UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Date of Report February 17, 1994
ENCORE COMPUTER CORPORATION
(Exact name of registrant as specified in its
charter)
Delaware Commission File No. 0-13576 04-2789167
(State of Incorporation) (Commission File Number) (I.R.S. Employer
Identification No.)
6901 West Sunrise Blvd.
Fort Lauderdale, Florida 33313
(Address of Principal Executive Office (Zip Code)
Telephone: 305-587-2900
Item 5. Other Events
As of February 4, 1994 (the "Closing Date"), Encore Computer
Corporation ("Company") and Gould Electronics Inc. ("Gould")
consummated the transaction described below.
As of the Closing Date, Gould (a wholly owned subsidiary of
Japan Energy Corporation) exchanged $100,000,000 of indebtedness
owed to it by the Company for 1,000,000 shares of the
Company's Series E Convertible Preferred Stock ("Series E")
with a liquidation preference of $100,000,000. The Series E is
senior in liquidation priority to all other classes of the
Company's preferred and common stock.
The principal terms of the Series E are:
(i) 6% cumulative annual dividend which the Company can
elect to (i) pay in additional shares of Series E valued at
its liquidation preference until shareholders' equity
exceeds $50,000,000 or (ii) accumulate and pay in cash when
shareholders' equity exceeds $50 million.
(ii) a liquidation preference of $100 per share.
(iii) convertible, at the holder's option, into the
Company's common stock at the liquidation preference divided
by $3.25 per share (subject to potential adjustments for
splits, etc.) only (a) if the shareholder is a United States
citizen or a corporation or other entity beneficially owned
in the majority by United States citizens; or (b) in
connection with an underwritten public offering.
(iv) convertible, at the Company's option in accordance
with the conversion methodology described in (iii) above
if the price of the common stock exceeds $3.90 per share
for twenty consecutive days and (i) a buyer is
contractually committed to purchase for at least $3.90
per share at least 50% of the shares into which all
outstanding Series E would be converted; or (ii) a buyer is
contractually committed to purchase for at
least $3.50 per share at least 75% of the shares into
which all outstanding Series E would be converted.
(v) non-voting, except for the right to approve
actions adversely affecting the Series E.
The conversion of the indebtedness into Series E will reduce the
Company's annual interest expense by approximately $7 million.
However, dividends paid or accumulated to shareholders of the
Series E reduces the net income available to common shareholders
thereby reducing primary earnings per share. No other changes
to the Company's Income Statement are anticipated.
Prior to the transaction, Japan Energy Corporation, the
successor to Nikko Kyodo Co., Ltd., and its wholly owned
subsidiaries including Gould (the "Japan Energy Group")
beneficially owned 62.1% of the Company's outstanding common
stock assuming the full conversion of all outstanding shares of
preferred stock. Upon completion of this transaction, Japan
Energy Group's beneficial ownership on a fully converted
basis increased to 71.1%.
In connection with this transaction, the United States
Defense Investigative Service ("DIS") reviewed the
relationship between the Company, Japan Energy Corporation (a
Japanese corporation) and its wholly owned subsidiaries
(including Gould), under the United States government
requirements relating to foreign ownership, control or
influence and have indicated that they have no objection to the
business relationship.
Since 1989, the principal source of financing for the
Company has been provided by Japan Energy Corporation and its
wholly owned subsidiaries. The Company is dependent on the
continued long term financial support of the Japan Energy
Group. Should the Japan Energy Group withdraw its financial
support at any time prior to the time the Company returns to
profitability by either (i) enforcement of its rights under
the terms of its revolving credit agreement with the Company
in the event of any future default by the Company related to
covenants contained therein, (ii) failing to renew the
revolving credit agreement which expires on April 16, 1994 or
(iii) failing to provide additional credit as needed, the
Company anticipates it will not be able to secure financing from
other sources. In such a case, the Company will suffer a
severe liquidity crisis and it will have difficulties settling
its liabilities in the normal course of business.
