UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________to _______.
Commission File No. 0-13576
ENCORE COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 042789167
(State of Incorporation) (I.R.S.EmployerIdentification No.)
6901 West Sunrise Blvd.
FortLauderdale,Florida 33313
(Addressof Principal Executive Offices) (Zip Code)
Telephone: 305-587-2900
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. X Yes No
The number of shares outstanding of the registrant's only
class of Common Stock as of November 13, 1995 was
35,639,544.
<PAGE> 1
Encore Computer Corporation
Index
Page
Part I Financial Information
Item 1 Condensed Consolidated Financial Statements 3
Notes to Condensed Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 16
Part II OTHER INFORMATION 21
Signature Page 22
<PAGE> 2
ENCORE COMPUTER CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands except per share data)
Three Months Ended Nine Months Ended
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
--------- ----------- ---------- ----------
Net sales:
Equipment $3,727 $7,229 $13,604 $28,992
Service 6,139 9,329 21,128 29,391
------ ------ ------ -------
Total 9,866 16,558 34,732 58,383
------ ------ ------ ------
Costs and expenses:
Cost of equipment sales (Note B) 3,323 3,925 29,431 19,061
Cost of service sales 4,692 6,435 15,779 19,668
Research and development 8,216 7,512 25,665 21,804
Sales, general and administrative 8,005 8,565 26,026 26,612
Restructuring costs (Note B) - - 4,499 -
------ ------ ------- -------
Total 24,236 26,437 101,400 87,145
------ ------ ------- ------
Operating loss (14,370) (9,879) (66,668)(28,762)
Interest expense (380) (722) (2,590) (1,940)
Interest income 25 24 105 58
Other (expense)/income, net (109) 16 66 230
-------- -------- ------- -------
Loss before income taxes (14,834) (10,561) (69,087)(30,414)
Provision for income taxes (53) 200 187 200
--------- -------- -------- --------
Net loss $(14,781) $(10,761) $(69,274)$(30,614)
======== ========= ======== =========
Net loss attributable to common
shareholders $(19,751) $(14,734) $(82,741)$(40,568)
========= ========= ========= ========
Net loss per common share $ (0.47) $(0.36) $ (1.97) $(1.00)
========= ======= ========= =======
Weighted average shares of
of common stock 42,447 41,148 42,010 40,585
======== ====== ====== =====
The accompanying notes are an integral part of the
condensed consolidated financial statements.
<PAGE> 3
ENCORE COMPUTER CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
(Unaudited)
October 1, December 31,
1995 1994
----------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,958 $ 2,517
Accounts receivable, less allowances 10,817 19,855
Inventories (Note C) 17,444 27,555
Prepaid expenses and other current assets 1,323 1,863
------ ------
Total current assets 32,542 51,790
Property and equipment, net 36,198 40,921
Capitalized software, net 2,831 5,139
Other assets 294 912
------- -----------
Total assets $71,865 $ 98,762
======= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Current portion of long term debt-related
parties (Note E) $ 27,006 $ -
Current portion of long term debt-other (Note E) 167 195
Accounts payable and accrued liabilities (Note D) 30,051 31,358
-------- ----------
Total current liabilities 57,224 31,553
Long term debt-related parties (Note E) - 88,421
Long term debt-other (Note E) 702 828
------- ---------
Total liabilities 57,926 120,802
------- ---------
Shareholders' equity (capital deficiency)(Note F):
Preferred stock, $.01 par value; authorized
10,000,000 shares: Series A Convertible Participating
Preferred, issued 73,641 shares in 1995 and 1994 1 1
6% Cumulative Series B Convertible Preferred, issued
696,892 and 666,453 in 1995 and 1994, respectively,
with an aggregate liquidation preference of
$69,689,200 and $66,645,300 in 1995 and 1994, respectively 7 7
6% Cumulative Series D Convertible Preferred, issued 1,066,367
and 1,019,787 in 1995 and 1994, respectively, with an
aggregate liquidation preference of $106,636,700 and
$101,978,700 in 1995 and 1994, respectively 10 10
6% Cumulative Series E Convertible Preferred, issued 1,089,994
and 1,042,381 in 1995 and 1994, with an aggregate liquidation
preference of $108,999,400 and $104,238,100 in 1995 and 1994,
respectively 11 10
6% Cumulative Series F Convertible Preferred, issued 510,037
in 1995 with an aggregate liquidation preference
of $51,003,700 5 -
6% Cumulative Series G Convertible Preferred, issued 550,000
in 1995 with an aggregate liquidation preference
of $55,000,000 6 -
Common stock, $.01 par value; authorized 200,000,000 and
150,000,000 shares in 1995 and 1994, respectively; issued
35,509,833 and 34,076,124 in 1995 and 1994, respectively 355 341
Additional paid-in capital 412,228 307,001
Accumulated deficit (398,684) (329,410)
--------- -------
Total shareholders' equity (capital deficiency) 13,939 (22,040)
Total liabilities and shareholders' equity ------- --------
(capital deficiency) $71,865 $ 98,762
======= ========
The accompanying notes are an integral part of the condensed
consolidatedfinancial statements.
<PAGE> 4
ENCORE COMPUTER CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Nine Months Nine Months
Ended Ended
October 1, October 2,
1995 1994
------------ ----------
Cash flows from operating activities:
Net loss $ (69,274) $(30,614)
Adjustments in net loss to arrive at net cash used
in operating activities:
Depreciation and amortization 8,773 7,844
Non cash compensation (Note F) 1,425 -
Inventory obsolescence and writedown to lower
of cost or market 12,097 (620)
Bad debt provision/(credit) 2,996 (477)
Restructuring charges 4,499 -
Net changes in operating assets and liabilities:
Accounts receivable 6,042 (1,485)
Inventories (1,986) (6,473)
Other current assets 353 290
Other assets 618 (73)
Accounts payable and accrued liabilities (5,847) (1,339)
Other liabilities - (93)
-------- --------
Cash used in operating activities (40,304) (33,040)
-------- --------
Cash flows from investing activities:
Additions to property and equipment (2,918) (9,181)
Capitalization of software costs (1,231) (2,327)
------- -------
Cash used in investing activities (4,149) (11,508)
------- --------
Cash flows from financing activities:
Net borrowings under revolving loan agreements 43,585 45,912
Principal payments of long term debt (154) (124)
Preferred stock dividends paid (1) (2)
Issuance of common stock 1,464 1,546
------ -------
Cash provided by financing activities 44,894 47,332
------ -------
Net increase in cash and cash equivalents 441 2,784
Cash and cash equivalents, beginning 2,517 3,751
----- ------
Cash and cash equivalents, ending $ 2,958 $ 6,535
========== =========
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE> 5
Supplemental disclosure of cash flow information (in thousands):
Nine Months Nine Months
Ended Ended
October 1, October 2,
1995 1994
----------- -----------
Cash paid during the period for interest $ 1,776 $3,451
Cash paid during the period for taxes 496 -
Supplemental schedule of non-cash investing and
financing activities:
On February 4, 1994, the Company exchanged
$100,000,000 of idebtedness for preferredstock.
On March 17, 1995, the Company exchanged $50,000,000
of indebtedness for preferred stock. Refer to Note E
of Notes to Condensed Consolidated Financial
Statements.
On August 17, 1995, the Company exchanged $55,000,000
of indebtedness for preferred stock. Refer to Note E
of Notes to Condensed Consolidated Financial
Statements.
During the third quarter of 1995, the Company
recorded a $400,000 adjustment of estimate transaction
costs related to Gould capital transactions.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE> 6
ENCORE COMPUTER CORPORATION
Condensed Statements of Shareholders' Equity (Capital Deficiency)
(in thousands except share data)
Preferred Stock
Series A Series B Series D
Par Par Par
Shares Value Shares Value Shares Value
-----------------------------------------
Balance 12/31/94 73,641 $ 1 666,453 $7 1,019,787 $10
Common stock options exercised,
$.69 to $1.63 per share
Shares issued through employee stock
purchase plan at a price of $1.7531
Dividends Issued to Preferred
Stockholders In Shares of Series B 30,439 -
Dividends Issued to Preferred
Stockholders In Shares of Series D 46,580 -
Dividends Issued to Preferred Stockholders
In Shares of Series E
Dividends Issued to Preferred Stockholders
In Shares of Series F
Cash paid in lieu of fractional share dividends
Issuance of Series F Convertible
Preferred Stock (Note E)
Issuance of Series G Convertible
Preferred Stock (Note F)
Extension of expiration date on outstanding
grant of common stock options
Adjustment of estimated transaction costs
relating to Gould capital transactions
Net loss
----------------------------------------
Balance October 1, 1995 73,641 $ 1 696,892 $7 1,066,367 $10
=======================================
Preferred Stock
Series E Series F Series G
Par Par Par
Shares Value Shares Value Shares Value
----------------------------------------
Balance 12/31/94 1,042,381 $ 10 - $ - - $ -
Common stock options exercised,
$.69 to $1.63 per share
Shares issued through employee stock
purchase plan at a price of $1.7531
Dividends Issued to Preferred Stockholders
In Shares of Series B
Dividends Issued to Preferred Stockholders
In Shares of Series D
Dividends Issued to Preferred Stockholders
In Shares of Series E 47,613 1
Dividends Issued to Preferred Stockholders
In Shares of Series F 10,037 -
Cash paid in lieu of fractional share
dividends
Issuance of Series F Convertible
Preferred Stock (Note E) 500,000 5
Issuance of Series G Convertible
Preferred Stock (Note F) 550,000 6
Extension of expiration date on outstanding
grant of common stock options
Adjustment of estimated transaction costs
relating to Gould capital transactions
Net loss
-----------------------------------------
Balance October 1, 1995 1,089,994 $ 11 510,037 $5 550,000 $ 6
========================================
Common Stock Shareholders'
Additional
Equity
Par Paid-in
Accumulated (Capital
Shares Value Capital Deficit Deficiency)
-------------------------------------------------
Balance 12/31/94 34,076,124 $341 $ 307,001 $(329,410) $ (22,040)
Common stock options exercised,
$.69 to $1.63 per share 1,189,272 12 1,024 1,036
Shares issued through employee stock
purchase plan at a price of $1.7531
244,437 2 426 428
Dividends Issued to Preferred Stockholders
In Shares of Series B -
Dividends Issued to Preferred Stockholders
In Shares of Series D -
Dividends Issued to Preferred Stockholders
In Shares of Series E
1
Dividends Issued to Preferred Stockholders
In Shares of Series F -
Cash paid in lieu of fractional share
dividends (1) (1)
Issuance of Series F Convertible
Preferred Stock (Note E) 44,834 44,839
Issuance of Series G Convertible
Preferred Stock (Note F) 57,119 57,125
Extension of expiration date on outstanding
grant of common stock options 1,425 1,425
Adjustment of estimated transaction costs
relating to Gould capital transactions 400 400
Net loss (69,274) (69,274)
------------------------------------------------
Balance October 1, 1995 35,509,833 $355 $412,228 $(398,684) $13,939
================================================
The accompanying notes are an intergral part of the consolidated
financialstatements.
<PAGE> 7
Encore Computer Corporation
Notes to Condensed Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Basis of Presentation and Other Matters
The accompanying condensed consolidated financial
statements are unaudited and have been prepared by
Encore Computer Corporation ("Encore" or the "Company")
in accordance with generally accepted accounting
principles. Certain information and footnote
disclosures normally included in the Company's annual
consolidated financial statements have been condensed
or omitted. It is suggested that these condensed
consolidated financial statements be read in
conjunction with the audited consolidated financial
statements for the year ended December 31, 1994.
The condensed consolidated financial statements, in the
opinion of the Company, reflect all adjustments
(including normal recurring accruals) necessary for a
fair statement of the results for the interim periods.
All adjustments made during the interim period are
normal recurring adjustments except for the charge
recorded in the three month period ended July 2, 1995
associated with the restructuring of operations and the
charge relating to the termination of the Amdahl
agreement. The nature of these charges is discussed in
more detail in Note B below. The year-end condensed
balance sheet data is derived from audited financial
statements but does not include all disclosures
required by generally accepted accounting principles.
Certain reclassifications have been made to conform
prior period data to current period presentation.
The results of operations for the interim periods are
not necessarily indicative of the results of operations
for the fiscal years.
The accompanying financial statements have been
prepared on the basis of accounting principles that
presume the realization of assets and the settlement of
liabilities in the ordinary course of business. As
discussed more fully in Notes E and F of Notes to
Condensed Consolidated Financial Statements, the
principal source of financing for the Company has been
provided by Japan Energy Corporation ("Japan Energy") a
Japanese Corporation and certain of its wholly owned
subsidiaries including Gould Electronics, Inc.
("Gould") and EFI International, Inc. ("EFI")
(collectively, the "Japan Energy Group"). 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 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 would suffer a severe liquidity crisis and have
difficulty settling its liabilities in the ordinary
course of business.
<PAGE> 8
Per Share Data
Per share data is calculated based upon the weighted
average number of shares of common stock and common
stock equivalents outstanding. In fiscal periods which
report net losses, the calculation does not include the
effect of common stock equivalents such as stock
options since the effect on the amounts reported would
be antidilutive. Series A Convertible Participating
Preferred Stock ("Series A") has been considered common
stock (on an assumed converted basis) for purposes of
income (loss) per share calculations. The Series B
Convertible Preferred Stock ("Series B"), Series D
Convertible Preferred Stock ("Series D"), Series E
Convertible Preferred Stock ("Series E"), Series F
Convertible Preferred Stock ("Series F") and Series G
Convertible Preferred Stock ("Series G") have been
determined to be common stock equivalents but are not
included in the weighted average number of shares of
common stock and equivalents because the effect would
be antidilutive for the periods presented.
At December 31, 1994, the Company reported a capital
deficiency and was precluded from paying dividends on
its preferred stock outstanding. Accordingly, the
normal quarterly dividends payable January 15, 1995 for
the period October 15, 1994 to January 15, 1995 on the
Series B, Series D and Series E in the amounts of
$999,600, $1,529,600 and $1,563,500, respectively, were
accumulated by the Company. On March 17, 1995, the
Company completed an exchange of Series F Convertible
Preferred Stock for indebtedness owed. Following the
exchange, the Company reported a capital surplus and
was able to pay all dividends previously accumulated.
Accordingly, it declared all accumulated dividends
payable on April 15, 1995. In addition, dividends
payable for the period January 15, 1995 to April 15,
1995 on the Series B, Series D, and Series E of
$1,014,500, $1,552,600, and $1,587,000, respectively
and dividends payable for the period of March 17, 1995
to April 15, 1995 on the Series F of $250,000, were
paid in additional shares of like preferred stock on
April 15, 1995. In computing the loss per common
share, these dividends increased the loss for the nine
month period ended October 1, 1995 as reported for the
per common share calculation.
On July 2, 1995, the Company reported a capital
deficiency and was precluded from paying dividends on
its preferred stock outstanding. Accordingly, the
normal quarterly dividends payable July 15, 1995, for
the period April 15, 1995 to July 15, 1995 on the
Series B, Series D, Series E and Series F in the
amounts of $1,029,800, $1,575,800, $1,610,800 and
$753,700, respectively, were accumulated by the
Company. On August 17, 1995, the Company completed an
exchange of Series G Convertible Preferred Stock for
indebtedness owed. Following the exchange, the Company
reported a capital surplus and was able to pay all
dividends previously accumulated. Accordingly, it
declared all accumulated dividends payable on October
15, 1995. In computing the loss per common share, the
preferred dividends paid increased the loss for the
nine month period ended October 1, 1995 by $13,467,000
as reported for the per common share calculation. The
dividends paid October 15, 1995 increased the loss for
the three month period ended October 1, 1995 by
$4,970,000 as reported for the per common share
calculation.
For the three and nine month periods ended October 2,
1994, the Company paid dividends on the Series B,
Series D and Series E of $3,973,000 and $9,954,000,
respectively. In computing the loss per common share,
these dividends increased the loss for the three and
nine month periods ended October 2, 1994 as reported
for the per common share calculation.
<PAGE> 9
B. Termination of Amdahl Agreement
During 1994, the Company and Amdahl Corporation
("Amdahl") entered into a five year reseller agreement
(the "Amdahl Agreement") which granted Amdahl the right
to distribute the Company's Infinity Storage Products
under the Amdahl brand. The agreement provided that
Amdahl would receive marketing and distribution rights
to the product. The Amdahl Agreement as amended,
established procurement schedules, which if certain
product requirements were met, would have required
Amdahl to purchase a significant amount of product from
the Company. Sales under the Amdahl Agreement were
anticipated to begin in the second half of 1994 with
significant sales volumes scheduled in the first half
of 1995.
After entering into the agreement certain significant
contractual issues arose delaying the sale of products.
In February 1995, the Company notified Amdahl of its
intent to terminate the Amdahl Agreement; however,
Amdahl filed suit in the Delaware Chancery Court on
March 29, 1995, seeking to prevent the Company from
terminating the agreement. On March 30, 1995, the
Company and Amdahl entered in to a "Stand-Still"
Agreement to preserve the status quo until the
companies could more thoroughly discuss the contractual
issues. On April 24, 1995, the companies jointly
announced that they had reached an agreement in
principle as to the existing issues and the Stand-Still
agreement had been extended to allow sufficient time to
document those agreements. However, the companies were
unable to reach a final agreement. On June 8, 1995,
Encore announced that the Amdahl Agreement had been
terminated. The suit filed by Amdahl was dismissed
without predjudice on September 19, 1995.
The Company's inventory levels and overhead costs were
based on a plan designed to meet accelerating sales
commitments defined in the Amdahl Agreement. Because
of the termination of the Amdahl Agreement, product
sales have fallen well short of expectations and all
elements of the Company's results of operations and
future short term prospects have been adversely
affected. As a result of these events, during the
quarter ended July 2, 1995, the Company charged
operations $19,241,000, consisting of $11,442,000
charged to cost of sales to reduce inventory carrying
amounts to estimated net realizable value as well as
$2,800,000 charged to cost of sales for uncollected
Amdahl accounts receivable; $500,000 charged to
research and development to write down capitalized
software projects in process; and $4,499,000 charged to
restructuring costs in recognition of the impairment in
value of certain assets, severance and benefit pay of
$1,335,000 as a result of a 95 person reduction in
workforce, principally in manufacturing and
development, and other expenses associated with the
termination of the Amdahl Agreement. Approximately
$1,905,000 of these charges required cash expenditures
in the third quarter of 1995.
<PAGE> 10
C. Inventories
Inventories consist of the following (in thousands):
October 1, December 31,
1995 1994
Purchased parts $ 5,533 $ 3,307
Work in process 9,419 23,377
Finished goods1, 721 482
Loaned computer equipment
and consignment inventory 771 389
--------- ---------
$ 17,444 $ 27,555
========= =========
At December 31, 1994, inventories included $18,567,000
of storage product acquired to meet anticipated demand
under the Amdahl Agreement described in more detail in
Note B. Storage product inventory after provision to
restate inventory at its estimated net realizable value
amounted to $9,921,000 at October 1, 1995. In light of
the termination of the Amdahl Agreement, the Company is
expanding its programs to market the Company's Storage
Products through various other channels. This includes
direct, distributor and OEM sales and marketing
campaigns.
D. Accounts Payable and Accrued Liabilities;
Accounts payable and accrued liabilities consist of the
following (in thousands):
October 1, December 31,
1995 1994
Accounts payable $ 6,140 $ 10,582
Accrued salaries and benefits 5,922 4,663
Accrued restructuring costs 4,369 4,926
Accrued interest 5,636 1,882
Accrued taxes 3,846 3,359
Deferred income,
principally maintenance contracts 1,906 1548
Other accrued expenses 2,232 4,398
--------- ---------
$ 30,051 $ 31,358
========= =========
Accrued interest of $5,636,000 at October 1, 1995,
includes $4,342,000 due to Gould under the Short Term
Loan Agreement. As discussed in Note E, the balance
also includes $1,294,000 of interest under the Short
Term Loan Agreement accrued in connection with the
March 17, 1995, recapitalization. Total interest
expense on indebtedness to Gould for the three and nine
month periods ended October 1, 1995 was $343,000 and
$2,480,000, respectively.
Accrued interest of $1,882,000 at December 31, 1994,
includes $110,000 due to Gould under the Revolving Loan
Agreement. As discussed in Note E, the balance also
includes $1,772,000 of interest under the Revolving
Loan Agreement accrued in connection with the February
4, 1994, recapitalization. Total interest expense on
indebtedness to Gould for the three and nine month
periods ended October 2, 1994 was $677,000 and
$1,772,000, respectively.
