. Machala joined the Company in January 1989 as Vice President of Operations. From January 1985 to January 1989, Mr. Machala was Director of Manufacturing and Engineering Technology for GTECH, a manufacturer of electronic lottery and gaming terminals, where he was responsible for manufacturing and engineering functions.
Donald M. Muir joined the Company in July 1995 as Chief Financial Officer. From July 1993 to July 1995, Mr. Muir was the Treasurer of Stratus Computer, Inc. where he was responsible for managing investor relations, treasury services, corporate taxation and risk management. Prior to his appointment as Treasurer at Stratus Computer, Inc., Mr. Muir held the position of Director of Finance and Administration from January 1991 to July 1993 and Controller, Worldwide Sales and Service from December 1988 to January 1991.
Emanuel E. Landsman has been Vice President, Clerk, and a Director of the Company since its inception. From 1966 to 1981, Dr. Landsman worked at Massachusetts Institute of Technology's Lincoln Laboratory, where he was in the Space Communications Group from 1966 to 1977 and the Energy System Engineering Group from 1977 to 1981.
Darrell A. Lucente was appointed Vice President of Sales in May 1995 after serving as Director of World Wide Channel Management from January 1995 through April 1995. Mr. Lucente joined the Company in 1989 as Northwest U.S. Regional Sales Manager, a position he held until 1991 when he was appointed Managing Director of APC Europe, S.A.R.L, the Company's European sales and marketing subsidiary located in Paris, France. He held that position until January 1995.
John P. DiPippo became Vice President of Marketing in June 1995. From August 1993 to June 1995, Mr. DiPippo served as a Business Unit Leader of the Company's Digital Media group where he was responsible for the Company's entry into emerging markets formed by the convergence of computer and communications technology. Mr. DiPippo was the Business Unit Leader of the Consumer Products group from January 1992 to August 1993 and served as Channel Manager for Retail, Catalog and Mail Order customers from January 1991 to January 1992. Mr. DiPippo joined the Company in October 1989.
David P. Vieau assumed the position of Vice President of Worldwide Business Development in October 1995 after completing a short sabbatical. Mr. Vieau served as Vice President of Marketing from October 1991 to June 1995. From July 1988 to August 1991, he was President of Poly-Flex Circuits, Inc., a division of Cookson America.
Aaron L. Davis was appointed Vice President of Marketing Communications in January 1995, after serving as Director of Marketing Communications. Mr. Davis joined the Company in May 1989.
Item 2.
Item 2. Properties The Company's U.S manufacturing and distribution center, and corporate offices, are located at 132 Fairgrounds Road in West Kingston, Rhode Island. Of the approximate 166,000 square feet of space in West Kingston, Rhode Island, 86,000 square feet is being used for manufacturing, 50,000 square feet for sales, marketing, and administration, and 30,000 square feet for storage of raw materials and finished goods.
The Company also leases four facilities in Rhode Island located in North Kingstown, West Warwick, East Providence, and Cranston, as well as two facilities in Fort Myers, Florida. The following information pertains to each location:
Location Use Square Feet North Kingstown Warehouse 94,600 West Warwick Warehouse 334,000 Cranston Warehouse and Manufacturing 75,200 East Providence Warehouse and Manufacturing 115,800 Fort Myers Warehouse and Manufacturing 66,000 Fort Myers Warehouse 85,000
In June 1996, the Company purchased and improved a 70,000 square foot manufacturing and warehouse facility in the Philippines for approximately $1.5 million. The purchase price was financed from available operating cash.
In April 1995, the Company purchased a 41,000 square foot building in Billerica, Massachusetts to accomodate its growing research and development operations. The building was purchased for approximately $1.2 million and was renovated to meet the facility requirements of these operations. The purchase price was financed from available operating cash.
The Company's Ireland manufacturing facility is located in Ballybrit Industrial Estate, Galway, Ireland. The facility consists of approximately 280,000 square feet, of which 130,000 square feet are being used for manufacturing, 20,000 square feet for sales and administration, and 130,000 square feet for storage of raw materials and finished goods. The Company also leases a warehouse facility in Limerick, Ireland for storage of raw materials.
American Power Conversion Europe, S.A.R.L. is located in a suburb of Paris in leased office space consisting of approximately 3,500 square feet. The Company also leases office space in several foreign countries for local sales personnel.
The Company believes the facilities (owned and leased) are suitable for its current requirements; however, the Company continues to investigate potential sites for manufacturing expansion in international regions.
Item 3.
Item 3. Legal Proceedings As initially reported in Report on Form 10-Q for the quarter ended June 30, 1995, several purported class action lawsuits were filed in the United States District Court for the District of Rhode Island in which the Company was named as a defendant, along with certain of its officers. The lawsuits relate to disclosures made by the Company in its public filings and press releases and assert violations of federal securities laws. The plaintiffs seek unspecified damages, interest, costs and fees. In mid-February 1996, a derivative lawsuit was filed by two shareholders on behalf and for the benefit of the Company against certain present and former officers and/or directors of the Company in the Superior Court of Suffolk County, Massachusetts. The Company was also named as a nominal defendant. The derivative action plaintiffs allege that the
individual defendants in that case traded in the stock of the Company allegedly in breach of their fiduciary duty to the Company. It is possible that other claims may be made against the Company in these actions or that related allegations could be made that could give rise to other consequences. The Company intends to defend these lawsuits vigorously and any similar lawsuits that may be filed; however, the ultimate outcome of these matters cannot yet be determined.
No provision for any liability that may result from the actions has been recognized in the consolidated financial statements included in Item 8.
Item 4.
Item 4. Submission of Matters to a Vote of Security Holders Not applicable.
Part II
Item 5.
Item 5. Market for Registrant's Common Stock and Related Stockholder Matters
The Company's Common Stock is traded over-the-counter on the NASDAQ Stock Market and Pacific Stock Exchange under the symbol APCC. The following table sets forth the range of high and low bid quotations per share of Common Stock for the years 1996 and 1995.
On February 27, 1997, the closing sale price for the Company's Common Stock was $20 7/8 per share. As of February 27, 1997, there were approximately 2,823 holders of record of the Company's Common Stock. No cash dividends have been paid and it is anticipated that none will be declared in the foreseeable future. The Company currently intends to retain any earnings to finance the growth and development of the Company's business. Any future dividends will be at the discretion of the Board of Directors and will depend upon, among other things, the financial condition, capital requirements, earnings, and liquidity of the Company.
Item 6.
Item 6. Selected Financial Data
All amounts are in dollars except for outstanding shares. Dollars are in thousands except for earnings per share.
The Company did not declare any cash dividends for the five year period presented. Earnings per share and share data reflect stock splits effected in 1993 and 1992.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Results of operations The following table sets forth the Company's net sales, cost of goods sold, selling, general and administrative expenses, research and development expenses, operating income, other income (expenses), earnings before income taxes and net income, expressed as a percentage of net sales, for the years ended December 31, 1996, 1995 and 1994.
Revenues Net sales in fiscal year 1996 increased by 37.2% to $706,877,478 from $515,262,424 in fiscal year 1995 which reflected a 36.2% increase from $378,295,263 in fiscal year 1994. The increases from 1994 to 1996 are attributable to continued strong worldwide demand for the Company's products across fast-growing core markets, including computer networking, internetworking equipment and point-of-sale devices, combined with what the Company believes is the increasing awareness by computer users of the consequences of data loss and hardware damage which can be caused by power problems, particularly in international markets. In addition, sales of new products and increased efforts by, and the addition of members to, the Company's sales staff have contributed to increased sales volumes. Sales attributable to new products totaled approximately 7%, 13%, and 3% of 1996, 1995 and 1994 net sales, respectively.
Export and foreign sales to unaffiliated customers, primarily in Europe, the Far East, Canada, and South America, in fiscal year 1996 were $294,978,735 or 41.7% of net sales compared to $204,511,326 or 39.7% of net sales in fiscal 1995 and $134,306,525 or 35.5% of net sales in fiscal year 1994.
Cost of Goods Sold Cost of goods sold was $407,902,072 or 57.7% of net sales in fiscal year 1996 compared to $284,500,473 or 55.2% of net sales in fiscal year 1995 and $189,953,731 or 50.2% of net sales in fiscal year 1994. The increase in cost of goods sold from 1994 to 1996 was primarily attributable to several factors, including but not limited to: increased reserves for potential excess inventories in light of the product transition which occurred largely during 1995 within the Smart-UPSr product family; a shift in product sales mix from the high-end Smart-UPS products to the lower margin Smart-UPS v/s products partially offset by a favorable margin impact of increasing sales of third generation Smart-UPS products; reduced average selling prices resulting from sales discounting; and increased indirect manufacturing costs associated with additional indirect manufacturing personnel and other costs incurred to support manufacturing infrastructure expansion and a transition toward more specific product-focused factories. The total inventory reserves at December 31, 1996 were $16.1 million compared to $6.5 million at December 31, 1995. The increased inventory reserves have been provided primarily to cover the potential loss exposure that may result from excess inventories as the demand for second generation products diminishes. Second generation Smart-UPS represented approximately 5% of total inventories at December 31, 1996 compared to 10% at December 31, 1995. The Company's reserve estimate methodology involves quantifying the total inventory position having potential loss exposure, reduced by an amount reasonably forecasted to be sold, and adjusting its interim reserve provisioning to cover the net loss exposure.
Operating Expenses Selling, general, and administrative expenses were $150,401,120 or 21.3% of net sales in 1996 compared to $113,863,642 or 22.1% of net sales in 1995 and $72,950,019 or 19.3% of net sales in 1994. The increases in total spending in 1996 and 1995 were due primarily to costs associated with increased advertising and promotional costs, as well as costs associated with increased staffing of sales and other related positions both domestically and internationally. The decrease in SG&A expenses as a percentage of sales during 1996 over 1995 is attributable to certain fixed SG&A expenses spread over a higher revenue base in 1996. The allowance for bad debts was 9.0% of accounts receivable at December 31, 1996 compared to 8.9% at December 31, 1995. The Company continues to experience very strong collection performance from its accounts receivable with outstanding balances over 60 days outstanding representing 9.1% and 5.8% of total receivables at December 31, 1996 and 1995, respectively. Write-offs of uncollectible accounts represent less than 1% of total receivable balances. A majority of international customer balances are covered by receivables insurance. The increase in bad debt reserves was primarily attributable to increased international sales, particularly in regions not covered by the Company's receivables insurance (i.e., the former Soviet Union).
