Background Questions and Answers on Today's Press Release
(Palo Alto, CA - May 10, 2000) - Echelon Corporation
(NASDAQ: ELON),
and Enel SpA have announced today that they have signed a non-binding
memorandum of understanding under which Enel will integrate Echelon's
LonWorks® system into its digital meter project. Enel will provide
electricity digital meters and a complete home networking infrastructure
to over 27 million Italian households over a three-year period. Under
the terms of the proposed agreement, Enel will also purchase 3 million
shares of newly issued Echelon common stock. Answers to some background
questions about what was announced today follow.
Q1. What is the status of the definitive agreement?
A1. Enel and Echelon are negotiating two definitive agreements, one
agreement for Enel's purchase of three million shares of Echelon's common
stock and a separate agreement relating to the products and services
that will be used in Enel's Contatore Elettronico system. The companies
expect to complete these agreements in June.
Q2. What are the proposed terms of the common stock sale, including
the price?
A2. The parties are still negotiating the stock purchase agreement
and it would be premature to discuss all of the terms at this time.
However, under the terms of the memorandum of understanding, Enel's
purchase price for the shares would be 110% of the average closing trade
price for Echelon's Common Stock on the NASDAQ National Market for the
ten (10) trading days ending on the trading date prior to the closing
date; provided that such price shall be no greater than $43.6425 and
no less than $29.0950, a reference range centered around 110% of the
closing trade price for Echelon's Common Stock on the NASDAQ National
Market at the signing of the memorandum of understanding.
Q3. What is the Contatore Elettronico system?
A3. Contatore Elettronico is the name of Enel's on-going project that
includes a remote meter reading system, a customer management system,
and a value added services delivery system. In particular, the Contatore
Elettronico includes an innovative system to remotely read and manage
the domestic consumption of energy. The system includes remotely controllable
electronic meters in each home and building, data concentrators located
in medium voltage/low voltage substations that feed power to the homes
and buildings, and central servers in which the network data bases are
located. Under the proposed agreement, signaling between the data concentrators
and the electronic meters will be implemented over the existing electrical
wiring using Echelon's power line transceivers. A telecommunications
network will be established for signaling between the central servers
and the remote data concentrators.
Q4. How many homes and businesses would be connected to the Contatore
Elettronico system?
A4. While the parties have not yet entered into a definitive agreement,
it is expected that approximately 27 million homes and businesses will
be connected to this system.
Q5. If the parties enter into a definitive agreement what is the approximate
value of Echelon's products that will be used in the Contatore Elettronico
system?
A5. While the parties have not yet entered into a definitive agreement,
it is anticipated that more than $300 million of Echelon products will
be used in the Contatore Elettronico system over the three-year deployment
period.
Q6. When will the deployment of the Contatore Elettronico system begin?
A6. The parties expect significant deployment to start in calendar
year 2001.
Q7. Which Echelon products will be used in the Contatore Elettronico
system?
A7. If the parties enter into a definitive agreement, this project
will use Echelon's PLT-22 power line communications technology for communications
to the home and within the home. The devices in this network will be
managed by Echelon's LNS™ software running on the central servers.
The system will include additional products supplied by Echelon, including
among others, data concentrators located in the electrical substations.
Q8. What are examples of value added services that could be performed
by this system?
A8. The initial set of planned services include remote meter reading,
demand side management, and remote connection/disconnection of meters.
There are many other potential value added services that could be deployed
on the Contatore Elettronico infrastructure over time, such as security
monitoring, remote diagnostics for electrical appliances, and remote
control of residences.
Q9. Does the Contatore Elettronico system provide services that are
unique to Italy or could this system architecture be deployed in other
countries, too?
A9. The services that Enel plans to provide in Italy are the same types
of services required by utilities and telecommunications companies in
countries throughout the world < and the same LonWorks system infrastructure
can be applied to these countries as well. This provides a unique opportunity
for appliance manufacturers, consumer electronics companies, heater
manufacturers, alarm system suppliers, and other manufacturers to design
to a common platform < Echelon's LonWorks system < for deployment to
markets throughout the world.
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Echelon, LonWorks, LonMark, the LonMark logo,
Neuron, and the Echelon logo are trademarks of Echelon Corporation registered
in the United States and other countries. LNS is a trademark of Echelon
Corporation. Other marks belong to their respective holders.
This press release may contain statements
relating to future plans, events or performance. These forward-looking
statements are based on the beliefs of the management of ENEL and Echelon
as well as on assumptions made by and information available to these companies
at the time these statements are made. Such statements may involve risks
and uncertainties, including the risk that the definitive agreement is
not reached after negotiation, that any required regulatory approval are
not obtained, that the transactions contemplated are challenged by third
parties and other risks identified in ENEL's and Echelon's SEC filings.
Actual results, events and performance may differ materially. Readers
are cautioned not to place undue reliance on these forward-looking statements,
which speak only as of the date hereof. Neither ENEL nor Echelon undertake
any obligation to release publicly the result of any revisions to these
forward-looking statements that may be made to reflect events or circumstances
after the date hereof or to reflect the occurrence of unanticipated events.
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