<PAGE> 11
E. Debt
Debt consists of the following (in thousands)
October 1, December 31,
1995 1994
Debt to unrelated parties:
Mortgages payable and capital
lease obligations $ 869 $ 1,023
Less:
Current portion of debt (167) (195)
-------- ---------
Total long term debt to unrelated parties $ 702 $ 828
======== =========
Debt to related parties:
Revolving loan agreement with
Gould Electronics Inc. $ - $ 50,000
Credit Agreement with Gould Electronics Inc. 27,006 38,421
------- ------
Total debt to related parties 27,006 88,421
Less:
Current portion of debt 27,006 -
------ ------
Total long term debt to related parties $ - $ 88,421
======= =======
Related Party Transactions
The Japan Energy Group is a related party due to the
significant financial interests of Gould and EFI in the
Company. As of October 1, 1995, assuming full
conversion of their holdings in the Company's preferred
stock, the Japan Energy Group beneficially owned 77.0%
of the Company's common stock. Since 1989, Gould has
provided the Company with its revolving line of credit,
entered into certain borrowing agreements and entered
into certain exchanges of equity for indebtedness.
Transactions consummated in 1994 and 1995 are discussed
in more detail below and in Note F.
Revolving Loan Agreements
On February 4, 1994, the Company and Gould exchanged
$100,000,000 of indebtedness owed to Gould by the
Company for Series E Preferred Stock with a liquidation
preference of $100,000,000. $50,000,000 of the debt
exchanged was indebtedness under a Revolving Loan
Agreement ("Revolving Loan"). On April 11, 1994, the
Company and Gould agreed to increase the maximum
borrowing limit of the loan from $35,000,000 to
$50,000,000 and to extend its maturity date to April
16, 1996.
Due to continued operating losses since February 4,
1994, and the need to increase its investment in
working capital to meet management's expectation of
demand for its new storage product, the Company
exceeded the Revolving Loan's $50,000,000 maximum
<PAGE> 12
borrowing amount on September 6, 1994. From September
6, 1994, until December 21, 1994, Gould allowed the
Company to borrow additional funds in excess of the
agreement's maximum limit. On December 21, 1994, the
Company and Gould entered into an uncommitted loan
agreement (the "Short Term Loan Agreement") which the
Company used to repay borrowings in excess of the
Revolving Loan's maximum. At December 31, 1994,
borrowings under the Revolving Loan were $50,000,000.
As of March 17, 1995, the Company and Gould agreed to
cancel the $50,000,000 of indebtedness owed by the
Company to Gould under the terms of the Revolving Loan
in exchange for the issuance of 500,000 shares of the
Company's Series F Convertible Preferred Stock with a
liquidation preference of $50,000,000. The principal
terms of the Series F are similar to the terms of the
Series B, D and E, except that Series F is senior in
liquidation preference. Because of the 1995
recapitalization and refinancing, the Revolving Loan
was classified as a long term obligation at December
31, 1994.
Because of the related party nature of the transaction,
the difference between the carrying amount of the
indebtedness exchanged and the fair value of the
securities issued and other consideration granted has
been credited to additional paid-in capital. A summary
of the financial effects of the above described
transactions are as follows (in thousands):
Reduction of debt $50,000
Less:
Par value of shares issued
(500,000 shares at $.01 par value) (5)
Accrued estimated transaction costs (600)
Accrued interest on the remaining indebtedness
under the Short Term Loan Agreement for the
remaining term of the agreement (4,561)
---------
Increase in additional paid in capital $ 44,834
========
Short Term Loan Agreement
The original Short Term Loan Agreement provided that
Gould, at its sole discretion, could loan up to
$55,000,000 to the Company to provide funds for (a)
repayment of principal and interest under the revolving
loan agreement, (b) working capital purposes in the
ordinary course of business, or (c) general corporate
purposes. Borrowings originally were to mature no
later than September 30, 1995. Borrowings are
collateralized by substantially all of the Company's
tangible and intangible assets and the agreement
contains various covenants including maintenance of
cash flow, leverage and tangible net worth ratios and
limitations on capital expenditures, dividend payments
and additional indebtedness. Interest is equal to the
prime rate plus 2% (10.75% at October 1, 1995), accrues
monthly in arrears and is payable upon maturity of the
agreement. At December 31, 1994, borrowings under the
agreement were $38,421,000 plus interest.
As of March 17, 1995, the Company and Gould agreed to
increase the maximum borrowing limit to provide the
Company with an additional committed borrowing facility
of $25,000,000. The Amended and Restated Short Term
Loan Agreement increases the maximum committed
borrowing limit from $55,000,000 to $80,000,000. The
maturity date was also extended to April 16, 1996. All
other terms and conditions were unchanged.
In conjunction with the execution of the Short Term
Agreement, Gould provided the Company with waivers of
compliance with the financial covenants contained in
the agreement until January 1, 1996. In light of the
March 17, 1995 refinancing, the Short Term Loan
Agreement was classified as a long term obligation at
December 31, 1994.
<PAGE> 13
On August 17, 1995, Gould agreed to cancel $55,000,000
of indebtedness owed to it by the Company under the
Amended and Restated Short Term Loan Agreement for
550,000 shares of the Company's newly issued Series G
Convertible Preferred Stock with a liquidation
preference of $55,000,000. The principal terms of the
Series G are similar to the terms of the Series B, D, E
and F, except that Series G is senior in liquidation
preference.
Because of the related party nature of the transaction,
the difference between the carrying amount of the
indebtedness exchanged and the fair value of the
securities issued and other consideration granted has
been credited to additional paid-in capital. A summary
of the financial effects of the above described
transactions are as follows (in thousands):
Reduction of debt $55,000
Less:
Par value of shares issued
(550,000 shares at $.01 par value) (6)
Reversal of accrued interest on
previous recapitalization 3,713
Accrued interest on the remaining indebtedness
under the Short Term Loan Agreement for the
remaining term of the agreement (1,588)
--------
Increase in additional paid-in capital $ 57,119
========
In addition to the exchange of indebtedness for Series
G, the Company and Gould also agreed to amend and
restate their Short Term Loan Agreement by providing
the Company with an additional $20,000,000 uncommitted
loan facility which may be disbursed to the Company for
general corporate purposes at Goulds' absolute and sole
discretion. As amended, the Short Term Loan Agreement
provides the Company with a total credit facility of
$45,000,000. As of October 1, 1995 Encore has fully
used the $25,000,000 committed loan facility and has
borrowed $2,006,000 of the $20,000,000 uncommitted loan
facilities. As of Novmber 17, 1995 $10,326,000 has been
borrowed of the $20,000,000 uncommitted loan facility.
F. Shareholders' Equity
In 1991, the Company and Gould entered into an
intellectual property licensing agreement whereby the
Company agreed to license substantially all of its
intellectual property to Gould under certain
conditions. The intellectual property license is
royalty free and provides that as long as the Company
achieved certain revenue levels, Gould could not use
the intellectual property until January 1994.
Additionally, it allows the Company to extend its
exclusivity period for up to five additional years by
making certain cash payments to Gould. The exclusivity
period is automatically extended however, if certain
operating income levels are achieved by the Company.
Along with the August 17, 1995 refinancing Gould and
the Company agreed to extend the Company's period of
exclusive use under the terms of the Intellectual
Property license through December 31, 1995. The
Company will not achieve the revenue or operating
profit levels necessary to maintain its exclusivity
under the terms of the licensing agreement prior to
December 31, 1995. Should the Company be unable to
negotiate further extensions to its exclusivity period,
Encore could lose the exclusive right to use the
intellectual property and Gould, at its option could
begin to exercise its rights under the agreement. Such
an event could have a material adverse effect on the
Company's business.
The Series B includes terms which allow the holders to
elect a majority of the directors of the Company if
certain operating income levels are not achieved by the
Company. In connection with the August 17, 1995
refinancing, Gould has also agreed it would not vote
its shares of the Series B or take any other action as
a holder of the Series B to elect a majority of the
directors of the Company until at least December 31,
1995. The Company will not comply with the terms of
the Series B prior to December 31, 1995, at which time
Gould, as the principal holder of the Series B, could
exercise its rights to elect a majority of the
directors.
<PAGE> 14
During the three months ended July 2, 1995, options
granted to certain officers and employees of the
Company were scheduled to expire if not exercised.
However, at the time the options were scheduled to
expire the Company's policy on insider trading
effectively prevented the officers from exercising the
options. Accordingly, the Board of Directors approved
an extension of the expiration date until September 7,
1996. The extension was treated as a cancellation of
the old options and a grant of new options in the same
amount at the same exercise price. A non-cash non-
recurring compensation charge of $1,425,000 was
recorded in the three month period ended July 2, 1995,
in connection with the extension of the expiration date
of the stock options.
<PAGE> 15
Item 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
for the Three and Nine Months Ended October 1, 1995
Compared to the Three and Nine Months Ended October 2, 1994
The following is management's discussion and analysis
of the financial condition and the results of
operations of Encore Computer Corporation ("Encore" or
the "Company") for three and nine month periods ended
October 1, 1995 compared to the three and nine month
periods ended October 2, 1994. The Company's net loss
for three and nine months ended October 1, 1995 was
$14,781,000 and $69,274,000, respectively compared to
the net loss for the same periods of 1994 of
$10,761,000 and $30,614,000, respectively. As more
fully discussed in Note B of the Notes to Condensed
Consolidated Financial Statements, during the second
quarter of 1995 the Company recorded a charge to
operations totaling $19,241,000 which related to the
termination of the reseller agreement between Encore
and Amdahl Corporation.
RESULTS OF OPERATIONS:
Total net sales for the three and nine month periods of
1995 were $9,866,000 and $34,732,000, respectively
compared to net sales for the three and nine month
periods of 1994, of $16,558,000 and $58,383,000,
respectively. For the nine month period ended October
1, 1995, domestic and international sales have declined
51% and 26%, respectively from the prior year. For
this same period, domestic sales represent 48% of total
sales compared to 61% for the comparable period of
1994.
During the nine month period ended October 1, 1995
equipment sales have declined by $15,388,000 or 53% and
service sales have declined $8,263,000, or 28% from the
same period of 1994. For the three months ended
October 1, 1995, equipment sales decreased from the
comparable 1994 period by $3,502,000 or 48%, to
$3,727,000 and service sales decreased by $3,190,000 or
34%, to $6,139,000. With regard to the decrease in
equipment sales for the third quarter of 1995, the
Company's results continue to be affected by the on-
going decline in real-time and open system computer
sales. Furthermore, the termination of the Amdahl
contract has continued to adversely affect sales.
The decline in computer system sales is due in large
part to the fact that (i) certain of the Company's real-
time products have reached the end of their life cycles
and are increasingly less competitive in today's
marketplace; and (ii) acceptance of the Company's new
open systems technology products in the information
systems marketplace continues to be slower than
anticipated. Certain of the Company's principal
product offerings are proprietary architectures
developed in the early 1980s. Although product
enhancements have been made, these older products
continue to lose their technological edge.
Accordingly, the Company has been increasingly less
competitive selling into new, long-term programs.
Replacement products based on open systems technology
are available however, demand for initial versions of
these products continues to be disappointing.
<PAGE> 16
Recently, the Company announced additional new versions
of the Infinity R/T, the Infinity SP40 and the Infinity
Gateway. The Infinity R/T is a real-time system based
on Digital Equipment Corporation's Alpha AXP 21064 RISC
processor. The Infinity SP40 is Encores highest
performing storage system. The Infinity SP40
concurrently supports channel-attached mainframes, SCSI-
attached hosts, network-connected PCs, and Encore Data
Share Facilities. The ability to share data among
various operating systems including open and MVS is
unique to Encore. The Infinity Gateway is an entry
level storage system that through sharing
revolutionizes enterprise wide data access by providing
open systems users direct access to mainframe data.
The Company's ability to increase sales and improve
operating results for future periods is dependent upon
the acceptance of its Storage Products in the market
place, and the timely and successful introduction of
additional functions and features for these products.
The success of the Infinity Storage Processor will
determine the Company's future results. This product
utilizes the technology of the Infinity 90, and offers
a new, cost effective, high performance approach to
traditional applications in the high growth data
storage markets. To market the new storage product,
the Company has begun an aggressive direct distribution
and OEM sales and marketing campaign. As part of this
campaign, the Company has begun the recruiting of
industry knowledgeable sales people from leading
storage vendors and the expansion of sales offices
around the world. Additionally, Encore continues to
seek out strategic distribution partners whose industry
presence, expertise and sales channels will allow it to
more efficiently bring the Company's leading edge open
system and Storage Product offerings to market. The
Company expects future sales volumes to increase as the
sales campaign ramps up. There can be no assurance
that the Company's products which are in the early
stage of market introduction will achieve or sustain
market acceptance or successfully compete against other
larger and more financially resourceful companies'
products.
Declining service revenues in 1995 continues the trend
and reflects the effect on the service business of the
Company's prolonged decline in system sales as well as
the continued price competitiveness of the marketplace.
This trend is expected to continue; however, the rate
of decline is expected to be slower in the
international market. Because most of the Company's
installed equipment base remains in use for several
years after installation and customers generally elect
to purchase maintenance contracts for their systems
while they are in service, the rate of decline in
service revenues has lagged that of equipment revenues.
Accordingly, service revenues have become an
increasingly larger portion of the Company's sales mix.
Cost of equipment sales for the three month period of
1995 decreased from the three month comparable period
of 1994 by $602,000 or 15%. For the nine month period
of 1995 cost of equipment sales increased from
comparable period of 1994 by $10,370,000 or 54%. As a
percentage of net equipment sales, 1995 cost of
equipment sales in the three and nine month periods was
89% and 216% compared to 54% and 66% in the three and
nine month periods of 1994, respectively. The increase
in the cost of equipment sales for the nine months is
primarily attributable to a charge to cost of sales of
$14,242,000 as a result of the termination of the
Amdahl Agreement in the second quarter. Additionally,
reduced sale volumes have resulted in the Company's
fixed manufacturing costs being absorbed by fewer units
and therefore, a lower gross margin percentage. The
Company expects that if future sales volumes increase,
gross margins should continue to improve.
<PAGE> 17
Cost of service sales for the three and nine month
periods ended October 1, 1995, decreased from the
comparable periods of 1994 by $1,743,000 or 27% and
$3,889,000 or 20%, respectively. The 1995 decrease in
both the three and nine month periods is attributable
to cost reduction actions taken throughout the
reporting period to adjust expenses to levels more
consistent with the declining revenue base. However,
during the three and nine month periods ended October
1, 1995, the Company continued its investment in
various programs and infrastructure necessary to
support the launch of the Storage Product line.
Accordingly, gross margins for three and nine months
ended October 1, 1995 were 24% and 25%, as compared to 31%
and 33% for the same periods in 1994.
Improvements in revenue and operating results for the
future are dependent upon the acceptance of Encore's
new products, particularly the Infinity SP storage
processor, in the market place, the timely and
successful introduction of additional functions and
features for these products, and achieving cost savings
associated with the manufacture of these products.
Research and development costs for the three and nine
month periods ended October 1, 1995, increased from the
comparable periods of 1994 by $704,000 or 9% and
$3,861,000 or 18%, respectively. The increase in 1995
spending is due to the concentration of efforts to
finalize the development of the Infinity Storage
Product offerings for delivery. However, as a
percentage of net sales, research and development
expenses were 83% and 74%, respectively for the three
and nine month periods of 1995 compared to 45% and 37%
for the comparable periods of 1994. The percentage
increase is principally attributable to the decline in
net sales and the costs to develop new products for the
open systems storage market. The Company's products
are characterized by rapid technological advances which
necessitate frequent product introductions and
enhancements. In order to meet the market's demand the
Company has invested heavily and plans to continue high
levels of research and development expenditures to
remain competitive in the marketplace. The Company
expects research and development spending in the near
term, to remain relatively constant.
Selling, general and administrative expenses decreased
by $560,000 and $586,000, respectively for the three
and nine month periods of 1995 when compared to 1994.
The decrease in cost is attributable to cost reduction
actions taken in the third quarter to adjust expenses
to levels comparable to the same periods in 1994. As a
percentage of net sales, selling, general and
administrative costs were 81% and 75%, respectively for
the three and nine months ended October 1, 1995
compared to 52% and 46%, respectively for the
comparable three and nine month periods of 1994. The
increase as a percentage of net sales in 1995 is due
principally to the decline in 1995 revenues. An
increase in sales, general and administrative expenses
is expected in the fourth quarter as the Company
continues to expand its sales efforts for the Storage
Product.
During the second quarter, management evaluated the
Company's latest financial projections, and concluded;
(i) the termination of the Amdahl contract in the
second quarter would continue to adversely affect
product revenues; (ii) the rate of decline in real-
time equipment and service revenues continued to be
higher than its previous estimates and; (iii) the rate
of worldwide sales growth anticipated in newer product
lines continued to remain significantly lower than
projected levels. Accordingly, management restructured
the Company's operations in the second quarter and
recorded a non-recurring charge to operations of
$4,499,000. The most significant of these
<PAGE> 18
restructuring actions were: (i) a 95 person reduction
in workforce primarily in manufacturing and
development, resulting in a severance charge of
$1,335,000; (ii) a write down of $782,000 in the
carrying value of the equipment used in the support of
the Amdahl Agreement; and (iii) the write off of
$1,123,000 of capitalized software assets relating to
the Company's UNIX based product lines.
The successful acceptance in the market place of the
new storage products and their timely development and
shipment will play a key role in determining the
Company's results of operations and competitive
strength in the future. There can be no assurance that
the Company will successfully market these products.
Prolonged delays in the development and acceptance of
the Company's new products in the market place would
have a significantly adverse effect on the Company's
financial results. Management will continue to assess
the Company's cost structure and the carrying value of
its assets in light of expected future business. While
there are no existing plans to take any additional
actions, should future conditions necessitate it,
management could take action to further reduce the
Company's cost base or recognize the additional
impairment of certain long lived assets.
Interest expense for the three month period ended
October 1, 1995 decreased from 1994 levels by $342,000,
primarily due to the Company's recapitalizations as
discussed in Notes E and F of the Notes to Condensed
Consolidated Financial Statements. For the nine month
period of 1995 interest expense increased from 1994
levels by $650,000, due principally to increased 1995
debt levels as compared to the same period in 1994.
Other income for the three and nine month periods of
1995 decreased from 1994 by $125,000 and $164,000,
respectively due to higher foreign exchange losses.
Income taxes for the three and nine month periods of
1995 decreased related to operations of certain foreign
subsidiaries. For the comparable three and nine month
periods of 1994 the Company has not recorded a domestic
provision for income taxes because of the 1995 and 1994
losses incurred.
LIQUIDITY AND CAPITAL RESOURCES:
Since 1989, the primary source of financing for the
Company has been provided by the Japan Energy
Corporation and its wholly owned subsidiaries, Gould
Electronics, Inc. and EFI, International Inc.
(collectively, the "Japan Energy Group"). The Japan
Energy Group has provided the Company with its
uncommitted loan facility, credit facility, loan
guarantees, and entered into various exchanges of
indebtedness for the Company's preferred stock. As of
October 1, 1995, assuming full conversion of their
holdings in the Company's preferred stock, the Japan
Energy Group beneficially owns 77% of the Company's
common stock.
The Company has suffered recurring operating losses
including those incurred during the three and nine
month periods ended October 1, 1995 and has been unable
to generate cash flows from operating activities.
During the nine month period ended October 1, 1995, the
Company used cash in operating activities of
$40,304,000 compared to $33,040,000 used in the
comparable period of 1994. Among the significant uses
of cash in the nine months of 1995 were: (i) the
operating loss for the nine month period of
$39,484,000, net of non-cash charges and (ii) a
decrease in accounts payable of $5,847,000. These uses
of cash were partially offset by decreases in accounts
receivable of $6,042,000.
<PAGE> 19
During the nine month periods ended October 1, 1995 and
October 2, 1994, expenditures for property and
equipment were $2,918,000 and $9,181,000, respectively,
while expenditures for capitalized software were
$1,231,000 and $2,327,000, respectively. The decrease
in property and equipment additions for the nine month
period ended October 1, 1995 compared to the nine month
period ended October 2, 1994 is primarily due to
significantly higher purchases of computer equipment by
marketing and research and development in 1994 compared
to 1995.
Cash provided by financing activities for the nine
month periods ended October 1, 1995 and October 2, 1994
amounted to $44,894,000 and $47,332,000, respectively.