Research and development expenditures for 1996, 1995 and 1994 were $14,784,362, $13,193,037, and $9,742,553, respectively. The increased research and development spending primarily reflects increased numbers of software and hardware engineers and costs associated with new product development and engineering support. Although the aggregate dollars of research and development expenses have increased from 1994 to 1996 as a result of continued product and process development, the decrease from 1995 to 1996 as a percentage of sales is attributable to certain fixed research and development expenses spread over a higher revenue base. The Company expects its research and development
expenditures to remain at substantially the same level as a percentage of sales for the foreseeable future.
Other Income (Expenses) Interest income increased substantially in 1996 over 1995 due to higher average cash balances available for investment during 1996. The decrease in 1995 compared to 1994 was attributable to a significant reduction in funds available for investment, particularly during the first nine months of 1995. Interest expense during 1995 was the result of short-term borrowings during the second and third quarters of 1995 which were fully repaid during the fourth quarter. Other income in 1994 was due primarily to the $1.6 million settlement of an insurance claim for the inventory losses resulting from a 1993 fire at the Company's third-party warehouse in The Netherlands.
The Company's effective income tax rates were 33.5%, 33.5% and 34.8% in 1996, 1995 and 1994, respectively. The decrease from 1994 to 1995 is the result of tax savings derived from an increasing portion of taxable earnings being generated from the Company's operations in Ireland, a jurisdiction which currently has a lower income tax rate for manufacturing companies than the present U.S. statutory income tax rate.
Effects of Inflation Management believes that inflation has not had a material effect on the Company's operations.
Liquidity and Financial Resources Working capital at December 31, 1996 was $317,790,983 compared to $226,457,935 at December 31, 1995. The Company has been able to increase its working capital position as the result of continued strong operating results and despite financing the capital investment of the expansion of its operations, particularly in Ireland and the Philippines (see below).
Inventory turnover was 2.9 turns for 1996, 2.4 turns for 1995, and 2.7 turns for 1994. Inventory levels decreased during 1996 as a result of management's concerted efforts to reduce inventories as a percentage of revenues. Accordingly, inventory levels declined from 104% of sales in the fourth quarter of 1995 to 62% of sales in the fourth quarter of 1996. Inventory levels had been increased during 1995 in order to support the growth in the Company's sales volume, as well as to maintain the necessary carrying levels of raw materials, in-process assemblies, and finished stock as a result of major new products introduced largely during 1995, in particular, the Smart-UPS product transition discussed above.
At December 31, 1996, the Company had available for future borrowings $50 million under an unsecured line of credit agreement at a floating interest rate equal to the bank's cost of funds rate plus .625% and an additional $15 million under an unsecured line of credit agreement with a second bank at a similar interest rate. No borrowings were outstanding under these facilities at December 31, 1996. Additionally, the Company has no significant financial commitments outstanding other than those required in the normal course of business.
During 1996 and 1995, the Company's capital expenditures, net of capital grants, amounted to approximately $25.0 million and $24.0 million, respectively, consisting primarily of manufacturing equipment, building improvements, office equipment, and purchased software applications. The nature and level of capital spending was made to improve manufacturing capabilities, establish manufacturing capabilities in the Philippines, to support the increased selling, marketing, and administrative efforts necessitated by the Company's significant growth and to improve the Company's enterprise-wide software applications. Net capital expenditures were financed from available operating cash. The Company had no material capital commitments at December 31, 1996. Capital expenditures in 1997 are estimated to be $15 to $20 million above the level of capital spending incurred in 1996, primarily to support planned capacity expansions.
The Company continues to investigate potential sites for manufacturing expansion in international locations. During the second quarter of 1996, the Company established a manufacturing operation in the Philippines which is operating within a designated economic zone which provides certain economic incentives, primarily in the form of tax exemptions. The Company purchased and improved a 70,000 square foot facility for approximately $1.5 million which was financed from operating cash. In 1996, this facility manufactured certain Back-UPS
products sold in the Company's domestic markets. In the future, this operation will also provide manufacturing and technical support to better serve the Company's markets in the Asia Pacific region. In January 1997, the Company purchased a second location in the Philippines for approximately $3 million. The Company expects to begin manufacturing selected products at this facility beginning in the third quarter of 1997.
In 1994, the Company established operations in Galway, Ireland through its subsidiary, American Power Conversion Corporation (A.P.C.) B.V. The facility is providing manufacturing and technical support to better serve the Company's markets in Europe, the Middle East, Africa and Russia. The Company executed an agreement with the Industrial Development Authority of Ireland ("IDA") under which the Company will receive grant monies equal to 40% of the costs incurred for machinery, equipment and building improvements for the Galway facility. The maximum amount attainable under the agreement is approximately $13.1 million. The grant monies would be repayable, in whole or in part, should (a) the Company fail to meet certain employment goals established under the agreement which are to be achieved over a five year implementation period and/or (b) the Company discontinues operations in Ireland prior to the termination of the agreement. The agreement terminates eight years from the date of the last claim made by the Company for grant monies. The total cumulative amount of capital grant claims submitted through December 31, 1996 was approximately $10.2 million. The total cumulative amount of capital grants received through December 31, 1996 amounted to approximately $7.9 million.
Under a separate agreement with the IDA, the Company will also receive up to $3,000 per new employee hired for the direct reimbursement of training costs. The total cumulative amount of training grant claims submitted through December 31, 1996 was approximately $2.0 million. The total cumulative amount of training grants received through December 31, 1996 amounted to approximately $.7 million.
The Company is continuing negotiations with the IDA for financial incentives in connection with the future expansion of the Company's manufacturing operations to an additional site within Ireland.
Management believes that current internal cash flows together with available cash, available credit facilities or, if needed, the proceeds from the sale of additional equity, will be sufficient to support anticipated capital spending and other working capital requirements for the foreseeable future.
Acquisitions On February 14, 1997, the Company completed its acquisition of Systems Enhancement Corporation ("Systems Enhancement"), a privately-held manufacturer of power management software and accessories, by means of a merger of a wholly- owned subsidiary of the Company with and into Systems Enhancement. As a result of the merger, Systems Enhancement became a wholly-owned subsidiary of the Company. The Company issued 480,144 shares of its Common Stock, $.01 par value, in exchange for all of the issued and outstanding shares of Systems Enhancement. The Company will account for the acquisition as a pooling-of-interests.
Foreign Currency Activity During 1994, the Company began invoicing its customers in Great Britain, France, and Germany in their respective local currencies. During the second quarter of 1996, the Company began invoicing certain of its customers in Japan in Yen. Realized and unrealized transaction gains or losses are included in the results of operations and are measured based upon the effect of changes in exchange rates on the actual or expected amount of functional currency cash flows. Transaction gains and losses were not material to the results of operations in 1996, 1995 and 1994.
At December 31, 1996, the Company's unhedged foreign currency accounts receivable, by currency, were as follows:
Total gross accounts receivable at December 31, 1996 was $119,333,000. The Company also had non-trade receivables of 2,156,000 Irish Pounds (approximately US$3,550,000), as well as Irish Pound denominated liabilities of 5,853,000 (approximately US$9,803,000). The Company also had liabilities denominated in various European currencies of US$2,278,000, as well as Yen denominated liabilities of approximately US$1,046,000.
The Company continually reviews its foreign exchange exposure and considers various risk management techniques including the netting of foreign currency receipts and disbursements, rate protection agreements with customers/vendors and derivatives arrangements, including foreign exchange contracts. The Company presently does not utilize rate protection agreements or derivatives arrangements.
The Company's rationale for not hedging its currency risk exposure through derivatives arrangements is based on the assessment that the net foreign currency position was not material to the financial condition or results of operations of the Company at December 31, 1996 and, to a lesser degree, an assessment that the risk of loss from exchange rate fluctuations was not material based upon available forecasts of short-term exchange rate movements for the currencies noted above.
Legal Proceedings The Company is involved in certain legal proceedings as described in Part I, Item 3 of this Report.
No provision for any liability that may result from these actions has been recognized in the consolidated financial statements included in Item 8
ITEM 8. Financial Statements and Supplementary Data
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
ASSETS
See accompanying notes to consolidated financial statements.
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS December 31, 1996 and 1995
LIABILITIES AND SHAREHOLDERS' EQUITY
See accompanying notes to consolidated financial statements.
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME Years ended December 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY Years ended December 31, 1996, 1995 and 1994
See accompanying notes to consolidated financial statements.
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1996, 1995 and 1994
NON-CASH TRANSACTIONS: In 1996, 1995 and 1994, the tax effect of the exercise of stock options resulted in increases to additional paid-in capital and reductions to income taxes payable of $1,430,000, $300,000 and $2,514,000, respectively. During 1995 and 1994, unrealized holding losses on short-term investments resulted in increases (decreases) to shareholders' equity and to short-term investments of $497,000 and ($497,000), respectively.
See accompanying notes to consolidated financial statements.
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Years ended December 31, 1996, 1995 and 1994
1. Summary of Significant Accounting Policies
Nature of Business American Power Conversion Corporation and its subsidiaries (the "Company") designs, develops, manufactures, and markets a line of uninterruptible power supply products ("UPS"), electrical surge protection devices ("Surge"), power conditioning products, and associated software and accessories for use with personal computers, engineering work stations, file servers, communications and internetworking equipment, and a variety of other sensitive electronic devices which rely on electric utility power. The Company's principal markets are in North America, Europe, and the Asia Pacific region.
Principles of Consolidation The consolidated financial statements include the accounts of American Power Conversion Corporation and all of its majority-owned subsidiaries. All intercompany accounts and transactions are eliminated in consolidation.
Inventories Inventories are stated at the lower of cost or market; cost being determined using the first-in, first-out (FIFO) method.
Property, Plant, and Equipment Property, plant and equipment are stated at cost. Depreciation is provided by using the straight-line method over their useful lives as follows:
Land improvements 15 years Buildings and improvements 40 years Machinery and equipment 5 - 10 years Purchased software 3 years Office equipment, furniture and fixtures 3 - 10 years
Research and Development Expenditures for research and development are expensed in the year incurred.
