Questions & Answers for Release dated May 3rd 2004 Echelon Announces Arbitration with Enel SpA
Questions regarding the Arbitration
(press release)
What is the nature of the arbitration?
Enel claims that the Research and Development and Technological Cooperation Agreement dated June 28, 2000 ("R&D Agreement") between the parties obligates Echelon to supply Enel with additional concentrator and metering kit products for use outside of Italy and to cooperate with Enel to market Enel's Contatore Elettronico system internationally.
Echelon believes that it has fulfilled its obligations under the R&D Agreement; including its obligations regarding the sale of products and joint marketing, and that Enel's claims are without merit.
What ruling is Enel asking the arbitrators to make?
Enel is asking the arbitrators to find that Enel's interpretation of Echelon's supply and marketing obligations is correct, and to compel Echelon to sell to Enel an unspecified amount of additional products, to jointly market the Contatore Elettronico system with Enel outside of Italy, and to pay unspecified damages.
Why won't you sell products to Enel?
Echelon has and continues to sell Enel products for use by Enel in Italy for its Contatore Elettronico program. We believe that Enel has misinterpreted Echelon's supply obligations under the R&D Agreement and is seeking to expand its purchase rights beyond that which the R&D Agreement provides.
Why aren't you co-marketing with Enel?
Echelon has offered to jointly market with Enel, and believes that it has satisfied its co-marketing obligations under the R&D Agreement.
Questions regarding the Arbitration Process
Why arbitration?
The R&D Agreement provides that all disputes are to be settled by binding arbitration.
What rules apply?
The arbitration will be held under the International Chamber of Commerce (ICC) rules of arbitration. The R&D Agreement provides that the arbitrators will apply the laws of Italy when interpreting the agreement. The arbitration will take place in London.
How does the arbitration process work?
The arbitration will be held under the International Chamber of Commerce (ICC) rules of arbitration, which provides for a three-person panel. Echelon and Enel will each select one member of the arbitration panel. The ICC Arbitration Court will then select a neutral third arbitrator. A majority of the panel members can make a determination regarding the claims.
How long will the arbitration take?
As with any legal dispute, it is difficult to predict how long the case will take. A decision from the arbitration panel could take six months to a year, or even longer.
Business Questions
Even if Echelon is not obligated to supply, what is the downside to Echelon of selling additional products to Enel?
We believe that Enel has misinterpreted Echelon's supply obligations under the R&D Agreement and that Enel is seeking to expand its purchase rights beyond that which the Agreement provides. While we are pleased that Enel is happy with the system and wants to purchase even more of our products, to date we have not been provided with enough information to evaluate the business impact of Enel's request.
What impact does this have on your Enel business?
We do not believe that this arbitration has any impact on the current deployment of Enel's Contatore Elettronico system in Italy; we continue to work closely with Enel on this project and the project continues to do well.
What impact does this have on your NES business?
The arbitration does not affect our activities in connection with our Networked Energy Services (NES) system. Given that the nature of this dispute is that Enel wants us to supply more product, we believe that other utilities will not view these proceedings as a negative against Echelon's technology.
What is the expected cost of the arbitration; how will it affect Echelon’s financial results?
We can not estimate the cost of arbitration at this time. We expect that we will begin to incur arbitration expenses this quarter.
These Questions and Answers contains forward-looking statements relating to the arbitration request by Enel, the deployment of Enel’s Contatore Elettronico system in Italy and future plans, events or performance relating to Echelon’s Networked Energy Services system. Such statements involve risks and uncertainties, including risks associated with uncertainties pertaining to the resolution of the dispute with Enel, the timing of resolving the dispute through arbitration or otherwise, the costs of arbitration, the affect of diverting management’s attention from other business to the dispute, the effect of the dispute or a resolution thereof on Echelon’s revenues and gross profit, the potential for damages or losses, the potential for either Echelon or Enel to seek to terminate the R&D Agreement, the effect of the arbitration, if any, on Echelon’s Networked Energy Services product activities and other risks identified in 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. Echelon undertakes no 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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