The principal source of financing has been through
various loan agreements provided by Japan Energy Group.
As discussed in Note E, the Japan Energy Group accepted
Series G Preferred Sock in exchange for $55,000,000 of
debt and agreed to expand its $25,000,000 loan
agreement with the Company by adding a $20,000,000
uncommitted facility. The uncommitted loan facility
agreement provides that Japan Energy Group shall have
no obligation to but may, in its absolute and sole
discretion loan up to $20,000,000 to the Company for
general corporate purposes. As of October 1, 1995,
Encore has $17,994,000 of the uncommitted facility
available and as of Novmber 17, 1995 $10,326,000 has
been borrowed of the $20,000,000 uncommitted loan
facility.
During the next twelve months and until such time in
the future as the Company returns to a state of
continued profitability, it will have to fund its
operating activities through further financing
activities. The Company believes the amounts currently
available under its credit agreement including the
uncommitted facility with Gould should be sufficient to
meet its needs through December 31, 1995. Should the
Japan Energy Group withdraw its financial support
before the Company returns to profitability by failing
to provide additional credit as needed, including
failing to fund the uncommitted portion of its loan
agreement with the Company, 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.
<PAGE> 20
Part II - Other Information
Item 1. Legal Proceedings- see page 23
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. 3.1- Certificate of Designations, Powers
rights and Preferences of Series G Convertible
Preferred Stock of Encore Computer Corporation. See
pages 1-16.
Exhibit No. 10.1-Second Amended And Restated Credit
Agreement. See pages 1-25.
Exhibit No. 10.2-Certificate. See page 1.
Exhibit No. 11 - Statement re: computation of per
share earnings. See page 24.
Exhibit No. 27 - Financial Data Schedule. See page
25.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during
the quarter ended October 1, 1995.
<PAGE> 21
Encore Computer Corporation
Signatures
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned.
Encore Computer Corporation
Date: November 20, 1995
KENNETH G. FISHER KENNETH S. SILVERSTEIN
----------------- ---------------------
Kenneth G. Fisher Kenneth S. Silverstein
Chairman of the Board Corporate Controller
and Chief Executive Officer Chief Accounting Officer
<PAGE> 22
Item 1. Legal Proceedings
As described in Note B of the Notes to Condensed
Consolidated Financial Statements, the suit filed by
Amdahl on March 29, 1995 was dismissed without
prejudice on September 19, 1995.
<PAGE> 23
Exhibit No. 11
ENCORE COMPUTER CORPORATION
Computation of Loss per Share
(unaudited)
(in thousands except per share data)
Three Months Ended Nine Months Ended
October 1, October 2, October 1, October 2,
1995 1994 1995 1994
--------- --------- --------- ----------
Net loss $(14,781) $(10,761) $(69,274) $(30,614)
Series B, D and E
Preferred Stock Dividends (4,216) (3,973) (12,463) (9,954)
Series F Preferred Stock Dividends (754) - (1,004) -
Net loss attributable to
common shareholders $(19,751) $(14,734) $(82,741) $(40,568)
Weighted average common
shares outstanding 35,083 33,784 34,646 33,221
Series A assumed converted 7,364 7,364 7,364 7,364
Weighted average shares
outstanding 42,447 41,148 42,010 40,585
Net loss per share $(0.47) $(0.36) $(1.97) $(1.00)
<PAGE> 24 ======= ======= ======= =======
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
ENCORE COMPUTER CORPORATION
Financial Data Schedule
(Unaudited)
(in thousands)
For the nine months ended October 1, 1995
Cash and cash items 2,958
Marketable securities -
Notes and accounts receivable-trade 12,558
Allowances for doubtful accounts (1,741)
Inventory 17,444
Total current assets 32,542
Property, plant and equipment 88,944
Accumulated depreciation (52,746)
Total assets 71,865
Total current liabilities 57,224
Bonds, mortgages and similar debt 869
Preferred stock mandatory redemption -
Preferred stock no mandatory redemption 40
Common stock 355
Other stockholders' equit 13,544
Total liabilities & equity 71,865
Sales of tangible products 13,604
Total revenues 34,732
Cost of tangible goods sold 29,431
Total costs applicable to revenues 45,210
Other costs and expenses (66)
Provision for doubtful accounts and notes 2,996
Interest and amortization of debt discount 2,485
Income before taxes and other items (69,087)
Income tax expense 187
Income/loss from continuing operations (69,274)
Discontinued operations -
Extraordinary items -
Cumulative effect of accounting changes -
Net income or loss (69,274)
Earnings per share-primary (1.97)
Earnings per share-fully diluted -
<PAGE> 25
</TABLE>
<PAGE>
CERTIFICATE OF DESIGNATIONS
POWERS RIGHTS AND PREFERENCES
OF SERIES G CONVERTIBLE PREFERRED STOCK
OF
ENCORE COMPUTER CORPORATION
----------------------------------------
ENCORE COMPUTER CORPORATION, a corporation organized
and existing by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
That, pursuant to the authority conferred upon the
Board of Directors of the corporation by the certificate of
incorporation and in accordance with the provisions of Section
151 of the General Corporation Law of the State of Delaware, the
Board of Directors of the corporation, at a meeting held on
August 11, 1995, duly adopted a resolution designating the
designations, powers, rights and preferences relating to its
Series G Convertible Preferred Stock as follows:
"RESOLVED, that the Board of Directors (the "Board") of
Encore Computer Corporation (the "Corporation") authorizes the
issuance of a series of preferred stock consisting of 1,000,000
shares and the Board fixes the powers, designations, preferences
and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of the
shares of that series as follows:
1. Designation and Amount. The designation of the
----------------------
series of preferred stock authorized by this resolution will be
the Series G Convertible Preferred Stock (the "Series G
Convertible Stock"). The total number of shares of Series G
Convertible Stock will be 1,000,000 shares. These shares may be
issued for any purpose determined by the of Board of Directors.
2. Dividends and Distributions.
---------------------------
(a) Holders of shares of Series G Convertible
Stock will be entitled to receive, when, as and if declared by
the Board out of funds of the Corporation legally available for
the payment of dividends, an annual cash dividend per share equal
to $6.00, payable in equal quarterly installments of $1.50 per
share each on January 15, April 15, July 15 and October 15 of
each year, commencing October 15, 1995 (each a "Dividend Payment
Date"), except that the annual cash dividend payable in 1994 will
be $2.20 per share and the quarterly installment payable on
October 15, 1995 will be $0.95 per share. Dividends on the
Series G Convertible Stock will be cumulative from the date of
initial issuance of shares of Series G Convertible Stock. The
Corporation will not, however, be required to pay a cash dividend
unless that cash dividend can be paid out of Stockholders Equity
in excess of $50,000,000. To the extent the Corporation does not
have sufficient Stockholders Equity to be able to pay a dividend
on the Series G Convertible Stock out of Stockholders Equity in
excess of $50,000,000, the Corporation will have the option to
<PAGE>
(i) pay the portion of the dividend which cannot be paid out of
Stockholders Equity in excess of $50,000,000 by distributing on
the applicable Dividend Payment Date to each holder of record on
the applicable Record Date, shares of Series G Convertible Stock
with a Liquidation Preference equal to the amount of the cash
dividend which cannot be paid out of Stockholders Equity in
excess of $50,000,000, or (ii) accumulate that portion of the
dividend on the Series G Convertible Stock and pay it in cash
when, and to the extent, it can be paid in cash out of
Stockholders Equity in excess of $50,000,000. For the purposes
of the Series G Convertible Stock, the term "Stockholders Equity"
will mean (i) the stockholders equity of the Corporation computed
in accordance with generally accepted accounting principles
applied in the same manner they are applied in preparing reports
filed with the Securities and Exchange Commission (or, if no
reports are filed with the Securities and Exchange Commission,
applied as they are applied in preparing the Corporation's annual
report to stockholders) plus (ii) the aggregate liquidation
preference of all outstanding shares of the Corporation's
preferred stock which is not included in the stockholders equity
of the Corporation calculated in accordance with the preceding
clause (i). Each dividend will be payable to holders of record
of the Series G Convertible Stock on a date fixed by the Board (a
"Record Date") which is not more than 60 days nor less than 10
days before the Dividend Payment Date. No Record Date will
precede the date when the resolution fixing the Record Date is
adopted.
(b) Unless and until all accumulated dividends on
the Series G Convertible Stock have been paid in cash or, to the
extent permitted by subparagraph 2(a), in shares of Series G
Convertible Stock, the Corporation may not (i) declare or pay any
dividend, make any distribution (other than a distribution solely
of Common Stock), or set aside any funds or other assets for
payment or distribution, with regard to any Junior Shares or,
except as provided in the last sentence of this subparagraph 2(b)
or the second sentence of Paragraph 4, any Parity Shares or (ii)
redeem or repurchase (directly or through subsidiaries), or set
aside any funds or other assets for the redemption or repurchase
of, any Junior Shares or any Parity Shares. In any event, the
Corporation may not declare or pay any dividend, make any
distribution (other than a distribution solely of Common Stock),
or set aside any funds or other assets for payment or
distribution, with regard to any Junior Shares or Parity Shares,
or redeem or repurchase (directly or through subsidiaries), or
set aside any funds or other assets for the redemption or
repurchase of, any Junior Shares or Parity Shares, to the extent
the dividend, distribution, redemption, repurchase or setting
aside of funds or assets would reduce Stockholders Equity below
$50,000,000. As used with regard to the Series G Convertible
Stock, the term "Junior Shares" means all shares of every class
or series of stock of the Corporation to which the shares of
Series E Convertible Stock rank prior. If the Series G
Convertible Stock ranks prior to another class or series of
preferred stock as to some matters, but not as to other matters,
2
<PAGE>
shares of the other class or series are "Junior Shares" with
regard to the matters as to which the Series G Convertible Stock
ranks prior to the other class or series but not as to other
matters. As used with regard to the Series G Convertible Stock,
the term "Parity Shares" means any class or series of preferred
stock which ranks on a parity with the shares of Series G
Convertible Stock. If the Series G Convertible Stock ranks on a
parity with another class or series of preferred stock as to some
matters, but not as to other matters, shares of the class or
series are "Parity Shares" with regard to the matters as to which
the Series G Convertible Stock ranks on a parity but not as to
other matters. At any time when there are accumulated dividends
on the Series G Convertible Stock and on any Parity Shares which
have not been paid in full, no dividends will be paid or set
aside with regard to the Parity Shares unless at the same time
dividends are paid or set aside with regard to the Series G
Convertible Stock constituting at least the same percentage of
the accumulated dividends on the Series G Convertible Stock that
the dividend on the Parity Stock is of the accumulated dividends
on the Parity Stock.
3. Ranking. The shares of Series G Convertible Stock
-------
rank prior to all shares of all classes and series of Common
Stock of the Corporation and all shares of all classes and series
of preferred stock of the Corporation other than any class or
series of preferred stock which is designated, with the approval
of the holders of 66-2/3% of the shares of Series G Convertible
Stock which are outstanding at the time the designation is made
(or such greater percentage of the outstanding shares of Series G
Convertible Stock as is required by law), as ranking prior to, or
on a parity with, the shares of Series G Convertible Stock with
regard to the right to receive dividends, the right to receive
distributions on the liquidation, dissolution or winding up of
the Corporation, or with regard to any other matters. The shares
of Series G Convertible Stock rank prior to the shares of Series
B Convertible Preferred Stock, the Series D Convertible Preferred
Stock, the Series E Convertible Stock and the Series F
Convertible Stock in all respects.
4. Liquidation. Upon the liquidation, dissolution or
-----------
winding up of the Corporation, whether voluntary or involuntary,
the holders of the Series G Convertible Stock will be entitled to
receive out of the assets of the Corporation available for
distribution to its stockholders, whether from capital, surplus
or earnings, before any distribution is made to holders of any
Junior Shares, an amount equal to $100 per share (the
"Liquidation Preference") plus an amount equal to all dividends
(whether or not earned or declared) accumulated and unpaid on the
shares of Series G Convertible Stock to the date of final
distribution. If, upon any liquidation, dissolution or winding
up of the Corporation, the assets of the Corporation, or proceeds
of those assets, available for distribution to the holders of
shares of Series G Convertible Stock and any Parity Shares are
insufficient to pay in full the preferential amount payable to
the holders of shares of Series G Convertible Stock described in
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the preceding sentence and the preferential amount payable to any
Parity Shares upon liquidation, dissolution or winding up of the
Corporation, then the assets, or the process of those assets
which are available for distribution to the holders of shares of
Series G Convertible Stock and to the holders of such Parity
Shares, will be distributed to the holders of the Series G
Convertible Stock and to the holders of such Parity Shares
ratably in proportion to the full amounts to which they each are
entitled. After payment of the full amount of the Liquidation
Preference and accumulated dividends to which holders of shares
of Series G Convertible Stock are entitled, the holders of shares
of Series G Convertible Stock will not be entitled to any further
participation in any distribution of assets by the Corporation.
For the purposes of this Paragraph, neither a consolidation or
merger of the Corporation with or into any other corporation, nor
a sale or transfer of all or any part of the Corporation's assets
for cash or securities, will be considered a liquidation,
dissolution or winding up of the Corporation.
5. Optional Conversion.
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(a) Subject to and upon compliance with the
provisions of this Paragraph 5, each holder of shares of Series G
Convertible Stock will have the right, at the holder's option, at
any time, to convert all or any of the shares of the Series G
Convertible Stock into a number of fully paid and nonassessable
shares of Common Stock (calculated as to each conversion to the
nearest 1/100th of a share) equal to the Liquidation Preference
(as defined in Paragraph 4) of the shares surrendered for
conversion divided by the Conversion Price (as defined in
subparagraph 5(d)).
(b) (i) In order to exercise the conversion
privilege, the holder of each share of Series G Convertible Stock
to be converted will surrender the certificate representing that
share to the conversion agent for the Series G Convertible Stock
appointed by the Corporation (which may be the Corporation
itself), with the Notice of Election to Convert on the back of
that certificate duly completed and signed, together with funds
equal to the Dividend Amount, if any, required to be paid under
subparagraph 5(b)(iii), at the principal office of the conversion
agent. If the shares issuable on conversion are to be issued in
a name other than the name in which the shares of Series G
Convertible Stock are registered, each share surrendered for
conversion must be accompanied by instruments of transfer, in
form satisfactory to the Corporation, duly executed by the holder
or the holder's duly authorized attorney and by funds in an
amount sufficient to pay any transfer or similar tax.
(ii) Each conversion will be at the
Conversion Price in effect at the close of business on the date
when all the conditions in subparagraph 5(b)(i) have been
satisfied.
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(iii) The holders of record of shares of
Series G Convertible Stock at the close of business on a dividend
payment Record Date will be entitled to receive the dividend
payable on those shares on the corresponding Dividend Payment
Date notwithstanding the conversion of the shares after the
dividend payment Record Date or the Corporation's default in
payment of the dividend due on the Dividend Payment Date.
However, shares of Series G Convertible Stock surrendered for
conversion during the period between the close of business on any
dividend payment Record Date and the opening of business on the
corresponding Dividend Payment Date must be accompanied by
payment of an amount equal to the dividend payable on the shares
on the Dividend Payment Date (the "Dividend Amount"). The
holders of shares of Series G Convertible Stock on a dividend
payment Record Date who (or whose transferees) convert any of
those shares on or after the corresponding Dividend Payment Date
will receive the dividend payable by the Corporation on those
shares of Series G Convertible Stock on the Dividend Payment
Date, and need not include payment of the Dividend Amount upon
surrender of those shares for conversion. Except as provided
above, the Corporation will make no payment or adjustment for
accrued and unpaid dividends on shares of Series G Convertible
Stock, whether or not in arrears, on conversion of those shares,
or for dividends on the shares of Common Stock issued upon the
conversion.
(iv) As promptly as practicable after the
surrender by a holder of certificates for shares of Series G
Convertible Stock in accordance with this subparagraph 5(b), the
Corporation will issue and will deliver at the office of the
conversion agent to the holder, or on the holder's written order,
a certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of the shares of Series
G Convertible Stock in accordance with the provisions of this
Paragraph 5. Any fractional interest in respect of a share of
Common Stock arising upon a conversion will be settled as
provided in subparagraph 5(c).
(v) Each conversion will be deemed to have
been effected immediately prior to the close of business on the
date on which all the conditions specified in subparagraph
5(b)(i) have been satisfied, and the person in whose name any
certificate for shares of Common Stock will be issuable upon a
conversion will be deemed to have become the holder of record of
the shares of Common Stock represented by that certificate at
that time, unless the stock transfer books of the Corporation are
closed on that date, in which event that person will be deemed to
have become the holder of record at the close of business on the
next succeeding day on which the stock transfer books are open.
All shares of Common Stock delivered upon conversion of Series G
Convertible Stock will upon delivery be duly and validly issued
and fully paid and nonassessable, free of all liens and charges
and not subject to any preemptive rights. Upon the surrender of
certificates representing shares of Series G Convertible Stock to
be converted and compliance with all the other requirements of
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<PAGE>
subparagraph 5(b)(i), the shares represented by those
certificates will no longer by deemed to be outstanding and all
rights of a holder with respect to those shares will immediately
terminate, except the right to receive the Common Stock or other
securities, cash or other assets to be issued or distributed as a
result of the conversion.
(c) No fractional shares or securities
representing fractional shares of Common Stock will be issued
upon conversion of Series G Convertible Stock. Any fractional
interest in a share of Common Stock resulting from conversion of
shares of Series G Convertible Stock will be paid in cash
(computed to the nearest cent) based on the Current Market Price
(as defined in subparagraph 5(d)(v)) of the Common Stock on the
Trading Day (as defined in subparagraph 5(d)(v)) next preceding
the day of conversion. If more than one share is surrendered for
conversion at one time by the same holder, the number of full
shares of Common Stock issuable upon the conversion will be
computed on the basis of all the shares of Series G Convertible
Stock so surrendered.
(d) The "Conversion Price" per share of Series G
Convertible Stock will be $3.25, subject to adjustment from time
to time as follows:
(i) In case the Corporation (A) pays a
dividend or makes a distribution on its Common Stock in shares of
its Common Stock, (B) subdivides its outstanding Common Stock
into a greater number of shares, or (C) combines its outstanding
Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior to that event will be adjusted
so that the holder of any share of Series G Convertible Stock
surrendered for conversion after that event will be entitled to
receive the number of shares of Common Stock of the Corporation
which the holder would have been entitled to receive if the share
had been converted immediately prior to the happening of the
event (or, if there is more than one such event, if the share had
been converted immediately before the first of those events and
the holder had retained all the Common Stock or other securities
or assets received after the conversion). An adjustment made
pursuant to this subparagraph 5(d)(i) will become effective
immediately after the record date in the case of a dividend or
distribution except as provided in subparagraph 5(d)(viii), and
will become effective immediately after the effective date in the
case of a subdivision or combination. If any dividend or
distribution is not paid or made, the Conversion Price then in
effect will be appropriately readjusted.
(ii) In case the Corporation issues rights or
warrants to all holders of its Common Stock entitling them (for a
period expiring within 45 days after the record date for issuance
of the rights or warrants) to subscribe for or purchase Common
Stock at a price per share less than the Current Market Price (as
defined in subparagraph 5(d)(v)) of the Common Stock at the
record date for the determination of stockholders entitled to
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<PAGE>
receive the rights or warrants, the Conversion Price in effect
immediately prior to the issuance of the rights or warrants will
be adjusted so that it will equal the price determined by
multiplying the Conversion Price in effect immediately prior to
the date of issuance of the rights or warrants by a fraction of
which the numerator will be the number of shares of Common Stock
outstanding on the date of issuance of the rights or warrants
plus the number of shares of Common Stock which the aggregate
exercise price of all the rights or warrants would purchase at
the Current Market Price at that record date, and of which the
denominator will be the number of shares of Common Stock
outstanding on the date of issuance of the rights or warrants
plus the number of additional shares of Common Stock issuable on
exercise of all the rights or warrants. The adjustment provided
for in this subparagraph 5(d)(ii) will be made successively
whenever any rights or warrants are issued, and will become
effective immediately, except as provided in subparagraph
5(d)(viii), after each record date. In determining whether any
rights or warrants entitle the holders of the Common Stock to
subscribe for or purchase shares of Common Stock at less than the
Current Market Price, and in determining the aggregate offering
price of the shares of Common Stock issuable eon the exercise of
rights or warrants, there will be taken into account any
consideration received by the Corporation for the rights or
warrants, with the value of that consideration, if other than
cash, to be determined by the Board (whose determination, if made
in good faith, will be conclusive). If any rights or warrants
which led to an adjustment of the Conversion Price then in effect
will be appropriately readjusted.