Warranties The Company presently offers a limited two-year warranty. The provision for potential liabilities resulting from warranty claims is provided at the time of sale. The provision is computed based upon historical data and current estimates. During 1992, the Company began offering its customers the opportunity to extend the basic warranty period an additional three years under a separately priced program. Recognition of the revenue associated with the extended warranty program commences on the date the extended warranty becomes effective and is recognized on a straight-line basis over the extended warranty period. In addition, the Company has the Equipment Protection Policy which provides up to $25,000 for repair or replacement of a customers' hardware should a surge or lightning strike pass through a Company unit. The policy applies to all units manufactured after January 1, 1992. Other restrictions also apply. The Company's ProtectNet line of data line surge suppressors feature a unique "Double-Up" Supplemental Equipment Protection Policy, under which the total recoverable limit under the Equipment Protection Policy is doubled, up to $50,000 (U.S. and Canada only). The Company has experienced satisfactory field operating results, and warranty costs incurred to date have not had a significant impact on the Company's results of operations.
Income Taxes Income taxes are accounted for under the asset and liability method. Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.
Deferred income taxes have not been provided for the undistributed earnings of the Company's foreign subsidiaries which aggregated approximately $60 million at December 31, 1996. The Company plans to reinvest all such earnings for future expansion. If such earnings were distributed, taxes would be increased by approximately $15 million.
Cash and Cash Equivalents Cash and cash equivalents consists of funds on deposit and money market savings accounts.
Short-term Investments Short-term investments (consisting primarily of government and government agency debt securities with fixed rates of interest) are carried at fair value and have original maturities greater than three months. The cost of short-term investments sold is determined using the specific identification method. The Company had no short-term investments at December 31, 1996 and 1995.
Earnings per Share Earnings per share is computed by dividing net income by the weighted average number of shares of common stock and common stock equivalents outstanding during the period. Under the treasury stock method, the unexercised options are assumed to be exercised at the beginning of the period or at issuance, if later. The assumed proceeds are then used to purchase common stock at the average market price during the period. Common stock equivalents whose inclusion would have the effect of increasing earnings per share (i.e., antidilutive) are excluded from the computation. Primary and fully diluted earnings per share are equivalent for all years presented.
Stock Based Compensation The Company applies APB Opinion 25 and related Interpretations in accounting for its two stock option plans. Accordingly, no compensation cost has been recognized for these plans in the accompanying consolidated financial statements.
Advertising Costs Advertising costs are reported in selling, general, and administrative expenses in the accompanying consolidated statements of income and include costs of advertising, advertising production, trade shows, and other activities designed to enhance demand for the Company's products. Advertising costs were $36,328,000 in 1996, $23,096,000 in 1995, and $12,829,000 in 1994. There are no capitalized advertising costs in the accompanying consolidated balance sheet.
Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results may differ from those estimates.
2. Accounts Receivable
Accounts receivable are generally not concentrated in any geographic region or industry. Collateral is usually not required except for certain international transactions for which the Company requires letters of credit to secure payment. The Company estimates an allowance for doubtful accounts based on the credit worthiness of its customers as well as general economic conditions. Consequently, an adverse change in those factors could affect the Company's estimate of its bad debts.
3. Inventories
Inventories consist of the following:
4. Revolving Credit Agreements
The Company maintains a credit facility with a bank in the form of a $15,000,000 unsecured line of credit, due and payable on demand, with no commitment fee required on the unused portion. The line of credit bears interest at the bank's prime rate and expires upon written notice given by either party. The Company also maintains an additional $50,000,000 unsecured line of credit facility with another bank, with no commitment fee required, that expires upon written notice given by either party. This facility bears interest at the bank's cost of funds rate plus .625%. There were no amounts outstanding under these facilities at December 31, 1996 and 1995.
5. Income Taxes
Total federal, state and foreign income tax expense (benefit) from continuing operations for the years ended December 31, 1996, 1995 and 1994 consists of the following:
Income tax expense attributable to continuing operations amounted to $46,558,000 in 1996, $35,029,000 in 1995, and $38,075,073 in 1994 (effective rates of 33.5%, 33.5%, and 34.8%, respectively). The actual expense for 1996, 1995 and 1994 differs from the "expected" tax expense (computed by applying the statutory U.S. federal corporate tax rate of 35% to earnings before income taxes) as follows:
The domestic and foreign components of earnings before income taxes were $94,822,083 and $44,156,801, respectively, for 1996, $70,523,432 and $34,042,062, respectively, for 1995, and $101,372,543 and $7,977,501, respectively, for 1994. Total income tax expense for the years ended December 31, 1996, 1995 and 1994 was allocated as follows:
At December 31, 1996 and 1995, deferred income tax assets and liabilities result from temporary differences in the recognition of income and expense for tax and financial reporting purposes. The sources and tax effects of these temporary differences are presented below:
In assessing the realizability of deferred tax assets, the Company considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Due to the fact that the Company has sufficient taxable income in the federal carryback period and anticipates sufficient future taxable income over the periods which the deferred tax assets are deductible, the ultimate realization of deferred tax assets for federal and state tax purposes appears more likely than not. The U.S. federal taxable income for 1995, 1994 and 1993 was approximately $82.8 million, $85.1 million, and $58.9 million, respectively.
6. Stock Option Plans
At December 31, 1996, the Company has two stock option plans, which are described below. Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based Compensation," requires companies to either (a) record an expense related to its stock option plans based on the estimated fair value of stock options as of the date of the grant or (b) disclose pro forma net income and earnings per share data as if the company had recorded an expense, beginning with options granted in 1995. The Company has elected to continue to apply APB Opinion 25 and related Interpretations in accounting for these plans and to comply with the SFAS No. 123 disclosure requirements. Accordingly, no compensation cost has been recognized for its stock option plans in the accompanying consolidated financial statements. Had compensation cost for such plans been determined based on the fair value at the grant dates for awards under these plans consistent with the method of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
The pro forma effect on net income for 1996 and 1995 is not representative of the pro forma effect on net income in future years because it does not take into consideration pro forma compensation expense related to grants made prior to 1995. The weighted average fair value of options granted during 1996 and 1995 was $5.13 and $4.95, respectively. The Company estimates the fair value of each option as of the date of grant using the Black-Scholes pricing model with the following weighted average assumptions used for grants in 1996 and 1995:
Under the 1987 Stock Option Plan (the "Plan"), the Company may grant options for up to 10,800,000 shares of common stock. Options granted under the Plan may be either (a) options intended to constitute incentive stock options ("ISOs") under the Internal Revenue Code of 1986 (the "Code") or (b) non-qualified options. Incentive stock options may be granted under the Plan to employees or officers of the Company. Non-qualified options may be granted to consultants, directors (whether or not they are employees), employees or officers of the Company.
ISOs granted under the Plan may not be granted at a price less than the fair market value of the common stock on the date of grant (or 110% of fair market value in the case of employees or officers holding 10% or more of the voting stock of the Company). The aggregate fair market value of shares, for which ISOs granted to any employee are exercisable for the first time by such employee during any calendar year (under all stock option plans of the Company and any related corporation), may not exceed $100,000. Non-qualified options granted under the Plan may not be granted at a price less than the lesser of (a) the book value per share of common stock as of the end of the fiscal year of the Company immediately preceding the date of such grant, or (b) 50% of the fair market value of the common stock on the date of grant.
On February 25, 1993, the Board of Directors adopted the 1993 Non-employee Director Stock Option Plan (the "1993 Director Plan"). Options granted under this plan are non-qualified stock options and may be granted to each person who was a member of the Company's Board of Directors on February 25, 1993 and who
was not an employee or officer of the Company. The 1993 Director Plan authorized the grant of options for up to 40,000 shares of common stock. As of February 25, 1993, two Directors were entitled to participate in the 1993 Director Plan with each receiving a grant of options for 20,000 shares at an exercise price of $12 per share (i.e., the market price on the date of grant).
Options granted under the Plans before December 1, 1995 vested 25% at the end of the first year and 12.5% at the end of each six month period thereafter. Options granted after December 1, 1995 vest 20% at the end of the second year and 20% at the end of each year thereafter.
Options granted under the Plans before January 1, 1993 will expire not more than five years from the date of grant. Options granted under the Plans after January 1, 1993 will expire not more than ten years from the date of grant (five years in the case of ISOs granted to ten percent shareholders). The outstanding options expire at various dates through 2006. Options granted terminate within a specified period of time following termination of an optionee's employment or position as a director or consultant with the Company.
A summary of the status of the Company's stock option plans as of December 31, 1996, 1995 and 1994, and changes during the years ending on those dates is presented below:
The following table summarizes information about stock options outstanding at December 31, 1996:
7. Retirement Benefits
At December 31, 1996, the Company has noncontributory Employee Stock Ownership Plans (the "ESOP") covering substantially all North American and Irish employees. Contributions to the ESOP are based on a percentage of eligible compensation and are determined by the Company's Board of Directors at its discretion, subject to the limitations established by U.S. and Irish tax laws. The ESOP holds 5,025,546 shares of common stock at December 31, 1996. Substantially all contributed shares have been allocated to participant accounts. ESOP contributions amounted to approximately $6,926,000 in 1996, $5,501,000, in 1995, and $3,939,000 in 1994.
The retirement expense for 1996, 1995 and 1994 amounted to approximately $8,538,000, $6,570,000, and $5,367,000, respectively.
8. Segment and Geographic Information
The Company operates primarily in one industry segment which includes the manufacturing and selling of UPS products primarily to wholesalers in the computer industry. The Company closely monitors the credit worthiness of its customers, adjusting credit policies and limits as deemed necessary.
No single customer comprised 10% or more of the Company's net sales in 1996 and 1995. Sales to one customer, Ingram Micro Corporation, accounted for approximately 11% of the Company's net sales in 1994.