Item 7. Financial Statements and Exhibits
(c) The Company files herewith the following exhibit: Unaudited
pro forma Consolidated Balance Sheet dated as of December 31,
1993 showing the financial position of the Company and its
subsidiaries after giving effect to the transaction described
in Item 5 hereof.
Pursuant to the requirements of the Securities Exchange Act of
1934, the Company has duly caused this report to be signed on its
behalf by the undersigned hereunto duly authorized.
Encore Computer Corporation
(Company)
T. MARK MORLEY February 17, 1994
T. Mark Morley (Date)
Vice President, Finance
and Chief Financial Officer
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ENCORE COMPUTER CORPORATION
Pro Forma Consolidated Balance Sheet
(unaudited)
(in thousands except share data)
December 31,
December 31, Pro Forma 1993
1993 Adjustments Notes Pro Forma
ASSETS
Current assets:
Cash and cash equivalents $ 3,751 $ $ 3,751
Accounts receivable, less allowances 16,555 16,555
Inventories 17,764 17,764
Prepaid expenses and other current assets 3,047 3,047
Total current assets 41,117 41,117
Property and equipment, net 37,603 37,603
Capitalized software, net 4,403 4,403
Other assets 947 947
Total assets $ 84,070 $ 84,070
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Current portion of long term debt $ 197 $ 197
Current portion of long term debt, related parties 111,924 $ (100,000) A 11,924
Accounts payable and accrued liabilities 37,421 1,743 B 39,164
Total current liabilities 149,542 (98,257) 51,285
Long term debt 995 995
Other liabilities 93 93
Total liabilities 150,630 (98,257) 52,373
Shareholders' equity (capital deficiency):
Preferred stock, $.01 par value; authorized 10,000,000 shares:
Series A Convertible Participating Preferred,
issued 73,641 shares in 1993 and 1992 1 1
6% Cumulative Series B Convertible Preferred, issued 591,625
in 1993 and 1992, with an aggregate liquidation preference
of $59,162,500 in 1993 and 1992 6 6
6% Cumulative Series D Convertible Preferred, issued 905,283
in 1993 and 1992, with an aggregate liquidation preference
of $90,528,300 in 1993 and 1992 9 9
6% Cumulative Series E Convertible Preferred 1,000,000 issued
with a liquidation preference of $100,000,000 10 C 10
Common stock, $.01 par value; authorized150,000,000 shares; issued
32,505,688 and 31,232,215 in 1993 and 1992 327 327
Additional paid-in capital 207,951 98,247 C 306,198
Accumulated deficit (274,854) (274,854)
Total shareholders' equity (capital deficiency) (66,560) 98,257 31,697
Total liabilities and shareholders' equity (capital deficiency) $ 84,070 $ 0 $ 84,070
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The accompanying notes are an integeral part of the Pro Forma Consolidated
Balance Sheet.
Encore Computer Corporation
Notes to Pro Forma Condensed Consolidated Balance Sheet
Note A. Reflects the exchange of $100,000,000 of existing
debt for Convertible Series E Preferred Stock. The Company
is currently in negotiations to extend the maturity date of
the revolving credit facility with Gould by 15 months and
anticipates completing the transaction prior to issuance of its
1993 audited financial statements.
Note B. Includes (i) costs accrued for issuance of the
Series E of $700,000 and (ii) because the transaction is
considered a troubled debt restructuring, interest accrued on
the converted loan balance for the remainder of the loan
agreement ($11,924,000 at 7% per annum for 15 months).
Note C. Reflects par value of the Series E issued to Gould in
exchange for cancellation of indebtedness. The exchange
transaction was recorded as follows (in thousands):
Total Indebtedness exchanged $100,000
Less:
Par Value of shares issued (1,000,000 shares at $.01 par value) (10)
Accrued issuance costs (700)
Accrued Interest on Revolving Loan Agreement (1043)
Additional paid in capital $ 98,247