(iii) In case the Corporation distributes to
all holders of its Common Stock any shares of capital stock of
the Corporation (other than Common Stock) or evidences of
indebtedness or assets (excluding cash dividends or distributions
paid from retained earnings of the Corporation) or rights or
warrants to subscribe for or purchase any of its securities
(excluding those referred to in subparagraph 5(d)(ii)) then, in
each such case, the Conversion Price will be adjusted os that it
will equal the price determined by multiplying the Conversion
Price in effect immediately prior to the date of the distribution
by a fraction of which the numerator will be the Current Market
Price of the Common Stock on the record date for the distribution
less the then fair market value (as determined by the Board,
whose determination, if made in good faith, shall be conclusive)
of the capital stock or assets or evidences of indebtedness so
distributed, or of the rights or warrants so distributed, with
respect to one share of Common Stock, and of which the
denominator will be the Current Market Price of the Common Stock
on the record date. Each adjustment will, except as provided in
subparagraph 5(d)(viii), become effective immediately after the
record date for the determination of the stockholders entitled to
receive the distribution. If any such distribution is not made
or if any rights or warrants expire or terminate without having
been exercised, the Conversion Price then in effect will be
appropriately readjusted.
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<PAGE>
(iv) In case of any reclassification or
change of outstanding shares of Common Stock (other than a change
in par value, or as a result of a subdivision or combination), or
in case of any consolidation of the Corporation with, or merger
of the Corporation with or into, any other entity that results in
a reclassification, change, conversion, exchange or cancellation
of outstanding shares of Common Stock, or any sale or transfer of
all or substantially all of the assets of the Corporation, upon
conversion of Series G Convertible Stock, the holder of the
Series G Convertible Stock will be entitled to receive the kind
and amount of securities, cash and other property which the
holder would have received if the holder had converted the shares
of Series G Convertible Stock into Common Stock immediately
before the first such reclassification, change, consolidation,
merger, sale or transfer and had retained all the securities,
cash and other assets received as a result of all the
reclassifications, changes, consolidations, mergers, sales or
transfers.
(v) For the purpose of any computation under
subparagraphs 5(d)(ii) and 5(d)(iii) above, the "Current Market
Price" of the Common Stock at any date will be the average of the
last reported sale prices per share on each of the thirty
consecutive Trading Days (as defined below) preceding the date of
the computation. The last reported sale price on each day will
be (A) the last reported sale price of the Common Stock on the
National Market System of the National Association of Securities
Dealers, Inc. Automated Quotation System (the "NASDAQ National
Market System"), or any similar system of automated dissemination
of quotations of securities prices then in common use, if so
quoted, or (B) if not quoted as described in clause (A), the mean
between the high bid and low asked quotations for the Common
Stock as reported by National Quotation Bureau Incorporated if at
least two securities dealers have inserted both bid and asked
quotations for the Common Stock on at least five of the ten
preceding Trading Days, or (C) if the Common Stock is listed or
admitted for trading on any national securities exchange (whether
or not it is also quoted on the NASDAQ National Market System),
the last sale price, or the closing bid price if no sale
occurred, of the Common Stock on the principal securities
exchange on which the Common Stock is listed. If the Common
Stock is quoted on a national securities or central market
system, in lieu of a market or quotation system described above,
the last reported sale price will be determined in the manner set
forth in clause (B) of the preceding sentence if bid and asked
quotations are reported but actual transactions are not, and in
the manner set forth in clause (C) of the preceding sentence if
actual transactions are reported. If the Common Stock is not
quoted or traded as described in any of clause (A), (B) or (C),
the Current Market Price of the Common Stock on a day will be the
fair market value of the Common Stock on that day as determined
by a member firm of the New York Stock Exchange, Inc. selected by
the Corporation. As used with regard to the Series G Convertible
Stock, the term "Trading Day" means (x) if the Common Stock is
quoted on the NASDAQ National Market System or any similar system
8
<PAGE>
of automated dissemination of quotations of securities prices, a
day on which trades may be made on such system, or (y) if not
quoted as described in clause (x), a day on which quotations are
reported by the National Quotation Bureau Incorporated, or (z) if
the Common Stock is listed or admitted for trading on any
national securities exchange (whether or not it is also quoted on
the NASDAQ National Market System), a day on which that national
securities exchange is open for business.
(vi) No adjustment in the Conversion Price
will be required unless the adjustment would require a change of
at least 1% in the Conversion Price; provided, however, that any
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adjustments which by reason of this subparagraph 5(d)(vi) are not
required to be made will be carried forward and taken into
account in any subsequent adjustment; and provided, further, that
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adjustment will be required and made in accordance with the
provisions of this Paragraph 5 (other than this subparagraph
5(d)(vi)) not later than such time as may be required in order to
preserve the tax-free nature of a distribution to the holders of
shares of Common Stock. All calculations under this Paragraph 5
will be made to the nearest cent or to the nearest one hundredth
of a share, as the case may be.
(vii) Whenever the Conversion Price is
adjusted, the Corporation will promptly send each holder of
record of Series G Convertible Stock a notice of the adjustment
of the Conversion Price setting forth the adjusted Conversion
Price and the date on which the adjustment becomes effective and
containing a brief description of the events which caused the
adjustment.
(viii) In any case in which this subparagraph
5(d) provides that an adjustment will become effective
immediately after a record date for an event, the Corporation may
defer until the occurrence of the event (i) issuing to the holder
of any share of Series G Convertible Stock converted after the
record date and before the occurrence of the event the additional
shares of Common Stock issuable upon the conversion by reason of
the adjustment required by the event over and above the Common
Stock issuable upon the conversion before giving effect to the
adjustment and (ii) paying to the holder any amount in cash in
lieu of any fractional share pursuant to subparagraph 5(c) above.
(e) If:
(i) the Corporation declares a dividend (or
any other distribution) on the Common Stock (other than in cash
out of retained earnings); or
(ii) the Corporation authorizes the granting
to the holders of the Common Stock of rights or warrants to
subscribe for or purchase any shares of any class or any other
rights or warrants; or
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<PAGE>
(iii) there is any reclassification of the
Common Stock (other than a subdivision or combination of the
outstanding Common Stock and other than a change in the par
value, or from par value to no par value, or from no par value to
par value), or any consolidation, merger, or statutory share
exchange to which the Corporation is a party and for which
approval of any stockholders of the Corporation is required, or
any sale or transfer of all or substantially all the assets of
the Corporation; or
(iv) there is a voluntary or an involuntary
dissolution, liquidation or winding up of the Corporation;
then the Corporation will cause to be mailed to the holders of
record of shares of the Series G Convertible Stock at their
addresses as shown on the stock books of the Corporation, at
least 15 days prior to the applicable date specified below, a
notice stating (A) the date on which a record is to be taken for
the purpose of the dividend, distribution or grant of rights or
warrants, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to the
dividend, distribution or rights or warrants are to be determined
or (B) the date on which the reclassification, consolidation,
merger, statutory share exchange, sale, transfer, dissolution,
liquidation or winding up is expected to become effective, and
the date as of which it is expected that holders of Common Stock
of record will be entitled to exchange their shares of Common
Stock for securities or other property deliverable upon the
reclassification, consolidation, merger, statutory share
exchange, sale, transfer, dissolution, liquidation or winding up.
Failure to give any such notice or any defect in the notice will
not affect the legality or validity of the proceedings described
in this subparagraph 5(e).
(f)(i) The Corporation will at all times
reserve and keep available, free from preemptive rights, out of
its authorized but unissued shares of Common Stock or its issued
shares of Common Stock held in its treasury, or both, for the
purpose of effecting conversions of the Series G Convertible
Stock, the maximum number of shares of Common Stock which the
Corporation would be required to deliver upon the conversion of
all the outstanding shares of Series G Convertible Stock. For
the purposes of this subparagraph 5(f), the number of shares of
Common Stock which the Corporation would be required to deliver
upon the conversion of all the outstanding shares of Series E
Convertible Stock will be computed as if at the time of the
computation all the outstanding shares were held by a single
holder.
(ii) Before taking any action which
would cause an adjustment reducing the Conversion Price below the
then par value (if any) of the shares of Common Stock deliverable
upon conversion of the Series G Convertible Stock, the
Corporation will take any corporate action which may, in the
opinion of its counsel, be necessary in order that the
10
<PAGE>
Corporation may validly and legally issue fully paid and
nonassessable shares of Common Stock at the adjusted Conversion
Price.
(iii) The Corporation will endeavor to
list the shares of Common Stock required to be delivered upon
conversion of the Series G Convertible Stock, prior to the
delivery, upon each national securities exchange, if any, upon
which the outstanding Common Stock is listed as the time of
delivery.
(iv) Prior to the delivery of any
securities which the Corporation will be obligated to deliver
upon conversion of the Series G Convertible Stock, the
Corporation will endeavor, in good faith and as expeditiously as
possible, to comply with all federal and state laws and
regulations requiring the registration of those securities with,
or any approval of or consent to the delivery of those securities
by, any governmental authority.
(g) The Corporation will pay any documentary
stamp or similar issue or transfer taxes payable in respect of
the issue or delivery of shares of Common Stock on conversion of
the Series G Convertible Stock; provided, however, that the
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Corporation will not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or
delivery of shares of Common Stock in a name other than that of
the holder of the Series G Convertible Stock to be converted and
no such issue or delivery will be made unless and until the
person requesting the issue or delivery has paid to the
Corporation the amount of any such tax or has established, to the
satisfaction of the Corporation, that the tax has been paid.
(h) If at any time the issuance of Common Stock
on conversion of the Series G Convertible Stock would, in the
written opinion of counsel to the Corporation, create a
likelihood that the United States Defense Investigative Service
would withdraw a facility security clearance held by the
Corporation or a subsidiary, the stock to be issued upon a
conversion at that time will be a number of shares of Series A
Convertible Participating Preferred Stock which is convertible
into the number of shares of Common Stock which otherwise would
be issued on the conversion.
(i) No holder of shares of Series G Convertible
Stock shall have the right to convert all or any of such shares
into shares of Common Stock, pursuant to this Paragraph 5, unless
(i) such holder is a citizen of the United States of America or a
corporation or other entity of which a majority of the
outstanding shares or other equity interests are owned of record
and, to the best of the knowledge of the corporation or other
entity, beneficially, by citizens of the United States of
America, or (ii) the Corporation is instructed to issue the
Common Stock to be issued upon the conversion to, or as
instructed by, the underwriters of an underwritten public
11
<PAGE>
offering in respect of which there are at least one hundred
beneficial purchasers of the shares sold in the offering.
6. Mandatory Conversion.
--------------------
(a) The Corporation may, by a notice (a "Notice
of Mandatory Conversion") given to the holders of the Series G
Convertible Stock at a time when (i) the last sale price of the
Common Stock quoted on the NASDAQ National Market System, or the
last sale price of the Common Stock in trading on the principal
national securities exchange on which the Common Stock is traded,
exceeded $3.90 per share for each of the 20 Trading Days next
preceding the day on which the notice is given, and (ii) there is
a signed contract (which may be a firm commitment underwriting
contract or any other form of purchase contract) by which a buyer
or group of buyers with the financial ability to carry out their
obligations under the contract are either (X) contractually
committed to purchase for at least $3.90 per share at least 50%
of the shares of Common Stock into which all the outstanding
Series G Convertible Stock will be converted at the Conversion
Price then in effect or (Y) contractually committed, to purchase
for at least $3.50 per share at least 75% of the shares of Common
Stock into which all the outstanding shares of Series G
Convertible Stock will be converted at the Conversion Price then
in effect, require the holders of all (but not less than all) the
outstanding Series G Convertible Stock to convert their Series G
Convertible Stock into Common Stock on a date specified in the
notice (which may be the date the notice is given or any other
date which is not more than 60 days after the date the notice is
given) for the Conversion Price, calculated as provided in
subparagraph 5(d), in effect on the day the notice is given.
(b) If the Corporation gives a Notice of
Mandatory Conversion as provided in subparagraph 6(a), the
holders of the outstanding Series G Convertible Stock will be
deemed to have surrendered the certificates representing their
shares of Series G Convertible Stock for conversion at the close
of business on the conversion date specified in the Notice of
Mandatory Conversion, and, regardless of whether they do or do
not surrender those shares for conversion, at the close of
business on that date (i) the certificates representing the
shares of Series G Convertible Stock will cease to represent
anything other than the right to receive the shares of Common
Stock or cash, other securities or other assets issuable upon
conversion of the shares of Series G Convertible Stock and (ii)
the Corporation may, at its option (the exercise of which will be
described in the Notice of Mandatory Redemption), either (A)
issue the shares of Common Stock, or distribute the cash, other
securities or other assets, to which the holders of the Series G
Convertible Stock are entitled without requiring the surrender of
the certificates which formerly represented shares of Series G
Convertible Stock, or (B) set aside in trust for the respective
holders of certificates which formerly represented Series G
Convertible Stock, the cash, securities and other assets (other
than Common Stock, which need not be set aside) to which those
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<PAGE>
holders are entitled and issue or distribute the Common Stock,
cash, other securities or other assets which each former holder
of Series G Convertible Stock is entitled to receive, without
interest, when the former holder surrenders the certificates
which represented the Series G Convertible Stock and complies
with the other requirements of subparagraph 5(b)(i). Any
interest on funds set aside for distribution to former holders of
Series G Convertible Stock will belong to the Corporation.
(c) If the Corporation presents to the
holders of the Series G Convertible Stock a form of firm
commitment underwriting agreement or other purchase contract
relating to a purchase by a buyer or group of buyers meeting the
requirements set forth in subparagraph 6(a) relating to (x) a
purchase for at least $3.90 per share of at least 50% of the
shares of Common Stock into which all the outstanding shares of
Series G Convertible Stock are convertible at the Conversion
Price then in effect or (y) to purchase for at least $3.50 per
share at least 75% of the shares of Common Stock into which all
the outstanding shares of Series G Convertible Stock will be
converted at the Conversion Price then in effect, which
underwriting contract or other purchase contract contains
customary terms and conditions (but requires no representations
or warranties from a selling stockholder other than
representations that, when Common Stock is issued to that selling
stockholder on conversion of the Series G Convertible Stock, the
selling stockholder will own that Common Stock and have the right
and ability to sell it to the buyer or group of buyers free and
clear of any liens or encumbrances, and will impose no
obligations on a selling stockholder other than (x) the
obligation to deliver certificates representing the Common Stock
(assuming they are issued) upon payment of the purchase price for
them, and (y) the obligation to indemnify the buyer or group of
buyers against liability or damages resulting from any
misstatement by the selling stockholder for a material fact
regarding the selling stockholder, or omission by the selling
stockholder to state a material fact necessary to make the
statements made by the selling stockholder regarding the selling
stockholder not misleading), and the Corporation notifies the
holders of the Series G Convertible Stock that the buyer or group
of buyers has signed, or agreed to sign, the contract subject to
signature by the holders of the Series G Convertible Stock, the
condition in clause (ii) of subparagraph 6(a) will be deemed
waived, and not to be a prerequisite to required conversion, by
each holder of Series E Convertible Stock who does not, within 10
days after the contract is presented to the holder, agree to sign
a copy of the contract, or authorize the Corporation to sign a
copy of the contract as attorney in fact for the holder.
7. Status. Upon any conversion, exchange or
------
redemption of shares of Series G Convertible Stock, the shares of
Series G Convertible Stock so converted, exchanged or redeemed
shall not be reissued thereafter as shares of such series, but
will have the status of authorized and unissued shares of
preferred stock, and the number of shares of preferred stock
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<PAGE>
which the Corporation will have authority to issue will not be
decreased by the conversion, exchange or redemption of shares of
Series G Convertible Stock.
8. Voting Rights. (a) The holders of shares of
-------------
Series G Convertible Stock will have no voting rights, except any
voting rights to which they may be entitled under the laws of the
State of Delaware and except as otherwise expressly provided in
this resolution.
(b) So long as any shares of the Series G
Convertible Stock remain outstanding, the Corporation will not,
either directly or indirectly, or through merger or consolidation
with or into any other corporation, without the affirmative vote
at a meeting or the written consent with or without a meeting of
the holders of at least 66-2/3% of the outstanding shares of
Series G Convertible Stock, (i) create or issue or increase the
authorized number of shares of any class or series of stock
ranking prior to or on a parity with the Series G Convertible
Stock either as to dividends or upon liquidation, (ii) amend,
alter or repeal any of the provisions of the Certificate of
Incorporation (including this resolution) so as to affect
adversely the preferences, special rights or powers of the Series
G Convertible Stock, (iii) authorize any reclassification of the
Series G Convertible Stock or (iv) increase the number of shares
of Series G Convertible Stock the Corporation may issue. This
subparagraph will not prevent the issuance of Series G
Convertible Stock which is authorized in Paragraph 1 or (w) the
issuance of Series B Convertible Preferred Stock which is
authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferences of Series B Convertible Preferred
Stock dated January 28, 1991 (the "Series B Certificate of
Designation") or (x) the issuance of Series D Convertible
Preferred Stock which is authorized in Paragraph 1 of the
Certificate of Designations, Powers, Rights and Preferences of
Series D Convertible Preferred Stock dated September 10, 1992
(the "Series D Certificate of Designation"), (y) the issuance of
Series E Convertible Preferred Stock which is authorized in
Paragraph 1 of the Certificate of Designations, Powers, Rights
and Preferences of Series E Convertible Preferred Stock dated
February 4, 1994 (the "Series E Certificate of Designation") or
(z) the issuance of Series F Convertible Preferred Stock which is
authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferences of Series F Convertible Preferred
Stock dated March 17, 1995 (the "Series F Certificate of
Designation").
9. Miscellaneous.
-------------
(a) Except as otherwise expressly provided,
whenever in this resolution a notice or other communication is
required or permitted to be given to holders of shares of Series
G Convertible Stock, the notice or other communication will be
deemed properly given if deposited in the United States mail,
postage prepaid, addressed to the persons shown on the books of
14
<PAGE>
the Corporation as the holders of the shares at the addresses as
they appear in the books of the Corporation, as of a record date
or dates determined in accordance with the Corporation's
Certificate of Incorporation and By-laws and applicable law, as
in effect from time to time.
(b) The holders of the Series G Convertible Stock
will not have any preemptive right to subscribe for or purchase
any shares or any other securities which may be issued by the
Corporation.
(c) The voting powers, designations, preferences
and relative, participating, optional or other special rights,
and qualifications, limitations or restrictions of those powers,
designations, preferences and rights, of the Series G Convertible
Stock may be amended by (i) the vote of the Board of Directors,
and (ii) the affirmative vote at a meeting or the written consent
with or without a meeting of the holders of at least 66 2/3% of
the outstanding shares of Series G Convertible Stock.
(d) Except as may otherwise be required by law,
the shares of Series G Convertible Stock will not have any
designations, preferences, limitations or relative rights, other
than those specifically set forth in this resolution and in the
Certificate of incorporation.
(e) The headings of the various subdivisions of
this resolution are for convenience of reference only and will
not affect the meaning or interpretation of any of the provisions
of this resolution.
(f) The preferences, special rights or powers of
the Series G Convertible Stock may be waived upon the affirmative
vote at a meeting or the written consent with or without a
meeting of the holders of (i) at least 66-2/3% of the outstanding
shares of Series G Convertible Stock and (ii) 100% of the shares
of Series G Convertible Stock held by or for the benefit of Gould
Electronics Inc. and any permitted assignee thereof."