The Company's primary manufacturing operations outside of the United States are located in Galway, Ireland, as explained in Note 12, and in the Philippines. American Power Conversion Europe, S.A.R.L., American Power Conversion Corporation's subsidiary located in France, provides sales and technical support to customers in Europe, the Middle East, the former Soviet Union and Africa and its revenues are in the form of commissions from the Galway operations. These foreign operations have been combined into one category. Intercompany transactions have been eliminated. Information about the Company's operations in different geographic locations for 1996, 1995 and 1994 follows:
During 1996, 1995 and 1994, respectively, 49%, 38%, and 14% of export sales from the United States were to unaffiliated customers in the Asia Pacific region and 14%, 23%, and 50% were to unaffiliated customers in European, African, and Middle Eastern countries, with the remainder in Canada and South America. During 1996, 1995 and 1994, approximately 81% of foreign sales to unaffiliated customers were to European, African, and Middle Eastern customers, with the remainder in the former Soviet Union. Approximately 90% of the Company's foreign operating profits and identifiable assets were located in Europe, with the remainder in the Asia Pacific region.
9. Litigation
During August 1995, several purported class action lawsuits were filed in the United States District Court for the District of Rhode Island in which the Company was named as a defendant, along with certain of its officers. The lawsuits relate to disclosures made by the Company in its public filings and press releases and assert violations of federal securities laws. The plaintiffs seek unspecified damages, interest, costs and fees. In mid-February 1996, a derivative lawsuit was filed by two shareholders on behalf and for the benefit of the Company against certain present and former officers and/or directors of the Company in the Superior Court of Suffolk County, Massachusetts. The Company was also named as a nominal defendant. The derivative action plaintiffs allege that the individual defendants in that case traded in the stock of the Company allegedly in breach of their fiduciary duty to the Company. It is possible that other claims may be made against the Company in these actions or that related allegations could be made that could give rise to other consequences. The Company intends to defend these lawsuits vigorously and any similar lawsuits that may be filed; however, the ultimate outcome of these matters cannot yet be determined. No provision for any liability that may result from these actions has been recognized in the accompanying consolidated financial statements.
The Company is also involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material adverse effect on the Company's consolidated financial position or results of operations or liquidity.
10. Fair Value of Financial Instruments
The carrying amount of cash, cash equivalents, accounts receivable, accounts payable, and accrued liabilities approximates their fair value because of the short duration of these instruments.
11. Commitments
The Company has several noncancelable operating leases, primarily for warehousing and office space, expiring at various dates through 2003. These leases contain renewal options for periods ranging from one to three years and require the Company to pay its proportionate share of utilities, taxes, and insurance. Rent expense under these leases for 1996 and 1995 was $2,509,000 and $1,930,000, respectively, and was not material to the Company's results of operations for 1994.
Future minimum lease payments under these leases are: 1997 - $2,020,000; 1998 - $1,588,000; 1999 - $1,328,000; 2000 - $1,253,000; 2001 - $1,042,000; and $519,000 thereafter.
12. Contingencies
In 1994, American Power Conversion Corporation established operations in Galway, Ireland through its subsidiary, American Power Conversion Corporation (A.P.C.) B.V. The facility is providing manufacturing and technical support to better service the Company's markets in Europe, the Middle East, Africa and the former Soviet Union. The Company executed an agreement with the Industrial Development Authority of Ireland ("IDA") under which the Company will receive grant monies equal to 40% of the costs incurred for machinery, equipment and building improvements for the Galway facility. The maximum amount attainable under the agreement is approximately $13.1 million. The grant monies would be repayable, in whole or in part, should (a) the Company fail to meet certain employment goals established under the agreement which are to be achieved over a five year
implementation period and/or (b) the Company discontinues operations in Ireland prior to the termination of the agreement. The agreement terminates eight years from the date of the last claim made by the Company for grant monies. The total cumulative amount of capital grant claims submitted through December 31, 1996 was approximately $10.2 million. The total cumulative amount of capital grants received through December 31, 1996 amounted to approximately $7.9 million. Under a separate agreement with the IDA, the Company will also receive up to $3,000 per new employee hired for the direct reimbursement of training costs. The total cumulative amount of training grant claims submitted through December 31, 1996 was approximately $2.0 million. The total cumulative amount of training grants received through December 31, 1996 amounted to approximately $.7 million.
In addition, the Company executed agreements in 1994 with an unrelated company to acquire the 280,000 square foot manufacturing and distribution facility presently occupied for one (1) Irish Pound (equivalent to approximately $1.50). As additional consideration for the facility, the Company assumed a contingent liability of approximately $5.2 million as part of the Company's agreement with the IDA. The contingent liability is canceled upon successful completion of the terms of the agreement.
13. Quarterly Financial Data (Unaudited)
The following is a summary of quarterly results of operations:
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure Not applicable.
Part III
Item 10.
Item 10. Directors of the Registrant Information with respect to Directors may be found under the caption "Occupations of Directors" appearing in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 21, 1997. Such information is incorporated herein by reference.
Item 11.
Item 11. Executive Compensation The information set forth under the caption "Executive Compensation" appearing in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 21, 1997 is incorporated herein by reference.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management The information set forth under the caption, "Management and Principal Holders of Voting Securities" appearing in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 21, 1997 is incorporated herein by reference.
Item 13.
Item 13. Certain Relationships and Related Transactions The information set forth under the captions, "Certain Relationships and Related Transactions" appearing in the Company's definitive Proxy Statement for the Annual Meeting of Shareholders to be held on April 21, 1997 is incorporated herein by reference.
Part IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K (a) Documents filed as part of Form 10-K
1. Consolidated Financial Statements The consolidated financial statements of the Company have been included in Item 8 of this report.
Consolidated Balance Sheets as of December 31, 1996 and 1995 Consolidated Statements of Income for each of the three years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Shareholders' Equity for each of the three years ended December 31, 1996, 1995 and 1994 Consolidated Statements of Cash Flows for each of the three years ended December 31, 1996, 1995 and 1994 Notes to Consolidated Financial Statements
2. Consolidated Financial Statement Schedules
Schedule Number Description Page No. II Valuation and Qualifying 38 Accounts and Reserves
Schedules other than those listed above have been omitted since they are either not required or the information required is included in the consolidated financial statements or the notes thereto.
KPMG Peat Marwick LLP's reports with respect to the above listed consolidated financial statements and consolidated financial statement schedule are included herein on pages 35 and 36.
3. Exhibit Listing
Exhibit Description Number
3.01**** Articles of Organization of the Registrant, as amended (3.01) 3.02** By-Laws of the Registrant, as amended (3.02) 10.01* 1987 Stock Option Plan of the Registrant (10.01) (X) 10.02* Form of Incentive Stock Option Agreement under the Registrant's 1987 Stock Option Plan (10.02) (X) 10.03* Form of the Non-Qualified Stock Option Agreement under the Registrant's 1987 Stock Option Plan (10.03) (X) 10.04* The Registrant's Employee Stock Ownership Plan Trust Agreement dated December 30, 1987 (10.04) (X) 10.05** The Registrant's Employee Stock Ownership Plan dated December 30, 1987, as amended and restated (10.05) (X) 10.06* Employment Agreement dated June 16, 1986 between the Company and Rodger B. Dowdell, Jr. (10.07) (X) 10.7** Unsecured line of credit agreement dated June 29, 1991 between the Registrant and Rhode Island Hospital Trust National Bank (10.19) 10.8** Unsecured line of credit agreement dated December 30, 1991 between the Registrant and Fleet National Bank (10.20) 10.9*** Amendment dated December 30, 1992 to Unsecured line of credit agreement between the Registrant and Fleet National Bank (10.13) 10.10*** Grant agreement dated February 16, 1994 between the Registrant and Industrial Development Authority of Ireland (10.14) 10.11*** Contract for Sale dated January 31, 1994 between the Registrant and Digital Equipment International (10.15) 10.12*** Management Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.17) 10.13*** Licence Agreement dated January 31, 1994 between the Registrant (Grantor) and Digital Equipment International (Licencee) (10.18) 10.14*** Grant of Options Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.19) 10.15*** Memorandum Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.20) 10.16*** 1993 Non-Employee Director Stock Option Plan (10.22) (X) 10.17***** Letter Agreement dated June 22, 1995 to amend loan agreement dated December 30, 1991 by and between Registrant and Fleet National Bank (10.1) 10.18****** Letter Agreement dated October 11, 1995 to amend loan agreement dated December 30, 1991 by and between Registrant and Fleet National Bank (10.1) 10.19******* Purchase and Sale Contract dated April 12, 1995 between the Registrant and Trustees of Normac-Billerica Associates III u/d/t dated October 11, 1979 (10.19) 10.20 American Power Conversion Corporation B.V. Profit Sharing Scheme dated September 25, 1996 (X) 11 Computation of Earnings per Share 21 Subsidiaries of Registrant 23 Consent of KPMG Peat Marwick LLP 27 Financial Data Schedule (for SEC EDGAR filing only)
* Previously filed as exhibits to the Company's Registration Statement on Form S-18 dated July, 1988 (File No. 33-22707-B). ** Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference (File No. 0-17126). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. *** Previously filed as an exhibit (Exhibit No. 22) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. **** Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. ***** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-Q. ****** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-Q. ******* Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K.
(X) Indicates a management contract or any compensatory plan, contract or arrangement.
(b) Reports on Form 8-K No reports on Form 8-K have been filed by the Registrant during the quarter ended December 31, 1996.
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders American Power Conversion Corporation:
We have audited the accompanying consolidated balance sheets of American Power Conversion Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Power Conversion Corporation and subsidiaries as of December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1996, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Providence, Rhode Island February 10, 1997
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders American Power Conversion Corporation:
Under date of February 10, 1997, we reported on the consolidated balance sheets of American Power Conversion Corporation and subsidiaries as of December 31, 1996 and 1995 and the related consolidated statements of income, shareholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1996, as contained in the annual report on Form 10-K for the year 1996. In connection with our audits of the aforementioned consolidated financial statements, we also audited the related financial statement schedule listed in Item 14(a)(2). This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statement schedule based on our audits.
In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Providence, Rhode Island February 10, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
AMERICAN POWER CONVERSION CORPORATION
Date: March 1, 1997
By: /s/ Donald M. Muir Donald M. Muir, Chief Financial Officer (principal financial and accounting officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the Registrant and in the capacities indicated on the date indicated.
Date: March 1, 1997
By: /s/ Rodger B. Dowdell, Jr. Rodger B. Dowdell, Jr., President, Chairman, Principal Executive Officer and Director (principal executive officer)
Date: March 1, 1997
/s/ Neil E. Rasmussen Neil E. Rasmussen, Vice President and Director
Date: March 1, 1997
/s/ Emanuel E. Landsman Emanuel E. Landsman, Vice President, Clerk and Director
Date: March 1, 1997
/s/ Ervin F. Lyon Ervin F. Lyon, Director
Date: March 1, 1997
/s/ James D. Gerson James D. Gerson, Director
Schedule II
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts and Reserves
For the years ended December 31, 1996, 1995 and 1994
Valuation accounts deducted from assets to which they apply:
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES EXHIBIT INDEX
Exhibit Descriptions Page Number No.
3.01**** Articles of Organization of the Registrant, as amended (3.01) 3.02** By-Laws of the Registrant, as amended (3.02) 10.01* 1987 Stock Option Plan of the Registrant (10.01) (X) 10.02* Form of Incentive Stock Option Agreement under the Registrant's 1987 Stock Option Plan (10.02) (X) 10.03* Form of the Non-Qualified Stock Option Agreement under the Registrant's 1987 Stock Option Plan (10.03) (X) 10.04* The Registrant's Employee Stock Ownership Plan Trust Agreement dated December 30, 1987 (10.04) (X) 10.05** The Registrant's Employee Stock Ownership Plan dated December 30, 1987, as amended and restated (10.05) (X) 10.06* Employment Agreement dated June 16, 1986 between the Company and Rodger B. Dowdell, Jr. (10.07) (X) 10.7** Unsecured line of credit agreement dated June 29, 1991 between the Registrant and Rhode Island Hospital Trust National Bank (10.19) 10.8** Unsecured line of credit agreement dated December 30, 1991 between the Registrant and Fleet National Bank (10.20) 10.9*** Amendment dated December 30, 1992 to Unsecured line of credit agreement between the Registrant and Fleet National Bank (10.13) 10.10*** Grant agreement dated February 16, 1994 between the Registrant and Industrial Development Authority of Ireland (10.14) 10.11*** Contract for Sale dated January 31, 1994 between the Registrant and Digital Equipment International (10.15) 10.12*** Management Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.17) 10.13*** Licence Agreement dated January 31, 1994 between the Registrant (Grantor) and Digital Equipment International (Licencee) (10.18) 10.14*** Grant of Options Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.19) 10.15*** Memorandum Agreement dated January 31, 1994 between the Registrant and Digital Equipment International (10.20) 10.16*** 1993 Non-Employee Director Stock Option Plan (10.22) (X) 10.17***** Letter Agreement dated June 22, 1995 to amend loan agreement dated December 30, 1991 by and between Registrant and Fleet National Bank (10.1) 10.18****** Letter Agreement dated October 11, 1995 to amend loan agreement dated December 30, 1991 by and between Registrant and Fleet National Bank (10.1) 10.19******* Purchase and Sale Contract dated April 12, 1995 between the Registrant and Trustees of Normac- Billerica Associates III u/d/t dated October 11, 1979 (10.19) 10.20 American Power Conversion Corporation B.V. Profit Sharing Scheme dated September 25, 1996 (X) 41 11 Computation of Earnings per Share 64 21 Subsidiaries of Registrant 65 23 Consent of KPMG Peat Marwick LLP 66 27 Financial Data Schedule (for SEC EDGAR filing only) 67
* Previously filed as exhibits to the Company's Registration Statement on Form S-18 dated July, 1988 (File No. 33-22707-B). ** Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1991 and incorporated herein by reference (File No. 0-17126). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. *** Previously filed as an exhibit (Exhibit No. 22) to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1993 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. **** Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1994 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K. ***** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended June 30, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-Q. ****** Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-Q. ******* Previously filed as an exhibit to the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995 and incorporated herein by reference (File No. 1-12432). The number given in parenthesis indicates the corresponding exhibit in such Form 10-K.
Exhibit 10.20
THIS TRUST DEED is made the 25 day of September, One Thousand nine hundred and ninety-six BETWEEN
(1) AMERICAN POWER CONVERSION CORPORATION (A.P.C.) B.V., hereinafter referred to as American Power Conversion (registered in the Netherlands Number 255098) whose registered office is at Hoehenrode 6, 1102 BR Amsterdam, which is registered on the external directory as a place of Business at Ballybrit Industrial Estate, Galway, Ireland Number 903422.
AND
(2) KPMG TRUST (incorporated in Ireland Number 28654) whose registered office is at 1 Stokes Place, St. Stephen's Green, Dublin 2 (hereinafter called "the Trustees" which expression shall include the Trustee or Trustees for the time being hereof) of the other part.
WHEREAS:
(A) By a Resolution (the "Resolution") of the Directors passed on 20 September 1996 the Directors determined to establish the American Power Conversion Profit Sharing Scheme, as an employee profit sharing scheme which is to be approved by the Revenue Commissioners in Ireland in accordance with Chapter IX of Part I and the Third Schedule of the Finance Act 1982 (the "Act"), for the purposes of providing for eligible employees' and directors' benefits in the nature of interests in shares.
(B) The Trustees have agreed to act as the first Trustees of the Scheme.
NOW THIS DEED WITNESSETH and it is hereby agreed as follows:
1. (a) Words and expressions defined in the Rules shall bear the same meanings herein where the context so admits and the provisions of Rule 1 shall be deemed to be incorporated herein.
(b) In pursuance of the Resolution American Power Conversion Profit Sharing Scheme is hereby established.
2. (a) The Company shall pay to the Trustees the amount due pursuant to Rule 3 for the purpose of the acquisition or subscription of Ordinary Shares by the Trustees in accordance with the Scheme together with any other amount required to cover any costs, charges and expenses incurred in such acquisition and any other expenses and charges incurred by the Trustees in the operation of the Scheme.
(b) The Company shall provide only in respect of Eligible Employees the Trustees with all information which is necessary for the purposes of the Scheme and the Trustees shall be entitled to rely on such information in good faith without further enquiry.
(c) Subject as hereinafter provided, the Trustees hereby covenant with the Company to apply such sums received for that purpose in the acquisition or subscription of Ordinary Shares in accordance with the Rules and to hold the same once appropriated upon trust for the respective Participants entitled thereto subject to the provisions of the Scheme.
(d) The Trustees shall in accordance with Rule 3(h) sell or hold as part of the Residual Fund so many of the Ordinary Shares acquired or subscribed for by them which have not been appropriated.
(e) The Trustees shall hold:
(i) the net proceeds of any sale made pursuant to paragraph (d) above; and
(ii) any income therefrom,
to be applied in accordance with Clause 13.
3. The Trustees shall hold Scheme Shares upon trust for the benefit of the Participants to whom Scheme Shares have been appropriated in accordance with the Rules, provided always that the Trustees:
(a) shall not dispose of any Scheme Shares whether by transfer to a Participant or otherwise before the end of the Period of Retention applicable thereto except in the circumstances mentioned in Section 52(3) (a), (b) or (c) of the Act; and
(b) shall not dispose of any Scheme Shares after the end of the Period of Retention and before the Release Date applicable thereto pursuant to Rule 4(a) nor in such a way that such a transaction would involve a breach of that Participant's obligations under Section 52 (1) (c) or (d) of the Act; and
(c) shall deal with any right conferred in respect of Scheme Shares to be allotted other shares, securities or rights of any description subject to Rule 4(b) and as directed by or on behalf of the Participant on whose behalf they hold such Scheme Shares.
(d) shall not dispose of any Scheme Share after the Release Date except as provided for by Rule 4.
4. Subject to any direction as is referred to in Section 54(3) of the Act, the Trustees shall pay over to a Participant any money or money's worth received by them in respect of or by reference to any of his Scheme Shares other than money consisting of a sum referred to in Section 52(1)(c) of the Act or money's worth consisting of New Shares.
5. As soon as practicable after any Scheme Shares have been appropriated to a Participant the Trustees shall give him notice in writing of the appropriation:
(a) Specifying the number and description of those shares; and
(b) Stating their Initial Market Value and their Appropriation Date.
6. The Trustees shall prepare and keep all such accounts and records as may be required for the purpose of the Scheme and shall if so requested by the Company once at least every year submit accounts to the Company and the Company may cause such accounts to be made up and audited by a firm of Auditors. In particular the Trustees shall:
(a) maintain such records as may be necessary to enable them to carry out their obligations under Chapter IX of Part I of the Act; and
(b) inform a Participant who becomes liable to tax under Schedule E (Income Tax) in relation to the operation of the Scheme of any facts of which they are aware relevant to the determination of that liability.
7. (a) The Directors may at any time:
(i) direct that any Subsidiary, not being a party to this Deed but otherwise eligible to be a Participating Company, shall, upon entering into a Deed supplemental hereto in such form as the Directors and the Trustees shall require, become bound by the provisions hereof; or
(ii) by Deed supplemental hereto declare that any Participating Company shall cease to be bound by the provisions hereof.
8. The Trustees shall not be liable to satisfy any monetary obligations under the Scheme (including but without prejudice to the generality of the foregoing any monetary obligations to Participants) beyond the sums of money (including income) from time to time in their hands or under their control as Trustees of the Scheme and properly applicable for that purpose.
9. (a) The costs, charges, expenses and other liabilities of, and incidental to, the administration, operation and determination of the Scheme (including, in particular, and without prejudice to the generality of the foregoing, any remuneration of the Trustees and any Tax or Duty for which the Trustees may be accountable to the Revenue Commissioners in Ireland or elsewhere, arising from or in connection with the Scheme) shall be borne by the Company to the extent that the same cannot properly be paid by the Trustees out of funds in their hands available for the purpose.
10. (a) No trustee for the time being of the Scheme and no director or employee of any corporate trustee shall be responsible chargeable or liable in any manner whatsoever for or in respect of any loss of or any depreciation in or default upon any of the investments securities stocks or policies in or upon which any part of the Fund may at any time be invested or for any delay which may occur from whatever cause in the investment of any moneys belonging thereto or for the safety of any securities or documents of title deposited by the Trustees for safe custody or for the exercise of any discretionary power vested in the Trustees by this Deed (including any act or omission by any committee appointed by the Trustees) or by reason of any other matter or thing except fraud or deliberate and culpable disregard of the interests of all or of any of the beneficiaries under the Scheme PROVIDED THAT a corporation which is a trustee of the Scheme and which is engaged in the business of providing a trustee service for a fee shall be liable for negligence.