15
<PAGE>
IN WITNESS WHEREOF, Encore Computer Corporation has
caused this certificate to be made under the seal of the
Corporation and signed by Kenneth G. Fisher, its Chief Executive
Officer, and attested by its Secretary, this 18th day of August,
1995
ENCORE COMPUTER CORPORATION
By: KENNETH G. FISHER
-------------------------------
Kenneth G. Fisher
Chief Executive Officer
Attest:
MARY F. MACOMBER
----------------------------
Assistant Secretary
16
<PAGE>
SECOND AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
August 17, 1995, between ENCORE COMPUTER CORPORATION, a Delaware
corporation ("Borrower"), and GOULD ELECTRONICS INC., an Ohio
corporation ("Lender"), which amends and restates in its entirety the
Amended and Restated Credit Agreement, dated as of March 17, 1995,
between Borrower and Lender (the "Amended and Restated Credit
Agreement") which amended and restated in its entirety the Uncommitted
Loan Agreement, dated as of December 21, 1994, between Borrower and
Lender (the "Original Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, on the date hereof, the outstanding principal
balance of Original Loans under the Amended and Restated Credit
Agreement is $55,000,000; and
WHEREAS, on the date hereof, the outstanding principal
balance of Revolving Loans under the Amended and Restated Credit
Agreement is $21,879,322.23; and
WHEREAS, on the date hereof, the Maximum Amount of Revolving
Loan under the Amended and Restated Credit Agreement is $25,000,000;
and
WHEREAS, pursuant to the Master Purchase Agreement, dated as
of the date hereof (the "Master Purchase Agreement"), between Lender
and Borrower, $55,000,000 principal amount of Original Loans shall be
exchanged by Lender for shares of Series G Convertible Preferred Stock
of Borrower; and
WHEREAS, in connection with the execution of the Master
Purchase Agreement, Lender and Borrower have agreed to amend and
restate the Amended and Restated Credit Agreement to provide that
Lender shall have no obligation to but may, in its absolute and sole
discretion, loan up to $20,000,000 to Borrower hereunder, in addition
to the $25,000,000 Maximum Amount of Revolving Loan under the Amended
and Restated Credit Agreement, in order to provide funds which
Borrower may use for general corporate purposes;
NOW, THEREFORE, Borrower and Lender hereby agree to amend
and restate the Amended and Restated Credit Agreement in its entirety
as follows:
1. DEFINED TERMS
-------------
1.01 Definitions. (a) As used in this Agreement, the
-----------
following terms have the following meanings:
<PAGE>
"Amended and Restated Credit Agreement" shall have the
-------------------------------------
meaning given to that term in the recitals to this Agreement.
"Affiliate" shall mean as to any Person, any other Person
---------
who directly or indirectly controls, is under common control with, or
is controlled by such Person. As used in this definition, "control"
(including its correlative meanings, "controlled by" and "under common
control with") shall mean possession, directly or indirectly, of power
to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership
interests, by contract or otherwise), provided that, in any event:
--------
(i) any Person who owns directly or indirectly ten percent (10%) or
more of the securities having ordinary voting power for the election
of directors or other governing body of a corporation or ten percent
(10%) or more of the partnership or other ownership interests of any
other Person (other than as a limited partner of such other Person)
will be deemed to control such corporation or other Person; and (ii)
each director and officer of Borrower or any Subsidiary of Borrower
shall be deemed to be, respectively, an Affiliate of Borrower.
Notwithstanding the foregoing definition, in no event shall Lender or
Japan Energy Corporation or any Affiliate of either be deemed to be an
Affiliate of Borrower or of any of its Subsidiaries.
"Agreement" shall mean this Second Amended and Restated
---------
Credit Agreement, as the same may be extended, renewed, amended,
modified or supplemented from time to time.
"Business Day" shall mean any day other than a Saturday, a
------------
Sunday, a day on which banks in New York, New York are authorized or
required by law to close or a day on which Lender's corporate
headquarters are closed.
"Capital Lease Obligations" shall mean, as to any Person,
-------------------------
the obligations of such Person to pay rent or other amounts under a
lease of (or other agreement conveying the right to use) real and/or
personal property which obligations are required to be classified and
accounted for as a capital lease on a balance sheet of such Person
under GAAP (including Statement of Financial Accounting Standards No.
13 of the Financial Accounting Standards Board) and, for purposes of
this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP
(including such Statement No. 13).
"CERCLA" shall mean the Comprehensive Environmental
------
Response, Compensation and Liability Act of 1980, as amended.
"Code" shall mean the Internal Revenue Code of 1986, as
----
amended from time to time.
"Consolidated Subsidiary" shall mean, as to any Person, each
-----------------------
Subsidiary of such Person (whether now existing or hereafter created
or acquired) the financial statements of which shall be
2
<PAGE>
(or should have been) consolidated with the financial statements of
such Person in accordance with GAAP.
"Default" shall mean any of the events specified in
-------
subsection 9.01 hereof, whether or not any requirement for the giving
of notice, the lapse of time or both, or any other condition, has been
satisfied.
"Encore Certificate of Designations Letter" shall mean the
-----------------------------------------
Encore Certificate of Designations Letter, dated December 21, 1994,
from Lender to Borrower, as the same may be amended, modified,
supplemented, extended or renewed from time to time
"Encore International" shall mean Encore Computer
--------------------
International, Inc., a Delaware corporation.
"Encore Puerto Rico" shall mean Encore Computer de Puerto
------------------
Rico, Inc., a Delaware corporation.
"Encore U.S." shall mean Encore Computer U.S., Inc., a
-----------
Delaware corporation.
"ERISA" shall mean the Employee Retirement Income Security
-----
Act of 1974, as amended from time to time.
"ERISA Group" shall mean Borrower and all members of a
-----------
controlled group of corporations and all trades or businesses (whether
or not incorporated) under common control which, together with
Borrower, are treated as a single employer under Section 414 of the
Code.
"Event of Default" shall mean any one of the events
----------------
specified in subsection 9.01 hereof.
"Fifth Mortgage Modification (Brevard)" shall mean the Fifth
-------------------------------------
Mortgage Modification and Security Agreement, dated as of March 17,
1995, between Encore U.S. and Borrower, relating to property in
Brevard County, Florida as the same may be amended, modified,
supplemented, extended or renewed from time to time.
"Fifth Mortgage Modification (Broward)" shall mean the Fifth
-------------------------------------
Mortgage Modification and Security Agreement, dated as of March 17,
1995, between Encore U.S. and Borrower, relating to property in
Broward County, Florida, as the same may be amended, modified,
supplemented, extended or renewed from time to time.
"Foreign Subsidiary" shall have the meaning given to that
------------------
term in the Security Agreement.
"Fourth Amended and Restated Registration Agreement" shall
--------------------------------------------------
mean the Fourth Amended and Restated Registration Agreement, dated as
of December 21, 1994, between Lender and Borrower, as the same may be
amended, modified, supplemented, extended or renewed from time to
time.
3
<PAGE>
"Fourth Mortgage Modification (Brevard)" shall mean the
--------------------------------------
Fourth Mortgage Modification and Security Agreement, dated as of
December 21, 1994, between Encore U.S. and Borrower, relating to
property in Brevard County, Florida, as the same may be amended,
modified, supplemented, extended or renewed from time to time.
"Fourth Mortgage Modification (Broward)" shall mean the
--------------------------------------
Fourth Mortgage Modification and Security Agreement, dated as of
December 21, 1994, between Encore U.S. and Borrower, relating to
property in Broward County, Florida, as the same may be amended,
modified, supplemented, extended or renewed from time to time.
"GAAP" shall mean generally accepted accounting principles
----
in the United States of America in effect from time to time.
"IBJ" shall mean The Industrial Bank of Japan, Limited.
---
"Indebtedness" shall mean as to any Person at any date
------------
(without duplication) (i) all obligations of such Person for borrowed
money or evidenced by bonds, debentures, notes or other similar
instruments; (ii) all obligations of such Person to pay the deferred
purchase price of property or services (other than wages), except
trade accounts payable under normal trade terms and which arise, and
accrued expenses incurred, in the ordinary course of business; (iii)
all Capital Lease Obligations of such Person; (iv) all Indebtedness of
others secured by a Lien on any asset of such Person, whether or not
such Indebtedness is assumed by such Person; (v) all obligations of
such Person in respect of letters of credit or similar instruments
issued or accepted by banks or other financial institutions for the
account of such Person; and (vi) all Indebtedness of others to the
extent guaranteed by such Person.
"Intellectual Property License Agreement" shall mean the
---------------------------------------
Intellectual Property License Agreement, dated as of January 28, 1991,
among Lender, Borrower and Encore U.S., as the same may be amended,
modified, supplemented, extended or renewed from time to time.
"Intellectual Property License Agreement Amendment" shall
-------------------------------------------------
mean the Intellectual Property License Agreement Amendment,
substantially in the form annexed hereto as Exhibit D, as the same may
be amended, modified, supplemented, extended or renewed from time to
time.
"Lien" shall mean, with respect to any asset, (i) any
----
mortgage, deed of trust, lien, pledge, charge, security interest or
encumbrance of any kind in respect of such asset or (ii) the interest
of a vendor or lessor under any conditional sale agreement, financing
lease or other title retention agreement relating to such asset.
"Loan Documents" shall mean this Agreement, the Master
--------------
Revolving Note, the Monthly Revolving Term Notes, the Master
4
<PAGE>
Uncommitted Loan Note, the Monthly Uncommitted Loan Notes, the Master
Purchase Agreement (and other documents executed in connection
therewith), the Security Agreement, the Security Documents, the Master
Amendment Agreement, the Standstill Agreement, the Fourth Mortgage
Modification (Brevard), the Fifth Mortgage Modification (Brevard), the
Sixth Mortgage Modification (Brevard), the Fourth Mortgage
Modification (Broward), the Fifth Mortgage Modification (Broward), the
Sixth Mortgage Modification (Broward), the Fourth Amended and Restated
Registration Agreement, the Intellectual Property License Agreement
Amendment, the Encore Certificate of Designations Letter and all
documents delivered or to be delivered under or pursuant to any of the
foregoing, as each of the same may be amended, modified, supplemented,
extended or renewed.
"Loans" shall mean the Revolving Loans together with the
-----
Uncommitted Loans.
"Master Amendment Agreement" shall mean the Master Amendment
--------------------------
Agreement, dated as of December 21, 1994, among Lender, Borrower,
Encore International, Encore U.S. and Encore Puerto Rico, as the same
may be amended, modified, supplemented, extended or renewed from time
to time.
"Master Purchase Agreement" shall have the meaning given to
-------------------------
that term in the recitals to this Agreement.
"Master Revolving Note" shall mean the Master Revolving
---------------------
Note, substantially in the form annexed hereto as Exhibit A-1, as the
same may be amended, modified, supplemented, extended or renewed from
time to time.
"Master Uncommitted Loan Note" shall mean the Master
----------------------------
Uncommitted Loan Note, substantially in the form annexed hereto as
Exhibit B-1, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"Maturity Date" shall mean the earlier of (a) April 16, 1996
-------------
or (b) the date, if any, upon which the Loans shall become due and
payable pursuant to subsection 4.01 or 9.02 hereof.
"Maximum Amount of Revolving Loans" shall mean $25,000,000.
---------------------------------
"Maximum Amount of Uncommitted Loans" shall mean
-----------------------------------
$20,000,000.
"Monthly Revolving Term Note" shall mean a Monthly Revolving
---------------------------
Term Note, substantially in the form annexed hereto as Exhibit A-2, as
the same may be amended, modified, supplemented, extended or renewed
from time to time (collectively, the "Monthly Term Notes").
------------------
"Monthly Uncommitted Loan Note" shall mean a Monthly
-----------------------------
Uncommitted Loan Note, substantially in the form annexed hereto
5
<PAGE>
as Exhibit B-2, as the same may be amended, modified, supplemented,
extended or renewed from time to time (collectively, the "Monthly
-------
Uncommitted Loan Notes").
----------------------
"Notes" shall mean the collective reference to the Master
-----
Revolving Note, the Monthly Revolving Term Notes, the Master
Uncommitted Loan Note and the Monthly Uncommitted Loan Notes.
"Obligations" shall mean all loans (including the Loans),
-----------
debts, liabilities, obligations, covenants and duties of any kind and
nature, present or future, whether or not evidenced by any note,
guaranty or other instrument, arising under this Agreement, the Notes
or the other Loan Documents, or under any other agreement contemplated
herein or therein or by operation of law, whether or not for the
payment of money, whether arising by reason of an extension of credit,
opening, guaranteeing or confirming a letter of credit, loan,
guaranty, indemnification or in any other manner, whether direct or
indirect (including those acquired by assignment, purchase, discount
or otherwise) owing to Lender by Borrower or any of its Subsidiaries,
absolute or contingent, due or to become due, now due or hereafter
arising and however acquired. The term includes, but is not limited
to, all interest, charges, expenses, attorneys' fees and other sums
charged to Borrower or any of its Subsidiaries under this Agreement,
the Notes or any other Loan Document.
"Original Agreement" shall have the meaning given to that
------------------
term in the recitals to this Agreement.
"Original Loans" shall mean the loans in an aggregate
--------------
principal amount of $55,000,000 made by Lender to Borrower pursuant to
the terms of the Original Agreement.
"Person" shall mean any corporation, natural person, joint
------
venture, partnership, trust, unincorporated organization, government
or department or agency of a government.
"Plan" shall mean an employee benefit plan or other plan
----
maintained for employees of Borrower or any Subsidiary and covered by
Title IV of ERISA.
"Prime Rate" shall mean a fluctuating rate per annum equal
----------
to the rate of interest most recently announced by IBJ at its
principal office in New York City as its prime lending rate.
"Revolving Credit Agreement" shall have the meaning given to
--------------------------
that term in the recitals to this Agreement.
"Revolving Loan" shall mean loans made by Lender to Borrower
--------------
pursuant to Section 3 hereof.
"Revolving Notes" shall mean the collective reference to the
---------------
Master Revolving Note and the Monthly Revolving Term Notes.
6
<PAGE>
"Security Agreement" shall mean the Amended and Restated
------------------
General Security Agreement, dated as of January 28, 1991, among
Lender, Borrower, and Encore U.S., as amended, modified, supplemented,
extended or renewed from time to time, including, without limitation,
as amended by the Master Amendment Agreement.
"Security Documents" shall have the meaning given to that
------------------
term in the Security Agreement.
"Sixth Mortgage Modification (Brevard)" shall mean the Sixth
-------------------------------------
Mortgage Modification and Security Agreement, dated as of the date
hereof, between Encore U.S. and Borrower relating to property in
Brevard County, Florida, in the form annexed hereto as Exhibit E-1, as
the same may be amended, modified, supplemented, extended or renewed
from time to time.
"Sixth Mortgage Modification (Broward)" shall mean the Sixth
-------------------------------------
Mortgage Modification and Security Agreement, dated as of the date
hereof, between Encore U.S. and Borrower relating to property in
Broward County, Florida, in the form annexed hereto as Exhibit E-2, as
the same may be amended, modified, supplemented, extended or renewed
from time to time.
"Standstill Agreement" shall mean the Standstill Agreement,
--------------------
dated as of December 21, 1994, between Lender and Borrower, as the
same may be amended, modified, supplemented, extended or renewed from
time to time.
"Subordinated Indebtedness" shall mean Indebtedness for
-------------------------
which Borrower is directly and primarily liable, in respect of which
none of its Subsidiaries is contingently or otherwise obligated and
which is subordinated to the obligations of Borrower to pay principal
of and interest on the Loans and the Notes hereunder on terms, and
which contains other terms (including interest, financial covenants
and amortization provisions), in form and substance satisfactory to,
and approved in writing by, Lender.
"Subordinated Loan Agreement" shall mean the Subordinated
---------------------------
Loan Agreement dated as of March 23, 1990 between Borrower and IBJ as
previously amended and assigned to EFI, pursuant to an Assignment
Agreement, dated as of March 27, 1992 between IBJ and EFI, as the same
may hereafter be amended, modified, supplemented, extended or renewed.
"Subsidiary" shall mean (i) a corporation of which Borrower
----------
owns, directly or indirectly, more than 50% of the ordinary voting
power for the election of directors and (ii) any partnership,
association, joint venture or other entity in which Borrower and/or
one or more subsidiaries of Borrower has any general partnership
interest or more than a 50% equity interest at the time.
7
<PAGE>
"Uncommitted Loan" shall mean loans made by Lender to
----------------
Borrower pursuant to Section 2 hereof.
"Uncommitted Loan Notes" shall mean the collective reference
----------------------
to the Master Uncommitted Loan Note and the Monthly Uncommitted Loan
Notes.
(b) As used in this Agreement, the following terms have the
respective meanings assigned to such terms in the Revolving Credit
Agreement: Capital Expenditures, Cash Flow, Debt Service Fixed
Charges Ratio, Interest Expense, Investment, Leverage Ratio, Tangible
Net Worth/Subordinated Debt and Total Liabilities.
2. UNCOMMITTED LOANS
-----------------
2.01 Uncommitted Loans. Subject to the terms and
-----------------
conditions of this Agreement, Lender may, in its absolute and sole
discretion, and without obligation to do so, make Uncommitted Loans to
Borrower upon Borrower's request from time to time, provided that the
aggregate of all Uncommitted Loans shall not exceed the Maximum Amount
of Uncommitted Loans. Lender does not have any commitment to make any
Uncommitted Loans hereunder.
2.02 Manner of Borrowing. Unless otherwise agreed to by
-------------------
Lender, each Uncommitted Loan shall be in the amount of Five Hundred
Thousand Dollars ($500,000) or a whole multiple of One Hundred
Thousand Dollars ($100,000) in excess of that amount and shall be made
on notice from Borrower to Lender of a request for an Uncommitted Loan
given not later than 12:00 (noon) New York City time two (2) Business
Days prior to the date of the proposed Uncommitted Loan. Each such
notice of a requested Uncommitted Loan shall be by telephone,
confirmed immediately by the delivery by hand or facsimile to Lender
of a Request for Loan, in the form annexed hereto as Exhibit C,
properly completed, specifying therein the requested date (which must
be a Business Day) and amount of such Uncommitted Loan and certifying
that (a) there is no Default or Event of Default under this Agreement
and (b) the total amount of all the Uncommitted Loans does not exceed
the Maximum Amount of Uncommitted Loans (a "Request for Uncommitted
Loan"). The information set forth in such Request for Uncommitted
Loan shall be conclusive against Borrower (but not against Lender).
Each Request for Uncommitted Loan by Borrower hereunder shall be
deemed a representation by Borrower to Lender that the conditions to
such Uncommitted Loan set forth in Section 8 hereof have been
satisfied. Each Request for Uncommitted Loan shall be reviewed by
Lender on a case by case basis and the decision whether or not to make
the requested Uncommitted Loan shall be made by Lender in its absolute
and sole discretion and irrespective of the fact that Borrower may be
in compliance with all the terms and conditions set forth herein or in
any of the other Loan Documents. Lender reserves the right to refuse
8
<PAGE>
summarily any Request for Uncommitted Loan without any review.
Borrower shall be promptly notified of Lender's approval or denial of
each Request for Uncommitted Loan. If a Request for Uncommitted Loan
is approved by Lender, not later than 3:00 p.m. New York City time on
the date such Uncommitted Loan is requested to be made and upon
fulfillment of the applicable conditions set forth in this Agreement,
Lender will make such Uncommitted Loan available to Borrower by wire
transfer of the amount of such Uncommitted Loan to Borrower's account
at The Industrial Bank of Japan, Limited, New York Branch (Account
No. 2051-14033, Attention: Ms. Monica Biereder) or to such other
account as Borrower may from time to time designate.
2.03 Notes. Each Uncommitted Loan shall be initially
-----
evidenced by a single Master Uncommitted Loan Note payable to the
order of Lender. On the first Business Day of each month, commencing
with September 1995, the aggregate principal amount of the Uncommitted
Loans made during the previous month, if any, together with the
obligation to pay interest thereon, evidenced by the Master
Uncommitted Loan Note shall, upon execution by Borrower of a Monthly
Uncommitted Loan Note (with respect to such month) payable to the
order of Lender, be evidenced by such Monthly Uncommitted Loan Note
and no longer be evidenced by the Master Uncommitted Loan Note. Each
borrowing, prepayment and transfer between the Master Uncommitted Loan
Note and a Monthly Uncommitted Loan Note hereunder shall be recorded
by Lender on the schedule attached to the Note or Notes applicable
thereto; provided, however, that no failure to make such notation
-------- -------
shall in any way modify the obligation of Borrower to repay any of its
Obligations under this Agreement and the Notes.
3. REVOLVING LOAN FACILITY
-----------------------
3.01 The Loans. Subject to the terms and conditions of this
---------
Agreement, Lender agrees to make Revolving Loans to Borrower upon its
request from time to time, provided the aggregate of all Revolving
Loans outstanding at any one time hereunder shall at no time exceed
the Maximum Amount of Revolving Loans then in effect. Within the
limits of the Maximum Amount of Revolving Loans, Borrower may borrow,
repay or prepay and reborrow the Revolving Loan pursuant to this
Section 3.