(b) Each of the Trustees and each director and employee of any corporate trustee shall be indemnified by the Company against all liabilities incurred by such Trustee in the execution of the trusts of and in the management and administration of the Scheme and of the Fund other than liabilities arising as a consequence of fraud or deliberate and culpable disregard of the interests of all or of any of the beneficiaries under the Scheme or (in the case of a corporate trustee which is engaged in the business of providing a trustee service for a fee) negligence (and to the extent that the Participating Companies fail to indemnify each such Trustee he shall be indemnified out of the Fund).
11. (a) The Trustees have full power and discretion to agree with the Company all matters relating to the operation and administration of the trusts of this Deed so that no person claiming any interest under such trusts shall be entitled to question the legality and correctness of any arrangement or agreement made between the Company and the Trustees in relation to such operation and administration.
(b) The Trustees shall comply with any directions given by the Directors pursuant to the Rules and shall not be under any liability in respect thereof to the Company or to any Participant.
(c) At the written request of the Company the Trustees may from time to time by agreement in writing with the Revenue Commissioners prescribe such date or dates being earlier than the Appropriation Date as the relevant date or dates for the determination of Initial Market Value of any share as provided by Section 51(4) of the Act.
12. (a) Subject to Clause 12(e) the Company shall have power (which may be exercised by resolution of the Board) at any time with the prior written approval of the Revenue Commissioners and having informed the Revenue Commissioners of the reason for the exercise of this power to remove from office any Trustee (by notice in writing addressed to such Trustee) and the Trustees shall accord therewith by taking whatever
further action may be necessary to give effect thereto. Notice of removal from office of any Trustee shall be deemed to have been duly given if sent by post in a prepaid cover to the Trustee's last known address and shall be deemed to have been received 48 hours after posting.
(b) The Company shall have power at any time by deed to appoint a new or additional Trustee or Trustees.
(c) The Company hereby declares and confirms the independence of the Trustees in the exercise of all of their statutory functions and obligations under the Scheme and undertakes that it shall not influence them in any manner. The Trustees shall administer the Scheme impartially and in accordance with this Deed and the Rules of the Scheme.
(d) Any Trustee may upon the expiry of six weeks prior notice in writing given to the Company and the remaining Trustees (if any) resign his office and thereupon cease to be a Trustee and shall not be responsible for any costs incurred by such retirement.
(e) Without prejudice to the provisions of Clause 12(d) hereof there shall at all times be at least three individual Trustees or a Trustee which is a company or trust corporation and the Company shall exercise its powers under Clauses 12(a) and (b) accordingly. The Trustees shall at all times include at least one person which is unconnected with the Company. An individual shall be regarded as unconnected with the Company if he is not and has not been a director or employee of the Parent Company or any of its subsidiaries and in the case of a company if it is not or has not been the Parent Company or any of its subsidiaries, and in the event of the death or retirement of any such Trustee the Company shall forthwith exercise its power of appointing a replacement Trustee who or which is also unconnected with the Company.
13. The Trustees shall subject to Rule S(d), hold and apply the Residual Fund as follows:
(i) if so instructed by the Directors in accordance with Rule 3(h) to retain the net proceeds of sale of Ordinary Shares and use this to pay costs and expenses of the Scheme or to otherwise hold unappropriated Ordinary Shares until they are appropriated in accordance with the provisions of the Scheme; and
(ii) upon the determination of the Scheme and to the extent that the Residual Fund has not been applied as aforesaid the Trustees shall convert the Residual Fund to moneys and shall pay or transfer any moneys then comprised in the Residual Fund to the Company.
14. (a) Any Trustee being an individual shall be entitled to receive and retain as remuneration for his services hereunder such sum or sums as may from time to time be agreed with the Company.
(b) Any Trustee, being a solicitor, accountant, stockbroker or engaged in any other profession or business, shall be entitled to be paid all reasonable professional or proper charges for services rendered including acts which such Trustee, not being engaged as aforesaid, could have done personally.
(c) Any Trustee, being a body corporate, (whether or not a trust corporation) may charge and be paid such reasonable remuneration or charges as shall from time to time be agreed between the Company and such body corporate and such body corporate (if a bank) shall be entitled (without being liable to account for any profit or advantage so obtained) to act as banker and perform any services in relation to the Scheme on the same terms as would be made with a customer in the ordinary course of its business as banker.
15. Any Trustee, otherwise eligible to be a Participant, may be so and may retain for his absolute benefit all the interest to which he is entitled as a Participant in any Scheme Shares acquired or received by him and other money or money's worth accruing to him as such and exercise all rights to which he is entitled as a Participant.
16. Any Trustee, who shall be or become a director of or holder of any other office or employment in the Company may retain for his own absolute benefit any fees or remuneration received by him in connection with such office or employment notwithstanding that his appointment to or retention of such office or employment may be directly or indirectly due to the exercise or non-exercise of any votes in respect of shares or other securities in the Company held by the Trustees or other persons on their behalf under the trusts of the scheme.
17. No Trustee, nor any holding company of a corporate Trustee, nor any subsidiary of such holding company, nor any director or officer of a body corporate acting as Trustee shall be precluded from contracting or entering into any insurance, financial or other transactions including the provision of professional services with any participating company or being interested in any such transaction or accepting and holding the trusteeship of any debenture stock or other securities of any participating company neither shall such Trustee be liable to account for any profit made by him thereby or in connection therewith.
18. (a) In the event of the appointment of Trustees other than a body corporate as sole Trustee:
(i) the Trustees (which in this Clause shall include the duly authorised officer of a body corporate which is the Trustee) may at any time but shall at least once in every year meet together for the dispatch of business and may adjourn and otherwise regulate their meetings as they think fit and the Directors may nominate any one of the Trustees to be Chairman of any such meeting and, in default of any such nomination, the Trustees may elect one of their number to be chairman of their meeting provided that in the event of equality of votes on the election of a chairman he shall be chosen by lot;
(ii) all business brought before a meeting of the Trustees shall be decided by a majority of the votes of the Trustees present and voting thereon and, in the case of equality of votes, the chairman of the meeting shall have a second or casting vote;
(iii)a resolution in writing signed by all of the Trustees shall be as effectual as if it has been passed at a meeting of the Trustees and may consist of one or more documents in similar form each signed by one or more of the Trustees; and
(iv) two Trustees present at a meeting of the Trustees of which notice has been give to all Trustees shall form a quorum.
(b) the Trustees shall cause proper minutes to be kept and entered in a book provided for the purpose of all their resolutions and proceedings and any such minutes shall be signed by the chairman of the next succeeding meeting.
19. (a) The Trustees may, in any particular case or cases, decide not to commence or pursue proceedings for the recovery of any moneys due to them from any Participant and shall not be responsible for any loss incurred as a result of such decision.
(b) Valid and effectual receipts and discharges for any moneys or other property payable, transferable, or deliverable to the Trustees or any of them may be given by a Trustee who is a body corporate or by any one Trustee to whom such duty may have been delegated pursuant to sub clause (d) below or by any person from time to time nominated by the Company and authorised in writing for the purpose by all the Trustees.
(c) The Trustees may from time to time appoint for the proper administration and management of the Scheme such secretarial or executive officers or staff or other persons as they consider desirable and the Directors shall approve on such terms as they think fit.
(d) The Trustees may from time to time in writing delegate any business and the exercise of any of the duties imposed on them by the Scheme to any one or more of their number.
(e) The Trustees may engage the services of such registrars, solicitors or other professional or business advisers as they consider desirable to advise on any business to be done in connection with the Scheme or for the proper administration and management of the Scheme or otherwise in connection herewith.
(f) The Trustees may at any time cause any part of the trust property to be deposited for safekeeping (either electronically or otherwise) with any one or more of the Trustees or any other persons (including any company or corporation) on behalf of the Trustees and may pay any expenses in connection therewith.
(g) The Trustees shall not be liable or responsible for any loss to the trust property which may be occasioned as a result of the exercise of the foregoing powers except to the extent that such loss arises as a result of any fraud, willful default or negligence on the part of such Trustees.
20. (a) The Company may at any time and from time to time, in the case of this Deed, by Deed supplemental hereto and, in the case of the Rules, by resolution of the Directors modify, alter, amend or extend the Scheme in any respect (such modification, alteration, amendment or extension being referred to in this Clause as an "amendment") provided that:
(i) no amendment shall alter to the disadvantage of a Participant his rights in respect of any Scheme Shares appropriated before the date of such amendment;
(ii) no amendment shall be made which would or might infringe any rule against perpetuities or which could result in the Scheme ceasing to be an employee profit sharing scheme;
(iii) no amendment shall take effect unless the approval in writing of the Revenue Commissioners in Ireland shall have first been obtained.
(b) The Directors may, by resolution, subject to proviso (ii) of sub- clause (a) of this Clause but notwithstanding the remaining provisions of that sub-clause and without otherwise obtaining the prior approval thereto of any other person, modify or alter or amend the Scheme in any way which may be necessary in order to secure the initial approval of the Scheme by the Revenue Commissioners in Ireland under Chapter IX of Part I and the Third Schedule of the Act.
(c) Any amendment made in accordance with the provisions of this Clause shall be binding upon all persons from time to time interested in the Scheme including any company from time to time which is or becomes bound by the Deed.
21. The Scheme and the trusts hereby created shall be determined on the earliest of the happening of either of the following:
(i) the date on which the Directors resolve to terminate the Scheme which they shall be entitled to do only on a date on which there is no Scheme Share; or
(ii) the expiry of a period of twenty years after the death of the last survivor living on the date hereof of his late Britannic Majesty King George VI.
22. Neither the Company nor any other Participating Company nor the Trustees shall be obliged to perform any obligation under this Deed or the Rules to the extent that such action would be contrary to any enactment or Exchange Control or other regulation for the time being in force in the Republic of Ireland or any other country having jurisdiction in relation thereto.
23. This Deed shall be governed by and construed in accordance with the Law of Ireland and any dispute thereon shall be heard in a Court of Ireland.
IN WITNESS whereof the Deed has been executed by the parties hereto the day and year first herein written.
SIGNED by American Power Conversion Corporation (A.P.C.) BV per its Director in the presence of:
NAME: by: /s/ Edward W. Machala Edward W. Machala
ADDRESS: Ballybrit Industrial Estate, Galway
OCCUPATION: Director
Present when the Common Seal of KPMG Trust was affixed hereto:
by: /s/ Donal Gannon DIRECTOR Donal Gannon
by: /s/ Michael Mohan DIRECTOR/SECRETARY Michael Mohan
THE FIRST SCHEDULE AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV RULES OF THE PROFIT SHARING SCHEME
1. Definitions
In these Rules and in the Trust Deed:
(a) Words importing the singular shall include the plural and vice versa and words importing the masculine shall include the feminine.
(b) Any reference to any statute (or a particular Chapter, Part or Section thereof) shall mean and include any statutory modification or re-enactment thereof for the time being in force and any regulations made thereunder.
(c) The following words and expressions shall have the following meanings:
2. Conditions of Participation
Each Eligible Employee shall, on the first occasion on which the Directors intend to operate the Scheme or on the first occasion that the employee becomes an eligible employee, be offered participation in the Scheme as soon as is practicable after the relevant Cut-Off Date provided that on such Cut-Off Date such Eligible Employee is an employee of a Participating Company. If he shall accept such offer he shall be required to complete a form of acceptance and contract of participation in the form set out in the Second Schedule to the Trust Deed (or such Schedule as amended from time to time with the concurrence of the Trustees and the approval in writing of the Revenue Commissioners) (the "Contract") which will confirm that he wishes to participate in the operation of the Scheme. The Contract shall be addressed to the Directors and the Trustees and shall be signed by the Eligible Employee and returned to the Directors by not later than the expiry of the Invitation Period. An Eligible Employee shall not be entitled to an appropriation of the Scheme Shares unless he has completed a contract and is an employee of a Participating Company on the relevant Appropriation Date.
The signed Contract shall bind such person in contract with the Company and the Trustees in accordance with its terms in consideration of any subsequent appropriation to him of Ordinary Shares.
3. Allocation, Acquisition of Shares and Appropriation
(a) As soon as practicable following each Cut-Off Date in each year in which the Directors intend to operate the Scheme the Directors shall determine the amount (if any) of the Entitlements.
(b) The Company shall as soon as practicable after the expiry of the Invitation Period to which the Entitlements relate pay to the Trustees the appropriate aggregate amounts due following the completion and return of Contracts in accordance with Rule 2 by Eligible Employees employed by it (who have not to the knowledge of the Trustees terminated or breached the same) less any amount of the Residual Fund which the Directors shall have directed the Trustees to apply in the acquisition of Ordinary Shares for the appropriation to such Eligible Employees.
(c) As soon as reasonably practicable after the receipt from the Company of the amounts referred to in paragraph (b) of this Rule the Trustees will apply the aggregate of such amounts together with any amount of the Residual Fund directed by the Directors to be so applied in accordance with paragraph (b) of this Rule in the acquisition or subscription of Ordinary Shares for appropriation to each such Eligible Employee in accordance with the provisions of this Rule on the basis that the aggregate Initial Market Value of the Ordinary Shares appropriated to him is as nearly as possible pro rata to the amount of his Entitlement that has been paid to the Trustees.
(d) Where the Trustees are unable to acquire sufficient Ordinary Shares by the purchase or subscription for Ordinary Shares as directed by the Directors to satisfy in full appropriations pursuant to Rule 3(c) the Trustees shall reduce the appropriations pro rata.
(e) If the basis on which the Ordinary Shares are appropriated would otherwise give rise to the appropriation of a fraction of an Ordinary Share the Trustees may sell such fractional entitlement and the amount thus received shall be regarded as not having been applied in the acquisition of Ordinary Shares for the purpose of paragraph (g). In the event that a portion of the Ordinary Shares acquired by the Trustees carry the right to receive any dividends which have been declared the Trustees shall appropriate those Ordinary Shares among the Eligible Employees in the same proportions as provided in paragraph (c) of this Rule.
(f) The Trustees shall appropriate the Ordinary Shares so acquired or subscribed for on one day within thirty days of the expiry of the Invitation Period.
(g) To the extent that the Trustees have not applied the whole of the amount received by them in the acquisition of Ordinary Shares in accordance with paragraph (c) of this Rule within thirty days of the expiry of the Invitation Period or such longer period as the directors may from time to time determine they shall pay the balance thereof promptly to the Participating Companies which provided the same.
(h) The Trustees shall at the direction of the Directors either sell for the best consideration in money reasonably obtainable at the time any Ordinary Shares which they do not appropriate under this Rule and retain the net proceeds of sale or retain such Ordinary Shares as part of the Residual Fund.
(i) If following the date on which the Trustees are entered on the Parent Company's register of members (or other registration system whether electronic or other) but before the Appropriate Date of any Ordinary Shares the Trustees shall become entitled in respect of such shares to either:
(i) any dividends or other distribution; or
(ii) any other rights to be allotted securities in the Company (other than an issue of capitalisation shares of the same class as Ordinary Shares then held by the Trustees pending an appropriation which capitalisation shares shall be retained by the Trustees and shall form part of the Ordinary Shares to be appropriated); then the Trustees shall retain the same in the Residual Fund and the Trustees shall use their best endeavours to sell such rights as are referred to in paragraph (ii) above for the best consideration in money reasonably obtainable at the time.
(j) No Ordinary Shares shall be appropriated to any Eligible Employee after 15 years from the date of death of the last survivor of the issue living on the date of the Trust Deed of his late Britannic Majesty King George VI.
(k) The Directors may determine at any Cut-Off Date that there shall be no Entitlements and may so decide at any subsequent Cut-Off Date.
4. Conditions of Retention and Disposal
(a) Subject as hereinafter provided in this Rule Scheme Shares shall be held by the Trustees until the date on which the Participant concerned directs the Trustees:
(i) To sell the Scheme Shares; or
(ii) To transfer the legal ownership of the Scheme Shares to himself;
(iii) To deal in his interest in Scheme Shares
provided that as soon as may be practicable following the Release Date applicable thereto the Trustees will transfer the legal ownership of Scheme Shares to the Participants subject to the restrictions contained in (b) below.
(b) Notwithstanding the Release Date of Scheme Shares has occurred the Trustees shall hold Scheme Shares on behalf of a Participant until
(i) a Participant having reached Normal Retirement Date, requests the Trustees to transfer his Scheme Shares into his name or to sell or otherwise dispose of them on his behalf; or
(ii) a Participant, having terminated his employment (whether by voluntary redundancy or otherwise) with the Company 5 years previously, requests the Trustees to transfer his Scheme Shares into his name or to sell or otherwise dispose of them on this behalf
Provided That:
(a) In the absence of a request the Participant shall be deemed to have made a request to transfer his Scheme Shares into his name
(b) any transfer, sale or other disposal shall occur in five equal (subject to rounding up or down) tranches beginning of the first anniversary of the Participant's termination of employment and ending on the tenth anniversary thereof; or
(iii) a Participant, becomes (in the opinion of the Company) totally or permanently disabled, in which event the Trustees shall (subject to having been notified by the Company) within sixty days of the establishment of total or permanent disability (as certified by a physician selected or approved by the Company) sell his Scheme Shares unless otherwise instructed by the directors; or
(iv) a Participant's death in which event the Trustees shall hold his Scheme Shares for the benefit of his personal representative until instructed to sell the shares by the personal representative of such deceased participant; or
(v) the Company permits the Participant to otherwise dispose of his Scheme Shares and so notifies the Trustees in writing.
5. Share Issue or Reorganisation
(a) In the event of the Parent Company proposing to make a rights issue in respect of any class of its share capital which includes Scheme Shares, the Trustees shall, upon receipt of the offer from the Parent Company, notify each Participant of the following options in respect of the Scheme Shares held by the Trustees on his behalf;
(i) to instruct the Trustees to exercise the rights in respect of all his Scheme Shares provided that such instruction is accompanied by payment in cash of the amount necessary to exercise such rights; or
(ii) To instruct the Trustees to exercise the rights in respect of some only of his Scheme Shares and to dispose of the rights nil paid in respect of the remainder and either:
(a) to pay to the Trustees any amount in excess of the amount of the disposal proceeds necessary to exercise such rights: or
(b) to instruct the Trustees to pay to him any amount of the disposal proceeds in excess of the amount necessary to exercise such rights; or
(iii) to instruct the Trustees to dispose of the rights in respect of all his Scheme Shares nil paid and pay the proceeds to the Participant.
The Participant shall instruct the Trustees accordingly within any period of time specified by the Trustees and shall, if appropriate, pay to the Trustees in cash any amounts necessary in order to carry out such instructions. The Trustees shall subject to receipt of the cash and instructions as aforesaid carry out the instructions of the Participants within the period of time allowed by the Parent Company for exercise of rights. If a Participant shall fail to give any direction to and shall not otherwise have authorised the Trustees, they shall sell all rights in respect of the Scheme Shares nil paid on behalf of that particular Participant.
(b) In the event of an offer being made or a Transaction being proposed in any of the circumstances described in Section 52(3) (a), (b) or (c) of the Act, the Trustees shall forthwith notify each Participant and shall act in accordance with the instructions of the Participant in dealing with his Scheme Shares and in the absence of any such instructions shall take no action.
(c) Subject to Section 55 ( 1) of the Act, any New Shares allotted to the Trustees pursuant to paragraphs (a) or (b) of this Rule or on a capitalisation issue shall be deemed to have been appropriated to a Participant on the Appropriate Date of the Scheme Shares in respect of which they are allotted.
(d) In the event that any Participant shall on the Trustees receiving any securities as provided in this Rule be entitled in respect of his Scheme Shares to a fraction of any such security, the Trustees shall use their best efforts to sell such securities as represent the aggregate of the fractions so arising and shall distribute the proceeds of sale (after deducting any expenses of sale and any taxation which may be payable by the Trustees in respect thereof) to the Participants concerned provided that any such entitlement which is less than 3 Pounds Sterling shall be retained by the Trustees and held as part of the Residual Fund.