3.02 Manner of Borrowing. Unless otherwise agreed to by
-------------------
Lender, each Revolving Loan shall be in the amount of Five Hundred
Thousand Dollars ($500,000) or a whole multiple of One Hundred
Thousand Dollars ($100,000) in excess of that amount and shall be made
on notice from Borrower to Lender given not later than 12:00 (noon)
New York City time two (2) Business Days prior to the date of the
proposed Revolving Loan. Each such notice of a requested Revolving
Loan shall be by telephone, confirmed immediately by the delivery by
hand or facsimile to Lender of a Request for Loan, in the form annexed
hereto as Exhibit C, properly completed, specifying therein the
requested date (which must be a Business Day) and amount of such
Revolving Loan and
9
<PAGE>
certifying that (a) there is no Default or Event of Default under this
Agreement and (b) the total amount of all the outstanding Revolving
Loans does not exceed the Maximum Amount of Revolving Loans (a
"Request for Revolving Loan"). The information set forth in such
Request for Revolving Loan shall be conclusive against Borrower (but
not against Lender). Each Request for Revolving Loan by Borrower
hereunder shall be deemed a representation by Borrower to Lender that
the conditions to such Revolving Loan set forth in Section 8 hereof
have been satisfied. Not later than 3:00 p.m. New York City time on
the date such Revolving Loan is requested to be made and upon
fulfillment of the applicable conditions set forth in this Agreement
to the satisfaction of Lender, Lender will make such Revolving Loan
available to Borrower by wire transfer of the amount of such Revolving
Loan to Borrower's account at The Industrial Bank of Japan, Limited,
New York Branch (Account No. 2051-14033, Attention: Ms. Monica
Biereder) or to such other account as Borrower may from time to time
designate.
3.03 Notes. Each Revolving Loan shall be initially
-----
evidenced by a single Master Revolving Note payable to the order of
Lender. On the first Business Day of each month, commencing with
April 1995, the aggregate principal amount of the Revolving Loans made
during the previous month, if any, together with the obligation to pay
interest thereon, evidenced by the Master Revolving Note shall, upon
execution by Borrower of a Monthly Revolving Term Note (with respect
to such month) payable to the order of Lender, be evidenced by such
Monthly Revolving Term Note and no longer be evidenced by the Master
Revolving Note. Each borrowing, prepayment and transfer between the
Master Revolving Note and a Monthly Revolving Term Note hereunder
shall be recorded by Lender on the schedule attached to the Revolving
Note or Revolving Notes applicable thereto; provided, however, that no
-------- -------
failure to make such notation shall in any way modify the obligation
of Borrower to repay any of its Obligations under this Agreement and
the Revolving Notes.
4. PROVISIONS RELATING TO LOANS
----------------------------
4.01 Payment in Full. Borrower may terminate this Agreement
---------------
without penalty by paying to Lender the full unpaid principal amount
of the Loans outstanding, all interest due and owing thereon, and any
other amounts due and owing hereunder and by delivering written notice
of such termination to Lender. Any such notice by Borrower shall be
irrevocable.
4.02 Payment of Interest. Borrower shall accrue monthly in
-------------------
arrears on the first Business Day of the next succeeding calendar
month, interest on the average daily unpaid principal amount on each
Note outstanding during the prior month, at a rate equal to the Prime
Rate plus 2% per annum. In addition, Borrower shall pay, on the date
of any prepayment of the principal amount of the Loans, accrued
interest on the amount prepaid to the date of prepayment. Interest
hereunder and under
10
<PAGE>
the Notes shall be computed on the actual number of days elapsed over
a year comprised of 360 days.
4.03 Prepayment. From time to time Borrower may prepay any
----------
Note, in whole or in part, without premium or penalty, upon at least
three Business Days' irrevocable notice to Lender, specifying the date
(which, in the case of a Monthly Uncommitted Loan Note or a Monthly
Revolving Term Note, shall be the last Business Day of a month) and
amount of prepayment, provided, however, that any prepayment shall be
-------- -------
in a minimum principal amount of the lesser of (i) $500,000 or an
integral multiple thereof or (ii) the entire unpaid principal amount
of such Note then outstanding. Any and all amounts prepaid by
Borrower pursuant to this subsection shall be applied first to reduce
accrued interest and then to outstanding principal amount of the Note
or Notes selected to be prepaid by Borrower. Amounts of Uncommitted
Loans which are prepaid may not be reborrowed and amounts of Revolving
Loans which are prepaid may be reborrowed.
4.04 Interest after Default.
----------------------
(a) If an Event of Default shall occur and so long as
such Event of Default shall continue, whether or not the maturity of
any Obligation has been accelerated, the rate of interest then
applicable to the Loans shall immediately be increased by an
additional two percent (2%) per annum above the interest rate
otherwise then in effect hereunder.
(b) Anything in this Agreement or in the Notes to the
contrary notwithstanding, the obligation of Borrower to make payments
of interest shall be subject to the limitation that payments of
interest shall not be required to be paid to Lender to the extent that
the charging or receipt thereof would not be permissible under
applicable law. Any such amount of interest that is not paid as a
result of the limitation referred to in the preceding sentence shall
be carried forward and paid by Borrower to Lender as additional
interest on the earliest date or dates on which any interest is
payable hereunder and on which the receipt of such additional interest
is permissible under applicable law.
4.05 Payments. All payments to be made hereunder (whether
--------
of principal, interest, legal expenses, fees, costs, indemnities or
otherwise) by Borrower to Lender shall be made in immediately
available funds not later than 12:00 (noon), New York City time to
Lender at its account at National City Bank, Cleveland, Ohio (Account
No. 2530806, Attention: Gould Electronics Inc.) or to such other
account as Lender may from time to time designate and shall be made
free and clear of all present or future taxes, levies, imposts,
deductions, charges or withholdings imposed by any governmental
authority and without deduction, diminution, offset or counterclaim.
4.06 Payment of Principal and Interest. The full amount of
---------------------------------
the outstanding principal and all accrued but unpaid
11
<PAGE>
interest on the Loans and all other amounts due and owing shall be
paid to Lender on the Maturity Date.
4.07 Use of Proceeds. All proceeds of the Loans shall be
---------------
used by Borrower for (i) working capital purposes in the ordinary
course of Borrower's business and (ii) general corporate purposes.
5. REPRESENTATIONS AND WARRANTIES OF BORROWER
------------------------------------------
Borrower represents and warrants to Lender that:
5.01 Integrated Group. Borrower and its Subsidiaries are
----------------
engaged as an integrated group in the business of manufacturing,
distributing, selling and leasing computer hardware and software and
related products and servicing customer needs in respect thereof, and
in furnishing the required supplies, services, equipment, credit and
other facilities for such integrated operation. The Borrower and each
of its Subsidiaries expects to derive benefit, directly or indirectly,
from the Loans, both in its separate capacity and as a member of the
integrated group, since the successful operation of Borrower and each
of its Subsidiaries is dependent on the continued successful
performance of the functions of the integrated group as a whole.
5.02 Corporate Existence. The Borrower and each of its
-------------------
Subsidiaries (a) is a corporation duly organized and validly existing
under the laws of the jurisdiction of its incorporation; (b) has all
requisite corporate power, and has all material governmental licenses,
authorizations, consents and approvals necessary to own its assets and
carry on its business as now being or as proposed to be conducted; and
(c) is qualified to do business in all jurisdictions in which the
nature of the business conducted by it makes such qualification
necessary and where failure so to qualify, singly or in the aggregate,
would have a material adverse effect on its financial condition,
operations or business.
5.03 Security Documents. Each of the representations and
------------------
warranties made by Borrower or any of its Subsidiaries in each of the
Security Documents is true and complete in all material respects on
the date hereof with the same effect as if made on the date hereof and
borrower hereby confirms and acknowledges that, without the necessity
of any further action by any party (other than the filing of the Sixth
Mortgage Modification (Brevard) and Sixth Mortgage Modification
(Brevard)), the Liens granted by Borrower in favor of Lender pursuant
to the Loan Documents (a) are unimpaired and continue to be fully
perfected security interests in favor of Lender and (b) continue to
constitute collateral security for Borrowers Obligations to Lender
under the Loan Documents.
5.04 Corporate Authority; No Contravention. The execution,
-------------------------------------
delivery and performance of this Agreement, the Notes,
12
<PAGE>
the Loan Documents and all other instruments and documents to be
delivered by Borrower or any of its Subsidiaries hereunder or
thereunder and the creation of all Liens created under the Loan
Documents are within Borrower's or its respective Subsidiaries'
corporate power, have been duly authorized by all necessary or proper
corporate action (including the consent of stockholders where
required), are not in contravention of any agreement or indenture to
which Borrower or any of its Subsidiaries is a party or by which it or
any of them is bound, or of the Articles of Incorporation or By-Laws
of Borrower or any of its Subsidiaries, and are not in contravention
of any provision of law and the same do not require the consent or
approval of any governmental body, agency, authority or any other
Person which has not been obtained and a copy thereof furnished to
Lender.
5.05 Binding Effect. This Agreement and each of the other
--------------
Loan Documents have been duly executed and delivered on behalf of
Borrower and each of its Subsidiaries who are parties thereto and this
Agreement, the Notes and each of the other Loan Documents when
executed and delivered by Borrower or any Subsidiary, as the case may
be, will constitute, legal, valid and binding obligations of Borrower
and such Subsidiary, each enforceable against the Borrower or such
Subsidiary, as the case may be, in accordance with its respective
terms.
5.06 Financial Condition. The consolidated balance sheets
-------------------
of the Borrower and its Consolidated Subsidiaries as at April 2, 1995,
and the related statements of income and cash flows for the three
months ended on such date, included in Borrower's Report on Form 10-Q
for the quarter ended April 2, 1995, which has been filed with the
Securities and Exchange Commission comply with the requirements of
Form 10-Q, are correct and present fairly the financial condition of
the Borrower and its Consolidated Subsidiaries as at such date, and
the consolidated results of their operations for the three months then
ended (subject to normal year-end audit adjustments). All such
financial statements, including the related schedules and notes
thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved. Except as disclosed in
that Form 10-Q, since December 31, 1994, there has been no material
adverse change in the consolidated financial condition, operations or
business of Borrower and its Subsidiaries taken as a whole.
5.07 Securities and Exchange Commission Filings. Borrower's
------------------------------------------
annual report on Form 10-K for the year ended December 31, 1994, its
quarterly report on Form 10-Q for the period ended April 2, 1995 and
its definitive proxy statement dated May 13, 1995, each as filed with
the Securities and Exchange Commission, each (a) contains all the
information it is required by the applicable form or rules promulgated
by the Securities and Exchange Commission to contain, and (b) does not
include a misstatement of a material fact or omit to state a material
fact necessary to make the statements made, in the light of the
circumstances under which they were made, not misleading.
13
<PAGE>
5.08 Disclosure. No representation or warranty made by
----------
Borrower or any of its Subsidiaries in this Agreement, any other Loan
Document or in any other document furnished from time to time in
connection herewith or therewith contains, or will contain, any
misrepresentation of a material fact or omits, or will omit, to state
any material fact necessary to make the statements herein or therein
not misleading. There is no fact known to Borrower which materially
adversely affects, or which reasonably could be expected in the future
to materially adversely affect, the business, operations, or financial
condition of Borrower or any of its Subsidiaries or the ability of
Borrower or any of its Subsidiaries to perform its obligations under
this Agreement or any other Loan Document to which Borrower or any of
its Subsidiaries is a party.
5.09 Taxes. Except as set forth on Schedule 5.09 annexed
-----
hereto, (i) Borrower and its Subsidiaries have filed or will cause to
be filed when due (taking account of extensions) all tax returns
(Federal, State or local) required to be filed and paid all taxes
shown thereon to be due including interest and penalties or has
provided adequate reserves therefor; (ii) no material assessments
which are not reserved against and are unpaid have been made against
Borrower or any of its Subsidiaries by any taxing authority nor has
any claim of any penalty or deficiency been made by any such authority
and (iii) no Federal or other income tax return of Borrower is
presently being examined by the Internal Revenue Service or any State
or local tax authority nor are the results of any prior examination by
the Internal Revenue Service or any State or local tax authority being
contested by Borrower.
5.10 Litigation. Except as set forth on Schedule 5.10
----------
annexed hereto, no action, suit, proceeding or investigation is now
pending or, to the knowledge of Borrower, is threatened against
Borrower or any of its Subsidiaries or any of their respective
property at law, in equity or otherwise, before any court, board,
commission, agency or instrumentality of the Federal or State
government or of any municipal government or any agency or subdivision
thereof, or before any arbitrator or panel of arbitrators (a) which,
if adversely determined, may have a material adverse impact on the
financial condition or business of Borrower and its Subsidiaries,
taken as a whole, or could materially impair the ability of Borrower
or any of its Subsidiaries to perform its Obligations hereunder or
under the Loan Documents to which it is a party (except as disclosed
in Borrower's annual report on Form 10-K for the year ended
December 31, 1994, or its quarterly report for the period ended March
31, 1995, in either case as filed with the Securities Exchange
Commission, or on Schedule 5.10 annexed hereto) or (b) which questions
or would question the validity of this Agreement or any of the Loan
Documents to which Borrower or any of its Subsidiaries is a party.
5.11 Title to Properties; Liens. Borrower and each of its
--------------------------
Subsidiaries has good title to all of its respective assets
14
<PAGE>
free and clear of any Lien except Liens in favor of Lender, Liens
permitted under Article 5.05 of the Security Agreement and other Liens
in favor of Lender. Borrower and each of its Subsidiaries possesses,
or has the entitlement to use, all trademarks, trade names, trade
styles, copyrights and patents necessary to enable Borrower and its
Subsidiaries to conduct their respective businesses as they are
presently being conducted or as Borrower intends that they be
conducted hereafter without any infringement or conflict with the
rights of any other Person.
5.12 Indebtedness. Upon consummation of the transactions
------------
contemplated hereunder, neither Borrower nor any of its Subsidiaries
will have outstanding any Indebtedness, other than Indebtedness
permitted under Section 7.01(c) hereof. Neither Borrower nor any of
its Subsidiaries has any contingent or long term liability or
commitment which would materially adversely affect its business or its
financial condition that has not been disclosed to Lender in writing.
5.13 No Default. Neither Borrower nor any of its
----------
Subsidiaries is in violation of, or in default under, any provision of
any material contract or agreement to which it is a party or is bound.
No Default or Event of Default has occurred and is continuing.
5.14 ERISA. Each member of the ERISA Group has fulfilled
-----
its obligations under the minimum funding standards of ERISA and the
Code with respect to each Plan and is in compliance in all material
respects with the presently applicable provisions of ERISA and the
Code with respect to each Plan, and has not incurred any liability to
the Pension Benefit Guaranty Corporation or a Plan under Title IV of
ERISA.
5.15 Investment Company Act. Neither Borrower nor any of
----------------------
its Subsidiaries is an "investment company," or an "affiliated person"
of, or a "promoter" or "principal underwriter" for, an "investment
company," as such terms are defined in the Investment Company Act of
1940, as amended.
5.16 Subsidiaries. Schedule 5.16 annexed hereto states the
------------
name of each of Borrower's Subsidiaries, its jurisdiction of
incorporation and the percentage of its voting stock owned by Borrower
and/or its Subsidiaries. Borrower and each Subsidiary has good and
marketable title to all of the shares it purports to own of the stock
of each Subsidiary, free and clear in each case of any Lien, other
than the Liens in favor of Lender. All such shares have been duly
issued and are fully paid and non-assessable. Encore International
has no assets other than its ownership of the Subsidiaries shown on
Schedule 5.16. Encore Puerto Rico has no assets (other than certain
intercompany receivables and cash balances which do not exceed in the
aggregate $16,800,000) and conducts no business.
5.17 Environmental Matters. Except as described on Schedule
---------------------
5.17 annexed hereto, Borrower and each of its
15
<PAGE>
Subsidiaries have complied in all material respects with, and are
currently in compliance in all material respects with, all
environmental laws, ordinances, orders or decrees of any state,
Federal, municipal or other governmental authority, including any
Federal, state or local governmental law, the failure to comply with
which would singly or in aggregate have a material adverse effect on
the consolidated financial condition, operations, business or
prospects of Borrower and its Subsidiaries or on Borrower's or any
Subsidiary's ability to perform its Obligations under this Agreement
or any other Loan Document to which it is a party; no solid or
hazardous or toxic wastes or hazardous substances (as defined in
CERCLA, and the Superfund Amendments and Reauthorization Act of 1986,
as amended, or under any successor or similar law or any applicable
state or local law) are processed, discharged, stored, treated,
disposed of, or managed at any facility owned, leased or operated by
Borrower or any of its Subsidiaries or, at the request or behest of
Borrower or any Subsidiary, at any adjoining site, so as to require a
license, permit or authorization of any type from any governmental
authority other than licenses which have been obtained or where the
failure to obtain such licenses could not have a material adverse
effect on Borrower and its Subsidiaries, taken as a whole. No claim
has been made against Borrower or any of its Subsidiaries or, to the
best of Borrower's knowledge, against any predecessor in respect of
any "facility" owned, leased or operated by it, under CERCLA as
amended and in effect, or under a Federal, state, local or municipal
statute, ordinance or regulation in respect of the environment, or by
the Environmental Protection Agency or by any Federal, state, local or
municipal enforcement agency having jurisdiction over the protection
of the environment, or by any private Person bringing an action in
respect of or under any law designed to protect the environment.
6. AFFIRMATIVE COVENANTS
---------------------
(a) Section 6 of the Revolving Credit Agreement is
incorporated herein by reference in its entirety, as Sections 6.01
through 6.08 hereof, with the same effect as though set forth at
length herein.
(b) Within 15 days of the date of this Agreement, Borrower
shall deliver to Lender endorsements to existing mortgagee policies
issued by Chicago Title Insurance Company in favor of Lender with
respect to the properties covered by the Sixth Mortgage Modification
(Brevard) and the Sixth Mortgage Modification (Broward) in form and
substance satisfactory to Lender.
16
<PAGE>
7. NEGATIVE COVENANTS
------------------
(a) Section 7 of the Revolving Credit Agreement is
incorporated herein by reference in its entirety as Sections 7.01
through 7.12 hereof with the same effect as though set forth at length
herein; provided, that Lender hereby waives any Default or Event of
--------
Default resulting solely from the failure by Borrower to comply with
Section 7.12(a),(b),(c) and (e) from December 31, 1994 to and
including January 1, 1996.
(b) The proceeds of the Revolving Loans will not be used
for any purpose other than (i) to fund ordinary needs of Borrower and
its Subsidiaries or (ii) for general corporate purposes.
8. CONDITIONS PRECEDENT
--------------------
8.01 Effectiveness of Agreement; Initial Loans. As
-----------------------------------------
conditions precedent to the effectiveness of this Agreement and the
making of the initial Revolving Loan, Borrower shall deliver to Lender
the following documents duly executed and in form and substance
satisfactory to Lender and its counsel:
(a) this Agreement;
(b) the Master Revolving Note and Monthly
Revolving Term Notes in the amount of $902,250.00 dated
April 1, 1995; $4,322,722.22 dated May 1, 1995;
$4,222,222.23 dated June 1, 1995; $4,413,277.78 dated July
1, 1995, $5,318,850.00 dated August 1, 1995 and $2,700,000
dated August 17, 1995;
(c) the Master Uncommitted Loan Note;
(d) the Intellectual Property License Agreement
Amendment No. 3;
(e) Sixth Mortgage Modification (Brevard);
(f) Sixth Mortgage Modification (Brevard);
(g) endorsements to existing mortgagee policies issued
by Chicago Title Insurance Company in favor of Lender with
respect to the properties covered by the Fourth Mortgage
Modification (Brevard), Fifth Mortgage Modification (Brevard),
Fourth Mortgage Modification (Broward) and Fifth Mortgage
Modification (Broward);
(h) Master Purchase Agreement and all documents
executed and delivered in connection therewith;
(i) all Intellectual Property (as defined in the
Intellectual Property License Agreement) shall have been
17
<PAGE>
placed in escrow in accordance with the terms of paragraph 3 of
the Intellectual Property Agreement; and
(j) a certificate from an appropriate officer of
Borrower certifying that, to the best knowledge of such officer,
(i) the representations and warranties contained in Article 5 of
this Agreement are true and complete in all material respects as
of the date hereof with the same effect as though made on that
date and (ii) no Default or Event of Default has occurred and is
continuing or would result from the execution or delivery of this
Agreement, the Master Revolving Note, the Master Uncommitted Loan
Note or any other Loan Document and the transactions contemplated
hereby and thereby;
(k) a certificate from an appropriate officer of
each of Encore U.S. and Encore International certifying
that, to the best knowledge of such officer, the
representations and warranties contained in each of the Loan
Documents to which the relevant aforementioned entity is a
party, after giving effect to this Agreement and the
agreements contemplated hereby, are true and complete in all
material respects as of the date hereof;
(l) a Secretary's Certificate or an Assistant
Secretary's Certificate for each of Borrower and Encore
U.S., certifying (i) the corporate resolutions of the Board
of Directors of each entity authorizing the transactions
contemplated by this Agreement and each of the documents
referred to in this Section 8.01 to which each is a party,
(ii) that there have been no changes to the By-Laws of each
entity since December 21, 1994, and that such By-Laws remain
in full force and effect, and (iii) that there have been no
changes to the Certificate of Incorporation of each entity
since delivery of such Certificate of Incorporation to
Lender on or about December 21, 1994;
(m) good standing certificates for the following
entities in the following jurisdictions:
(i) Encore - Delaware; and
(ii) Encore U.S. - Delaware, Florida and
Massachusetts;
(n) an opinion by Messrs. Weil, Gotshal & Manges,
special counsel to Borrower, in substantially the form
annexed hereto as Exhibit F-1;
(o) an opinion by Mary Macomber, Esq., general
counsel to Borrower, in substantially the form annexed
hereto as Exhibit F-2;
18
<PAGE>
(p) a certificate of Borrower's Secretary or Assistant
Secretary as to the incumbency of the officers executing this
Agreement, the Notes and any other documents required hereby;
(q) a certificate of the Secretary or Assistant
Secretary of Encore U.S. certifying as to the incumbency of
the officers executing the agreements required to be
executed hereby to which it is a party;
(r) such other documents and instruments as
Lender may reasonably request.
8.02 Additional Conditions to Loans. The following
------------------------------
additional conditions shall be satisfied as conditions precedent to
the effectiveness of this Agreement and making of each Revolving Loan,
including the initial Revolving Loan:
(i) on the first Business Day of each month,
commencing with September 1995, Lender shall have received a
Monthly Revolving Term Note (with respect to Revolving
Loans, if any, made during the previous month) payable to
the order of Lender substantially in the form of Exhibit A-
2;
(ii) on the first Business Day of each month,
commencing with September 1995, Lender shall have received a
Monthly Uncommitted Loan Note (with respect to Uncommitted
Loans, if any, made during the previous month) payable to
the order of Lender substantially in the form of Exhibit B-
2;
(iii) no Default or Event of Default shall
have occurred and be continuing;
(iv) all representations and warranties of
Borrower herein shall be true and complete in all material
respects at the date of such Revolving Loan with the same
effect as though made on that date except to the extent such
representations and warranties are made only as of a
specific earlier date; and
(v) Borrower shall have delivered to Lender
such other documents and instruments as Lender may
reasonably request.
9. EVENTS OF DEFAULT
-----------------
9.01 Events of Default. Each of the following shall
-----------------
constitute an Event of Default:
(a) Borrower shall fail to make payment when due
of any Obligation (other than interest) under this Agreement
or any of the Notes or Borrower shall fail to
19
<PAGE>
make payment of any interest under this Agreement or any of the
Notes within five (5) days of the date due; or
(b) (i) Borrower shall fail to comply with any
covenant contained in Section 6.02 to 6.08 or Section 7 of
this Agreement or in Section 6 of the Pledge Agreement; or
(ii) Borrower or Encore U.S. shall fail to comply with any
covenant contained in Articles 4 or 5 of the Security
Agreement; or (iii) any Subsidiary shall fail to comply with
any covenant contained in the Subsidiary Guaranty or in
Section 6 of any Subsidiary Pledge Agreement (as the terms
Pledge Agreement, Subsidiary Guaranty and Subsidiary Pledge
Agreement are defined in the Security Agreement) or any such
covenant as to which it has agreed to be bound, and any such
failure referred to in clauses (i), (ii) or (iii) shall
continue for a period of five (5) days; or
(c) Borrower or any Subsidiary shall fail to
comply with any term, condition or covenant, of or in this
Agreement or in any other Loan Document except for any
failure covered by (a) or (b) above, and any such failure
(if capable of remedy) continues for a period of fifteen
(15) days after notice thereof from Lender to Borrower; or
(d) Any representation or warranty made or deemed
made by Borrower in this Agreement or by Borrower or any
Subsidiary in any other Loan Document to which it is a
party, or any certificate, financial statement or other
document delivered pursuant hereto or thereto, shall be
false or misleading in any material respect on any date as
of which made; or
(e) Borrower or any Subsidiary shall become
insolvent, make an assignment for the benefit of its
creditors, suspend business or any voluntary or involuntary
case, proceeding or other action under any existing or
future law of any jurisdiction, domestic or foreign,
relating to bankruptcy, insolvency, relief of debtors or
reorganization, shall be commenced with regard to Borrower
or any Subsidiary; or
(f) A receiver shall be appointed for all or any
material portion of the assets of Borrower or any
Subsidiary; or
(g) One or more judgments for more than an
aggregate of One Hundred Thousand Dollars ($100,000) or its
equivalent in foreign currencies shall be entered against
Borrower or any Subsidiary and shall not be stayed, vacated,
bonded, paid, or discharged within thirty (30) days, except
a judgment where the claim is
20
<PAGE>
fully covered by insurance and the insurance company has accepted
liability therefor; or
(h) Any "Reportable Event" as defined under Title
IV of ERISA occurs which Lender in good faith reasonably
determines could constitute grounds for the termination of
any Plan thereby resulting in liability to Borrower or the
Pension Benefit Guaranty Corporation in excess of One
Hundred Thousand Dollars ($100,000), or if the Pension
Benefit Guaranty Corporation shall institute proceedings to
terminate any Plan or to appoint a trustee to administer any
Plan; or
(i) Borrower or any Subsidiary shall fail to pay
any amount due with respect to any Indebtedness having an
outstanding aggregate principal amount in excess of One
Hundred Thousand Dollars ($100,000) or its equivalent in a
foreign currency (other than Indebtedness hereunder) or any
interest or premium thereon, when due (whether at scheduled
maturity or by required prepayment, acceleration, demand or
otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement
or instrument relating to any such Indebtedness or any other
event shall occur and shall continue after the applicable
grace period, if any, specified in such agreement or
instrument, if the effect of such default or event is to
accelerate or to permit the acceleration of, the maturity of
such Indebtedness; or any such Indebtedness shall be
declared to be due and payable, or is required to be
prepaid, prior to the stated maturity thereof; or
(j) Any Federal tax Lien is filed of record
against Borrower and is not discharged within thirty (30)
days; or
(k) Borrower's independent public accountants
shall refuse to deliver an unqualified opinion with respect
to the financial statements required by this Agreement;
provided, that delivery of such an opinion with an emphasis
--------
of a matter similar to the opinions delivered prior to the date
hereof shall not constitute an Event of Default; or
(l) There shall occur after the date hereof any
material violation by Borrower or any Subsidiary of the
Borrower of any Federal, State, local or municipal law,
statute, ordinance, rule or regulation designed to protect
the environment; or
(m) The termination of employment of Kenneth
Fisher as Chief Executive Officer and Chairman of the Board
of Directors of Borrower without the prior written consent
of Lender.
21
<PAGE>
9.02 Default Remedies. Upon the occurrence of any Event of
----------------
Default, Lender may declare the Loans and all other Obligations to be
immediately due and payable, whereupon the same shall become so due
and payable, without presentment, demand, protest or any other notice
of any kind, all of which are expressly waived; provided, however,
-------- -------
that if the Event of Default set forth in clause (e) of subsection
9.01 shall occur, then without any notice to Borrower or any other act
by Lender the Loans and all other Obligations shall become immediately
due and payable. Upon the occurrence of any Event of Default, in
addition to all of its other rights under this Agreement, the Security
Agreement and the other Loan Documents, Lender shall have any and all
rights available to it by operation of law or otherwise (which rights
shall be cumulative).
10. GENERAL PROVISIONS
------------------
10.01 Notices. Except as otherwise provided herein, any
-------
notice or other communication required or permitted to be given under
this Agreement must be in writing and will be deemed effective when
delivered in person or sent by facsimile, if promptly confirmed in
writing, or on the third business day after the day on which mailed by
first class mail, postage prepaid, from within the United States of
America, to the following addresses:
If to Lender:
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: Thomas N. Rich
Facsimile Number: (216) 953-5014
With a copy to:
David W. Bernstein, Esq.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile Number: (212) 878-8375
If to Borrower:
Encore Computer Corporation
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313
Attention: Kenneth G. Fisher
Facsimile Number: (305) 797-5719
With a copy to:
Warren T. Buhle, Esq.
Weil, Gotshal & Manges
22
<PAGE>
767 Fifth Avenue
New York, N.Y. 10153
Facsimile Number: (212) 310-8007
10.02 Amendment; Waiver. No provision of this Agreement may
-----------------
be amended, modified or waived except in writing signed by the party
to be charged. No failure by Lender to exercise, and no delay in
exercising, any right, power or remedy hereunder shall operate as a
waiver thereof, nor preclude any other or future exercise thereof.
10.03 Integration. This Agreement and the other agreements
-----------
to which it refers constitute the complete agreement between Lender
and Borrower with respect to the Loans. This Agreement replaces any
and all proposals, commitments, promises or other agreements with
respect to the affording by Lender to Borrower or any of its
Subsidiaries of the Loans or any other loans to be used for the same
purposes as the Loans. Nothing contained in this Agreement, however,
shall limit Borrower's obligations under any Loan Document (including,
without limitation, the Security Agreement) or shall affect the rights
or obligations of the Lender or the Borrower under the Intellectual
Property License Agreement).
10.04 Successors and Assigns. This Agreement shall be
----------------------
binding upon and shall be enforceable by Borrower, Lender and their
respective successors, except that Borrower shall have no right to
assign any of its rights or delegate any of its obligations hereunder.
Lender may assign to any Affiliate of Lender (or to any financial
institution, with the consent of Borrower which consent shall not be
unreasonably withheld) all or any part of, or any interest (undivided
or divided) in, Lender's rights and benefits under this Agreement, and
to the extent of that assignment such assignee shall have the same
rights and benefits against Borrower hereunder as it would have had if
such assignee were Lender hereunder; provided, such assignment does
--------
not result in any increase in Borrower's costs under this Agreement or
any of the Notes.
10.05 Expenses; Documentary Taxes; Indemnification.
--------------------------------------------
(a) Borrower shall reimburse Lender for all out-of-pocket
expenses of Lender, including without limitation the disbursements and
reasonable fees of counsel, incurred by Lender in connection with (i)
the preparation, negotiation, execution and delivery of this Agreement
and the other Loan Documents and the recordation and perfection of any
Lien granted to Lender thereunder, (ii) the disbursement of the Loans,
(iii) any amendment, waiver, modification or supplement to this
Agreement or any other Loan Document, (iv) any prepayment, refinancing
or other restructuring of the Loans, and (v) the administration and
enforcement of this Agreement or any other Loan Document. Such
expenses shall be reimbursed on demand whether or not Lender gives
notice of an Event of Default or
23
<PAGE>
demands acceleration of the Loans or takes any other action to enforce
the provisions of this Agreement or of any other Loan Document.
Borrower shall indemnify Lender against any fees, transfer taxes,
documentary, intangible, personal property or other taxes, assessments
or charges made by any governmental authority by reason of the
execution and delivery of this Agreement or any other Loan Document or
in connection with the perfection or recording of any Lien granted to
Lender under the Security Agreement or any of the Security Documents.
(b) Borrower agrees to indemnify Lender and hold
Lender harmless from and against any and all liabilities, losses,
damages, costs and expenses of any kind, including, without
limitation, the reasonable fees and disbursements of counsel, which
may be incurred by Lender in connection with any investigative,
administrative or judicial proceeding (whether or not Lender shall be
designated a party thereto) relating to or arising out of this
Agreement or any of the other Loan Documents or any actual or proposed
use of proceeds of Loans hereunder; provided that Lender shall not
--------
have the right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
10.06 Counterparts. This Agreement may be signed in any
------------
number of counterparts with the same effect as if the signatures
thereto and hereto were upon the same instrument.
10.07 Headings. The headings contained in this Agreement
--------
are for convenience of reference only and shall not affect the
construction hereof.
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS
-----------------------------------------
AGREEMENT AND THE NOTES AND ALL TRANSACTIONS PROVIDED FOR HEREIN OR
THEREIN SHALL BE GOVERNED BY, AND INTERPRETED AND CONSTRUED UNDER, THE
LAWS OF THE STATE OF NEW YORK. IF ANY SUIT IS INSTITUTED BY LENDER TO
ENFORCE THIS AGREEMENT OR ANY OF THE NOTES, BORROWER HEREBY AGREES TO
SUBMIT TO THE NON-EXCLUSIVE JURISDICTION OF AND TO THE LAYING OF VENUE
IN ANY STATE OR FEDERAL COURT LOCATED IN THE COUNTY OF NEW YORK, STATE
OF NEW YORK, AND HEREBY WAIVES ANY RIGHT BORROWER MAY HAVE TO TRANSFER
OR CHANGE THE VENUE FROM ANY SUCH
COURT IN THE STATE OF NEW YORK OF ANY LITIGATION BROUGHT AGAINST IT BY
LENDER IN ACCORDANCE WITH THIS AGREEMENT OR ANY OF THE NOTES. IN ANY
ACTION WHICH MAY BE INSTITUTED AGAINST IT ARISING OUT OF OR RELATING
TO THIS AGREEMENT OR ANY OF THE NOTES, BORROWER HEREBY CONSENTS TO THE
SERVICE OF PROCESS BY THE MAILING THEREOF BY REGISTERED OR CERTIFIED
MAIL TO THE ADDRESS SET FORTH IN SUBSECTION 10.01 ABOVE.
10.09 WAIVER OF JURY TRIAL. EACH OF LENDER AND BORROWER
--------------------
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ALL RIGHT TO TRIAL BY
JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR ANY OF THE NOTES. BORROWER ACKNOWLEDGES
THAT THE PROVISIONS OF THIS SUBSECTION HAVE BEEN BARGAINED FOR AND
THAT IT HAS BEEN REPRESENTED BY COUNSEL IN CONNECTION HEREWITH.
24
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this
Agreement as of the date first written above.
ENCORE COMPUTER CORPORATION
By: ROBERT P. WATSON
---------------------------
Title:
GOULD ELECTRONICS INC.
By: MICHAEL C. VEYSEY
---------------------------
Title: S.V.P.
25
<PAGE>
Exhibit A-1
-----------
MASTER REVOLVING NOTE
$25,000,000 New York, New York
August 17, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement) the
principal amount of (a) TWENTY FIVE MILLION DOLLARS ($25,000,000), or,
if less, (b) the aggregate unpaid principal amount of all Loans not
evidenced by Monthly Revolving Term Notes, all in accordance with the
Loan Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Revolving Loan, each prepayment
of principal thereof by Borrower and each transfer between this Note
and a Monthly Revolving Term Note shall be endorsed by Lender on the
Schedule of Loans attached hereto, or on a continuation of such
schedule attached to and made part hereof, provided that the failure
to make any such endorsement on such schedule shall not limit or
extinguish the obligation of Borrower to repay all Revolving Loans
hereunder.
This Note is a continuation, extension and replacement of
the Master Revolving Note, dated March 17, 1995, made by
<PAGE>
Borrower in favor of Lender in the aggregate principal amount of
$25,000,000.
All payments to be made hereunder shall be made free and
clear of all present and future taxes, levies, imposts, deductions,
charges or withholdings imposed by any governmental authority and
shall be made without offset, deduction or counterclaim.
This Note is subject to prepayment, and its maturity is
subject to acceleration, pursuant to the terms provided in the Loan
Agreement. This Note shall be entitled to the benefit of all of the
terms and conditions and the security of all security interests, liens
and rights, mortgages and deeds of trust granted by Borrower and its
Subsidiaries to Lender under and pursuant to the Security Agreement
and all other Security Documents including, without limitation, a
Mortgage and Security Agreement dated as of April 27, 1989 and
recorded in Official Records Book 16399, page 799 of the public
records of Broward County, Florida and in Official Records Book 3051,
page 3289 of the public records of Brevard County, Florida, as
amended.
Borrower and all other parties who, at any time, may be
liable hereon in any capacity hereby waive presentment, demand for
payment, protest or notice of any kind in connection with this Note.
This Note may not be changed orally, but only by an agreement in
writing which is signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
ENCORE COMPUTER CORPORATION
By: ROBERT P. WATSON
--------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
2
<PAGE>
SCHEDULE OF LOANS
-----------------
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<PAGE>
Exhibit A-2
-----------
MONTHLY REVOLVING TERM NOTE
[MONTH, YEAR]
$_____________ New York, New York
____________ __, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement), the
principal amount of ________________________ DOLLARS
($_______________), all in accordance with the Loan Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Revolving Loan, each prepayment
of principal thereof by Borrower and each transfer between this Note
and the Master Revolving Note shall be endorsed by Lender on the
Schedule of Loans attached hereto, or on a continuation of such
schedule attached to and made part hereof, provided that the failure
to make any such endorsement on such schedule shall not limit or
extinguish the obligation of Borrower to repay all Revolving Loans
hereunder.
This Note is a continuation, extension and replacement of
the Monthly Revolving Note, dated ________ 1, 199_, made by
<PAGE>
Borrower in favor of Lender in the aggregate principal amount of
$_____________.
All payments to be made hereunder shall be made free and
clear of all present and future taxes, levies, imposts, deductions,
charges or withholdings imposed by any governmental authority and
shall be made without offset, deduction or counterclaim.
This Note is subject to prepayment, and its maturity is
subject to acceleration, pursuant to the terms provided in the Loan
Agreement. This Note shall be entitled to the benefit of all of the
terms and conditions and the security of all security interests, liens
and rights, mortgages and deeds of trust granted by Borrower and its
Subsidiaries to Lender under and pursuant to the Security Agreement
and all other Security Documents including, without limitation, a
Mortgage and Security Agreement dated as of April 27, 1989 and
recorded in Official Records Book 16399, page 799 of the public
records of Broward County, Florida and in Official Records Book 3051,
page 3289 of the public records of Brevard County, Florida, as
amended.
Borrower and all other parties who, at any time, may be
liable hereon in any capacity hereby waive presentment, demand for
payment, protest or notice of any kind in connection with this Note.
This Note may not be changed orally, but only by an agreement in
writing which is signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
ENCORE COMPUTER CORPORATION
By:
--------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
2
<PAGE>
SCHEDULE OF LOANS
-----------------
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<PAGE>
Exhibit B-1
-----------
MASTER UNCOMMITTED LOAN NOTE
$20,000,000 New York, New York
August 17, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement) the
principal amount of (a) TWENTY MILLION DOLLARS ($20,000,000), or, if
less, (b) the aggregate unpaid principal amount of all Uncommitted
Loans not evidenced by Monthly Uncommitted Loan Notes, all in
accordance with the Loan Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Uncommitted Loan, each
prepayment of principal thereof by Borrower and each transfer between
this Note and a Monthly Uncommitted Loan Note shall be endorsed by
Lender on the Schedule of Loans attached hereto, or on a continuation
of such schedule attached to and made part hereof, provided that the
failure to make any such endorsement on such schedule shall not limit
or extinguish the obligation of Borrower to repay all Uncommitted
Loans hereunder.
All payments to be made hereunder shall be made free and
clear of all present and future taxes, levies, imposts,
<PAGE>
deductions, charges or withholdings imposed by any governmental
authority and shall be made without offset, deduction or counterclaim.
This Note is subject to prepayment, and its maturity is
subject to acceleration, pursuant to the terms provided in the Loan
Agreement. This Note shall be entitled to the benefit of all of the
terms and conditions and the security of all security interests, liens
and rights, mortgages and deeds of trust granted by Borrower and its
Subsidiaries to Lender under and pursuant to the Security Agreement
and all other Security Documents including, without limitation, a
Mortgage and Security Agreement dated as of April 27, 1989 and
recorded in Official Records Book 16399, page 799 of the public
records of Broward County, Florida and in Official Records Book 3051,
page 3289 of the public records of Brevard County, Florida, as
amended.
Borrower and all other parties who, at any time, may be
liable hereon in any capacity hereby waive presentment, demand for
payment, protest or notice of any kind in connection with this Note.