6. Payments and Transfers to Participants
(a) If any amount falls to be paid to the Participant prior to the Release Date in respect of his Scheme Shares being:
(i) the proceeds of a sale of Scheme Shares pursuant to a direction given by the Participant under Rule 4(a)(i); or
(ii) a Capital Receipt the Trustees shall pay such amount to the Participant. The Trustees shall if required deduct any Irish withholding tax in accordance with the Taxes Act.
(b) If a Participant directs the Trustees to transfer the ownership of any Scheme Share to himself pursuant to Rule 4(a)(ii) before their Release Date, he shall pay to the Trustees, before the transfer takes place, a sum equal to Income Tax at the standard rate on the Taxable Amount at the time of the direction.
(c) The Trustees shall account for any tax in accordance with Section 57 of the Act.
(d) Any Transfer Taxes involved in any transfer of Scheme Shares or other shares or securities by the Trustees into the name of the Participant concerned shall be payable in the case of:
(i) a transfer as referred to in Rule 4(a); or
(ii) a transfer following the death of a Participant; by the Trustees out of the Residual Fund or in the case of a deficiency out of funds made available for the purpose by the Participant's Participating Company and, in any other case. shall be payable by the Participant concerned.
7. Repurchase by Trustees
(a) At the time a Participant directs the Trustees to dispose of any Scheme Shares or to transfer the Scheme Shares into his name or having transferred the shares into his name the Participant wishes to dispose of the shares he must notify the Trustees and the Trustees may offer to purchase the beneficial interest in such Scheme Shares from the Participant at the best consideration in money that can reasonably be obtained at the time of the sale and such disposal shall for the purposes of Rule 4 be regarded as a disposal in accordance with Rule 4(a) (i). In the event of the Trustees making such an offer then the Participants shall be bound to accept such offer.
(b) If, at the time of the proposed purchase of Scheme Shares under paragraph (a), the Trustees do not have sufficient funds to purchase such Scheme Shares they may apply to the Company for such funds. If any funds are so provided by the Company they shall reduce pro tanto the liability of the Company making that payment in respect of the payment to be made by that Company pursuant to Rule 3 following the next Invitation Period.
(c) The Trustees shall where feasible hold any Ordinary Shares purchased pursuant to paragraph (a) upon trust for appropriation to Eligible Employees employed by the Participating Company that provided the funds used in the purchase of such Ordinary Shares but, subject thereto, shall hold such Ordinary Shares as part of the Residual Fund.
8. Payment of Dividends
Any dividends paid by the Parent Company to the Trustees in respect of Scheme Shares shall be forwarded to the Participants on whose behalf the Trustees hold such Scheme Shares together with particulars of the related tax credit (if any) and tax deduction certificate (if any). The Trustees shall if required deduct any Irish withholding tax in accordance with the Taxes Act.
9. General Meetings of the Parent Company and Voting Rights
Participants have no right to attend or vote at a General Meeting of the Parent Company. The voting rights in respect of Scheme Shares shall, on a poll, be exercised only in accordance with any directions in writing by the Participants concerned to the Trustees. In the absence of any such direction, the Trustees shall abstain from voting.
10. Notices
(a) All notices required to be given to a Participant by the Trustees under the Scheme shall be in writing and shall either be delivered to the Participant at his place of work or be sent by post to the address shown on the records of the Trustees or of the Company by which such Participant is employed.
Any notice or document, sent by post as aforesaid, shall be deemed to have been received on the expiry of 48 hours from the time at which it was posted and to prove such service it shall be sufficient to prove that the envelope containing the notice or document was properly pre-paid, addressed and put into the post.
(b) Any notice or document delivered or sent by the Trustees in the manner described in paragraph (a) of this Rule shall be deemed for all purposes to have been sufficiently served on the Participant and all persons claiming through or under such Participant and accordingly service in manner aforesaid shall operate to exonerate the Trustees from all or any liability for the non-receipt by a Participant or other person as aforesaid of any such notice or document.
(c) To be valid any direction to the Trustees in respect of a Participant's Scheme Shares must be given in writing by or on behalf of such Participant, shall be effective only when it is received by the Trustees and shall be subject to Rule 4(b).
(d) A direction once duly given and received as mentioned in paragraph (c) of this Rule and subject to Rule 4(b) shall be carried out by the Trustees as soon as practicable in accordance with its terms unless prior to their acting in respect thereof the Trustees receive written notice from the Participant revoking the direction.
The Trustees shall incur no liability to a Participant if they act or fail to act upon a direction or revocation which purports to have been duly given as aforesaid.
11. The Auditors
In giving any notice or opinion or in determining any value or making any adjustment or calculation under the Scheme, the Auditors shall be deemed to be acting as experts and not as arbitrators.
THE SECOND SCHEDULE AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV PROFIT SHARING SCHEME
THE PLAN
Date:
Dear
The enclosed booklet gives details of the American Power Conversion Profit Sharing Scheme (the "Scheme"). As an employee of American Power Conversion Corporation (A.P.C.) BV Irish Branch - you may be entitled to participate in the Scheme.
Participation in the Scheme is available to all permanent full time and permanent part time employees who have completed one year of service (working at least 1000 hours) with the Company. You should read the booklet carefully and decide whether you wish to participate.
Entitlement
Each employee is entitled to shares of 15% of basic salary or such other percentage as specified by the directors in respect of the year ended on (see booklet).
Participation in the Scheme
In order to participate in the Scheme you should complete the attached contract of participation indicating your wish to participate.
Following receipt of the form as aforesaid the Company will pay an amount equal to your entitlement to the Trustees of the Scheme to acquire shares which will be held on your behalf subject to the Rules of the Scheme.
Yours sincerely
THE THIRD SCHEDULE
Basis of Calculation of Entitlements
The entitlement of each Eligible Employee under the Scheme shall be calculated as such percentage of pay applicable to all eligible employees if any, as the Directors shall allocate for each Profit Sharing Period PROVIDED that in the case of any Eligible Employee, the total of the Entitlements in any Year of Assessment shall not exceed the amount for the time being specified as being the limit on individual appropriations for the purposes of paragraph 1(4) of the Third Schedule to the Act.
APPENDIX 1
GLOSSARY OF TERMS
AMERICAN POWER CONVERSION
PROFIT SHARING SCHEME
The form of contract which you are required to complete refers to certain terms. For your convenience these and other important terms are defined here.
AMERICAN POWER CONVERSION CORPORATION (A.P.C.) BV
PROFIT SHARING SCHEME
FORM OF ACCEPTANCE AND CONTRACT OF PARTICIPATION
TO: The Directors of American Power Conversion Corporation (A.P.C.) BV
and
TO: The Trustees of American Power Conversion Corporation Profit Sharing Scheme ("the Scheme").
FROM: FIRST NAME(S)_______________________________ Please Print (Mr./Mrs./Miss) in BLOCK CAPITALS
SURNAME: _______________________________
ADDRESS: _______________________________
RSI Number:
APPLICATION FOR SCHEME SHARES
1. I wish to accept my Entitlement to Ordinary Shares in American Power Conversion Corporation.
2. I have read the booklet explaining the Rules of the Plan.
3. CONTRACT OF PARTICIPATION:
In consideration of my participation in the Scheme and of any appropriation to me of Scheme Shares in accordance with the provisions of the Scheme I bind myself in contract with the Company and the Trustees and I agree to be bound by the Rules of the Scheme and in particular (subject to Section 52(3) Finance Act, 1982):
(a) to permit Scheme Shares appropriated to me to be held by the Trustees throughout the applicable Period of Retention;
(b) not to assign, charge or otherwise dispose of my beneficial interest in the said Scheme Shares during the Period of Retention;
(c) not to direct the Trustees to dispose of the said Scheme Shares before the applicable Release Date in any other way except as mentioned in paragraph (d) or by sale for the best consideration in money that can reasonably be obtained at the time of the sale; and
(d) not to direct the Trustees of the Scheme Shares to dispose of my shares prior to my Normal Retirement Date subject to the exceptions provided for by the Scheme on redundancy, disability, termination of employment or death.
4. I accept that the dividend tax voucher which I may receive from the Trustees in respect of any of my Scheme Shares will be in full satisfaction of any rights I have to a tax deduction certificate from the Trustees.
5. I hereby direct the Trustees, in the absence of any further direction from me, in the event of a rights issue to sell all rights in respect of my Scheme Shares nil paid and pay the proceeds to me and in the event of any other offer or transaction in respect of my Scheme Shares (other than an issue of capitalisation shares) to take such action, if any, as will not require me to put the Trustees in funds and will lead to a cash payment being made to me.
6. I undertake to notify the Trustees of any change in my address.
SIGNED: __________________________
DATE: __________________________
IN THE PRESENCE OF:
SIGNATURE: __________________________
NAME: __________________________
ADDRESS: __________________________
Exhibit 11
AMERICAN POWER CONVERSION CORPORATION AND SUBSIDIARIES
Computation of Earnings per Share
For the years ended December 31, 1996, 1995 and 1994
Exhibit 21
SUBSIDIARIES OF THE REGISTRANT
Subsidiary Place of Ownership Incorporation
American Power Conversion The Netherlands 100% by Corporation (APC) B.V. Registrant
APC Distribution Ltd. Ireland 100% by Registrant
APC America, Inc. Delaware 100% by Registrant
American Power Conversion Europe, France 100% by S.A.R.L. Registrant
APC Foreign Sales Corporation Barbados, W.I. 100% by Registrant
APC Japan, Inc. Japan 100% by Registrant
American Power Conversion Philippines 100% by APC B.V. (Philippines), Inc.
Exhibit 23
ACCOUNTANTS' CONSENT
The Board of Directors American Power Conversion Corporation:
We consent to incorporation by reference in the registration statements (Nos.33- 25873 and 33-54416) on Forms S-8 of American Power Conversion Corporation of our reports dated February 10, 1997, relating to the consolidated balance sheets of American Power Conversion Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the years in the three-year period ended December 31, 1996, and the related schedule, which reports appear in the December 31, 1996 annual report on Form 10-K of American Power Conversion Corporation.
KPMG Peat Marwick LLP
Providence, Rhode Island March 18, 1997