This Note may not be changed orally, but only by an agreement in
writing which is signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
ENCORE COMPUTER CORPORATION
By: ROBERT P. WATSON
--------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
2
<PAGE>
SCHEDULE OF LOANS
-----------------
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<PAGE>
Exhibit B-2
-----------
MONTHLY UNCOMMITTED LOAN NOTE
[MONTH, YEAR]
$_____________ New York, New York
____________ __, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement), the
principal amount of ________________________ DOLLARS
($_______________), all in accordance with the Loan Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Uncommitted Loan, each
prepayment of principal thereof by Borrower and each transfer between
this Note and the Master Uncommitted Loan Note shall be endorsed by
Lender on the Schedule of Loans attached hereto, or on a continuation
of such schedule attached to and made part hereof, provided that the
failure to make any such endorsement on such schedule shall not limit
or extinguish the obligation of Borrower to repay all Uncommitted
Loans hereunder.
All payments to be made hereunder shall be made free and
clear of all present and future taxes, levies, imposts, deductions,
charges or withholdings imposed by any governmental
<PAGE>
authority and shall be made without offset, deduction or counterclaim.
2
<PAGE>
This Note is subject to prepayment, and its maturity is
subject to acceleration, pursuant to the terms provided in the Loan
Agreement. This Note shall be entitled to the benefit of all of the
terms and conditions and the security of all security interests, liens
and rights, mortgages and deeds of trust granted by Borrower and its
Subsidiaries to Lender under and pursuant to the Security Agreement
and all other Security Documents including, without limitation, a
Mortgage and Security Agreement dated as of April 27, 1989 and
recorded in Official Records Book 16399, page 799 of the public
records of Broward County, Florida and in Official Records Book 3051,
page 3289 of the public records of Brevard County, Florida, as
amended.
Borrower and all other parties who, at any time, may be
liable hereon in any capacity hereby waive presentment, demand for
payment, protest or notice of any kind in connection with this Note.
This Note may not be changed orally, but only by an agreement in
writing which is signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
ENCORE COMPUTER CORPORATION
By:
--------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
3
<PAGE>
SCHEDULE OF LOANS
-----------------
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<PAGE>
Exhibit C
---------
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: John Monaco
Re: Request for Loan
----------------
Pursuant to Subsection [2.02][3.02] of the Second Amended
and Restated Credit Agreement, dated as of August 17, 1995, between
Encore Computer Corporation and Gould Electronics Inc. (the "Loan
Agreement"), the undersigned hereby gives you irrevocable notice that
it requests that a Loan in the amount of Dollars ($
--------------- --
) be made on .
----------- ---------------------
We hereby confirm that (i) all representations and
warranties contained in Section 5 of the Loan Agreement are true and
complete in all material respects on the date hereof with the same
effect as if made on the date hereof, (ii) that no Default or Event of
Default exists under the Loan Agreement as of the date hereof and
(iii) the aggregate principal amount outstanding of all [Uncommitted
Loans] [Revolving Loans], after giving effect to the request for Loan
herein, does not exceed the [Maximum Amount of Uncommitted
Loans][Maximum Amount of Revolving Loans].
Capitalized terms used herein but not defined shall have the
respective meanings given to them in the Loan Agreement.
Dated this day of .
---- -------------------
ENCORE COMPUTER CORPORATION
By:
-------------------------
Name:
Title:
<PAGE>
======================================================================
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of August 17, 1995
between
ENCORE COMPUTER CORPORATION
and
GOULD ELECTRONICS INC.
======================================================================
<PAGE>
Exhibit D
---------
AMENDMENT NO. 3
AMENDMENT NO. 3, dated as of August 17, 1995 (the
"Amendment"), to the Intellectual Property License Agreement, dated as
of January 28, 1991, between Encore Computer Corporation, Encore
Computer U.S., Inc. and Gould Electronics Inc. (as successor to Gould
Inc.) (as amended, modified and otherwise supplemented, the
"Intellectual Property Agreement").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the parties hereto desire to amend certain
provisions of the Intellectual Property Agreement as provided herein;
NOW, THEREFORE, in consideration of the premises and mutual
agreements contained herein, and for other valuable consideration the
receipt of which is hereby acknowledged, the parties hereto hereby
agree as follows:
SECTION 1. Amendment of Paragraph 5(b). Paragraph 5(b)
---------------------------
of the Intellectual Property Agreement is hereby amended by inserting
at the end of the first sentence thereof the following phrase ";
provided, however, that the Encore Exclusive Period shall not
-------- -------
terminate prior to December 31, 1995".
SECTION 2. Limited Effect. Except as expressly amended
--------------
hereby, all of the provisions of the Intellectual Property Agreement
shall continue to be, and shall remain, in full force and effect in
accordance with their terms.
SECTION 3. Counterparts. This Amendment may be signed
------------
in any number of counterparts, all of which counterparts, taken
together, shall constitute one and the same instrument.
SECTION 4. Governing Law. This Amendment and the rights
-------------
and obligations of the parties hereto shall be governed by, and
construed and interpreted in accordance with, the law of the State of
New York.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed and delivered by their proper and duly
authorized officers as of the day and year first above written.
ENCORE COMPUTER CORPORATION
ROBERT P. WATSON
By: __________________________________
Name:
Title:
ENCORE COMPUTER U.S., INC.
By: __________________________________
Name:
Title:
GOULD ELECTRONICS INC.
MICHAEL C. VEYSEY
By: __________________________________
Name:
Title:
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . 1
2. UNCOMMITTED LOANS . . . . . . . . . . . . . . . . . . . . . 8
2.01 Uncommitted Loans . . . . . . . . . . . . . . . . . . . 8
2.02 Manner of Borrowing . . . . . . . . . . . . . . . . . . 8
2.03 Notes . . . . . . . . . . . . . . . . . . . . . . . . . 9
3. REVOLVING LOAN FACILITY . . . . . . . . . . . . . . . . . . 9
3.01 The Loans . . . . . . . . . . . . . . . . . . . . . . . 9
3.02 Manner of Borrowing . . . . . . . . . . . . . . . . . . 9
3.03 Notes . . . . . . . . . . . . . . . . . . . . . . . . . 10
4. PROVISIONS RELATING TO LOANS . . . . . . . . . . . . . . . . 10
4.01 Payment in Full . . . . . . . . . . . . . . . . . . . . 10
4.02 Payment of Interest . . . . . . . . . . . . . . . . . . 10
4.03 Prepayment . . . . . . . . . . . . . . . . . . . . . . 11
4.04 Interest after Default . . . . . . . . . . . . . . . . 11
4.05 Payments . . . . . . . . . . . . . . . . . . . . . . . 11
4.06 Payment of Principal and Interest . . . . . . . . . . . 11
4.07 Use of Proceeds . . . . . . . . . . . . . . . . . . . . 12
5. REPRESENTATIONS AND WARRANTIES OF BORROWER . . . . . . . . . 12
5.01 Integrated Group . . . . . . . . . . . . . . . . . . . 12
5.02 Corporate Existence . . . . . . . . . . . . . . . . . . 12
5.03 Security Documents . . . . . . . . . . . . . . . . . . 12
5.04 Corporate Authority; No Contravention . . . . . . . . . 12
5.05 Binding Effect . . . . . . . . . . . . . . . . . . . . 13
5.06 Financial Condition . . . . . . . . . . . . . . . . . . 13
5.07 Securities and Exchange Commission Filings . . . . . . 13
5.08 Disclosure . . . . . . . . . . . . . . . . . . . . . . 13
5.09 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.10 Litigation . . . . . . . . . . . . . . . . . . . . . . 14
5.11 Title to Properties; Liens . . . . . . . . . . . . . . 14
5.12 Indebtedness . . . . . . . . . . . . . . . . . . . . . 15
5.13 No Default . . . . . . . . . . . . . . . . . . . . . . 15
5.14 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.15 Investment Company Act . . . . . . . . . . . . . . . . 15
5.16 Subsidiaries . . . . . . . . . . . . . . . . . . . . . 15
5.17 Environmental Matters . . . . . . . . . . . . . . . . . 15
6. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . 16
7. NEGATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . 16
8. CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . 17
8.01 Effectiveness of Agreement; Initial Loans . . . . . . . 17
8.02 Additional Conditions to Loans . . . . . . . . . . . . 18
9. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . 19
9.01 Events of Default . . . . . . . . . . . . . . . . . . . 19
9.02 Default Remedies . . . . . . . . . . . . . . . . . . . 21
<PAGE>
10. GENERAL PROVISIONS . . . . . . . . . . . . . . . . . . . . . 22
10.01 Notices . . . . . . . . . . . . . . . . . . . . . . . 22
10.02 Amendment; Waiver . . . . . . . . . . . . . . . . . . 22
10.03 Integration . . . . . . . . . . . . . . . . . . . . . 22
10.04 Successors and Assigns . . . . . . . . . . . . . . . . 23
10.05 Expenses; Documentary Taxes; Indemnification . . . . . 23
10.06 Counterparts . . . . . . . . . . . . . . . . . . . . . 24
10.07 Headings . . . . . . . . . . . . . . . . . . . . . . . 24
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . 24
10.09 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . 24
EXHIBIT A-1 - Master Revolving Note
EXHIBIT A-2 - Monthly Master Term Note
EXHIBIT B-1 - Master Uncommitted Loan Note
EXHIBIT B-2 - Monthly Uncommitted Loan Note
EXHIBIT C - Form of Request for Loan
EXHIBIT D - Intellectual Property License Agreement
Amendment
EXHIBIT E-1 - Sixth Mortgage Modification and Security
Agreement (Brevard)
EXHIBIT E-2 - Sixth Mortgage Modification and Security
Agreement (Broward)
EXHIBIT F-1 - Opinion of Special Counsel to Borrower
EXHIBIT F-2 - Opinion of General Counsel to Borrower
SCHEDULE 5.09 - Taxes
SCHEDULE 5.10 - Litigation
SCHEDULE 5.16 - Subsidiaries
SCHEDULE 5.17 - Environmental Matters
SCHEDULE 6.01(c) - Indebtedness
SCHEDULE 6.01(d) - Intercompany Indebtedness
<PAGE>
MASTER REVOLVING NOTE
----------------------------------------------
$25,000,000 New York, New York
----------------------------------------------------------------------
August 17, 1995
----------------------------------------------------------------------
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
---------------------------------------------------------------------
corporation with its executive office and principal place of business
---------------------------------------------------------------------
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
----------------------------------------------------------------------
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
----------------------------------------------------------------------
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
------------------------------------------------------------------
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
-------------------------------------------------------------------
the Second Amended and Restated Credit Agreement, dated as of August
--------------------------------------------------------------------
17, 1995, between Borrower and Lender, as it may be further extended,
---------------------------------------------------------------------
renewed, amended, modified or supplemented from time to time, "Loan
-------------------------------------------------------------------
Agreement"; capitalized terms used herein and not otherwise defined
-------------------------------------------------------------------
herein have the meanings given to them in the Loan Agreement) the
-----------------------------------------------------------------
principal amount of (a) TWENTY FIVE MILLION DOLLARS ($25,000,000), or,
----------------------------------------------------------------------
if less, (b) the aggregate unpaid principal amount of all Loans not
-------------------------------------------------------------------
evidenced by Monthly Revolving Term Notes, all in accordance with the
---------------------------------------------------------------------
Loan Agreement.
---------------
Borrower promises to pay interest on the unpaid principal
-------------------------------------------------------------------
amount hereof from time to time outstanding, at the rates and times
-------------------------------------------------------------------
and in all cases in accordance with the terms of the Loan Agreement.
---------------------------------------------------------------------
All interest hereunder shall be computed on the actual number of days
---------------------------------------------------------------------
elapsed over a year comprised of 360 days.
------------------------------------------
In case an Event of Default shall occur, the entire unpaid
--------------------------------------------------------------------
principal amount of this Note and all accrued but unpaid interest
-----------------------------------------------------------------
hereon may become or may be declared to be due and payable in the
-----------------------------------------------------------------
manner and with the effect provided in the Loan Agreement.
----------------------------------------------------------
All payments of principal and interest hereunder shall be
-------------------------------------------------------------------
made in lawful money of the United States of America and in
-----------------------------------------------------------
immediately available funds not later than 12:00 (noon), New York City
----------------------------------------------------------------------
time, to Lender at its account at National City Bank (Cleveland, Ohio)
----------------------------------------------------------------------
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
--------------------------------------------------------------------
other account as Lender may from time to time designate.
--------------------------------------------------------
The date and amount of each Revolving Loan, each prepayment
---------------------------------------------------------------------
of principal thereof by Borrower and each transfer between this Note
--------------------------------------------------------------------
and a Monthly Revolving Term Note shall be endorsed by Lender on the
--------------------------------------------------------------------
Schedule of Loans attached hereto, or on a continuation of such
---------------------------------------------------------------
schedule attached to and made part hereof, provided that the failure
--------------------------------------------------------------------
to make any such endorsement on such schedule shall not limit or
----------------------------------------------------------------
extinguish the obligation of Borrower to repay all Revolving Loans
------------------------------------------------------------------
hereunder.
-----------
This Note is a continuation, extension and replacement of
-------------------------------------------------------------------
the Master Revolving Note, dated March 17, 1995, made by Borrower in
--------------------------------------------------------------------
favor of Lender in the aggregate principal amount of $25,000,000.
-----------------------------------------------------------------
<PAGE>
All payments to be made hereunder shall be made free and
------------------------------------------------------------------
clear of all present and future taxes, levies, imposts, deductions,
-------------------------------------------------------------------
charges or withholdings imposed by any governmental authority and
-----------------------------------------------------------------
shall be made without offset, deduction or counterclaim.
--------------------------------------------------------
This Note is subject to prepayment, and its maturity is
-----------------------------------------------------------------
subject to acceleration, pursuant to the terms provided in the Loan
-------------------------------------------------------------------
Agreement. This Note shall be entitled to the benefit of all of the
--------------------------------------------------------------------
terms and conditions and the security of all security interests, liens
----------------------------------------------------------------------
and rights, mortgages and deeds of trust granted by Borrower and its
--------------------------------------------------------------------
Subsidiaries to Lender under and pursuant to the Security Agreement
-------------------------------------------------------------------
and all other Security Documents including, without limitation, a
-----------------------------------------------------------------
Mortgage and Security Agreement dated as of April 27, 1989 and
--------------------------------------------------------------
recorded in Official Records Book 16399, page 799 of the public
---------------------------------------------------------------
records of Broward County, Florida and in Official Records Book 3051,
---------------------------------------------------------------------
page 3289 of the public records of Brevard County, Florida, as
--------------------------------------------------------------
amended.
--------
Borrower and all other parties who, at any time, may be
-----------------------------------------------------------------
liable hereon in any capacity hereby waive presentment, demand for
------------------------------------------------------------------
payment, protest or notice of any kind in connection with this Note.
---------------------------------------------------------------------
This Note may not be changed orally, but only by an agreement in
----------------------------------------------------------------
writing which is signed by the party against whom enforcement of any
--------------------------------------------------------------------
waiver, change, modification or discharge is sought.
----------------------------------------------------
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
-------------------------------------------------------------------
LAWS OF THE STATE OF NEW YORK.
------------------------------
ENCORE COMPUTER CORPORATION
--------------------------------------------------------------
By: ROBERT P. WATSON
----------------------------------------------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
<PAGE>
SCHEDULE OF LOANS
-----------------
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<PAGE>
MONTHLY REVOLVING TERM NOTE
March 1995 Borrowings
$902,250.00 New York, New York
April 1, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement), the
principal amount of NINE HUNDRED AND TWO THOUSAND AND TWO HUNDRED AND
FIFTY DOLLARS ($902,250.00), all in accordance with the Loan
Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Revolving Loan, each prepayment
of principal thereof by Borrower and each transfer between this Note
and the Master Revolving Note shall be endorsed by Lender on the
Schedule of Loans attached hereto, or on a continuation of such
schedule attached to and made part hereof, provided that the failure
to make any such endorsement on such schedule shall not limit or
extinguish the obligation of Borrower to repay all Revolving Loans
hereunder.
This Note is a continuation, extension and replacement of
the Monthly Revolving Note, dated April 1, 1995, made by Borrower in
favor of Lender in the aggregate principal amount of $902,250.00.
<PAGE>
All payments to be made hereunder shall be made free and
clear of all present and future taxes, levies, imposts, deductions,
charges or withholdings imposed by any governmental authority and
shall be made without offset, deduction or counterclaim.
This Note is subject to prepayment, and its maturity is
subject to acceleration, pursuant to the terms provided in the Loan
Agreement. This Note shall be entitled to the benefit of all of the
terms and conditions and the security of all security interests, liens
and rights, mortgages and deeds of trust granted by Borrower and its
Subsidiaries to Lender under and pursuant to the Security Agreement
and all other Security Documents including, without limitation, a
Mortgage and Security Agreement dated as of April 27, 1989 and
recorded in Official Records Book 16399, page 799 of the public
records of Broward County, Florida and in Official Records Book 3051,
page 3289 of the public records of Brevard County, Florida, as
amended.
Borrower and all other parties who, at any time, may be
liable hereon in any capacity hereby waive presentment, demand for
payment, protest or notice of any kind in connection with this Note.
This Note may not be changed orally, but only by an agreement in
writing which is signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF NEW YORK.
ENCORE COMPUTER CORPORATION
By: ROBERT P. WATSON
--------------------------------
Title:
FLORIDA DOCUMENTARY STAMP TAX AND INTANGIBLE TAX IN THE APPROPRIATE
AMOUNT HAVE BEEN PAID IN FULL UPON RECORDATION OF THAT CERTAIN
MORTGAGE AND SECURITY AGREEMENT DATED AS OF APRIL 27, 1989 AND
RECORDED IN OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC
RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3051,
PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA, AS
AMENDED.
<PAGE>
MONTHLY REVOLVING TERM NOTE
April 1995 Borrowings
$4,322,722.22 New York, New York
May 1, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business
located at 6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313
("Borrower"), hereby promises to pay to the order of GOULD ELECTRONICS
INC., with its office located at 35129 Curtis Boulevard, Eastlake,
Ohio 44095 ("Lender") on or before the Maturity Date (as defined in
the Second Amended and Restated Credit Agreement, dated as of August
17, 1995, between Borrower and Lender, as it may be further extended,
renewed, amended, modified or supplemented from time to time, "Loan
Agreement"; capitalized terms used herein and not otherwise defined
herein have the meanings given to them in the Loan Agreement), the
principal amount of FOUR MILLION THREE HUNDRED AND TWENTY-TWO THOUSAND
SEVEN HUNDRED AND TWENTY-TWO DOLLARS AND TWENTY-TWO CENTS
($4,322,722.22), all in accordance with the Loan Agreement.
Borrower promises to pay interest on the unpaid principal
amount hereof from time to time outstanding, at the rates and times
and in all cases in accordance with the terms of the Loan Agreement.
All interest hereunder shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest
hereon may become or may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be
made in lawful money of the United States of America and in
immediately available funds not later than 12:00 (noon), New York City
time, to Lender at its account at National City Bank (Cleveland, Ohio)
(Account No. 2530806, Attention: Gould Electronics Inc.) or to such
other account as Lender may from time to time designate.
The date and amount of each Revolving Loan, each prepayment
of principal thereof by Borrower and each transfer between this Note
and the Master Revolving Note shall be endorsed by Lender on the
Schedule of Loans attached hereto, or on a continuation of such
schedule attached to and made part hereof, provided that the failure
to make any such endorsement on such schedule shall not limit or
extinguish the obligation of Borrower to repay all Revolving Loans
hereunder.
This Note is a continuation, extension and replacement of
the Monthly Revolving Note, dated May 1, 1995, made by Borrower in
favor of Lender in the aggregate principal amount of $4,322,722.22.
<PAGE>
<PAGE>
CERTIFICATE
-----------
Reference is made to the Master Purchase Agreement dated
August 17, 1995 (the "Purchase Agreement") between Gould Electronics
Inc. ("Gould") and Encore Computer Corporation ("Encore"). In
connection therewith, each of the undersigned hereby certifies that no
commission or other remuneration is being paid or given by either of
the undersigned for soliciting the cancellation of the Exchanged
Indebtedness (as such term is defined in the Purchase Agreement) by
Gould, in exchange for 550,000 shares of Series G Convertible
Preferred Stock of Encore.
Dated: August 17, 1995 GOULD ELECTRONICS INC.
MICHAEL C. VEYSEY
By:____________________________
Title:
ENCORE COMPUTER CORPORATION
ROBERT P. WATSON
By:____________________________
Title:
