UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the Fiscal Year Ended December 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ________ to _______.
Commission File No. 0-13576
ENCORE COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2789167
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(State of Incorporation) (I.R.S. Employer Identification No.)
6901 West Sunrise Blvd.
Fort Lauderdale, Florida 33313
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(Address of Principal Executive Offices) (Zip Code)
Telephone: 305-587-2900
Securities registered pursuant to Section 12(g) of the Act:
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
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained to the best of registrant's knowledge, in definitive proxy
or information statements incorporated by reference in Part III of
this Form 10-K or any amendment to this Form 10-K [ X ].
Aggregate market value, as of April 4, 1995 of Common Stock held by
non-affiliates of the registrant: $85,678,315.
The number of shares outstanding of the registrant's only class of
Common Stock as of April 4, 1995 was 34,271,326.
DOCUMENTS INCORPORATED BY REFERENCE: PART OF DOCUMENT IN WHICH
INCORPORATED
- ------------------------------------ --------------------------------
None
A list of all exhibits to this Form 10-K is on Page 69.
<PAGE>
PART I
Item 1 Business
(a) General Development of Business
Encore Computer Corporation ("Encore" or the "Company"), founded
in 1983, designs, manufactures, distributes and supports open,
scalable computer and storage systems for data center and mission-
critical applications. Headquartered in Fort Lauderdale,
Florida, the Company has sales offices and distributors
throughout the United States, Canada, Europe, and the Far East.
In 1989, Encore enhanced its worldwide marketing presence and
technical expertise when it acquired the assets and assumed the
liabilities of the Gould Electronics Inc. Computer Systems
Division (the "Computer Systems Business"), a business that was
significantly larger than the Company itself. Since the
acquisition, the Company has invested heavily in research and
development activities to integrate the best of both businesses'
technologies into a single, high performance open system
architecture.
This effort has most recently resulted in the announcement and
delivery of products such as the Infinity 90 (TRADEMARK), the Infinity
R/T(TRADEMARK) dand the Infinity SP(TRADEMARK). The Company's Infinity
90(TRADEMARK) Series of
alternative mainframe computer systems offers the customer a
cost-effective, open systems, massively-scalable parallel
processing technology, and was selected as part of a U.S. Air
Force Materiel Command initiative to consolidate multiple
mainframe data processing centers on open system mainframes.
During 1994, the Company began a series of deliveries under
this program. Encore's real-time systems provide optimum
solutions for complex applications and its newest real-time
product is the Infinity R/T. The performance features of the
Infinity R/T, based on the Alpha processor, along with the
Company's reputation in real-time computing have begun to
recapture the attention of many of its traditional customers.
The Company's newest product is the Infinity SP(TRADEMARK) which was
formally announced in February 1995. The Infinity SP product
line leverages the technology of the Infinity 90 Series by
combining its architectural elements with the specialized
software necessary to provide a comprehensive set of storage
products which may be used as direct attached storage devices
(DASD) for IBM-compatible mainframes as well as being
concurrently capable of providing shared storage facilities to
open systems environments. The Infinity SP's unique
architecture provides the break-through flexibility in its
design which should allow the Company to quickly incorporate
additional new product features often in advance of other
competitors in the marketplace.
As more fully discussed in Management's Discussion and Analysis
of Financial Condition and Results of Operations and in Notes A
and F of the Notes to Consolidated Financial Statements, since
the acquisition of the Computer Systems Business the Company's
results have been adversely affected by (i) its initial research
and development investment in its open systems architecture, (ii)
research and development investments in the modernization of its
architectural approach to real-time computing systems, (iii)
recent development efforts in the finalization of its unique
storage processor architecture, (iv) declining equipment sales
as certain of the Company's traditional real-time products have
reached the end of their product life cycle and, (v) a slower
than anticipated migration of the marketplace from traditional
proprietary architectures to state-of-the-art open system
computer solutions.
Approximately 32% of 1994 revenues were derived through sales to
various U.S. government agencies. In certain cases, U.S.
government agencies, such as the Department of Defense, are
precluded from awarding contracts requiring access to classified
information to foreign owned or controlled companies. As
discussed below and in Notes J and L of Notes to Consolidated
Financial Statements , the principal source of both debt and
equity financing for the Company has been through Japan Energy
Corporation ("Japan Energy"; a Japanese corporation with $17
billion in annual net sales) and certain of its wholly owned
subsidiaries including Gould Electronics Inc. ("Gould"). As of
March 17, 1995 the Japan Energy Group beneficially owned 74% of
the Company's common stock assuming the full conversion of all
shares of its preferred stock. To comply with U.S. government
requirements, Japan Energy has agreed to accept certain terms and
conditions relating to its investments in the Company, including
limitations on the voting rights of its shares, limitations on
the number of seats it may have on the board of directors and
restrictions on converting its Preferred shares into Common
Stock.
Since 1990, net sales have declined at an average annual rate of
23%, and as a result the Company has sustained significant losses
in each year. As discussed in detail in Notes G, J and L of
Notes to Consolidated Financial Statements, Japan Energy and its
wholly owned subsidiaries Gould and EFI International, Ltd.
("EFI") ( collectively, the "Japan Energy Group") have been the
principal sources of the Company's financing providing various
loans and infusions of additional equity throughout this period.
Until the time the Company returns to a state of sustained
profitability, Encore will remain financially dependent on the
continued support of the Japan Energy Group.
(b) Financial Information About Industry Segments
The Company operates in a single industry segment as described
in Item 1(c) below. Certain required segment information related
to the Company's financial operations for the last three years is
included in Note K of Notes to Consolidated Financial Statements.
(c) Narrative Description of the Business
The Company operates in various market niches of a single
industry segment, the information technology industry, which
includes the design, manufacture, sale and service of computer
and storage systems, software, and other related equipment on a
worldwide basis.
Principal Markets
Within the information technology industry, Encore participates
in both the information processing and real-time computing
marketplaces.
Information Processing Markets
The Company has introduced its massively scalable, symmetric
multiprocessor-based open systems products into primarily four
information processing markets: (i) On-Line Transaction
Processing (OLTP) and Decision Support Systems (DSS), (ii)
Mainframe Replacement, (iii) Interactive Information Network
Servers and Switches, and (iv) Data Storage. Encore's strategy
is to provide a system that can continue to support a user's
existing critical applications while allowing the user to re-
engineer some or all of those applications to run in an open
systems environment at a much lower cost than traditional
mainframes.
During the 1960s, mainframe computers provided batch processing
solutions for its information system customers. In the 1970s,
minicomputers became the common computing paradigm. Then in the
1980s, the computing trend shifted towards PCs and workstations
with database management software. Because of the proliferation
of data from workstations and PCs, many large commercial
customers now require the immediate interactive processing of
available data for enterprise-wide computing rather than the
batch processing approach of traditional mainframes.
Accordingly, today the market has begun to migrate to a
client/server processing model served by both (i) mainframes and
mainframe alternatives for on-line transaction processing and
database applications, and (ii) massively parallel systems for
numerically intensive applications. The systems of the second
half of the 90s will be characterized by their ability to meet
the user's increasing computational power and I/O requirements as
well as the ability to move customers easily from a proprietary
technology environment into the open systems environment.
Encore serves the information systems market with the Infinity 90
Series of computer systems. These systems are well suited to a
wide range of applications including on-line transaction
processing (OLTP), client/server system management, data base
management, decision support systems, and interactive information
networks. The products are most effectively targeted at Fortune
500 and other large organizations such as U.S. government
agencies with a need for cost-effective computing power to handle
both existing and new centralized computing applications.
Examples of successful market penetration of the Company's
products include the selection of the Infinity 90 as part of a
multi-million dollar contract issued to a government prime
contractor for consolidating multiple mainframe data processing
centers within the U.S. Air Force Materiel Command.
Additionally, Encore has signed distribution agreements with
several systems integrators in the United States, the Middle
East, and the Pacific Rim.
Within the information processing market Encore addresses the
growing open data storage market by providing IBM mainframe
system-compatible data storage products based on the high-
performance technologies of the Infinity 90 product line. Data
storage demands within the information processing market are
expanding due to increased requirements of capturing business
data as well as storing new forms of information (e.g. document
images, sound, and video storage). Accordingly, the mainframe
storage marketplace is undergoing changes similar to those of the
information processing marketplace. These changes include the
need for faster, denser and more cost-effective storage solutions
to reduce demands on existing facilities and shrinking mainframe
data processing budgets. Today's data processing environments
have developed a strong strategic requirement to leverage
technology advances being applied to the open systems
environment.
The Company's Infinity Storage Processor (Infinity SP) provides
an innovative new approach to solving the storage processing
requirements of today's increasingly complex mainframe
environments. Many of the same technologies used in the Encore
Infinity 90 address these changes and are directly applicable to
both the existing and emerging storage marketplace. These
technologies have been optimized to provide reliable, high-
performance I/O subsystems while being readily suited to
addressing the needs of both mainframe and open systems
environments.
Real-Time Markets
The Company's real-time computer systems, the Infinity R/T(TRADEMARK)
Family, the Encore 90(TRADEMARK) Family and the Encore RSX(TRADEMARK), are
used forthe acquisition, processing, and interpretation of data
primarily in four market niches: (i) simulation, (ii) range and
telemetry, (iii) energy, and (iv) transportation.
Simulation is the Company's single largest real-time market
niche. Encore products are widely used in simulators that
duplicate complex situations in controlled environments. The
Company's installed simulation systems are used to safely and
economically train commercial and military personnel to operate
and maintain complex systems such as space vehicles, aircraft,
weapons systems, ships, ground-based vehicles, and nuclear power
plants.
In the range/telemetry market niche, the Company's real-
time systems are used for the acquisition and processing of
data by flight, space, sea, and ground ranges. These systems are
used in the test and evaluation of state-of-the-art military
and commercial aircraft, space vehicles, ground equipment,
and instrumentation systems.
Encore also competes in the power and electric utility market
niches of the energy marketplace where the Company's real-time
systems typically acquire, monitor, and provide supervisory and
closed loop control in energy management, power plant
monitoring and control, and power plant simulation systems.
This is done at both nuclear and fossil fuel plants. The
Company's systems monitor the transmission and distribution of
electrical power from generation to substation to end use and
facilitate the training of power plant operators by putting them
in simulated environments to prepare them for emergency
situations. Within the energy marketplace as a whole, Encore
systems provide the same real-time capability of data acquisition
and control to other market niches such as seismic, oil
exploration, and off-shore oil platforms.
Within the transportation market niche, the Company's products
are installed in a variety of rapid transit/metro rail and marine
transportation applications. Strategically, the Company is
focusing on other developing niches within this marketplace
including intelligent vehicular highway systems .
The Company's real-time customers include original equipment
manufacturers (OEMs) and systems integrators who combine Encore
products with other hardware and/or application software for
resale to end users. The Company also sells its products
to end users who require a compatible range of high-performance
systems which are used as the basis for major internal
installations.
The Encore customer base in both the information processing and
real-time market places are technology and life-cycle cost driven
and constantly in need of increased performance at lower
costs. The Company's sales efforts in the real-time market are
concentrated on "program" business where typically large
contracts are awarded with multiple systems scheduled for
delivery over an extended period of years, including continued
demand for upgrades and spare parts as well as ongoing
maintenance. Sales efforts in the information processing markets
are focused more closely at value added resellers (VARs) whose
own sales forces have particular expertise in specific
applications within the information processing markets and can
use the Company's product as a portion of a total package
designed to meet an end user's unique needs. Often an initial
system is shipped to a systems integrator, VAR, or other
reseller who may spend from six to eighteen months developing
software and connecting other equipment to the system before
final delivery to the end user.
Principal Products
Encore offers five principal families of computer and storage
systems targeted at the niches within the information processing
and real-time computing marketplaces of the information
technology industry discussed above. These product families are:
(i) the Infinity 90(TRADEMARK) Series, (ii) the Infinity SP (TRADEMARK)
storage
processors, (iii) the Infinity R/T(TRADEMARK) Series, (iv) the Encore
90(TRADEMARK) Series, and (v) the Encore RSX(TRADEMARK). Additionally,
the Company continues to support its prior generation CONCEPT/32 real-time
computer product line.
Infinity 90
The Infinity 90 Family of computer systems is a highly scalable,
open systems alternative mainframe computer that combines state-
of-the-art RISC technology, symmetric multiprocessing, a UNIX-
based operating environment and a powerful open systems-based
direct MEMORY CHANNEL(TRADEMARK) bus architecture. The backbone of the
architecture is Encore's patented MEMORY CHANNEL which provides
direct memory-to-memory connections between functional nodes at
industry leading bandwidths of up to 1.6 gigabytes per second.
The Infinity 90 Series can start with hundreds of users and can
be expanded to thousands of users as an enterprise's compute and
I/O requirements grow. This scalability can provide the user
with over 100 times the compute power, 20 times the bandwidth,
and over 75 times the I/O capacity of today's traditional
mainframes at significantly lower costs.
Entry level systems offer compute power of 35 MIPS and can be
scaled incrementally to 1000 MIPS. The I/O subsystems are
designed to enhance overall system performance and provide
unlimited capacity and throughput increases by nonintrusive
upgrades as well as provide storage control, communications, and
data paths within the Infinity 90 architecture. The amount of
CPU and I/O capacity can be balanced and intermixed as necessary
to deliver significant price/performance advantages over
traditional mainframes. The Infinity 90's scalability is
achieved through a building block approach to system
configuration which allows every aspect of the system to scale
incrementally. Comprised of functionally specific standards-
based computational and I/O subsystem building blocks, the
Infinity 90 can be configured into many unique system
configurations.
The Infinity 90 provides a solution for companies with the need
to reduce the cost of their data processing operations. The
system saves up to 80% of the cost associated with traditional
mainframes. High density packaging provides a high degree of
serviceability and reduces the system's footprint significantly.
Utilization of state-of-the-art low power consumption components
provide for low cost of operations. The Infinity 90 employs
technologically advanced components and peripherals that deliver
mainframe equivalent performance and capacity but require only
one-tenth the cooling and power. This minimizes the life-cycle
cost of system ownership.
As a file server, the Infinity 90 has overcome the low I/O
bandwidth, small storage capacity and overall limited growth of
other solutions by separating file processing from communications
protocol processing. Intelligent storage and communication
subsystems are independently scalable as are the 53 megabyte per
second MEMORY CHANNEL buses that connect them. While partitioned
internally, the Infinity 90 is seen by the user as one large file
address space accessible from numerous communications ports.
Because a user's initial storage demands may be minimal, the
system is designed to provide incremental growth from gigabytes
to terabytes of disk storage.
All Infinity 90 systems provide a variety of communications
offerings such as NetWare, LAN Manager, AppleTalk, TCP/IP, SNA
and OSI which can grow incrementally with the hardware
configuration.
The list prices for entry-level Infinity 90 systems begin at
about $200,000 and can exceed $3,000,000 for very large systems.
Infinity SP
The Infinity SP product line leverages the technology of the
Infinity 90 Series by combining its architectural elements with
the specialized software necessary to provide a comprehensive set
of storage products designed to meet mainframe storage
requirements. These systems may be used as direct attached
storage devices (DASD) for IBM-compatible mainframes as well as
being concurrently capable of providing shared storage facilities
to open systems environments. The Company believes this
innovative combination of functionality provides significant
competitive advantage within the marketplace
Infinity SP products utilize multiple RISC processors, high-
performance and high-density 7200 rpm 3.5 inch disks, and
advanced RAID technologies. Systems can be configured in a
fraction of the floor space and at a fraction of the cost of
traditional solutions. Additionally, the system has been
designed with the programmability necessary to provide a growth
path for expansion and open systems capabilities. Based on the
customer's needs, the Infinity SP can be configured with RAID 0,
1, or 5 capabilities. All systems are delivered with built-in
cache expandable up to 1024 MB and include advanced features
such as DASD Fast Write, Cache Fast Write, Disk Mirroring, and
Data Striping. Infinity SP systems are connected by up to eight
OEMI parallel channels with additional connectivity options such
as Ethernet.
Infinity SP storage subsystems are capable of delivering storage
solutions from 96 gigabytes to multiple terabytes. The list
prices for entry level Infinity SP systems begin at about
$675,000 and can exceed $2,000,000 for very large systems.
Infinity R/T
The Encore Infinity R/T offers high-performance real-time
solutions with the latest in RISC technology. The Infinity R/T
Model 300 includes the Alpha AXP(TRADEMARK) processor combined with a 6U
VMEbus interface, supporting VME-64 transfer rates of up to 60MB
per second, and delivers intensive computing power and high
performance I/O. The Infinity R/T Model 300 processor is a 150
MHz CPU delivering peak execution rates of 300 MIPS. The Model
300 provides an i960 co-processor to off-load I/O transaction
and interrupt functions from the Alpha AXP processor to further
optimize the performance of the standard Alpha AXP execution
units. The processor includes a 512KB secondary cache and real-
time clock timer and interrupts for user applications requiring
real-time synchronization.
The Infinity R/T Model 380 provides the CONCEPT(TRADEMARK) user with a
migration path that provides both MPX software compatibility and
SELbus hardware compatibility with the processing power and
application versatility of the OSF/1 Open Systems development
environment. Utilizing co-processing of both an Encore RSX
processor and the Infinity R/T Alpha, the processor is combined
with Encore Software providing a Distributed Real-Time Executive
(DRTX) to accommodate a single system view for the Infinity R/T
Model 380.
The Infinity R/T family of systems provides the user with OSF/1,
POSIX compatibility and SVID Interface. The Alpha AXP running
OSF/1 executes a comprehensive list of more than 6,000
applications that are binary compatible with the Infinity R/T
Series.
Pricing for Infinity R/T systems starts at $38,000 and
increases to over $320,000 for a fully configured system.
Encore 90
The Encore 90 Family consists of two principal classes of
computer systems: (i) the Encore 91 Series and (ii) the Encore
93 Series. At the low end of the computing range, the 91 Series
represents a true real-time system comprised of open system
components, bus structures and I/O. The system is implemented on
a symmetric RISC multiprocessor (the Motorola 88000) design with
a multiple bus architecture to maintain the deterministic
response required of real-time applications that are both compute
and I/O sensitive.
Implementing the same RISC processing elements and system
software architecture, Encore's second member of the Encore 90
Family is the Encore 93 Series. With a processor expandable from
two (2) to thirty-two (32) symmetrical processors, the Encore 93
Series can satisfy computing needs at the higher end of the
performance range.
UMAX V, Encore's multiprocessing UNIX implementation, has been
enhanced to accommodate real-time features and serves as the
interactive environment to the Encore 90's Power Domain
Management software system. In this arena, the multiprocessing,
memory, and I/O resources can be dynamically tailored to become a
very high speed real-time system, while maintaining the
productivity of the UNIX development environment. This
facilitates an extremely high speed option to very high demand
real-time environments.
Entry level systems begin at $59,000 and can exceed $175,000 for
fully configured Encore 90 Family computer systems.
Encore RSX
The Company's Encore RSX products provide the deterministic
performance, high aggregate computational power and high
system throughput required to process the demands associated
with today's real-time applications. These features are
achieved through a combination of a proven family of hardware
products, a proprietary Mapped Programming Executive (MPX-32)
operating system and innovative technology such as Encore's
patented REFLECTIVE MEMORY(TRADEMARK). Replacing the Company's prior
generation CONCEPT/32 Family, the Encore RSX can provide the
customer with a migration path from the CONCEPT/32 Family to the
open systems Encore 90 Family. The Encore RSX subscribes to the
option of IEEE 754 floating point formats. This allows a
seamless application mathematical interface to the UNIX-based
Encore 90 Family while maintaining CONCEPT/32 object code and
SelBUS compatibility. The Encore RSX can optionally run in RISC
mode by converting existing object code to the RISC instruction
set of the RSX. This significantly enhances system performance
without the need for the user to rewrite his applications.
The Encore RSX and the Encore 91 Series product offerings may be
combined into a single system via REFLECTIVE MEMORY. This new
combined system is a symmetric multiprocessor based on an open
systems host architecture using real-time UNIX to provide a
single point of control and management. All user interfaces to
the system are UNIX-based and provide open systems CASE tools to
increase development productivity.
Because all of the Company's real-time products are object
code compatible, a customer's original investment in software
and specialized hardware is preserved as he migrates his
installation to newer technology.
The Company also continues to offer support for the large
installed base of its prior generation CONCEPT/32 products.
These flexible products were designed for OEM system
integration, as embedded systems in customer supplied
cabinets or as complete distributed processing systems for
the most complex real-time tasks. Pricing for these systems
starts at $130,000 and increases to over $750,000 for a fully
configured system.
Customer Service
Service and support are critical elements in maintaining
customer satisfaction. The Company offers its customers a
variety of service and support programs for both hardware
and software products principally through its own customer
service organization supplemented in certain cases by third party
maintenance partners with locations throughout the world. The
Company also offers maintenance service for selected third
party equipment. Specific service and support programs include
preventive maintenance, resident labor service, customer
training and education, logistics support programs, data
facility management and custom technical and consulting
services. In addition, the Company provides a dial-in hotline
as well as remote diagnostic capabilities to allow problem
resolution from Encore's home office.
The Company provides a standard product warranty on its computer
systems for parts and labor which generally extends ninety days
from the date of installation, but on certain products for up to
one year. On its storage processor product line, the standard
product warranty for parts and labor generally extends two and,
in some cases, may extend three years.
Net sales of the Company's principal product offerings as a
percentage of total net sales during the past three fiscal years
are as follows:
% of total net sales
Product Line 1994 1993 1992
- ------------------ ----- ----- ----
Infinity 90 7 3 0
Infinity SP 6 0 0
Infinity R/T 2 1 0
Encore RSX 31 36 38
Encore 90 4 7 14
Customer Service 50 53 48
--- --- ---
Total 100 100 100
=== === ===
Sales and Distribution
Encore uses multiple channels of distribution to sell its
products. The primary channel for computer system sales has been
its direct sales force, consisting of approximately 28
salespersons in 22 sales offices located throughout the
United States, Canada and Western Europe. The Company also has
joint venture operations in Japan, Hong Kong and Malaysia and
various other arrangements with distributors throughout the
world.
The Company has expanded its utilization of systems
integrators, value-added resellers (VARs) and independent
software vendors (ISVs) in its distribution network.
Strategically, the Company is committed to continued
expansion of its distribution channels through the
establishment of marketing alliances with other industry leaders.
The most significant development in this area is the agreement
between the Company and Amdahl Corporation ("Amdahl"). In 1994,
in exchange for purchase commitments of specified volumes, the
Company granted to Amdahl exclusive worldwide ( excluding China,
Japan and Malaysia) distribution rights for the sales of the
Infinity SP product line, except that Encore reserved the right
to sell to its pre-existing distributors, United States
government agencies and systems integrators responding to United
States government bid requests. Additional details concerning
the current status of the distribution agreement is included in
Legal Proceedings, Management's Discussion and Analysis of
Financial Condition and Results of Operations and Note I of Notes
to Consolidated Financial Statements.
The Company's general policy is to sell rather than lease
its products. The Company generally has a policy of no
returns and does not typically extend payment terms beyond
those prevalent in the computer industry. A significant
portion of the Company's sales typically occur in the last
month of a fiscal quarter, a pattern that is not uncommon in
the computer industry. It is the Company's objective to
minimize the time from receipt of a purchase order for a computer
system to delivery of the system. Accordingly, the Company
does not believe backlog reported at any point in time aids
materially in the overall understanding of the business.
Encore's business is not subject to pronounced seasonal
fluctuations.
During the years reported, the Company has not been dependent
upon any one customer for a material part of its business with
no single customer accounting for more than 10% of its sales.
However, in fiscal 1994, 1993 and 1992, approximately 32%, 37%,
and 29%, respectively of its sales were derived either directly
or indirectly from various United States government agencies.
None of the Company's contracts with United States government
agencies are subject to the renegotiation of profits or
termination at the election of the government.
Research and Development
In fiscal 1994, Encore spent $30,339,000 (39.6% of total
net sales), on research and development (R&D) activities. In
fiscal 1993 and 1992, research and development spending was
$23,331,000 (24.9% of net sales) and $22,333,000 (17.1% of net
sales), respectively. Fiscal 1994 expenses were $7,008,000
higher than 1993 because of increased levels of spending
throughout the year on new product development efforts related to
the introduction of the Infinity SP product line and additions to
the Infinity R/T Family. Additionally, significant efforts
continued throughout the year on further enhancements to the
Infinity 90 Family. Fiscal 1993 expenses were $998,000 higher
than 1992 due principally to accelerated spending in the fourth
fiscal quarter of 1993 on materials used in the development of
Infinity SP prototypes. Until the initial Infinity SP product
offerings are finalized, the Company will continue to invest
heavily in R&D activities.
The fiscal 1994, 1993, and 1992 amounts above do not include
certain capitalized software development costs totaling
$2,467,000, $2,142,000 and $2,365,000, respectively. The Company
also spent approximately $1,041,000, $1,187,000 and $70,000 on
customer-sponsored engineering activities in fiscal 1994, 1993,
and 1992, respectively. In 1994 and 1993, these costs are
classified as R&D expenses and are fully offset by reimbursements
received from the customer. In 1992 such costs are included in
cost of goods sold.
Encore has established technical expertise in three critical
technologies: parallel processing, real-time and shared memory
distributed systems, and the UNIX environment. The Company's
primary emphasis has been to build upon these established
technologies and couple the best features of each into its
new generation of products, the Infinity 90, Infinity RT and
Infinity SP Families. Because of the rapid technological
change which characterizes the computer industry, the
Company must continue to make substantial investments in the
development of new products to maintain and enhance its
competitive position. In order to minimize its development
cycle, such efforts may be subcontracted to third parties with
particular required technological expertise. While this
increases the Company's reliance on the performance of others and
could result in unplanned delays in the product development
process, the Company employs business practices designed to
significantly reduce this risk. At this time, Encore has no
reason to believe any of its subcontractors present a serious
business risk to the Company.
It is expected that future annual R&D expenditures will remain
at or above current levels and, as a percent of sales, will
remain high in relation to industry norms.
Manufacturing and Raw Materials
The Company's manufacturing operation is ISO 9002 certified and
consists primarily of the assembly and integration of purchased
parts, components, and sub-assemblies into computer and data
storage systems. Printed circuit boards are assembled using
surface mount technology and automatic placement equipment while
substantially all peripherals are purchased from third party
vendors. Extensive testing and burn-in is performed at the
board, component and sub-assembly level and at final systems
integration.
Encore's products are comprised of a wide variety of electronic
and mechanical components, raw materials and supplies. The
Company relies heavily on external sources of supply for these
items as well as for other supplies and services. Neither the
Company's customers nor its vendors require Encore to carry
significant amounts of inventory to meet rapid delivery
requirements or to secure itself of a continuous allotment of
goods from suppliers. The Company has developed multiple
commercial sources for most components and raw materials used in
the manufacture of its computer systems. However because of the
relative newness of the product line, Encore does utilize several
single source vendors for certain critical components in the
Infinity SP product line. While delays in delivery of such single-
sourced components could cause unplanned delays in the shipment
of certain products, at this time, the Company has no reason to
believe any of its single source vendors present a serious
business risk to the Company.
The Company believes that its manufacturing facilities are
sufficient to meet its requirements for at least three years.
Competition
The computer industry is intensely competitive and is
characterized by rapid technological advances, decreasing
product life cycles, and price reductions. The principal
competitive factors in the Company's markets are total
system performance, product quality and reliability,
price, compatibility and connectivity to other vendors' systems,
and long term service and support.
The primary competitors in the Company's real-time markets are
established companies, such as Concurrent Computer Corporation,
Digital Equipment Corporation (DEC) and Harris Corporation.
Competitors in the information processing market include
established companies like DEC, International Business Machines
(IBM), NCR, Hewlett Packard Company (HP), and Sequent Computer
Systems. Within the storage products marketplace , the Company
competes with IBM, Hitachi Data Systems and EMC Corporation.
Many of Encore's competitors have greater financial, technical,
and marketing resources than Encore. In some cases, this places
the Company at a disadvantage. However, the Company considers
its level of experience and general understanding of real-time
applications and its current parallel processing and UNIX
technology position to be positive competitive factors.
Patents and Licenses
Encore owns a number of patents, copyrights, and trademarks
relating to its products and business. While valuable to
Encore, management believes that because of the rapid change in
technology such patents, copyrights, and trademarks are of less
significance to its success than other factors such as
innovation, technical skills, and management ability and
experience.
From time to time, companies in the industry have claimed
that certain products and components manufactured by others are
covered by patents held by such companies. It may,
therefore, be necessary or desirable for Encore to obtain
additional patent licenses. Management believes that such
licenses could be obtained on terms which would not have a
material adverse effect on the Company's financial position
or the results of its operations.
Encore has entered into licensing agreements with several third
party software developers and suppliers. The licenses generally
allow for use and sublicense of certain software provided as
part of the computer systems marketed by the Company. Encore is
licensed by UNIX Systems Laboratories Inc. to use and
sublicense their UNIX operating system in the Company's computer
systems.
As part of a 1991 refinancing of the Company and as more fully
described in Note I of the Notes to Consolidated Financial
Statements, the Company granted a sole and exclusive license to
Gould for all of Encore's intellectual property. The
intellectual property license is royalty free and contains
certain covenants which do not allow Gould to use the Company's
intellectual property unless certain sales revenue levels are not
reached by the Company. Additionally, Encore has the option to
extend the initial exclusivity period for up to 5 additional
years by making cash payments to Gould, and the period will be
automatically extended if Encore achieves certain operating
income levels. Encore may also terminate the license agreement
if all borrowings under its revolving credit agreement with Gould
are repaid and the commitment under the revolving loan agreement
shall have terminated and either (i) the outstanding shares of
the Series B Convertible Preferred Stock are converted into
either common stock or Series A participating preferred stock or
(ii) all of the outstanding shares of the Series B convertible
preferred stock are redeemed or (iii) Encore pays Gould the fair
value of the license.
The Company has not achieved the net sales or operating income
levels necessary under the agreement to maintain its exclusive
right to the use of its intellectual property. In conjunction
with the March 17, 1995 exchange of indebtedness for convertible
preferred stock discussed more fully in Note L of Notes to
Consolidated Financial Statements, the Company and Gould agreed
not to exercise certain remedies with respect to the defaults
which occurred in 1994 and that Encore's period of exclusive use
of the licensed property shall not terminate prior to June 30,
1995. Should the Company be unable to negotiate further
extensions to its exclusivity period, Encore could lose its
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.
Environmental Matters
Compliance with Federal, State and Local provisions which have
been enacted or adopted regulating the discharge of materials
into the environment, or otherwise relating to the protection of
the environment are not expected to have a material effect on the
capital expenditures, earnings or competitive posture of the
Company or its subsidiaries.
Employees
As of December 31, 1994, Encore had 847 full-time employees
engaged in the following activities:
Employees
Customer Service 159
Manufacturing 158
Research and Development/Custom Products 291
Sales and Marketing 161
General and Administrative 78
---
Total 847
===
The Company's future success will depend in large part on its
ability to attract and retain highly skilled and motivated
personnel, who are in great demand throughout the industry.
None of the Company's domestic employees are represented by a
labor union.
Executive Officers of the Company
The names of the Company's executive officers and certain information
about them are set forth below.
Name Age Position with Company
--------------------- ---- -----------------------
Kenneth G. Fisher 64 Chairman of the Board
and Chief Executive Officer
Rowland H. Thomas, Jr. 59 President
and Chief Operating Officer
Charles S. Anderson 65 Vice President,
Corporate Relations
Ziya Aral 42 Vice President, Systems
Engineering and Chief
Technology Officer
Robert A. DiNanno 48 Vice President and General Manager,
Real-Time Operations
T. Mark Morley 46 Vice President, Finance
and Chief Financial Officer
Charles S. Namias 36 Vice President,
Corporate Alliances
James C. Shaw 47 Vice President,
Manufacturing Operations
George S. Teixeira 38 Vice President,
Product Business Group
J. Thomas Zender 55 Vice President,
Corporate Product Management
Mr. Fisher is a founder of the Company and has served as a
Director, Chairman and Chief Executive Officer of the
Company since the Company's inception in May 1983. He was the
Company's President from its inception until December 1985 and
also served in that capacity from December 1987 to January
1991. From January 1982 until May 1983, Mr. Fisher was
engaged in private venture transactions. From 1975 to 1981, Mr.
Fisher was President and Chief Executive Officer of
Computervision (formerly Prime Computer, Inc.). Before joining
Computervision, Mr. Fisher was Vice President of Central
Operations for Honeywell Information Systems, Inc.
Mr. Thomas has been a member of the Board of Directors since
December 1987 and Chief Operating Officer since June 1989.
He presently serves as President of the Company, a position
to which he was elected in January 1991. From June 1989 to
January 1991, Mr. Thomas served as Executive Vice President
of the Company. In February 1988, he was named President
and Chief Executive Officer of Netlink Inc. Prior to joining
Netlink, Mr. Thomas was Senior Executive Vice President of
National Data Corporation ("NDC"), a transaction processing
company, a position he held from June 1985 to February 1988.
From May 1983 through June 1985, Mr. Thomas was Executive Vice
President and Senior Vice President at NDC.
Mr. Anderson, joined the Company in 1985. From 1984 until
joining the Company, Mr. Anderson served as Director of
Human Resource Operations at Data General Corporation. Before
joining Data General, Mr. Anderson was with Honeywell
Information Systems, Inc. serving in various management positions
since 1970, most recently as Director of Employee Relations.
Mr. Aral joined the Company in 1987 and was appointed to his
present position of Chief Technology Officer in 1993. Since
1987, he has held various positions of increasing responsibility
within the Company including Vice President of Systems
Engineering and Senior Technology Consultant. While with the
Company, Mr. Aral has been the key innovator and architect of
much of the Company's current technology including the Infinity
90 Series. Prior to joining Encore, Mr. Aral was employed by
the Reed-Prentice Division of PMCo. in a variety of software
engineering positions.
Robert A. DiNanno joined the Company in July 1986. Until June
1992, Mr. DiNanno served as Vice President and General Manager,
Operations. At that time, he was appointed Vice President and
General Manager, Real-Time Operations. Prior to joining the
Company, he served as Vice President, Manufacturing at Adage,
Inc. from November 1983 to June 1986. Mr. DiNanno also held
domestic and international management assignments with Honeywell
Information Systems, Inc. from June 1979 until November 1983.
Mr. DiNanno has experience with military and commercial flight
simulations acquired during his tenure at Singer Link.
T. Mark Morley joined the Company in November 1986 as Chief
Financial Officer and Vice President, Finance. Prior to that
during 1986 he was Chief Financial Officer, Vice President,
Finance and Treasurer of Iomega Corporation. From 1977 through
1985, Mr. Morley was employed by Computervision (formerly Prime
Computer, Inc.), most recently as the Senior Director responsible
for the Treasury department. From 1973 to 1977, Mr.
Morley was associated with Deloitte and Touche and from 1971
to 1973 he was associated with the City of Boston Legal
Department. He is an attorney and a C.P.A.
Mr. Namias joined the Company in 1983 as Director of Processor
Engineering. From 1986 to 1989 he held direct sales and several
field sales management positions. In 1990, he was promoted to
Director, Strategic Business Alliances and in 1992 promoted to
Vice President, Business Development. In 1993, Mr. Namias was
appointed Vice President, Corporate Alliances and an officer of
the Company. Prior to joining the Company, Mr. Namias was
employed by Digital Equipment Corporation and Raytheon Missile
Systems.
Mr. Shaw joined the Company in 1989 as Vice President,
Manufacturing Operations. In November 1992, he was appointed an
officer of the Company. From 1985 to 1989 he served as Senior
Director, Manufacturing for Modicon, Inc. Prior to that time, he
was Vice President, Manufacturing for Chomerics, Inc., a position
he held from 1980 to 1985.
Mr. Teixeira assumed his present position in 1994. From 1991 to
1994, he held the position of Vice President, Product
Development. Prior to 1991, Mr. Teixeira held the positions of
Vice President of Marketing and Vice President of Product
Management. Mr. Teixeira was Director of Product Marketing
and Management for the Computer Systems Business of Gould which
the Company acquired in 1989. Prior to 1989 he held several
progressively more responsible positions since joining Gould in
1981.
J. Thomas Zender joined the Company in August 1989 as Vice
President of Marketing. In January 1991, he was appointed
Vice President Program Management and in 1992 was appointed Vice
President, Corporate Product Management. From 1986 to August
1989, Mr. Zender was Vice President, Corporate Development at
MAI Basic Four, Inc. Before joining MAI Basic Four, he
was Vice President of Marketing of Calcomp/Terak Corporation.
Mr. Zender served as Vice President of Marketing for
Database Systems Corporation and Director of Marketing for
Genrad, Inc. He also served as Vice President of Field Support
for ITT Courier as well as holding various management
positions with Honeywell Information Systems, Inc. and General
Electric Company.
(d) International Operations
The Company maintains sales and service operations in Europe and
Canada through wholly-owned subsidiaries. In the Far East, sales
and service operations are performed through one or more joint
ventures in Japan, Hong Kong and Malaysia and distributor
agreements throughout the remainder of the Pacific Rim. In
fiscal 1994, approximately 44% of consolidated net sales were
derived from foreign operations. The Company believes that
its overall profit margins with respect to foreign sales are
not materially different from profit margins from domestic
sales. In view of the locations and diversification of its
foreign activities, the Company does not believe that there
are any unusual risks beyond the normal business risks
attendant to activities abroad. Encore attempts to limit
its foreign currency denominated assets and liabilities to reduce
its exposure to foreign currency fluctuations. Additional
information relating to the Company's international
operations, including financial information segregated by major
geographic area, is contained in Note K of the Notes to
Consolidated Financial Statements.
Item 2 Properties
Listed below are the Company's principal facilities as of
December 31, 1994.
Owned or Square Feet
Location Principal Use Leased Approximately
Ft. Lauderdale, FL Administrative/ Owned 224,000
Development/
Marketing
Melbourne, FL Manufacturing Owned 124,000
Paris, France Sales/Service Leased 47,000
London, England Sales/Service Leased 35,000
In addition to the facilities listed above, Encore also leases
space in various other domestic and foreign locations for use as
sales and service offices. The Company's owned facilities are
encumbered by various mortgages, including mortgages which
collateralize the Gould loan agreements (See Note G of Notes to
the Consolidated Financial Statements).
Item 3 Legal Proceedings
During 1994 the Company and Amdahl entered into a multi-year
Reseller Agreement which provides Amdahl, in exchange for
purchase commitments of specified volumes, with the exclusive
marketing and distribution rights to the Company's Infinity SP
storage product, except for sales to the U.S. government and
system integrators responding to U.S. government requests, pre-
existing Encore distributors and in Japan, China, and Malaysia,
where Encore retains the right to market the products on a non-
exclusive basis.
During the second and third quarters of 1994 the Company
delivered products to Amdahl under the terms of the agreement
which Encore believes conformed fully with the agreement.
However, as of December 31, 1994 Amdahl had not paid for the
products received.
The Company has had continuing discussions with Amdahl requesting
payment of all past due invoices and the resumption of deliveries
under the terms of the Reseller Agreement. In response to a
February 1995 letter sent by the Company to Amdahl notifying
Amdahl of its intent to terminate the Agreement if past due
invoices were not paid, Amdahl filed suit in the Delaware
Chancery Court on March 29, 1995 seeking to prevent Encore from
terminating the Reseller Agreement. On March 30, 1995, Encore
and Amdahl agreed to a "Stand-Still" Agreement which, in effect,
preserves the status quo to allow the companies time to more
thoroughly discuss the contractual issues that exist. The "Stand-
Still" Agreement runs until April 14, 1995.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries are party to or of which
any of their property is the subject. The unfavorable resolution
of any of these existing matters would not have an adverse impact
on the financial results of the Company.
Item 4 Submissions of Matters to a Vote of Security Holders
No items were submitted to a vote of the security holders during
the fiscal quarter ended December 31, 1994.
<PAGE>
PART II
Item 5 Market for Registrant's Common Equity and Related
Stockholder Matters On March 18, 1994, the Company's common
stock was reinstated for trading on the Nasdaq Stock Market under
the symbol ENCC. Prior to that time, Encore common stock traded
on the OTC electronic bulletin board also under the symbol ENCC.
Daily statistics on the Company's stock subsequent to March 18,
1994 can be found in the Nasdaq National Market Issues listing of
the newspaper's stock listings.
The high and low closing sale prices of Encore's common stock
are shown for fiscal years 1994 and 1993 in the table below:
Fiscal 1994 Fiscal 1993 prices
High Low High Low
------ ----- --------- -------
1st Quarter $4 3/8 2 5/8 $ 1 15/16 $ 1 1/4
2nd Quarter 6 3/8 3 1/8 2 5/8 1 1/2
3rd Quarter 5 1/16 3 13/16 4 1/2 2 5/8
4th Quarter 5 9/16 3 4 1/4 2 3/4
The First National Bank of Boston is the stock transfer agent
and registrar of the Company's common stock, and maintains
shareholder records. The agent will respond to questions on
change of ownership, lost stock certificates, consolidation
of accounts, and change of address. Shareholder
correspondence on these matters should be addressed to:
The First National Bank of Boston
Shareholder Services Division
P.O. Box 644
Boston, Massachusetts 02109.
As of April 4, 1995, there were approximately 3,204 holders of
record of the Company's common stock. The Company has never
paid cash dividends on its common stock and does not
anticipate the payment of cash dividends in the foreseeable
future. Under the terms of the Company's current financing
agreements, the Company is prohibited from paying dividends on
its common stock.
<PAGE>
Item 6
<TABLE>
<S> <C> <S><C> <C> <C>
Selected Financial Data
(in thousands except -
per share data)
Pro Forma ------------for the year ended December 31-------
1994(2) 1994 1993 1992 1991 1990
------- ------- ------- -------- -------- --------
Net sales $76,550 $76,550 $93,532 $130,893 $153,302 $215,206
Operating loss (50,848) (50,848) (62,085) (22,544) (54,938) (8,341)
Loss before
extraordinary items (54,556) (54,556) (69,565) (32,522) (65,388) (30,147)
Net loss (54,556) (54,556) (69,565) (32,522) (65,388) (29,646)
Loss per common share
before extraordinary items (1.68) (1.68) (2.01) (.98) (1.87) (.86)
Net loss per common share (1) (1.68) (1.68) (2.01) (.98) (1.87) (.84)
Weighted average shares of
common stock outstanding (1) 40,755 40,755 39,273 37,899 36,466 35,249
Working capital 15,938 20,237 3,499 14,270 16,014 40,916
Total assets 98,762 98,762 84,070 105,686 121,186 162,180
Long term debt 39,249 89,249 112,919 66,413 106,588 140,666
Redeemable preferred stock - - - - 4,246 -
Shareholders' equity
(capital deficiency) 23,661 (22,040) (66,560) 508 (42,137) (23,693)
</TABLE>
(1) See Notes A and J of the Notes to Consolidated Financial
Statements for information on the calculation of net loss per
share. During 1994, the Company paid preferred stock dividends of
$13,986,600 in additional shares of the appropriate class of
preferred stock. During 1993 preferred stock dividends on the
Series B and Series D preferred stock of $9,184,700 were
accumulated by the Company and subsequently paid during 1994 in
additional shares of preferred stock. During 1992, preferred
stock dividends on the Series B and Series D preferred stock of
$4,471,400 were paid with additional shares of the appropriate
class of preferred stock.
(2) As discussed in Note L of the Notes to Consolidated Financial
Statements, the Company and Gould Electronics Inc. completed a
recapitalization of the Company subsequent to the Balance Sheet
date. The column headed Pro Forma 1994 shows the Selected
Financial Data on a Pro Forma basis as if the recapitalization had
been done at December 31, 1994.
<TABLE>
Selected Fiscal Year 1994 and 1993 Quarterly Financial Data
(in thousands except per share data; unaudited)
<S> <C> <S> <C> <S> <C> <S> <C> <S> <C> <C>
Fiscal Year 1994 Quarter 1 Quarter 2 Quarter 3 Quarter 4 1994
- -------------------- --------- --------- --------- --------- --------
Net Sales $ 19,489 $22,336 $16,558 $18,167 $76,550
Gross Profit 7,220 6,236 6,198 (4,011) 15,643
Net loss before extraordinary item (8,904) (10,949) (10,761) (23,942) (54,556)
Net loss (a) (8,904) (10,949) (10,761) (23,942) (54,556)
Net loss per share before
extraordinary item (.28) (.36) (.36) (.68) (1.68)
Net loss per common share (.28) (.36) (.36) (.68) (1.68)
Fiscal Year 1993 Quarter 1 Quarter 2 Quarter 3 Quarter 4 1993
- -------------------- --------- --------- --------- --------- --------
Net Sales $28,419 $22,341 $21,431 $21,341 $93,532
Gross Profit 10,381 5,436 7,337 4,547 27,701
Net loss before extraordinary item (8,345) (25,982) (10,903) (24,335) (69,565)
Net loss (a) (8,345) (25,982) (10,903) (24,335) (69,565)
Net loss per share before
extraordinary item (.27) (.73) (.33) (.68) (2.01)
Net loss per common share (.27) (.73) (.33) (.68) (2.01)
</TABLE>
(a) Quarter 4, 1993 and Quarter 2, 1993 include restructuring
charges of $10,422,000 and $12,843,000, respectively.
<PAGE>
Item 7 Management's Discussion and Analysis of Financial
Condition and Results of Operations
Overview
Encore Computer Corporation ("Encore" or the "Company") was
founded in May 1983 and was in the development stage until
October 1986. During this period, the Company was primarily
involved in the research, development and marketing of UNIX-
based computers and terminal servers. In 1989, Encore
significantly increased its size and worldwide marketing presence
when it acquired substantially all of the assets of the Computer
Systems Division of Gould Electronics Inc. (the "Computer Systems
Business"). This was a significantly larger business which for
over twenty-five years provided real-time computer systems
solutions to the simulation, range and telemetry, and energy
marketplaces.
During the late 1980s, product demand in the computer marketplace
began to migrate from more traditional proprietary computing
technologies towards an open systems technology. The Company
anticipated this market trend and subsequent to the acquisition
of the Computer Systems Business targeted its research and
development efforts towards programs to develop a new generation
of open system computers. Since the beginning of 1992, the
Company has spent approximately $76,000,000 in research and
development activities. This has resulted in the current
availability of a family of open system computers and storage
systems targeted toward demanding, time critical applications in
both the general purpose computing and real-time marketplaces.
The most recent of these offerings include (i) the Infinity 90,
an open system alternative mainframe computer, available since
the second half of 1992, (ii) the Infinity R/T, a real-time
version of the Infinity 90, released for volume shipments in the
second half of 1993 and (iii) the Infinity SP storage processor
which began early production shipments in 1994 .
The general opinion of industry analysts is that future computer
solutions will be based on open systems and standards. The
Company's open systems products designed to meet these
requirements have been favorably reviewed by certain market
research firms. However, this market is still in its infancy.
Many data processing users are only now beginning to define their
strategies for implementation of open systems technology.
Accordingly, demand for the Company's open systems products has
been weaker than anticipated. Sales of such new products have
been insufficient to offset declines in older, established
products which have reached the end of their competitive life
cycle. Total net sales have decreased from $130,893,000 in 1992
to $76,550,000 in 1994 and as a result the Company has incurred
significant net losses in all years reported.
Addressing the declining revenue base and resultant lower gross
margin dollars, management has taken aggressive actions
throughout this period to restructure the organization to levels
more consistent with the declining size of the Company. These
actions have included reducing the workforce to levels required
to support the business, eliminating organizational redundancies
and consolidating certain facilities to eliminate unneeded
capacity. In connection with the restructuring activities, the
Company has also recognized the non-recoverability of certain
capitalized software products and the impairment in value of
certain other long lived assets, including goodwill. As a result
of the actions taken, the Company has recorded restructuring
charges of $28,513,000 over the three year period. The Company's
future success will be based on the success of its research and
development activities. Accordingly, the Company will continue
to invest heavily in research and development. In future
periods, research and development spending as a percentage of
net sales will remain high in comparison to industry averages.
The Company believes that this will allow it to provide early
availability of leading-edge computer technology which could
position the Company favorably as the marketplace continues to
mature.
With the net losses incurred in the three years ended December
31, 1994, the Company has not generated sufficient levels of cash
flow to fund its operations and cumulatively has used cash in
operating and investing activities of $157,463,000. The
principal source of financing has been provided by Japan Energy
Corporation ("Japan Energy") and certain of its wholly owned
subsidiaries (collectively known as the "Japan Energy Group").
As discussed in more detail below and in Note L of Notes to
Consolidated Financial Statements, as of March 17,1995 the
Company and the Japan Energy Group completed an exchange of
indebtedness for Series F Cumulative Convertible Preferred Stock
("Series F"). As part of this transaction, Gould Electronics
Inc. ("Gould"), a wholly owned subsidiary of Japan Energy agreed,
among other things, to exchange $50,000,000 of indebtedness owed
to it by the Company for Series F with a liquidation preference
of $50,000,000. Additionally, Gould agreed to: (i) provide an
additional $25,000,000 borrowing capacity by raising the limit of
the Company's loan agreement to $80,000,000, (ii) extend the
loan's maturity until April 16, 1996 and (iii) waive compliance
with the financial covenants of the agreement until January 1,
1996.
Should the Company continue to incur significant losses, it will
be difficult to operate as a going concern without the continued
financial support of the Japan Energy Group. Until the Company
returns to a sustained state of profitability, it will not be
able to secure sufficient financing from other sources.
Accordingly, should the Japan Energy Group withdraw its financial
support prior to the time the Company returns to profitability,
the Company will experience a severe liquidity crisis and have
difficulties settling its liabilities in the normal course of
business. Management believes the current availability of new
technology products, such as the Infinity 90 and Infinity SP,
could improve the Company's revenue stream and related
profitability. However until such time, the Company will
continue to adjust spending to levels consistent with expected
business conditions.
Comparison of Calendar 1994, 1993 and 1992.
Net sales for 1994 were $76,550,000 compared to net sales for
1993 and 1992 of $93,532,000 and $130,893,000, respectively. The
1994 revenue decline is due to both lower equipment and service
sales. In 1994, equipment sales decreased to $38,412,000 from
$43,622,000 and $67,840,000 in 1993 and 1992, respectively.
Service revenues for 1994, 1993, and 1992 were $38,138,000,
$49,910,000 and $63,053,000, respectively. In general as
discussed below, the principal service sales declines since 1992
are due to lower equipment sales volumes.
Despite the availability of new technology products such as the
Infinity SP, the Infinity 90 and Infinity R/T and continued
enhancements to the other traditional product lines, 1994
equipment sales decreased from prior years. This decline 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 has been slower than
anticipated.
Prior to 1992 the Company's principal product offerings were
proprietary architectures whose core technology was developed in
the early 1980s. Although product enhancements were made, over
time these older products have lost some of their technological
edge. Accordingly, the Company has been increasingly less
competitive selling into new, long-term programs in its
traditional real-time markets. As a result, such product
revenues have declined significantly. Replacement products based
on open systems technology have been available from the Company
since 1991, however, demand in the real-time markets for initial
versions of the replacement products was disappointing.
Accordingly, since 1991 the Company has experienced significant
average annual declines of approximately 26% in its real-time
equipment sales. To improve its market acceptance, the Company
recently released additional, new versions of the Infinity R/T
based on the Digital Equipment Corporation's Alpha AXP 21064 RISC
processor for volume shipments. These versions appear to be more
favorably received by customers and during the second half of
1994, the Company began delivery of the product.
The Company has targeted the information processing market as a
strategic growth market. Since 1991 Encore has developed a
series of open system products targeted at this market
culminating in the availability of the Infinity 90. However, the
open systems computer market is still in its infancy. Data
processing users are now beginning to adopt this technology but
the migration of a data processing operation to an open systems
technology is generally viewed as a complex and expensive
process. To minimize the perceived risks associated with this
migration, early adapters have often selected larger, more
established companies as their computer hardware provider.
Accordingly, while its products and technology have received
favorable reviews by certain market research firms, Encore has
had difficulty penetrating the marketplace.
Reflective of the Company's declining system sales and continued
price competitiveness in the marketplace, service revenues have
declined from the prior years by 24% and 21% in 1994 and 1993,
respectively. However, as a percentage of total net sales,
service revenues have increased from 48% in 1992 to 50% in 1994.
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 system while it is in
service. Accordingly, the rate of decline in service revenues
has lagged that of equipment revenues and since 1992 service
revenues have become an increasingly larger portion of the
Company's sales mix.
The decline in net sales has occurred in both the domestic and
international markets. International sales in 1994, 1993 and
1992 were $33,937,000, $41,371,000 and $65,209,000 or 44%, 44%,
and 50%, respectively of total net sales. Sales achieved in 1994
represent an average annual decline of 28% from 1992. The
principal decreases in international sales in all years have
occurred in Western Europe. The European markets have been
adversely affected by the same factors as the overall business
discussed above. In light of the downturn in international
operations, management has taken various actions including those
discussed below to reduce expenses to levels more consistent with
expected future business levels. In 1993 and 1992 decreasing
international margins caused by the declining revenue were not
fully offset by the lower operating expenses. As displayed in
Note K of Notes to Consolidated Financial Statements,
international operations incurred operating losses in those
years. In 1994, international operations returned to
profitability as the full benefit of the cost reduction actions
were realized. The financial results of international operations
are not expected to improve further until such time as product
demand increases significantly.
During the three years ended December 31, 1994, no single
customer accounted for more than 10% of the Company's annual
sales. However, sales to various U.S. government agencies have
represented approximately 32%, 37% and 29% of net sales in 1994,
1993 and 1992, respectively. The Company recognizes that
reductions in current levels of U.S. government agency spending
on computers and computer related services could adversely affect
its traditional sources of revenue. To mitigate any potential
risk, plans are in place to strategically expand into non-
traditional, high growth markets with the Infinity 90 and
Infinity SP Family of products. The high speed processing
capabilities of these products combined with the architecture's
scalability, make the products well suited for applications
traditionally thought to be the sole domain of mainframe
computers and proprietary subsystems. Among the markets being
targeted by the Company are the decision support
system/commercial parallel processing markets and data storage
markets where high speed performance is a critical factor.
One example of this effort is the execution of a five year
Reseller Agreement between the Company and Amdahl Corporation
("Amdahl Agreement") which allows Amdahl the right to distribute
the Company's Infinity SP under the Amdahl brand. The agreement
provides Amdahl with the exclusive marketing and distribution
rights to the product in exchange for purchase commitments of
specified volumes, except for sales to the U.S. government
agencies, system integrators responding to government agency bid
requests, pre-existing Encore distributors and in Japan, China,
and Malaysia, where Encore retains the right to market the
products on a non-exclusive basis. The Amdahl Agreement as
amended establishes procurement schedules, which if certain
product requirements are met, could require Amdahl to purchase a
significant amount of products from Encore. However, since
entering into the agreement certain significant contractual
issues have arisen. These issues, discussed in detail in the
following paragraphs and Note I of Notes to Consolidated
Financial Statements, have resulted in a slower than anticipated
ramp-up of deliveries to Amdahl.
In the second and third quarters of 1994, the Company and Amdahl
agreed to begin product deliveries under the terms of the Amdahl
Agreement. After delivery of the initial shipments of Infinity
SP's and related spares, Amdahl informed the Company of its
decision to postpone further deliveries until Amdahl's testing
confirmed that the product included all the performance, features
and functionality it believed were required under the terms of
the Amdahl Agreement. In addition, Amdahl has refused to pay for
the products delivered to it in 1994. These actions have
resulted in a significant delay in the realization of product
revenues and significant unplanned increases in inventory levels,
and is largely responsible for the deterioration of operating
cash flows. The Company believes the products delivered to
Amdahl conformed fully with the terms of the Agreement. The
Company has had continuing discussions with Amdahl requesting
payment of all past due invoices and the resumption of deliveries
under the terms of the Amdahl Agreement. Amdahl has filed suit
in the Delaware Chancery Court seeking to prevent Encore from
terminating the Agreement ( see Item 3 "Legal Proceedings").
Because of the current uncertainties surrounding the outcome of
the discussions between the companies, management has considered
it prudent to establish certain reserves at December 31, 1994 by
charging cost of goods sold including (i) an allowance of
$3,300,000 against past due Amdahl trade receivables of
$6,100,000 and (ii) an adjustment of $5,600,000 against the
$22,300,000 carrying value of Infinity SP inventory.
Previously, no one customer has represented a significant portion
of the Company's total business. However, should Amdahl purchase
Infinity SP products in the quantities to which they committed in
the Amdahl Agreement, they could become a significant portion of
Encore's future revenues. The Company recognizes that certain
business risks can exist whenever one company becomes a
significant portion of another's total business. To limit its
exposure to such possible future risk, the Company will continue
to seek out additional strategic distribution partnerships with
other companies for all of its products as allowed under the
terms of its existing customer agreements; including the
agreement with Amdahl.
In connection with the Company's sales to United States
Government agencies, certain government agencies, such as the
Department of Defense, are precluded from awarding contracts
which require access to classified information to foreign owned
or controlled companies. The principal source of both debt and
equity financing for the Company has been through Japan Energy (a
Japanese corporation) and certain of its wholly owned
subsidiaries. Aware of U.S. government limitations on the
ability of certain agencies to do classified business with
foreign owned or controlled companies, Encore and the Japan
Energy Group have proactively worked to comply with all U.S.
government requirements. In this connection, the Japan Energy
Group has agreed to accept certain terms and conditions relating
to its equity securities in the Company, including limitations on
the voting rights of its shares, limitations on the number of
seats it may have on the board of directors and certain
restrictions on the conversion of its preferred shares into
common stock. In connection with the recapitalizations discussed
in more detail below and in Notes G, J, and L of the Notes to
Consolidated Financial Statements, the Company requested the
United States Defense Investigative Service ("DIS") to review the
relationship between the Company, Japan Energy, and Japan
Energy's wholly owned subsidiaries, Gould and EFI International
Ltd. ("EFI"), under the United States Government requirements
relating to foreign ownership, control or influence. DIS has
indicated that it has no objection to the relationship.
Encore is committed to complying with all U.S. government
requirements regarding foreign ownership and control of U.S.
companies. At this time, the Company is unaware of any
circumstances that would adversely affect the opinions previously
issued by DIS. However, should DIS change its opinion of the
nature of Japan Energy's influence or control on the Company, a
significant portion of the Company's future revenues realized
through U.S. government agencies could be jeopardized.
To improve demand for its products, the Company continues to
actively leverage and enhance the core technology of its open
system products. One such result of this effort is the recent
availability of the Infinity SP storage processor. Utilizing the
technology of the Infinity 90, the Infinity SP offers a new, cost
effective, high performance approach to traditional applications
in the high growth data storage markets. 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
product offerings to market .
Total cost of sales decreased in 1994 to $60,907,000 from
$65,831,000 in 1993 and $79,040,000 in 1992. The decrease in all
years reported was due generally to lower sales volumes and lower
spending resulting from the restructuring of manufacturing and
customer service operations during the three year period. Since
the beginning of 1992, manufacturing and customer service
headcount have been reduced by 50%, certain customer service
field operations have been closed or scaled down, and all
manufacturing operations have been consolidated in Melbourne,
Florida. In 1994 lower costs realized as a result of lower sales
volumes and lower spending levels were partially offset by
fourth quarter charges of $3,300,000 establishing an allowance
against past due Amdahl accounts receivable and an adjustment of
$5,600,000 against the $22,300,000 carrying value of Infinity SP
inventory of built for delivery to Amdahl. An additional
discussion of the facts and circumstances surrounding this charge
is included in Note I of Notes to Consolidated Financial
Statements under the caption Concentrations of Credit Risk.
Gross margins on equipment sales in 1994 were $3,360,000 (8.7%)
compared to 1993 gross margins of $14,041,000 (32.2%) and
$33,557,000 (49.5%) in 1992.
The decrease in 1994 equipment gross margins of $10,681,000 is
due principally to: (i) the one time charge reserving $3,300,000
of Amdahl accounts receivable discussed above, (ii) lower
margins of $2,290,000 on lower equipment sales, (iii) lower
margins of $2,941,000 due to a shift in sales mix towards lower
margin products, (iv) increased obsolescence costs of $1,799,000
inclusive of the one time $5,600,000 adjustment of Infinity SP
inventory as discussed above and, (v) miscellaneous other cost
increases of $351,000. The decrease in 1993 equipment gross
margins of $19,516,000 is due principally to: (i) lower margins
of $12,500,000 on lower equipment sales, (ii) lower margins of
$2,200,000 due to price erosion, (iii) increased inventory
obsolescence charges of $3,280,000 in connection with the
Company's continued migration to its newer open systems product
offerings and, (iv) non-recurring engineering charges and other
miscellaneous cost increases of $1,536,000.
1994 service gross margin was $12,283,000 (32.2%), a decrease of
$1,377,000 from 1993. The lower margin is due to lower revenues
of $11,772,000 which were mostly offset by lower operating costs
achieved through restructuring actions taken during both 1993
and 1992. Among the most significant of these actions occurred
during the fourth quarter of 1993 when the Company entered into
an agreement with Halifax Corporation ("Halifax"). The
agreement, which took full effect during the three month period
ended April 3, 1994, provides for Halifax to supply a large
portion of the manpower necessary to service equipment under
domestic maintenance contracts with the Company. Accordingly,
service operations was able to significantly reduce its
workforce during both the fourth quarter of 1993 and the first
quarter of 1994. As a result, during 1994 labor, benefits and
employee related expenses and supplies decreased by $9,119,000
from the prior year. Additionally, during 1994 management
continued its consolidation of marginally profitable field
offices resulting in lower rent expense of $796,000. Among the
principal cost reductions achieved in 1993 were lower employee
costs of approximately $5,500,000 due to reduced headcount,
lower field office rental costs of approximately $1,200,000 as
marginally profitable field locations were consolidated or
closed and other miscellaneous cost reductions of $1,807,000.
Service business profitability continues to be unfavorably
affected by the Company's declining computer equipment sales,
competitive pricing pressures, declining defense spending which
has resulted in some maintenance program cancellations, and the
termination of certain other service contracts as older installed
systems are being decommissioned by their users. Since 1990
approximately 25% of each year's existing service contracts have
not been renewed with the Company.
Management has implemented various plans over the three year
period ended December 31, 1994 to minimize the effect of
declining equipment and service sales on gross margins. These
actions have included reductions in workforce, the closing and
consolidation of unprofitable field operations and the
outsourcing of certain business functions as done in the Halifax
agreement discussed above. In future periods, management will
continue to assess the levels of spending in relation to the
forecasted size of the business and will, when necessary, make
appropriate adjustments.
During 1994, research and development expenses increased by
$7,008,000 to $30,339,000 (39.6% of net sales). The increase
is due principally to the acceleration of efforts to finalize the
development of certain new product offerings including the
Infinity SP product line. Among the significant expense
increases during 1994 are: (i) higher labor, benefits and
employee related expenses of $2,999,000, as both the permanent
and temporary research and development workforce increased, (ii)
increased development material and supplies expenses of
$1,597,000 in support of the finalization of new product
prototypes, (iii) higher software and consulting expenses of
$1,139,000 associated with the development of the Infinity SP,
and (iv) other miscellaneous cost increases of $1,273,000. 1993
research and development expenses were $23,331,000 (24.9% of net
sales) or an increase of $998,000 from 1992. The increase in
spending is due to efforts in the fourth quarter of 1993 to
accelerate the availability of new products then scheduled for
release in the first half of 1994. As a result of both lower net
sales and higher expense levels, research and development
expenses as a percentage of net sales in 1994 increased to 39.6%
from 24.9% and 17.1% in 1993 and 1992, respectively. Over the
three year period, management has elected to increase
expenditures on those strategic product offerings necessary to
the future growth of the business while significantly reducing
the level of investment in areas outside the Company's principal
focus. To effectively compete in its market niches, the Company
must continue to invest aggressively in research and development
activities. While the aggregate amount invested by the Company
in research and development may not decrease significantly during
the next several quarters, it is expected that as sales increase
research and development spending as a percentage of net sales
will return to lower levels.
Sales, general and administrative ("SG&A") expenses in 1994 were
$36,152,000 compared to $42,499,000 and $45,156,000 in 1993 and
1992, respectively. In 1994, SG&A expenses decreased in part due
to lower commissions on the year's lower sales but also due to
management's actions taken to minimize headcount, close or
consolidate marginally profitable field offices and to more
effectively focus its advertising programs. In this regard,
commissions decreased by $512,000, labor, benefits and other
employee related expenses decreased $5,125,000 as headcount
decreased by approximately 20% from 1993, advertising spending
declined by $900,000 and rent expenses decreased $786,000. These
reductions were partially offset by increased consulting expenses
of $644,000, related in part to the introduction of the Infinity
SP, and other miscellaneous increases of $332,000. SG&A expenses
decreased by $2,657,000 in 1993 when compared to 1992 due
primarily to (i) the effect of prior restructuring actions taken
by the Company, including lower labor on a reduced 1993 workforce
and (ii) lower sales commissions due to lower 1993 revenues.
These savings were partially offset by a non-recurring non-cash
charge to compensation expense of $788,000 made in connection
with the extension of the expiration date of certain stock
options made during the Company's fourth fiscal quarter. A more
complete discussion of this transaction is included in Note J of
Notes to the Consolidated Financial Statements. As a percentage
of net sales, SG&A expenses were 47.2%, 45.4% and 34.5% in 1994,
1993, and 1992, respectively. The increase as a percentage of
sales reflects the fact that reductions in SG&A spending have
been more than offset by declines in net sales. This is
partially due to the time delay in reducing certain fixed costs.
In the future, sales, general and administrative costs should
begin to return to lower levels as a percentage of net sales.
In 1993 and 1992, the Company took actions to restructure its
operations to levels consistent with the then expected levels of
future revenues. As discussed in Note F to Consolidated
Financial Statements, 1993 and 1992 operating expenses include
restructuring charges of $23,265,000 and $5,248,000,
respectively.
During the second and fourth quarters of 1993 management
evaluated its then latest financial forecasts of the business.
In light of lower than previously expected sales volumes,
management initiated actions to restructure its operations
including the reduction of its workforce to levels consistent
with planned future sales and the reassessment of carrying values
of certain long lived assets including property and equipment and
goodwill. In June 1993, the Company reduced its workforce by
approximately 10% with significant reductions made in
manufacturing, customer services and international sales
operations and then in the fourth quarter of 1993 approved plans
to further reduce the European workforce by 20% and U.S.
headcount by approximately 8%. Because of the reduced field
sales and service workforce, actions were also taken to eliminate
the resulting excess field office space by closing those offices
which were underutilized.
Because of the decline in traditional real-time product line
profits, the Company evaluated its investment in the property and
equipment employed to support future real-time product sales. As
a result of the analysis, management recognized the permanent
impairment in value of certain of these assets by writing off
their carrying values.
Finally, in light of the continuing revenue decline and the
erosion of the earnings premium of the real-time business which
the Company acquired from Gould in 1989, management determined
any excess value associated with the acquired business was fully
amortized. In this regard, the Company wrote off the remaining
carrying value of goodwill which it had originally recorded in
connection with the 1989 acquisition.
The 1992 restructuring charge includes severance and outplacement
costs associated with a 9% reduction in the workforce, the write-
off of certain capitalized software assets relating to the on-
going transition of the Company's UNIX-based product lines, and
certain costs to be incurred related to the closure of certain
sales and service offices. $1,250,000 of this charge reflects
non-cash charges to operations and as a result of the 1992
restructuring, annual operating expenses were reduced by
approximately $6,000,000.
The Company recognized goodwill in recording the acquisition of
the Computer Systems Business which represented the excess of
acquisition cost over the fair value of assets acquired. During
1991 management determined the future earnings power associated
with certain portions of the acquired Computer Systems Business
had diminished significantly. Accordingly, in the fourth quarter
of 1991, the Company wrote down the carrying value of goodwill
from $12,979,000 to $4,979,000 by charging operations. The
carrying value of goodwill after the write-down was equivalent to
the estimated remaining earnings premium associated with the
Computer Systems Business. During 1992 in light of the
declining base of acquired business, management increased the
rate of amortization of goodwill so that by the end of 1994 any
excess value associated with the Computer Systems Business would
be fully amortized. However, because of the continued decline in
the acquired business during 1993, the remaining carrying value
of goodwill ($2,628,000) was written off by charging operations.
Interest expense decreased to $3,363,000 in 1994 from $6,380,000
in 1993 and $7,425,000 in 1992. During each year reported,
Encore completed a series of refinancing agreements with Japan
Energy, Gould and EFI as discussed in more detail below and in
Notes G and J of Notes to Consolidated Financial Statements. As
a result of the various refinancings in the three year reporting
period, the Company's annual interest expense was reduced by
approximately $13,000,000 through the conversion of debt with a
face value of $180,000,000 into the Company's preferred stock.
Interest income decreased in 1994 by $6,000 to $128,000 compared
to $134,000 and $263,000 in 1993 and 1992, respectively due
primarily to lower interest rates.
Other expense decreased by $850,000 from 1993's other expense of
$780,000 and other expense in 1992 of $2,077,000 due principally
to lower foreign exchange losses.
Income taxes provided in 1994, 1993, and 1992 relate to taxes
payable by foreign subsidiaries (see Note H of the Notes to
Consolidated Financial Statements).
Liquidity and Capital Resources
Because of operating losses incurred for the three years ending
December 31, 1994, the Company has been unable to generate cash
from operating activities. In 1994, 1993, and 1992, the Company
used cash in operating activities of $64,409,000, $36,415,000 and
$15,307,000, respectively.
From 1993 to 1994, cash used in operating activities increased by
$27,994,000. While 1994's net loss (net of non-cash items)
decreased from the prior year by $331,000 to $43,707,000, the
Company significantly increased its investment in accounts
receivable and inventories as a result of the acceleration of
activity under the Amdahl Agreement. In this connection,
accounts receivable increased by $3,014,000. Inventories
increased by $9,795,000 due principally to increased Infinity SP
finished goods built for sale to Amdahl and only partially offset
by reductions made in loaned equipment and other product line
inventory levels. In addition to the increases associated with
the start-up of the Amdahl Agreement, at December 31, 1994
accounts payable and accrued expenses were $9,048,000 lower than
the prior year as: (i) the Company settled $6,048,000 of
restructuring costs during the current year which were accrued at
December 31, 1993, (ii) accrued salaries and benefits decreased
by $694,000 due to a lower worldwide workforce at December 31,
1994 and, (iii) other miscellaneous accrued expenses decreased by
$2,306,000. Finally, the Company realized other miscellaneous
working capital increases of $1,182,000.
Cash used in operating activities in 1993 increased by
$21,108,000 from 1992 to $36,415,000. A higher 1993 net loss
(net of non-cash items) of $44,038,000 compared to 1992's
$12,161,000 was partially offset by reductions of $7,638,000 made
in working capital at December 31, 1993. During 1993 accounts
receivable decreased by $11,857,000 due in large part to the
year's lower net sales. Such improvement was offset by increased
inventories of $2,031,000 and $2,188,000 of other working capital
increases.
Expenditures for property and equipment during 1994, 1993 and
1992 were $13,089,000, $11,780,000 and $10,119,000,
respectively. Expenditures for capitalized software during 1994,
1993, and 1992 were $2,467,000, $2,142,000 and $2,365,000,
respectively. As of December 31, 1994, there were no material
commitments for capital expenditures.
The Company used cash in operating and investing activities
during 1994, 1993 and 1992 of $79,745,000, $50,277,000 and
$27,441,000, respectively. These cash outflows were principally
offset by cash provided through financing activities of
$78,496,000, $49,007,000 and $24,327,000 in 1994, 1993, and 1992,
respectively. The principal source of financing has been through
various agreements provided by the Japan Energy Group.
As discussed in more detail in Notes G, J and L of Notes to
Consolidated Financial Statements, since 1989 Gould has provided
the Company with its revolving credit facility. Additionally,
during the three years ended December 31, 1994 the Company and
the Japan Energy Group have entered into a series of financing
transactions involving the cancellation of $190,000,000 of
indebtedness owed by the Company to the Japan Energy Group in
exchange for the issuance of various classes of the Company's
Preferred Stock to the Japan Energy Group.
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 with Gould should be
sufficient to meet such needs through December 31, 1995. Until
and beyond that time, should the Japan Energy Group withdraw its
financial support before the Company returns to profitability by
either failing to renew existing debt agreements as they expire
or failing to provide additional credit to the Company as needed,
the Company anticipates it will not be able to secure financing
from other sources. In such a case, the Company will suffer a
severe liquidity crisis and it will have difficulties settling
its liabilities in the normal course of business.
The majority of the year end cash on hand of $2,517,000 was at
various international subsidiaries. With minor exceptions, all
cash is freely remittable to the United States.
<PAGE>
ITEM 8 Financial Statements and Supplementary Data
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Directors
of Encore Computer Corporation
We have audited the consolidated financial statements and the
financial statement schedule of Encore Computer Corporation and
Subsidiaries listed in Item 14 (a) of this Form 10-K. These
financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and the
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
As discussed in Note L to the consolidated financial statements,
Japan Energy Corporation and Gould Electronics Inc., a wholly
owned subsidiary of Japan Energy Corporation (collectively, the
"Japan Energy Group") have exchanged approximately $50 million of
the Company's outstanding indebtedness for preferred stock and
have increased the working capital facility by an additional $25
million. The Company is dependent upon the support of the Japan
Energy Group for its financing requirements.
In our opinion, the financial statements referred to above
present fairly, in all material respects, the consolidated
financial position of Encore Computer Corporation and
Subsidiaries as of December 31, 1994 and 1993, and the
consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1994 in
conformity with generally accepted accounting principles. In
addition, in our opinion, the financial statement schedule
referred to above, when considered in relation to the basic
financial statements taken as a whole, present fairly, in all
material respects, the information required to be included
therein.
COOPERS & LYBRAND L.L.P.
Coopers & Lybrand L.L.P.
Miami, Florida
February 17, 1995 except for Note L as to
which the date is March 27, 1995.
<TABLE>
<S> <C> <C>
ENCORE COMPUTER CORPORATION
Consolidated Statements of Operations
(in thousands except per share data)
Year Ended:
December 31, December 31, December 31,
1994 1993 1992
--------- -------- ---------
Net sales:
Equipment $ 38,412 $ 43,622 $ 67,840
Service 38,138 49,910 63,053
--------- -------- -----------
Total 76,550 93,532 130,893
Costs and expenses:
Cost of equipment sales 35,052 29,581 34,283
Cost of service sales 25,855 36,250 44,757
Research and development 30,339 23,331 22,333
Sales, general and administrative 36,152 42,499 45,156
Amortization of goodwill - 691 1,660
Restructuring costs - 23,265 5,248
--------- -------- ---------
Total 127,398 155,617 153,437
--------- -------- ---------
Operating loss (50,848) (62,085) (22,544)
Interest expense, principally
related parties (3,363) (6,380) (7,425)
Interest income 128 134 263
Other expense, net 70 (780) (2,077)
--------- -------- ---------
Loss before income taxes (54,013) (69,111) (31,783)
Provision for income taxes (Note H) 543 454 739
--------- --------- ---------
Net loss $ (54,556) $ (69,565) $ (32,522)
========== ========= =========
Net loss per common share (Note A):
Net loss attributable to common
shareholders $ (68,543) $ (78,750) $ (36,993)
========== ========= ===========
Loss per common share $ (1.68) $ (2.01) $ (0.98)
========== ========= =========
Weighted average shares
of common stock 40,755 39,273 37,899
========== ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<S> <C> <C>
ENCORE COMPUTER CORPORATION
Consolidated Balance Sheets
(in thousands except share data)
(UNAUDITED)
PROFORMA
December 31, December 31, December 31,
1994 1994 1993
-------- -------- --------
(See Note L)
ASSETS
Current assets:
Cash and cash equivalents (Note A) $ 2,517 $ 2,517 $ 3,751
Accounts receivable, less allowances
of $5,017 in 1994 and $2,150 in 1993 19,855 19,855 16,555
Inventories (Notes A and B) 27,555 27,555 17,764
Prepaid expenses and other
current assets (Note C) 1,863 1,863 3,047
-------- -------- --------
Total current assets 51,790 51,790 41,117
Property and equipment, net
(Notes A and D) 40,921 40,921 37,603
Capitalized software, net
(Notes A and E) 5,139 5,139 4,403
Other assets 912 912 947
-------- -------- --------
Total assets $ 98,762 $ 98,762 $ 84,070
========= ========= =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (CAPITAL DEFICIENCY)
Current liabilities:
Current portion of long term
debt-related parties (Note G) $ - $ - $ -
Current portion of long term
debt-other (Note G) 195 195 197
Accounts payable and accrued
liabilities (Notes F and G) 35,657 31,358 37,421
-------- -------- --------
Total current liabilities 35,852 31,553 37,618
Long term debt - related
parties (Note G) 38,421 88,421 111,924
Long term debt - other (Note G) 828 828 995
Other liabilities (Note G) - - 93
-------- -------- --------
Total liabilities 75,101 120,802 150,630
-------- -------- --------
Commitments and contingencies
(Note I)
Shareholders' equity (capital
deficiency) (Note J and L) :
Preferred stock, $.01 par value;
authorized 10,000,000 shares:
Series A Convertible Participating
Preferred, issued 73,641 shares
in 1993 and 1992 1 1 1
6% Cumulative Series B
Convertible Preferred, issued
666,453 and 591,625 in 1994 and
1993, respectively with an
aggregate liquidation preference of
$66,645 and $59,162 in 1994 and
1993, respectively 7 7 6
6% Cumulative Series D Convertible
Preferred, issued 1,019,787 and
905,283 shares in 1994 and 1993,
respectively with an aggregate
liquidation preference of $101,978
and $90,528 in 1994 and 1993,
respectively 10 10 9
6% Cumulative Series E Convertible
Preferred, issued 1,042,381 in 1994
with an aggregate liquidation preference
of $104,238 10 10 -
6% Cumulative Series F Convertible
Preferred, issued 500,000 in 1995 with
an aggregate liquidation preference
of $50,000 5 - -
Common stock, $.01 par value;
authorized 150,000,000 shares; issued
34,076,124 and 32,726,391 in 1994 and
1993, respectively 341 341 327
Additional paid-in capital 352,697 307,001 207,951
Accumulated deficit (329,410) (329,410) (274,854)
-------- -------- --------
Total shareholders' equity
(capital deficiency) 23,661 (22,040) (66,560)
-------- -------- --------
Total liabilities and shareholders'
equity (capital deficiency) $ 98,762 $ 98,762 $ 84,070
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
<TABLE>
<S> <C> <S> <C> <C> <C> <C> <S> <C>
ENCORE COMPUTER CORPORATION
Consolidated Statements of Cash Flows
(in thousands)
Year Ended:
December 31, December 31, December 31,
1994 1993 1992
------ -------- --------
Cash flows used in operating activities:
Net loss $ (54,556) $ (69,565) $ (32,522)
Adjustments to arrive at net cash used in
operating activities:
Depreciation and amortization 10,850 12,320 16,092
Write off of property and equipment - 10,543 1,004
Write off of intangible assets - 2,628 1,248
(Gain)Loss on sale of fixed assets (1) 36 451
Amortization of debt discount - - 1,566
Net changes in operating assets and liabilities:
Accounts receivable (3,014) 11,857 4,787
Inventories (9,795) (2,031) (1,172)
Other current assets 1,217 (1,575) 1,613
Other assets 31 176 144
Accounts payable and accrued liabilities (9,048) 1,182 (6,941)
Other liabilities (93) (1,986) (1,577)
------ -------- ---------
Cash used in operating activities (64,409) (36,415) (15,307)
------ -------- --------
Cash flows used in investing activities:
Additions to property and equipment (13,089) (11,780) (10,119)
Cash proceeds from sale of property and equipment 220 60 350
Capitalization of software costs (2,467) (2,142) (2,365)
------ -------- --------
Cash used in investing activities (15,336) (13,862) (12,134)
------ -------- --------
Cash flows from financing activities:
Net borrowings under revolving loan agreements 76,497 46,724 23,930
Principal payments of long term debt (169) (214) (631)
Issuance of preferred stock 2 - -
Dividends paid on Preferred Stock (4) - -
Issuance of common stock 2,170 2,497 1,028
------ -------- --------
Cash provided by financing activities 78,496 49,007 24,327
------ -------- --------
Effect of exchange rate changes on cash 15 215 1,843
Decrease in cash and cash equivalents (1,234) (1,055) (1,271)
Cash and cash equivalents, beginning 3,751 4,806 6,077
------ -------- --------
Cash and cash equivalents, ending $ 2,517 $ 3,751 $ 4,806
======== ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
<PAGE>
ENCORE COMPUTER CORPORATION
Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information (in thousands):
1994 1993 1992
------- -------- -----
Cash paid during the period for interest $ 2,162 $ 8,648 $ 5,233
Cash paid during the period for income taxes - 912 365
Supplemental schedule of non-cash investing and financing activities:
A. On September 10, 1992, the Company exchanged indebtedness and
redeemable preferred stock for, among other things, preferred stock. Refer to
Note G of Notes to Consolidated Financial Statements.
B. Accretion of the discount on Series C redeemable preferred stock
for the year ended December 31, 1992 was $721,000.
C. Effective March 31, 1992, the Company's existing $50,000,000
revolving credit facility was converted to a term loan. Refer to Note G of
Notes to Consolidated Financial Statements.
D. On February 4, 1994, the Company exchanged $100,000,000 of
indebtedness for shares of the Company's Series E Convertible Preferred Stock.
Refer to Note J of Notes to Consolidated Financial Statements.
The accompanying notes are an integral part of the consolidated financial
statements.
<PAGE>
<TABLE>
<S> <C>
ENCORE COMPUTER CORPORATION
Condensed Statements of Shareholders' Equity (Capital Deficiency)
(in thousands except share data)
-----------------------Preferred Stock---------------------------
Series A Series B Series D Series E
Par Par Par Par
Shares Value Shares Value Shares Value Shares Value
------ ------ ------- ----- ------- ------ ------ -------
Balance January 1, 1992 73,641 $ 1 552,194 $ 6 - $ - - $ -
Common stock options exercised,
$.63 to $1.63 per share
Shares issued through employee stock
purchase plan at an average price
of $.86 per share
Dividends issued to Preferred Stockholders
in shares of Series B 39,431 -
Adjustment of estimated transaction costs
relating to Gould 1991 capital transaction
Issuance of Series D Convertible
Preferred Stock (Note G) 900,000 9
Dividends issued to Preferred Stockholders
in shares of Series D 5,283 -
Net loss
------ ------ ------- ----- ------- ------ ------ -------
Balance December 31, 1992 73,641 1 591,625 6 905,283 9 - -
Common stock options exercised,
$.63 to $2.00 per share
Shares issued through employee stock purchase
plan, at an average price of $1.56 per share
Extension of expiration date on outstanding
grant of commont stock options
Net loss
Balance December 31, 1993 73,641 1 591,625 6 905,283 9 - -
Common stock options exercised,
$.63 to $2.00 per share
Shares issued through employee stock purchase
plan at an average price of $2.69 per share
Dividends issued to Preferred Stockholders
in shares of Series B 74,828 1
Dividends issued to Preferred Stockholders
in shares of Series D 114,504 1
Issuance of Series E Convertible
Preferred Stock 1,000,000 10
Dividends issued to Preferred Stockholders
in shares of Series E 42,381 -
Adjustment of estimated transaction costs
relating to Gould capital transaction
Net loss
------ ------ ------- ----- --------- ------ --------- -------
Balance December 31, 1994 73,641 $ 1 666,453 $ 7 1,019,787 $ 10 1,042,381 $ 10
====== ====== ======= ===== ========= ====== ========= =======
</TABLE>
(Continued Below)
<TABLE>
<S> <C> <S> <C> <C> <C> <S> <C>
ENCORE COMPUTER CORPORATION
Condensed Statements of Shareholders' Equity (Capital Deficiency)
(in thousands except share data)
(Continued for above)
Common Stock Shareholders'
Additional Equity
Par Paid-in Accumulated (Capital
Shares Value Capital Deficit Deficiency)
---------- ------ ------- ---------- -----------
Balance January 1, 1992 30,064,556 $ 301 $ 130,322 $(172,767) $ (42,137)
Common stock options exercised,
$.63 to $1.63 per share 352,248 3 323 326
Shares issued through employee stock
purchase plan at an average price
of $.86 per share 815,411 8 694 702
Dividends issued to Preferred Stockholders
in shares of Series B -
Adjustment of estimated transaction costs
relating to Gould 1991 capital transaction 900 900
Issuance of Series D Convertible
Preferred Stock (Note G) 73,230 73,239
Dividends issued to Preferred Stockholders
in shares of Series D -
Net loss (32,522) (32,522)
---------- ------ ------- ---------- -----------
Balance December 31, 1992 31,232,215 312 205,469 (205,289) 508
Common stock options exercised,
$.63 to $2.00 per share 1,016,597 10 955 965
Shares issued through employee stock purchase
plan, at an average price of $1.56 per share 477,579 5 739 744
Extension of expiration date on outstanding
grant of commont stock options 788 788
Net loss (69,565) (69,565)
---------- ------ ------- ---------- -----------
Balance December 31, 1993 32,726,391 327 207,951 (274,854) (66,560)
Common stock options exercised,
$.63 to $2.00 per share 966,734 10 1,131 1,141
Shares issued through employee stock purchase
plan at an average price of $2.69 per share 382,999 4 1,025 1,029
Dividends issued to Preferred Stockholders
in shares of Series B (2) (1)
Dividends issued to Preferred Stockholders
in shares of Series D (2) (1)
Issuance of Series E Convertible
Preferred Stock 96,273 96,283
Dividends issued to Preferred Stockholders
in shares of Series E
Adjustment of estimated transaction costs
relating to Gould capital transaction 625 625
Net loss (54,556) (54,556)
---------- ------ ------- ---------- -----------
Balance December 31, 1994 34,076,124 $ 341 $ 307,001 $ (329,410) $ (22,040)
========== ===== ========= =========== ==========
</TABLE>
Notes to Consolidated Financial Statements
A. Summary of Significant Accounting Policies;
Principles of Consolidation
The accompanying financial statements include the accounts of
Encore Computer Corporation and its wholly owned subsidiaries
("Encore" or the "Company"). All material intercompany
transactions have been eliminated.
Revenue Recognition
Revenue related to equipment and software sales is recognized
upon shipment. Service revenue is recognized over the term of the
related maintenance agreements.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with
maturities at the date of purchase of three months or less. The
Company maintains its cash in bank deposit accounts which, at
times, may exceed insured limits. The Company has not
experienced any losses related to these accounts.
Inventories
Inventories are stated at the lower of cost or market. Cost is
determined by the first-in, first-out method. Loaned equipment
which consists primarily of finished computer systems that are
loaned to customers for test and evaluation is classified as
inventory only if the equipment is intended for resale and
anticipated to be in service for a period of less than 12 months
prior to sale. Loaned equipment in service for more than 12
months is presented as property and equipment.
Property and Equipment
Property and equipment is stated at cost. Property and equipment
includes customer service inventory which consists principally of
spare parts utilized to support repairs at customer installations
and is generally not available for resale. Additions, renewals
and improvements are capitalized, and repair and maintenance
costs are expensed. Upon retirement or sale, the cost of the
assets disposed of and the related accumulated depreciation are
removed from the accounts and any resulting gain or loss is
reflected in the results of operations. Depreciation is provided
on a straight line basis over the estimated lives of the assets,
generally three years for loaned equipment, five years for
equipment and customer service inventory, ten years for furniture
and fixtures, and 25 to 30 years for buildings. Leasehold
improvements are amortized over their expected useful lives or
the lease term, whichever is shorter.
Goodwill
Goodwill originated from the 1989 acquisition of the Computer
Systems Business of Gould Electronics Inc. (the "Computer Systems
Business") and represented the excess of the acquisition cost
over the estimated fair value of the net assets acquired. From
1989 until 1991, goodwill was being amortized on a straight line
basis over a 10 year period. However in 1991, based on the
operating losses incurred since the acquisition of the Computer
Systems Business, the Company determined goodwill had been
permanently impaired. Accordingly, the Company reduced its
carrying value from $12,979,000 to $4,979,000 resulting in a
charge in 1991 of $8,000,000. In 1992, due to continuing
operating losses, the Company reduced the amortization period for
the remaining carrying value of goodwill to December 31, 1994.
During 1993, due to the continued inability to achieve
profitability, the remaining carrying value of goodwill of
$2,628,000 was charged to operations.
Amortization of goodwill is presented as a component of operating
expense.
Capitalized Software
The Company capitalizes certain internal costs associated with
software development after the project reaches technological
feasibility. Such costs as well as capitalized costs for
purchased software, are amortized to cost of sales at the greater
of straight line amortization over the expected commercial life
of each product, or the proportion of the current period's
product revenues to total expected product revenues. The
amortization periods generally range from 3 to 5 years. Software
development costs incurred prior to reaching the point of
technological feasibility are considered research and development
costs and are expensed as incurred.
Income Taxes
The Company utilizes the liability method of accounting for
deferred income taxes. Under this method, deferred tax assets
and liabilities are determined based on the difference between
the financial statement and tax bases of assets and liabilities
using enacted tax rates in effect for the year in which the
differences are expected to reverse.
In addition, the liability method of accounting for deferred
income taxes requires the recognition of future tax benefits,
such as net operating loss carryforwards, to the extent that
realization of such benefits are more likely than not. The tax
benefits recognized must be reduced by a valuation allowance
where it is more likely than not the benefits may not be
realized. Due to the uncertainties associated with the
realization of such benefits by the Company, the full amount of
these benefits is offset by a valuation allowance.
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 has been considered common stock
(on an assumed converted basis) for purposes of all income (loss)
per share calculations. The Series B Convertible Preferred Stock
("Series B"), Series D Convertible Preferred Stock ("Series D")
and Series E Convertible Preferred Stock ("Series E") have been
determined to be common stock equivalents but are not included in
the weighted average number of shares of common stock and
equivalents or in the calculation of net loss per share for the
periods presented because the effect would be antidilutive.
For the period ended December 31, 1994, the Company paid 1994
dividends on the Series B, Series D and Series E in additional
shares of the appropriate class of preferred stock in the amounts
of $3,852,800, $5,895,700 and $4,238,100, respectively. For the
period ended December 31, 1993, because it reported a capital
deficiency, the Company accumulated dividends on the Series B and
Series D of $3,630,000 and $5,554,700, respectively. All
dividends accumulated during 1993 were subsequently paid in
additional shares of preferred stock during 1994. During the
year ended December 31, 1992 dividends of $3,943,100 were paid to
holders of the Series B and the then outstanding Series C
Redeemable Preferred Stock with shares of Series B.
Additionally, dividends of $528,300 were paid to holders of the
Series D with shares of Series D. In computing the loss per
share for all years reported, these dividends increased the
respective year's loss as reported for the earnings per share
calculation.
Dividends on the Series B, Series D and Series E payable on
January 15, 1995 for the period of October 16, 1994 to January
15, 1995 of $999,700, $1,529,700, and $1,563,600 have been
accumulated by the Company. At that time the Company reported a
capital deficit and was thereby precluded from paying dividends
under Delaware law.
Foreign Currency Translation and Transactions;
Management has determined that the functional currency of each of
the Company's subsidiaries is the United States dollar.
Consequently, assets and liabilities of foreign operations are
translated into U.S. dollars at period end exchange rates, except
that, inventory and property and equipment are translated at
historical exchange rates. Income and expenses are translated at
the average rates prevailing during the year, except that cost of
sales and depreciation are translated at historical exchange
rates. All gains and losses arising from changes in exchange
rates are included in operating results in the period incurred.
The Company has, at times, enter into forward exchange contracts
to reduce the effect of foreign currency fluctuations on
operations and the asset and liability positions of foreign
subsidiaries. Resultant gains and losses on these contracts are
included in operating results when the operating revenues and
expenses are recognized and for assets and liabilities in the
period in which the exchange rates change. At December 31, 1994
and December 31, 1993, however, the Company had no forward
exchange contracts outstanding. For 1994, the Company recognized
a foreign exchange gain of $93,000. In 1993 and 1992, Encore
incurred foreign exchange losses of $744,000 and $1,576,000,
respectively.
Warranties
The Company provides a standard product warranty on its computer
systems for parts and labor which generally extends ninety days
from the date of installation, but on certain products for up to
one year. On its storage processor product line, the standard
product warranty for parts and labor generally extends two and,
in some cases, three years from the date of installation. The
estimated cost of providing such warranty on products sold is
included in cost of sales at the time revenue is recognized.
B. Inventories
Inventories consist of the following (in thousands):
December 31, December 31,
1994 1993
--------- ----------
Purchased parts $ 3,307 $ 4,660
Work in process:
Storage Products 18,567 -
Other 4,810 9,618
Finished goods 482 1,065
Loaned computer equipment
and consignment inventory 389 2,421
--------- ----------
$ 27,555 $ 17,764
========= ==========
At December 31, 1994, inventory includes $18,567,000 of Storage
Products work in process acquired to meet the anticipated demand
under the Amdahl Agreement. As discussed in Note I, Amdahl has
decided to postpone further deliveries until their testing of the
product confirms that it includes all the performance, features
and functionality required under the terms of the Agreement.
Accordingly, management deemed it prudent to record an adjustment
of $5,600,000 against the carrying value of the inventory.
Additionally, a program has been implemented to reduce the
inventory to desired levels over the near term and no further
losses should be incurred on its disposition. No estimate can be
made of a range of amounts of loss that are reasonably possible
should the program not be successful.
C. Prepaid Expense and Other Current Assets
Prepaid expense and other current assets consist of the following
(in thousands):
December 31, December 31,
1994 1993
--------- ----------
Deferred customer sponsored
engineering costs$ - $ 1,187
Prepaid rent 302 266
Prepaid expenses 1,416 1,477
Other current assets 145 117
--------- ----------
$ 1,863 $ 3,047
========= ==========
D. Property and Equipment
Property and equipment consists of the following (in thousands):
December 31, December 31,
1994 1993
--------- ----------
Land $ 5,100 $ 5,100
Buildings 14,878 14,874
Equipment 43,285 38,110
Customer service inventory 12,922 15,245
Furniture and fixtures 3,286 3,503
Leasehold improvements 1,861 1,872
Loaned equipment 4,915 2,735
Construction in progress 561 496
--------- ----------
86,808 81,935
Less: accumulated depreciation
and amortization (45,887) (44,332)
--------- ----------
$ 40,921 $ 37,603
============ =============
Depreciation expense in 1994, 1993 and 1992 amounted to
$8,619,000, $9,853,000, and $12,297,000, respectively.
E. Capitalized Software
Capitalized software consists of the following (in thousands):
December 31, December 31,
1994 1993
--------- ----------
Capitalized software $ 11,840 $ 8,878
Accumulated amortization (6,701) (4,475)
--------- ----------
$ 5,139 $ 4,403
========== ==========
Software costs capitalized in 1994, 1993, and 1992 amounted to
$2,467,000, $2,142,000 and $2,365,000, respectively.
Amortization of capitalized software costs charged to expense
amounted to $2,226,000, $1,696,000 and $2,043,000, respectively.
F. Accounts Payable and Accrued Liabilities;
Accounts payable and accrued liabilities consist of the following
(in thousands):
December 31, December 31,
1994 1993
--------- ----------
Accounts payable $ 10,582 $ 10,805
Accrued salaries and benefits 4,663 5,357
Accrued restructuring costs 4,926 10,974
Accrued interest 1,882 682
Accrued taxes 3,359 3,545
Deferred income,
principally maintenance
contracts 1,548 1,563
Other accrued expenses 4,398 4,495
--------- ----------
$ 31,358 $ 37,421
======== ==========
During 1993 and 1992 the Company recognized restructuring
expenses of $23,265,000 and $5,248,000, respectively.
In 1993, restructuring expenses related to (i) the recognition of
the permanent impairment in value of certain long lived assets
including fixed assets and goodwill, (ii) severance and
outplacement costs associated with a 12% reduction in workforce,
(iii) the accrual of costs to be incurred for field offices
abandoned due to the reduced sales and service workforce. The
1993 charge includes approximately $12,000,000 of non-cash
charges related to the write down of the carrying value of assets
deemed permanently impaired.
In 1992, the Company recognized restructuring costs relating to
severance and outplacement costs associated with a reduction in
workforce as well as the write-off of capitalized software and
certain other assets as part of the Company's continued
transition of its product line. Of the total 1992 charges,
approximately $1,250,000 was a non-cash charge to operations.
All accrued restructuring expenses at December 31, 1994 consist
of cash items and settlement of such items will result in cash
outflows.
G. Debt
Debt consists of the following (in thousands):;
Unaudited
(See Note L)
Pro Forma
December 31, December, 31, December 31,
1994 1994 1993
--------- ---------- ----------
Debt to unrelated parties:
Mortgages payable and capital
lease obligations $ 1,023 $ 1,023 $ 1,192
Less:
Current portion of debt (195) (195) (197)
--------- ---------- ----------
Total long term debt to
unrelated parties $ 828 $ 828 $ 995
======== ========= ========
Debt to related parties:
Revolving loan agreements with
Gould Electronics Inc. $ - $ 50,000 $ 61,924
Uncommitted loan agreement with
Gould Electronics Inc. 38,421 38,421 -
Term loan with Gould
Electronics Inc. - - 50,000
--------- ---------- ----------
Total long term debt to
related parties $38,421 $ 88,421 $111,924
======== =========== ==========
Related Party Transactions
The Company, Japan Energy Corporation ("Japan Energy") and its
subsidiaries Gould Electronics Inc. ("Gould") and EFI
International Limited ("EFI") are related parties due to the
significant financial interests of Gould and EFI in the Company.
As of December 31, 1994, assuming full conversion of their
holdings in the Company's preferred stock, Gould and EFI
beneficially owned 50.0% and 21.0%, respectively of the Company's
common stock. Since 1989, Gould has provided the Company with
its revolving line of credit and, as discussed in more detail
throughout this note, Note J, and Note L , has entered into
certain other financing transactions including the following:
1995 Exchange of Indebtedness for Convertible Preferred Stock
As more fully described in Note L of Notes to Consolidated
Financial Statements, as of March 17, 1995, the Company and Gould
agreed, among other things, to cancel $50,000,000 of indebtedness
under the revolving loan agreement in exchange for the issuance
of $50,000,000 of Series F Cumulative Convertible Preferred Stock
("Series F"). Upon completion of the transaction and assuming
full conversion of all preferred stock, Japan Energy's beneficial
ownership increased to 74.0%.
1994 Uncommitted Loan Agreement
On December 21, 1994 the Company and Gould entered into an
Uncommitted Loan Agreement under which Gould may, at its sole
discretion, provide the Company with up to $55,000,000 in short
term borrowings. Terms of the Uncommitted Loan Agreement are
discussed below. As described in Note L of Notes to Consolidated
Financial Statements, as of March 17, 1995 the Company and Gould
agreed among other things to amend and restate the terms of the
agreement providing the Company with a committed, additional
borrowing facility of $25,000,000 thereby increasing the
agreement's maximum borrowing limit to $80,000,000.
1994 Exchange of Indebtedness for Convertible Preferred Stock
On February 4, 1994, Gould exchanged its then outstanding term
loan and a portion of its revolving credit loan totaling
$100,000,000 for 1,000,000 shares of the Company's Series E
Cumulative Convertible Preferred Stock ("Series E") with a
liquidation preference of $100,000,000 (See Note J).
1992 Exchange of Indebtedness and Redeemable Preferred Stock for
Preferred Stock
On September 10, 1992, Encore and EFI entered into an agreement
whereby EFI exchanged $80,000,000 ($65,451,000 net of debt
discount) of indebtedness owed to EFI under the then existing
subordinated loan agreement for 800,000 shares of the Company's
Convertible Preferred Series D Stock ("Series D") with an
aggregate liquidation preference of $80,000,000. In addition,
Gould exchanged all of its outstanding 100,000 shares of Series C
Redeemable Preferred Stock ("Series C") with a liquidation
preference of $10,000,000 for 100,000 shares of the Series D also
with a liquidation preference of $10,000,000.
Total interest expense on indebtedness to Gould for 1994, 1993
and 1992 was $3,156,000, $6,082,000 and $3,040,000, respectively.
Interest expense on then outstanding indebtedness to EFI during
1992 was $1,726,000.
In addition to the loans described above, amounts due to Gould at
December 31, 1994 and 1993, included accrued interest of
$1,882,000 and $677,000, respectively.
Revolving Loan Agreements
Since 1989, Gould has provided the Company with its revolving
credit facility. Borrowings under the revolving loan agreement
are collateralized by substantially all of Encore'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 1% (9.5% at December 31, 1994 and 7.0% on
December 31, 1993) and is payable monthly in arrears.
Due to operating losses incurred, during 1993 the Company
exceeded the $35,000,000 then maximum borrowing amount of the
revolving line of credit. Gould, however, allowed the Company
to borrow funds in excess of the agreement's maximum limit to
fund its daily operations. At December 31, 1993, borrowings
under the agreement were $61,924,000.
On February 4, 1994, the Company and Gould exchanged
$100,000,000 of indebtedness owed to Gould by the Company for
Series E with a liquidation preference of $100,000,000.
$50,000,000 of the debt exchanged was indebtedness under the
revolving loan agreement. Upon completion of the exchange,
borrowings under the revolving loan agreement were $19,134,000.
Then, on April 11, 1994, the Company and Gould agreed to
increase the maximum borrowing limit of the revolving credit
facility from $35,000,000 to $50,000,000 and to extend its
maturity date to April 16, 1996. All other terms and conditions
of the revolving loan agreement were essentially unchanged
except certain financial covenants contained in the agreement
were modified to more closely reflect the Company's then current
financial position.
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 agreement's $50,000,000
maximum 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 as discussed below, 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 agreement's maximum. At
December 31, 1994, borrowings under the revolving loan agreement
were $50,000,000.
As discussed in more detail in Note L of Notes to Consolidated
Financial Statements, 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 ("Series F") with a
liquidation preference of $50,000,000 to Gould. Because of the
1995 recapitalization and refinancing, the revolving loan
agreement is classified as a long-term obligation at December 31,
1994.
Short Term Loan Agreement
The terms of the Short Term Loan Agreement provide that Gould,
at its sole discretion, may 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 mature no later than
September 30, 1995 and may be paid earlier at the discretion of
the Company. Borrowings are collateralized by substantially all
of Encore'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 on the loans are based on the length of
time the loan is outstanding beginning at the prime rate plus 1%
and increasing to prime rate plus 2% for amounts outstanding for
more than 181 days. Interest on the borrowings accrues monthly
in arrears and is payable upon maturity of the note. At
December 31, 1994, borrowings under the agreement were
$38,421,000.
In connection with the execution of the Short Term Loan
Agreement, Gould provided the Company with statements affirming
it would not exercise certain remedies with respect to certain
defaults of the financial covenants contained in the Revolving
Loan Agreement until after January 31, 1995.
As of March 17, 1995, the Company and Gould agreed to amend and
restate the Short Term Loan Agreement to provide the Company with
an additional committed borrowing facility of $25,000,000. The
amended and restated Short Term Loan Agreement (the "Credit
Agreement") increases the maximum borrowing limit from
$55,000,000 to $80,000,000. On March 17, 1995, the Company had
incurred borrowings under the agreement of $55,000,000.
The Credit Agreement matures on April 16, 1996. Borrowings
continue to be collateralized by substantially all of Encore'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 on the loans are based on the length of time the loan is
outstanding beginning at the prime rate plus 1% and increasing to
prime rate plus 2% for amounts outstanding for more than 181
days.
In conjunction with the execution of the Credit 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 1995 recapitalization and refinancing, the
Short Term Loan Agreement is classified as a long-term obligation
at December 31, 1994.
Term Loan
The Term Loan due to Gould provided for interest at a rate equal
to the prime lending rate plus 1% (7.0% at December 31, 1993).
The terms and conditions of the loan were similar to those of the
revolving loan agreement described above. The loan was
collateralized by substantially all of Encore's tangible and
intangible assets and contains various covenants, including
maintenance of cash flow, leverage, and tangible net worth ratios
and limitations on capital expenditures, dividend payments and
additional indebtedness. On April 12, 1993, the Company and
Gould agreed to extend the maturity date of the loan to April 2,
1995. Additionally, Gould agreed to provide the Company with
waivers of compliance with the covenants contained in the
agreement through the end of the first fiscal quarter of 1994.
On February 4, 1994, the Company and Gould cancelled the
indebtedness owed by the Company to Gould under the Term Loan
agreement in exchange for Series E convertible preferred stock.
H. Income Taxes
The Company utilizes the liability method of accounting for
deferred income taxes and has recorded a provision of $543,000,
$454,000 and $739,000 for the years ended 1994, 1993 and 1992,
respectively. The provisions relate to the profitable operations
of certain foreign subsidiaries.
The financial reporting bases of investments in certain foreign
subsidiaries exceeds their tax bases. In accordance with SFAS
No. 109, a deferred tax liability is not recorded for the excess
because the investments are essentially permanent. A reversal of
the Company's plans to permanently invest in these operations
would cause the excess to become taxable. On December 31, 1994,
these temporary differences were approximately $5,400,000. A
determination of the amount of unrecognized deferred tax
liability related to these investments is not practicable.
The significant components of the deferred tax account as of
December 31, 1994, 1993 and 1992 were as follows (in thousands):
1994 1993 1992
-------- ------- --------
Deferred tax assets:
Net Operating Losses $ 99,993 $ 79,396 $ 59,597
Research & Experimental Credits 1,750 1,750 1,750
Capital Losses 4,396 4,396 4,396
Allowance for Doubtful Accounts 2,836 676 639
Inventory Reserves 2,722 3,535 2,846
Accrued Vacation 928 847 834
Various Reserves/Other 1,028 590 1,037
Accrued Restructuring 1,397 2,372 1,439
-------- ------- --------
115,050 93,562 72,538
Valuation Allowance 113,732 92,319 71,193
1,318 1,243 1,345
Deferred tax liabilities:
Capitalized Software $ (1,318) (1,243) (1,345)
-------- ------- --------
Net $ - $ - $ -
========= ======== =========
For income tax purposes the Company had a change in ownership, as
defined by Internal Revenue Code Section 382, in connection with
the Gould debt exchange on January 28, 1991. The change in
ownership resulted in an annual limitation of approximately
$2,000,000 on the amount of net operating losses incurred prior
to January 28, 1991 that can be utilized to offset the Company's
future taxable income.
At December 31, 1994, the Company has available approximately
$85,000,000 of pre change net operating losses of which only
$30,000,000 are allowable after application of the Section 382
limitation, pre change tax credit carryforwards, principally
research and development credits, of approximately $1,750,000 and
post change net operating losses of $176,000,000. These net
operating losses and tax credit carryforwards expire in the years
2005 through 2009. The Company also has a net capital loss
carryforward of $12,937,000 related to the Gould debt exchange on
January 28, 1991, which expires in 1996. For financial reporting
purposes, the full amount of the deferred tax assets was offset
by a valuation allowance due to uncertainties associated with the
eventual realization of such benefits.
As of December 31, 1994, the U.S. Federal Income Tax Returns for
1992 were in the process of examination by the Internal Revenue
Service. Management believes that the amounts that have been
provided are adequate and that the ultimate resolution of the
examination will result in no material impact on the Company's
consolidated results of operations or financial position.
I. Commitments and Contingencies
Leases
The Company leases office, research facilities, sales offices and
equipment under operating leases. Certain building leases have
renewal options generally for periods ranging from one to five
years. Rental expenses, net of sublease income, were
approximately $3,594,000, $4,127,000 and $5,768,000 for the
years ended 1994, 1993, and 1992, respectively. Future minimum
lease payments under capital lease obligations and minimum rental
payments under operating leases for the next five years are
approximately as follows:
(in thousands) Capital Operating
Year Leases Leases
------- ----------
1995 $ 42 $ 2,717
1996 - 1,825
1997 - 1,349
1998 - 1,000
1999 - 1,047
------- ----------
Total Minimum Lease Payments 42 $ 7,938
Less: Amounts representing interest 1 =========
-------
Present value of net minimum
lease payments $ 41
=======
Future minimum rental income under noncancelable subleases
extending through 1999 amounts to $320,000.
Litigation
During 1994 the Company and Amdahl entered into a multi-year
Reseller Agreement which provides Amdahl, in exchange for
purchase commitments of specified volumes, with the exclusive
marketing and distribution rights to the Company's Infinity SP
storage product, except for sales to the U.S. government and
system integrators responding to U.S. government requests, pre-
existing Encore distributors and in Japan, China, and Malaysia,
where Encore retains the right to market the products on a non-
exclusive basis.
During the second and third quarters of 1994 the Company
delivered products to Amdahl under the terms of the Amdahl
Agreement which Encore believes conformed fully with the
agreement. However, as of December 31, 1994 Amdahl had not paid
for the products received.
The Company has had continuing discussions with Amdahl requesting
payment of all past due invoices and the resumption of deliveries
under the terms of the Amdahl Agreement. In response to a
February 1995 letter sent by the Company to Amdahl notifying
Amdahl of its intent to terminate the Amdahl Agreement if past
due invoices were not paid, Amdahl filed suit in the Delaware
Chancery Court on March 29, 1995 seeking to prevent Encore from
terminating the agreement. On March 30, 1995, Encore and Amdahl
agreed to a "Stand-Still" Agreement which, in effect, preserves
the status quo to allow the companies time to more thoroughly
discuss the contractual issues that exist. The "Stand-Still"
Agreement runs until April 14, 1995.
Because of the current uncertainties surrounding the outcome of
the discussions between the companies, management has considered
it prudent to establish certain reserves at December 31, 1994 by
charging cost of goods sold including (i) an allowance of
$3,300,000 against past due Amdahl trade receivables of
$6,100,000 and (ii) an adjustment of $5,600,000 against the
$22,300,000 carrying value of Infinity SP inventory. The
unfavorable resolution of this matter could adversely impact
Encore's future business prospects and, accordingly, the future
results of the Company.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to the business, to which
the Company or any of its subsidiaries are party to or of which
any of their property is the subject. The unfavorable settlement
of any of these existing matters would not have an adverse impact
on the financial results of the Company.
Employer's Postemployment Benefits
The Company provides employees with no Company-paid
postemployment benefits other than salary continuation and job
counseling services in the event of an employee's involuntary
termination. The Company recognizes such costs on a terminal
accrual basis recording the estimated cost of post-employment
benefits at the date of the event giving rise to the liability to
pay those benefits.
Concentrations of Credit Risk
Financial instruments which subject the Company to concentrations
of credit risk are limited to trade receivables. The Company
grants credit terms in the normal course of business to its
customers which are consistent with industry practices.
Generally, the Company's customers are United States government
agencies or substantial international corporations often included
among the Fortune 500. Additionally, as part of its ongoing
control procedures, the Company monitors the credit worthiness of
its major customers and establishes individual customer credit
limits accordingly. Bad debts realized by the Company in prior
years have not been excessive and doubtful accounts are
adequately reserved when identified.
At December 31, 1994 the Company's trade receivables include
$6,100,000 due from Amdahl Corporation. As discussed in this
Note under the caption "Litigation", to date Amdahl has withheld
payment on invoices that were past due pursuant to the contract
until they are able to complete the additional testing necessary
to confirm product performance, features and functionality
conforms with that defined under the terms of the Agreement. The
Company believes the products delivered to Amdahl conform with
the terms of the contract under which the equipment was sold and
is actively pursuing the immediate payment of all outstanding
items. Because of the uncertainty surrounding the outcome of the
negotiations and the timing of any eventual payment, management
considered it prudent to establish an allowance of $3,300,000
against the Amdahl receivable at December 31, 1994 by charging
cost of goods sold. When negotiations are finalized and
collection of the amounts due are obtained, the reserve will be
adjusted appropriately.
Intellectual Property License
As part of a 1991 exchange of preferred stock for indebtedness,
the Company and Gould entered into an intellectual property
licensing agreement whereby the Company licensed substantially
all of its intellectual property to Gould under certain
conditions. The intellectual property license is exclusive,
royalty free and provided that the Company achieved certain
revenue levels, would not have allowed Gould to use the
intellectual property until January 1994. The Company has the
option to extend its exclusivity period for up to five additional
years by making certain cash payments to Gould. However, the
period is automatically extended if certain operating income
levels are achieved by the Company. The intellectual property
license can be terminated by the Company if all Gould borrowings
are repaid and the commitment under the Gould revolving credit
agreement terminated and (i) the Series B is converted into
common stock or Series A convertible participating preferred
stock or (ii) the Series B is redeemed or (iii) the Company pays
Gould the fair value of the license. The Company has not
achieved the net revenue or operating income levels necessary
under the agreement to maintain its exclusive right to the use of
the intellectual property in either 1993 or 1994. As part of the
February 1994 refinancing, Gould agreed to extend the Encore
exclusivity period through December 31, 1994. In conjunction
with execution of the Uncommitted Loan Agreement, Gould agreed to
not exercise certain remedies with respect to the defaults under
the terms of the Intellectual Property License until after
January 31, 1995. In connection with the March 17, 1995
refinancing discussed more fully in Note L of Notes to
Consolidated Financial Statements, Gould agreed that the Encore
period of exclusive use under the terms of the agreement will not
end prior to June 30, 1995. It is unlikely that the Company will
return to compliance with the terms of the agreement prior to
June 30, 1995. If Encore is unable to negotiate further
extensions to its exclusivity period, the Company could lose its
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.
J. Capital Stock
Series A Convertible Participating Preferred Stock
Certain of the Company's operations relate to classified U.S.
Government contracts. Accordingly, the government expressed
concern regarding the extent of Gould's ownership of the
Company's common stock, since Gould, the Company's largest
shareholder, is owned and controlled by Japan Energy, a foreign
corporation. In this connection, the Company has issued to Gould
73,641 shares of Series A Convertible Participating Preferred
Stock ("Series A") in lieu of common stock. The Company has
agreed to reserve 7,364,100 shares of common stock for issuance
to Gould upon exercise of the conversion option.
The holder of Series A and the Company each have the option at
any time, with 30 days prior notice, to convert or require to be
converted, all or any portion of the Series A preferred shares to
common at a ratio of 1 to 100. Dividend rights are equal to those
of the common shares (on an assumed converted basis); however,
there are significant restrictions on the voting rights of the
Series A. The Series A is entitled to elect two members of the
Board of Directors but is not entitled to participate in the
election of other members of the Board. Based upon the
characteristics and rights of the Series A, the Company has
deemed these shares to be common stock (on an assumed converted
basis) for purposes of loss per share calculations for the fiscal
periods presented herein.
Cumulative Series B Convertible Preferred Stock
The Cumulative Series B Convertible Preferred ("Series B") has a
6% cumulative annual dividend payable quarterly, which the
Company can accumulate or pay in additional shares of Series B
(valued at its liquidation preference) until the Company's
shareholders' equity exceeds $50,000,000. The Series B is
convertible into the Company's common stock at $3.25 per share at
the holder's option at any time and at the Company's option upon
satisfaction of certain conditions. The shares are non-voting,
except for the right to elect one director of the Company upon
certain dividend payment defaults, the right to elect a majority
of the directors of the Company if certain operating income
levels are not achieved by the Company and the right to approve
actions adversely affecting the Series B. The Series B may be
redeemed by the Company at any time for cash equal to the
liquidation preference plus accumulated dividends. The Company
has reserved shares of common stock sufficient for issuance upon
conversion of the Series B and additional shares of Series B
which may be issued as a dividend. As of December 31, 1994, the
number of common shares reserved for this purpose amounts to
20,506,246.
At December 31, 1994, the Company had not achieved operating
income levels set forth by the terms of the Series B and
accordingly, the holders of the Series B could elect a majority
of the directors of the Company. However, as part of the
December 21, 1994 transaction Gould provided the Company with a
statement affirming that they would not exercise such remedies
until after January 31, 1995. Then in connection with the March
17, 1995 refinancing discussed more fully in Note L of Notes to
Consolidated Financial Statements, Gould 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 September 30, 1995. It is unlikely that the
Company will return to compliance with the terms of the Series B
prior to September 30, 1995. At that time Gould, as the
principal shareholder, of the Series B could exercise its rights
under the terms of the preferred stock.
During 1994, the Company paid dividends on the Series B of
$3,852,800 in additional shares of Series B. During 1993, the
Company reported a capital deficiency and under Delaware law was
precluded from issuing dividends. Accordingly, the Company
accumulated dividends during 1993 of $3,630,000. These dividends
were subsequently paid in 1994 after the Company completed a
refinancing and reported a capital surplus. During 1992 the
Company paid dividends of $3,943,100 in additional shares of
Series B.
A quarterly dividend on the Series B for the period of October
16, 1994 through January 15, 1995 of $999,600 was payable on
January 15, 1995. Because the Company reported a capital deficit
at that time it was precluded from paying dividends under
Delaware law. Accordingly such dividends have been accumulated
by the Company.
Cumulative Series D Convertible Preferred Stock
The Series D has a liquidation preference of $100 per share and
carries a 6% cumulative annual dividend which the Company can
elect to accumulate or pay currently. The Company may (i) pay
the dividend in cash or additional shares of Series D valued at
its liquidation preference until shareholders' equity exceeds
$50,000,000, or (ii) pay the dividend in cash when shareholders'
equity exceeds $50,000,000. The Series D is convertible, at the
holder's option, into the Company's common stock at $3.25 per
share only (a) if the shareholder is a United States citizen or a
corporation or other entity owned in the majority by United
States citizens or (b) in connection with an underwritten public
offering. The stock is convertible, at the Company's option, if
the price of the common stock exceeds $3.90 per share for twenty
consecutive days and (a) a buyer is contractually committed to
purchase for at least $3.90 per share at least 50% of the shares
into which all outstanding Series D would be converted or (b) a
buyer is contractually committed to purchase for at least $3.50
per share at least 75% of the shares into which all outstanding
Series D would be converted. The shares are non-voting, except
for the right to approve actions adversely affecting the Series
D.
The Series D was issued to Gould and EFI as part of a 1992
refinancing. Due to the related party nature of this
transaction, the difference between the carrying amount of the
indebtedness exchanged and the fair value of the securities
issued, other considerations granted and accrued
professional fees associated with the transaction, the amount of
$73,230,000 was credited to additional paid-in capital as follows
(in thousands):
Total indebtedness exchanged (net of
unamortized debt discount) $ 65,451
Total Series C exchanged at redemption
value (equivalent to carrying value
plus deferred credit) 10,000
Estimated value of claims against
Gould forgiven by the Company (1,120)
Estimated transaction costs (500)
Write-off of debt issue costs
related to indebtedness exchanged (592)
Par value of Series D exchanged (9)
--------
Addition to paid-in capital $73,230
========
The Company has reserved shares of common stock sufficient for
issuance upon conversion of the Series D and additional shares of
Series D which may be used for future stock dividends. As of
December 31, 1994, the number of shares reserved for this purpose
was 31,378,062.
During 1994, the Company paid dividends on the Series D of
$5,895,700 in additional shares of Series D. During 1993, the
Company reported a capital deficiency and under Delaware law was
precluded from issuing dividends. Accordingly, the Company
accumulated dividends during 1993 of $5,554,700. These dividends
were subsequently paid in 1994 after the Company completed a
refinancing and reported a capital surplus. During 1992 the
Company paid dividends of $528,300 in additional shares of Series
D.
A quarterly dividend on the Series D for the period of October
16, 1994 through January 15, 1995 of $1,529,600 was payable on
January 15, 1995. Because the Company reported a capital deficit
at that time it was precluded from paying dividends under
Delaware law. Accordingly such dividends have been accumulated
by the Company
Cumulative Series E Convertible Preferred Stock
The Series E was issued to Gould as part of the February 4, 1994
exchange of indebtedness for preferred stock. The principal
terms of the Series E are: (i) the Series E is senior in
liquidation priority to all previously issued classes of the
Company's preferred and common stock; (ii) includes a 6%
cumulative annual dividend which the Company can elect to (a)
pay in additional shares of Series E valued at its liquidation
preference until shareholders' equity exceeds $50,000,000; or
(b) accumulate and pay in cash when shareholders' equity exceeds
$50,000,000; (iii) has a liquidation preference of $100 per
share; (iv) is convertible, at the holder's option, into the
Company's common stock at the liquidation preference divided by
$3.25 per share (subject to potential adjustments for splits,
etc.) only (a) if the shareholder is a United States citizen or
corporation or other entity owned in the majority by United
States citizens or (b) in connection with an underwritten public
offering; (v) is convertible, at the Company's option in
accordance with the conversion methodology described in (iv)
above if the price of the common stock exceeds $3.90 per share
for twenty consecutive days and (a) a buyer is contractually
committed to purchase for at least $3.90 per share at least 50%
of the shares into which all outstanding Series E would be
converted; or (b) a buyer is contractually committed to purchase
for at least $3.50 per share at least 75% of the shares into
which all outstanding Series E would be converted; and (vi) is
non-voting, except for the right to approve actions adversely
affecting the Series E.
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 transaction are as follows (in
thousands):
Reduction of debt $100,000
Less:
Par value of shares issued
(1,000,000 shares at $.01 par value) (10)
Accrued transaction costs (700)
Accrued interest on the remaining
indebtedness under the revolving loan
agreement for the remaining term of
the agreement (3,017)
----------
Increase in additional paid-in capital $ 96,273
=========
During 1994, the Company paid dividends on the Series E of
$4,238,100 in additional shares of Series E. As of December 31,
1994, the number of shares reserved for this purpose was
32,073,261.
A quarterly dividend on the Series E for the period of October
16, 1994 through January 15, 1995 of $1,563,500 was payable on
January 15, 1995. Because the Company reported a capital deficit
at that time it was precluded from paying dividends under
Delaware law. Accordingly such dividends have been accumulated
by the Company
Exchange of Indebtedness for Series F Convertible Preferred Stock
As discussed more fully in Note L, on March 17, 1995, the Company
and Gould agreed among other things to cancel $50,000,000 of
indebtedness owed by the Company to Gould under the revolving
loan agreement in exchange for the issuance of $50,000,000 of
Series F Convertible Preferred Stock to Gould.
Impact of Foreign Ownership
In connection with the various exchanges of indebtedness for
preferred stock discussed in Notes G and L of Notes to
Consolidated Financial Statements, the United States Defense
Investigative Service ("DIS") has indicated that it has no
objection to the relationships under the United States government
requirements relating to foreign ownership, control or influence
between Japan Energy Corporation (a Japanese corporation) and its
wholly owned subsidiaries (EFI and Gould) and the Company.
Shareholders' Agreement
In conjunction with the various exchanges of preferred stock for
indebtedness discussed in Notes G and L of the Notes to
Consolidated Financial Statements, the Company, Kenneth G.
Fisher, the Company's Chairman and Chief Executive Officer, and
Gould amended and restated an existing stockholders agreement.
The agreement provides that as long as any shares of Series A are
outstanding, Gould, in all elections of directors, will vote all
of its common stock pro rata in accordance with the votes of the
other shareholders of the Company. In addition, so long as the
revolving credit facility with Gould is in effect, should Gould
request it, Mr. Fisher has agreed to vote his common shares in
favor of expanding the Board of Directors and electing an
additional Gould representative to the Board. In connection with
the March 17, 1995 refinancing, the Company, Gould and Kenneth G.
Fisher further amended the agreement to delete the transfer
restrictions on Gould's shares of Company stock which, in general
had required the Company's prior approval of any share transfers
by Gould with certain exceptions.
Adjustment of Accrued Transaction Costs
In recording the various exchanges of preferred stock for
indebtedness, the Company had accrued the estimated transaction
costs of the exchanges. Actual costs incurred in connection with
the 1991 and 1994 exchanges were less than those initially
estimated and accrued. Accordingly, during 1994 and 1992, the
Company reduced the remaining accrued liability by $625,000 and
$900,000, respectively and increased additional paid-in capital.
Stock Option and Stock Purchase Plans
The Company had two stock option plans during the reporting
period, the 1983 Incentive Stock Option Plan (which expired in
1993) and the 1985 Non-Qualified Stock Option Plan. Under the
terms of the plans as amended a combined total of 24,000,000
shares of the Company's common stock were reserved for issuance
to officers, directors and employees.
Stock option activity for the 1983 Incentive Stock Option Plan
through its expiration in 1993 is as follows:
Shares Under Option
Shares Price
------ -----
Outstanding at December 31, 1991 88,880 $1.13
Fiscal 1992:
No Activity - -
------ -----
Outstanding at December 31, 1992 88,880 $1.13
Fiscal 1993:
Exercised (88,880) $1.13
------ -----
Outstanding at December 31, 1993 -
======
Options granted under the Incentive Stock Option Plan were
granted at exercise prices at least equal to the then current
fair market value of the Company's common stock, and were
immediately exercisable. Shares issued upon exercise of such
options are subject to the Company's repurchase rights which
expire ratably over three to five year periods from the date of
grant, or automatically upon death or disability. Shares subject
to such repurchase rights at the time of termination of
employment may be purchased by the Company at the optionee's
exercise price.
Stock Option activity for the 1985 Non-Qualified Stock Option
Plan ("the 1985 Plan") is as follows:
Shares Under Option
Shares Price
--------- --------------
Outstanding at December 31, 1991 5,232,823 $0.63 to $3.13
Fiscal 1992:
Granted 6,181,530 $0.94 to $1.00
Exercised (352,248) $0.63 to $1.63
Canceled (227,122) $0.63 to $3.13
--------- --------------
Outstanding at December 31, 1992 10,834,983 $0.63 to $2.31
Fiscal 1993:
Granted 592,500 $1.50 to $4.00
Exercised (927,717) $0.63 to $2.00
Canceled (473,437) $0.63 to $2.31
--------- --------------
Outstanding at December 31, 1993 10,026,329 $0.63 to $4.00
Fiscal 1994:
Granted 1,331,350 $3.25 to $4.19
Exercised (966,734) $0.63 to $2.00
Canceled (278,973) $0.81 to $2.00
--------- --------------
Outstanding at December 31, 1994 10,111,972 $0.63 to $4.19
========== ==============
Exercise rights for options granted under the 1985 Plan vest over
varying periods of up to four years and options to purchase
7,284,398 shares were exercisable at December 31, 1994. Options
granted under the 1985 Plan may be granted at an exercise price
of not less than 50% of the current fair market value of the
common stock. All options granted to date have been at the then
current fair market value.
During 1993, options granted in 1986 to Mr. Morley, an officer 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 Mr. Morley from
exercising the options. Accordingly, the Board of Directors
approved an extension of the expiration date until such time as
the options could be exercised and the underlying shares sold in
accordance with Company policy. These options were exercised in
1994. 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 charge of $788,000 was
incurred in connection with the extension of the expiration date
of the stock options.
Employee Stock Purchase Plan
In 1990, the shareholders approved the Employee Stock Purchase
Plan and reserved 4,000,000 shares for issuance pursuant to
rights granted under the Plan. On September 9, 1993, the
shareholders voted to increase the number of shares reserved for
issuance under the plan from 4,000,000 to 8,000,000.
Substantially all employees are eligible to participate in the
Employee Stock Purchase Plan. The purchase price per share of
common stock in any offering under the Plan is the lower of (i)
85% of the closing price per share of common stock on the
commencement of the offering or (ii) 85% of the closing price of
a share of common stock on the termination of the offering. Each
offering is for a period of approximately six months. Under the
Plan, the Company issued 382,999 shares at a weighted average
price of $2.69 in 1994, 477,579 shares at a weighted average
price of $1.56 in 1993 and 815,411 shares at a weighted average
price per share of $.86 in 1992.
K. Segment Information
The Company operates in a single industry segment which includes
developing, manufacturing, marketing, installing and servicing
business information processing systems, principally in the
United States, Europe, the Far East, and Canada. In 1994, 1993,
and 1992, no single customer accounted for as much as 10% of
revenues. During 1994, 1993 and 1992 approximately 32%, 37% and
29%, respectively of its revenues were directly or indirectly
derived from U.S. Government agencies.
The Company maintains operations in Europe and Canada principally
through consolidated subsidiaries. Far East operations are
through joint ventures in Japan, Hong Kong and Malaysia and
distributors throughout the remainder of the region. Information
about the Company's operations for 1994, 1993, and 1992 is
presented below (in thousands). Inter-geographic net sales,
operating income and assets have been eliminated to arrive at the
consolidated amounts.
<TABLE>
<C> <S> <C> <S> <C>
Net Sales to Inter-
Unrelated Geographic Total Operating Identifiable
Entities Net Sales Net Sales Income (loss) Assets
--------- --------- --------- ------------ -----------
1994:
United States $ 42,613 $ 8,886 $ 51,499 $ (55,133) $ 82,975
Europe 29,147 - 29,147 4,164 14,340
Other 4,790 - 4,790 72 2,352
--------- --------- --------- ------------ -----------
Geographic Total 76,550 8,886 85,436 (50,897) 99,667
Inter-Geographic - (8,886) (8,886) 49 (905)
--------- --------- --------- ------------ -----------
Total $ 76,550 $ - $ 76,550 $ (50,848) $ 98,762
1993
United States $ 56,553 $ 11,664 $ 68,217 $ (55,443) $ 67,928
Europe 34,769 - 34,769 (7,554) 16,409
Other 2,210 - 2,210 (724) 686
--------- --------- --------- ------------ -----------
Geographic Total 93,532 11,664 105,196 (63,721) 85,023
Inter-Geographic - (11,664) (11,664) 1,636 (953)
--------- --------- --------- ------------ -----------
Total $ 93,532 $ - $ 93,532 $ (62,085) $ 84,070
1992:
United States $ 69,925 $ 24,232 $ 94,157 $ (19,658) $ 84,931
Europe 58,311 - 58,311 (4,316) 23,186
Other 2,657 728 3,385 ( 527) 918
--------- --------- --------- ------------ -----------
Geographic Total 130,893 24,960 155,853 (24,501) 109,035
Inter-Geographic - (24,960) (24,960) 1,957 (3,349)
--------- --------- --------- ------------ -----------
Total $ 130,893 $ - $130,893 $ (22,544) $105,686
========== ========= ======== ============ ==========
</TABLE>
Inter-geographic net sales are recorded principally at 60% of
list price. Identifiable assets are all assets, including
corporate assets, identified with operations in each region.
L. Subsequent Events
On March 17, 1995, Gould agreed to cancel $50,000,000 of
indebtedness owed to it by the Company under the revolving loan
agreement for 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:
(i) The Series F is senior in liquidation priority to all other
classes of the Company's preferred and common stock.
(ii) 6% cumulative annual dividend which the Company can elect
to (a) pay in additional shares of Series F valued at its
liquidation preference until shareholders' equity exceeds
$50,000,000 or (b) accumulate and pay in cash when shareholders'
equity exceeds $50,000,000.
(iii) a liquidation preference of $100 per share.
(iv) convertible, at the holder's option, into the Company's
common stock at the liquidation preference divided by $3.25 per
share (subject to potential adjustments for splits, etc.) only
(a) if the shareholder is a United States citizen or corporation
or other entity owned in the majority by United States citizens
or (b) in connection with an underwritten public offering.
(v) convertible, at the Company's option in accordance with the
conversion methodology described in (iv) above if the price of
the common stock exceeds $3.90 per share for twenty consecutive
days and (a) a buyer is contractually committed to purchase for
at least $3.90 per share at least 50% of the shares into which
all outstanding Series F would be converted or (b) a buyer is
contractually committed to purchase for at least $3.50 per share
at least 75% of the shares into which all outstanding Series F
would be converted.
(vi) non-voting, except for the right to approve actions
adversely affecting the Series F.
Upon completion of the exchange of indebtedness for preferred
stock, the Company reported a capital surplus. Accordingly,
dividends accumulated on January 16, 1995 were declared payable
on April 16, 1995.
Prior to the transaction, Japan Energy and its wholly owned
subsidiaries beneficially owned 71.1% of the Company's
outstanding common stock assuming the full conversion of all
outstanding shares of its preferred stock. Upon completion of
the transaction, their beneficial ownership increased to 74.0%.
In addition to the exchange of indebtedness for Series F, the
Company and Gould also agreed to amend and restate their
Uncommitted Loan Agreement ("Credit Agreement"). As amended,
the Credit Agreement provides the Company with an additional
committed borrowing facility of $25,000,000. The amendment
increases the maximum borrowing limit under the Credit Agreement
from $55,000,000 to $80,000,000. On March 17, 1995, the Company
had incurred borrowings under the Credit Agreement of
$55,000,000 (see Note G.)
The Credit Agreement, as amended, matures on April 16, 1996.
Borrowings are collateralized by substantially all of Encore'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 on the loans are based on the length of time the loan
is outstanding beginning at the prime rate plus 1% and
increasing to prime rate plus 2% for amounts outstanding for
more than 181 days. In conjunction with the execution of the
Credit Agreement, Gould provided the Company with waivers of
compliance with certain terms contained in the agreement until
January 1, 1996.
The accompanying unaudited Pro Forma Consolidated Balance Sheet
as of December 31, 1994 is presented as if the transactions
described above had been consummated as of that date. 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 transaction 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 Credit Agreement
for the remaining term of the agreement (3,699)
---------
Increase in additional paid in capital $ 45,696
=========
Along with the refinancing, Gould and the Company agreed to
extend Encore's period of exclusive use under the terms of their
Intellectual Property license through June 30, 1995. During 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. As of
December 31, 1994 the Company has achieved neither the net
revenue nor operating income levels necessary under the
agreement to maintain its exclusive right to the use of the
intellectual property. 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
June 30, 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.
Finally in connection with the refinancing, Gould 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 September 30, 1995. As
discussed in Note J, 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.
At December 31, 1994, the Company had not achieved those levels.
Accordingly, the holders of the Series B could elect a majority
of the directors of the Company. As part of the December 21,
1994 refinancing Gould provided the Company with a statement
affirming that they would not exercise such remedies until after
January 31, 1995. In connection with this transaction Gould
agreed to further defer any such action at least until
September 30, 1995. It is unlikely that the Company will
return to compliance with the terms of the Series B prior to
September 30, 1995 at which time Gould, as the principal holder
of the Series B, could exercise its rights to elect a majority
of the directors.
In connection with this transaction, the United States Defense
Investigative Service ("DIS") reviewed the relationship between
the Company, Japan Energy Corporation (a Japanese corporation)
and its wholly owned subsidiaries (including Gould), under the
United States government requirements relating to foreign
ownership, control or influence and have indicated that they
have no objection to the business relationship.
Since 1989, the principal source of financing for the Company
has been provided by Japan Energy Corporation and its wholly
owned subsidiaries. The Company is dependent on the continued
long term financial support of the Japan Energy Group. Should
the Japan Energy Group withdraw its financial support at any
time prior to the time the Company returns to profitability by
failing to provide additional credit as needed, the Company
anticipates it will not be able to secure financing from other
sources. In such a case, the Company will suffer a severe
liquidity crisis and it will have difficulties settling its
liabilities in the normal course of business.
Item 9 Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure.
Not Applicable.
PART III
Item 10 Directors and Executive Officers of the Registrant
Information regarding executive officers of the Company is included in
Part I under the caption "Executive Officers of the Registrant" and
is incorporated herein by reference. The following sets forth
information relating to each director of the Company.
Mr. Kenneth G. Fisher, age 64, is a founder of the Company and has
served as a Director, Chairman and Chief Executive Officer of the
Company since the Company's inception in May 1983. He was the
Company's President from its inception until December 1985 and also
served in that capacity from December 1987 to January 1991. From
January 1982 until May 1983, Mr. Fisher was engaged in private
venture transactions. From 1975 to 1981, Mr. Fisher was President
and Chief Executive Officer of Computervision (formerly Prime
Computer, Inc.). Before joining Computervision, Mr. Fisher was
Vice President of Central Operations for Honeywell Information
Systems, Inc.
Mr. Rowland H. Thomas, Jr., age 59, has been a member of the Board
of Directors since December 1987 and Chief Operating Officer since
June 1989. He presently serves as President of the Company, a
position to which he was appointed in January 1991. From June 1989
to January 1991, Mr. Thomas served as Executive Vice President of
the Company. In February 1988, he was named President and Chief
Executive Officer of Netlink Inc. Prior to joining Netlink, Mr.
Thomas was Senior Executive Vice President of National Data
Corporation ("NDC"), a transaction processing company, a position
he held from June 1985 to February 1988. From May 1983 through June
1985, Mr. Thomas was Executive Vice President and Senior Vice
President at NDC.
Mr. Daniel O. Anderson, age 67, has been a member of the Board of
Directors since May 1987. In 1991, Mr. Anderson retired as
Executive Vice President and Chief Operating Officer of the Harvard
Community Health Plan for New England, a position he held from
November 1986. From October 1984 until July 1986, Mr. Anderson
served as Vice President and Chief Financial Officer of Guilford
Transportation Industries, a railroad holding company. From
November 1975 until April 1984, Mr. Anderson held various executive
positions with Itek Corporation, most recently as a Director and
President of Itek Graphics Systems. Prior to his employment with
Itek Corporation, Mr. Anderson was Vice President, Finance and
Administration, North American Operations, for Honeywell
Information Systems, Inc.
Dr. Robert J. Fedor, age 54, has been a member of the Board of
Directors since July 1992. He is presently Senior Vice President
Corporate Development at Gould, a position he has held since July
1992. From December 1989 to July 1992 he was Vice President,
Corporate Business Development at Gould. Prior to assuming that
position, Dr. Fedor was General Manager of Gould's U.S. and Far
East Foil Business since 1985. Since joining Gould in 1964, he has
served in various senior marketing and research positions. Dr.
Fedor holds a Ph.D. in Metallurgical Engineering from Case Western
Reserve University.
Mr. C. David Ferguson, age 53, has been a member of the Board of
Directors since April 1989. He is presently the President and Chief
Executive Officer and a director of Gould, a position he has held
since October 1988. Prior to such time, he served as Executive Vice
President, Materials and Components, at Gould's Foil Division from
1986 until October 1988. He transferred to the Foil Division in
1967 from the Gould Engine Parts Division where he began his career
in 1963.
<PAGE>
ITEM 11 Executive Compensation
EXECUTIVE COMPENSATION
Total compensation paid or accrued for services rendered during the
three most recent fiscal years for the Chief Executive Officer and
the four other most highly compensated executive officers of the
Company for the year ended December 31, 1994 was as follows:
<TABLE>
<S> <C> <S> <C> <S> <C>
Summary Compensation Table
Annual Compensation Long
Term
Compensation
Awards
Other Number of Shares All
Name and Annual Underlying Other
Principal Position Year Salary Bonus Compensation(1) Options Compensation(2)
- ------------------ ---- -------- ------ -------------- -------------- -----------------
Kenneth G. Fisher 1994 $340,001 $0 $0 103,300 $1,234
Chairman of the 1993 341,963 0 0 0 0
Board and Chief 1992 332,677 0 0 1,300,000 0
Executive Officer
Rowland H. Thomas 1994 $264,617 $36,833 $0 59,600 $728
President and 1993 256,167 33,250 0 0 0
Chief Operating 1992 248,330 46,000 0 1,300,000 94,250
Officer
T. Mark Morley 1994 $180,001 $54,174 $0 30,000 764
Vice President, 1993 180,111 18,300 61,353 280,000(3) 102,318
Finance and Chief 1992 175,597 21,500 0 486,400 0
Financial Officer
Robert A. DiNanno 1994 $175,000 $39,644 $0 20,000 $676
Vice President and 1993 175,535 29,865 0 0 0
General Manager, 1992 172,174 45,785 0 486,000 0
Real-Time
Operations
Charles S. Namias 1994 $136,154 $70,844 $4,800 105,000 $608
Vice President, 1993 102,429 50,000 4,800 40,000 0
Corporate Alliances 1992 97,031 55,000 4,800 125,000 0
</TABLE>
- ----------------
(1) Amounts paid to the Mr. Morley during 1993 consist of the
payment of taxes on relocation expense reimbursements. Amounts
paid to Mr. Namias consist entirely of an allowance for business-
related automobile expenses.
(2) All Other Compensation for 1994 consists of earnings
associated with the individual's participation in a company-paid
sales award trip. In 1993 and 1992, All Other Compensation
consists entirely of reimbursement for relocation expenses .
(3) These options were originally granted in 1986 and were
scheduled to expire in 1993 if not exercised. However, at the
time the options were scheduled to expire the Company's policy on
insider trading effectively prevented Mr. Morley from exercising
the options. Accordingly, the Board of Directors approved an
extension of the expiration date until the options could be
exercised and the underlying shares sold in accordance with
Company policy. The extension has been treated as a cancellation
of the old options and a grant of new options in the same amount
at the same exercise price. Said options were exercised during
1994.
<PAGE>
The following table sets forth the number of shares of Common
Stock and equivalents of the Company, including shares which may
be acquired within sixty days after March 17, 1995 by exercise of
outstanding stock options, which are beneficially owned by
executive officers of the Company named in the Summary
Compensation Table and all directors and executive officers of
the Company as a group as of March 17, 1995 along with the
percentage of all outstanding shares of Common Stock and
equivalents owned by each executive officer and director on such
date.
Common Stock Percentage of
and Equivalents Common Stock
Beneficially and Equivalents
Name Owned Outstanding(1)
- -------------------- ------------ ---------------
Kenneth G. Fisher 7,239,619(2) 4.7%
Chairman of the Board and
Chief Executive Officer
Rowland H. Thomas 1,750,375(3) 1.1%
President and
Chief Operating Officer
T. Mark Morley 827,479(4) 0.5%
Vice President Finance and
Chief Financial Officer
Robert A. DiNanno 571,830(5) 0.4%
Vice President and General Manager
Real-Time Operations
Charles S. Namias 194,773(6) 0.1%
Vice President
Corporate Alliances
Total directors and executive
officers as a group (13 people) 12,352,959(7) 7.8%
(1)For purposes of computing the percentage of Common Stock
and equivalents outstanding, the 7,364,100 shares of
Common Stock issuable upon conversion of the outstanding
shares of Series A Stock, the 21,126,022 shares of Common
Stock issuable upon conversion of the outstanding shares
of Series B Stock, the 32,326,438 shares of Common Stock
issuable upon conversion of the outstanding shares of
Series D Stock, the 33,042,653 shares of Common Stock
issuable upon conversion of the outstanding shares of
Series E Stock and the 15,384,615 shares of Common Stock
issuable upon conversion of the outstanding shares of
Series F Stock have been included as well as shares
issuable upon exercise of options exercisable within 60
days after March 17, 1995 which any person may own.
(2)Includes: (i) 53,764 shares owned by Mr. Fisher's wife,
(ii) 2,100,000 shares which may be acquired by Mr. Fisher
within 60 days after March 17, 1995 by exercise of stock
options and (iii) 4,097,379 shares of Common Stock and
988,485 shares of Common Stock issuable upon conversion of
the shares of Series B Stock each held by Indian Creek
Capital, Ltd., a limited partnership of which Mr. Fisher is
the managing general partner.
(3)Includes 500 shares owned by Mr. Thomas' wife and 1,715,625
shares which may be acquired by Mr. Thomas within 60 days
after March 17, 1995, by exercise of stock options.
(4)Includes 782,025 shares which may be acquired within 60
days after March 17, 1995, by exercise of stock options.
(5)Includes 569,240 shares which may be acquired within 60
days after March 17, 1995, by exercise of stock options.
(6)Includes 151,625 shares which may be acquired within 60
days after March 17, 1995, by exercise of stock options.
(7)Includes 6,979,390 shares which may be acquired within 60
days after March 17, 1995, by exercise of stock options
and 988,485 shares of Common Stock issuable upon
conversion of the shares of Series B Stock held
beneficially by Mr. Fisher.
The following table shows, as to those executive officers named
in the Summary Compensation Table above, the number, exercise
price and expiration date of options to acquire Common Stock
granted under the Non-qualified Stock Option Plan during fiscal
1994, and the potential realizable value of those shares assuming
certain annual rates of appreciation in the price of the
Company's stock.
<TABLE>
<S> <C> <S> <C> <C> <C> <S>
Option Grants for the year ended December 31, 1994
Potential realizable
values at assumed annual
rates of stock price
appreciation for the
Individual Grants
option term
%
Number of of total
shares options
underlying granted Share
Options in fiscal Exercise Price on Expiration
Name Granted year price/share Grant Date Date 5% 10%
- ----------------- -------- ---- ----------- -------- --------- -------- --------
Kenneth G. Fisher 103,300 7.8% $3.9375 $3.9375 6/28/2004 $255,799 $648,245
Rowland H. Thomas 59,600 4.5% 3.9375 3.9375 6/28/2004 147,586 374,012
Robert A. DiNanno 20,000 1.5% 3.9375 3.9375 6/28/2004 49,525 125,507
T. Mark Morley 20,000 1.5% 3.9375 3.9375 6/28/2004 49,525 125,507
10,000 0.8% 4.1250 4.1250 10/18/2004 25,942 65,742
Charles S. Namias 75,000 5.6% 3.2500 3.2500 2/25/2004 153,293 388,475
20,000 1.5% 3.9375 3.9375 6/28/2004 49,525 125,507
10,000 0.8% 4.1250 4.1250 10/18/2004 25,942 65,742
</TABLE>
The following table provides information on option exercises in
1994 by the named executive officers and the value of such
officers' unexercised options as of December 31, 1994.
<TABLE>
<S> <C> <S> <C>
Aggregated Option Exercises in the year ended December 31, 1994
and Option Values as of December 31, 1994
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of 12/31/94 12/31/94
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
- ----------------- -------------- --------- -------------- ----------------
Kenneth G. Fisher 250,000 $ 546,875 1,884,200/ $3,271,688/
319,100 472,063
Rowland H. Thomas 0 0 1,511,825/ 3,343,969/
284,775 483,782
T. Mark Morley 280,000 972,891 701,282/ 1,554,406/
120,118 188,344
Robert A. DiNanno 131,000 487,945 469,747/ 1,048,977/
138,243 268,031
Charles S. Namias 4,000 15,000 118,500/ 252,781/
167,500 122,656
</TABLE>
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
ENCORE COMPUTER CORPORATION.
Executive Compensation Philosophy
It is the goal of the Compensation Committee of the Board of
Directors to provide compensation to executives of the Company in
accordance with the following considerations:
*To provide compensation that is competitive with other high
technology companies that are of similar size to Encore with
similar products and markets;
*To provide compensation that will attract, retain and reward
superior, industry-knowledgeable executives who can manage the
shareholders' short and long-term interest;
*To provide total compensation wherein the majority of value to be
delivered is based on the financial performance of the Company and
the appreciation of the Company's stock.
To meet these goals, the Committee establishes, administers and
reviews several programs for the Company. These programs are
designed to address the above considerations and consist of three
major components.
Base Salary
For executives of the Company, base salary is determined by the
level of job responsibility and overall competitive practices in
the labor market for the Company's executive talent. The Committee
recognizes that there is a scarcity of executive talent with the
technical capabilities that are critical to the Company's long-term
success. The Committee also considers the Company's location
outside of traditional labor markets for technical talent to be a
considerable factor for base salary positioning. As such, the
Committee positions the Company's executives' base salaries at the
75th percentile of the competitive market and generally believes
that this base salary posture is an essential factor in maintaining
a highly skilled executive team. The Committee derives competitive
data representing the high technology and computer products sectors
from an independent compensation consultant, Towers Perrin. The
Committee believes that most of the companies in the S & P Computer
Systems Index which is used as the Company's industry comparison
line in the performance graph appearing below, are represented in
the various surveys used by the compensation consultant.
1994 executive base salaries were in accord with the above policy.
One named executive's base salary and incentive were increased
during the year when he became an officer and member of senior
management.
Annual Incentives
All executive officers are eligible to receive incentives which are
based on the short-term performance of the Company. The program is
intended to highlight critical business goals and reward the
achievement of these goals through individual and team
contributions. Target incentive opportunities typically range from
15% to 45% of executives' base salaries and are based on median
bonus levels observed in other high technology and computer related
companies. Target award levels are structured so that at target
award levels, executives' total cash compensation (base salary plus
annual incentive) would be comparable to the 75th percentile total
cash compensation of the competitive market as discussed earlier.
The specific performance criteria used for incentive compensation
goals include the attainment of profit before tax objectives,
achievement of quarterly financial plans and subjective functional
and teamwork goals as determined by management. Functional goals
include activities aimed at achieving revenue, bookings, expenses,
schedule targets, etc. Teamwork goals include joint, cross
functional activities and projects. The relative weighting of each
factor depends on the executive's position within the Company's
organizational structure. Typically, profit before tax objectives
and quarterly financial plan targets account for 60% to 100% of the
named executives' incentives; functional and teamwork goals account
for 25% to 40% of the total incentive. In 1994, the Company did
not achieve its profit before tax objective and therefore no
incentive payments were made that were based on the Company's
profit performance. Incentive payments that were made to certain
named executives in 1994 reflect the attainment of individual
functional and teamwork goals, and in the case of two named
executives, include an extraordinary incentive payment for sales
results.
Long-Term Incentives
The Committee believes that stock-based incentives provide the
strongest link between the rewards earned by executives and the
returns generated for shareholders. The Committee also believes
that providing the potential for significant share ownership helps
focus executive behavior on the long-term growth and strength of
the organization. As such, the Committee has made significant
stock option grants throughout the Company to focus all recipients
on long-term growth and the enhancement of shareholder value. The
Committee has generally observed that stock option grants comprise
a significant portion of executive compensation in the high
technology and computer related industries. Stock options
represent the right to purchase the Company's stock at the fair
market value of the Company's stock on the date of grant. Since
the value ultimately realized from the option depends entirely on
the future success of the Company and the growth of the stock
price, an option serves to provide an incentive to the executive
for years after it has been awarded.
The Committee has adopted formal stock option grant guidelines
which will base annual option grants on the executive's base salary
grade and individual performance factors. This practice will
ensure that executives at similar organizational levels will have
equal long-term incentive opportunities while allowing the
Committee some discretion to augment awards as it feels appropriate
to recognize significant individual accomplishments. In 1994, the
Board granted 222,900 options to the named executives in accordance
with the pre-established guidelines. The Committee granted one
named executive an additional stock option award in recognition of
his exceptional sales performance before his promotion to officer
status. This same named executive and another named executive were
each awarded an additional grant by the Committee to reward special
achievement.
The Committee feels that executives act in the best interests of
shareholders when they have a significant portion of their own
wealth invested in the Company. As such, the Committee has also
adopted formal stock ownership guidelines for the CEO and other
executive officers who report directly to the CEO. The Committee
believes that requiring executives to maintain a certain ownership
interest in the Company complements the existing long-term
incentive program in that once stock options are exercised, there
is an added emphasis on retaining exercised shares and further
enhancing shareholder value. The specific guidelines require that,
by the end of 1996, the CEO acquire and maintain ownership of
Company stock with a value equal to two times his current base
salary; direct reports to the CEO are required to acquire and
maintain ownership of Company stock with a value equal to at least
one-half their current base salaries. The committee is pleased to
report that at the end of 1994 the CEO has far exceeded his
ownership requirement, two named executives have met the
requirement and two have made progress toward the goal.
Compensation for Mr. Fisher
Mr. Fisher's base salary was not increased in 1994. The Committee
has positioned Mr. Fisher's base salary slightly above the market
average of other high technology and computer related companies of
similar size to the Company. The Committee intends to deliver most
of Mr. Fisher's compensation in the form of annual cash-based
incentives and long-term stock-based incentives that will deliver
significant value to Mr. Fisher if and only if the Company achieves
positive returns and the stock price appreciates over time.
To focus Mr. Fisher on the attainment of short-term financial
results, the Committee awards a bonus equal to 5% of the Company's
profit before taxes to Mr. Fisher as an incentive award on a
quarterly basis. This formula approach ensures shareholders that
an incentive payment will be made to Mr. Fisher only if the Company
is profitable. In addition, this approach provides a consistent
incentive to maximize profit each quarter. In 1994 no incentive
payments were made to Mr. Fisher.
The Committee granted 103,300 stock options to Mr. Fisher in 1994
in accord with the Board's established annual guidelines. Mr.
Fisher continues to have a significant portion of his personal
wealth invested in the Company and he is well motivated to increase
the overall value of the Company and to generate returns on behalf
of all shareholders.
Other Compensation Matters
The Committee continues to evaluate the potential impact of the $1
million dollar deduction limitation on executive pay for the top
five executives which was implemented as part of the Omnibus Budget
Reconciliation Act of 1993. The 1995 Long Term Performance Plan
approved by the Board and being submitted for shareholder approval
at the 1995 annual meeting is a performance-based plan, and
therefore, any gains on stock options should not be subject to the
$1 million dollar limit. The Committee believes this action
adequately protects the deduction for executive compensation.
However, the Committee will continue to evaluate the Company's
potential exposure to the deduction limitation on an annual basis.
In conclusion, the Committee feels that all pay programs are
reasonable and appropriate given the Company's industry, size and
organizational structure. Base salary and incentive programs
provide features to attract, retain and motivate executives to
enhance the performance of the Company from year to year. The
stock option grants provide a significant incentive to executives
to undertake policies and actions to enhance the overall value of
the organization well into the future.
The Compensation Committee
of the Board of Directors
D. O. Anderson, Chairman
C.D. Ferguson
K. G. Fisher
Comparison of Five-Year Cumulative Total Return of
the Company, S&P 500 Composite Index and
S&P Computer Systems Index
The following chart depicts the Company's performance for the
five year period ending December 31, 1994, as measured by total
shareholder return on the Company's Common Stock compared with
the total return of the Standard & Poors 500 Composite Index and
the Standard & Poors Computer Systems Index.
!------------------------------------------------------------------------- !
!NOTE: In the Company's printed version of the Form 10-K, a graph !
!is included in this space portraying the Company's common stock performace!
!versus the performance of the S&P 500 and the S&P Computer Systems Index !
!The graph is based on the following data points: !
! !
! !
! 1989 1990 1991 1992 1993 1994 !
! -------- ------ -------- ------- ------- ------ !
!Encore Computer !
!Corporation $100.00 $ 27.99 $ 37.13 $ 60.01 $165.68 $ 142.82 !
!S&P 500 Index 100.00 93.44 118.02 123.29 131.99 129.96 !
!S&P Computer !
! Systems Index 100.00 109.07 93.28 65.76 67.06 85.68 !
! !
! * This chart assumes the investment of $100 in the Company's !
! Common Stock, the S&P 500 Index and the S&P Computer Systems !
! Index on December 31, 1989. !
!--------------------------------------------------------------------------!
Directors' Compensation
The Board of Directors has fixed the compensation of
non-officer directors at $2,500 per board meeting attended in
person. No compensation is paid for meetings held by
telephone conference. A total of $10,000 was paid to Mr.
Anderson for meetings attended during fiscal 1994. Mr.
Ferguson and Dr. Fedor have waived payment to them of fees
for attendance at board meetings. Directors who are also
officers of the Company receive no compensation for serving as
directors. During the past fiscal year, the Company has also
reimbursed certain of its directors for reasonable
out-of-pocket expenses relating to attendance at Board and
Committee meetings.
Item 12 Security Ownership of Certain Beneficial Owners and
Management
The following table sets forth, to the knowledge of the
Company, the beneficial owners of 5% or more of the Company's
outstanding Common Stock and equivalents as of March 17, 1995:
<TABLE>
<S> <C> <S>
Percentage of
Shares Common Stock Percentage of
Name and Address Beneficially and Equivalents Common Stock
of Beneficial Owner Owned Outstanding (1) Outstanding(7)
- ----------------------------- ---------- --------------- --------------
Gould Electronics Inc.(2) (5) 83,456,500 55.0% 11.5%
35129 Curtis Boulevard
Eastlake, OH 44095
EFI International Inc. (3) 28,734,743 19.0% 0.0%
35129 Curtis Boulevard
Eastlake, OH 44095
Japan Energy Corporation (2) (3) 112,191,243 74.0% 11.5%
10-1, Toranomon 2-chome, (5) (6)
Minato-ko, Tokyo, Japan
Kenneth G. Fisher(4) 7,239,619 4.7% 17.2%
6901 West Sunrise Blvd.
Fort Lauderdale, FL 33313-4499
Chestnut Hill
Management Corporation 1,882,000 1.2% 5.5%
One Boston Place
Boston, MA 02108
</TABLE>
(1)For purposes of computing the percentage of Common Stock and
equivalents outstanding, the 7,364,100 shares of Common
Stock issuable upon conversion of the outstanding shares of
Series A Stock, the 21,126,022 shares of Common Stock
issuable upon conversion of the outstanding shares of Series
B Stock, the 32,326,438 shares of Common Stock issuable upon
conversion of the outstanding shares of Series D Stock , the
33,042,653 shares of Common Stock issuable upon conversion
of the outstanding shares of Series E Stock and the
15,384,615 shares of Common Stock issuable upon conversion
of the outstanding shares of Series F Stock have been
included as well as shares issuable upon exercise of options
exercisable within 60 days after March 17, 1995 which any
person may own.
(2)Includes 79,520,600 shares of Common Stock issuable upon
conversion of the shares of Series A Stock, Series B Stock,
Series D Stock, Series E Stock and Series F Stock held by
Gould. The Series D, Series E and Series F Stock is
convertible only by a United States citizen or a corporation
or other entity owned in the majority by a United States
shareholder or in connection with an underwritten public
offering. Gould is a wholly owned subsidiary of Japan
Energy Corporation ("Japan Energy") which is a Japanese
corporation.
(3)Consists of Common Stock issuable upon conversion of Series D
Stock held by EFI International Inc. ("EFI"). Conversion of
the Series D Stock is restricted as described in (2) above.
EFI is a wholly owned subsidiary of Japan Energy.
(4)Includes: (i) 53,764 shares owned by Mr. Fisher's wife, (ii)
2,100,00 shares which may be acquired by Mr. Fisher within
60 days after March 17, 1995 by exercise of stock options
and (iii) 4,097,370 shares of Common Stock and 973,876
shares of Common Stock issuable upon conversion of the
shares of Series B Stock each held by Indian Creek Capital,
Ltd., a limited partnership of which Mr. Fisher is the
managing general partner.
(5)Gould as the sole holder of the Series A Stock is entitled to
elect two directors to the Board of Directors. The
remaining three directors are elected by the holders of
Common Stock. With respect to the election of those three
directors, the 3,935,900 outstanding shares of Common Stock
held by Gould will be voted pro rata in accordance with the
votes of the other holders of Common Stock as provided by a
shareholders agreement among Gould, the Company and Mr.
Fisher.
(6) Japan Energy may be deemed to be the beneficial owner of the
shares owned by Gould and EFI.
(7) For purposes of computing the percentage of Common Stock
outstanding, the 34,255,299 shares of Common Stock
outstanding as of March 17, 1995 and, with respect to Mr.
Fisher, 2,100,000 shares of Common Stock issuable upon the
exercise of options exercisable within 60 days after March
17, 1995 have been included.
Item 13 Certain Relationships and Related Transactions
Financing by Gould
During 1993, the Company recorded significant quarterly operating
losses and as a result reported a capital deficiency throughout the
year. Additionally, due to the operating losses incurred, the
Company was unable to generate sufficient levels of cash through
operating activities to fund the business. Cash requirements were
provided by additional borrowings made under a revolving credit
facility with Gould. Gould has provided the Company with its
revolving loan facility since 1989. On October 3, 1993 the
Company's borrowings under the agreement exceeded the maximum
allowed by the terms of the agreement. Subsequent to October 3,
1993, Gould allowed the Company to borrow funds in excess of the
agreement's maximum limit to fund its daily operations and during
the fourth fiscal quarter the Company began negotiations with Gould
to significantly recapitalize the Company. At December 31, 1993,
borrowings were $26,924,000 in excess of the loan's maximum
borrowing limit.
On February 4, 1994, the Company and Gould agreed to exchange
indebtedness owed by the Company to Gould for Series E stock. The
indebtedness exchanged was the $50,000,000 term loan and
$50,000,000 borrowed under the revolving credit agreement. Upon
completion of the exchange, borrowings under the revolving loan
agreement were $19,134,000, or $15,866,000 below the maximum
borrowing limit of the credit facility.
In exchange for cancellation of indebtedness, the Company issued to
Gould 1,000,000 shares of Series E Stock. Terms of the Series E
Stock are included in Note J of Notes to Consolidated Financial
Statements and incorporated herein by reference. As a result of
this transaction, (i) the Company reduced debt by $100,000,000 and
related interest expense by approximately $7,000,000 per year and
(ii) the beneficial ownership position of Gould and EFI changed
from 34.4% and 27.6%, respectively to 50.3% and 20.9%,
respectively.
Further, on April 11, 1994, the Company and Gould agreed to amend
and restate the existing revolving loan agreement by increasing the
maximum borrowing limit of the agreement to $50,000,000 and
extending its maturity date to April 16, 1996. The terms and
conditions of the agreement are essentially unchanged except
certain financial covenants contained in the agreement were
modified to more closely reflect the Company's then current
financial position.
The February 4, 1994 exchange of equity for indebtedness eliminated
the Company's capital deficiency and provided tangible net worth in
excess of minimum requirements for inclusion into the Nasdaq
National Market. On March 18, 1994, Encore was reinstated into the
system and the Company's common stock began trading under the
symbol ENCC.
Due to continued operating losses since February 4, 1994 and the
need to increase its investment in working capital for the
introduction of its new storage product, the Company exceeded the
revolving loan agreement's $50,000,000 maximum 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. Under this
agreement Gould may provide the Company with up to $55,000,000 of
additional borrowings to be used for among other things the
repayment of principal and interest incurred under the revolving
loan agreement. Upon completion of the agreement, the Company used
the facility to repay those borrowings in excess of the revolving
loan agreement's maximum. At December 31, 1994, borrowings under
the revolving loan agreement and uncommitted loan agreement were
$50,000,000 and $38,421,000, respectively. The terms of the
uncommitted loan are included in Note G of Notes to Consolidated
Financial Statements and incorporated herein by reference.
In conjunction with the uncommitted loan agreement, Gould provided
the Company with statements affirming they would not exercise
certain remedies with respect to various defaults: (i) under the
Amended and Restated Loan Agreement dated March 31, 1992, (ii)
under the terms of the Series B Convertible Preferred Stock and
(iii) under the terms of the Intellectual Property License dated
January 28, 1991, until after January 31, 1995.
As of March 17 1995, Gould cancelled $50,000,000 of indebtedness
owed to it by the Company under the revolving loan agreement in
exchange for 500,000 shares of the Company's Series F Stock with a
liquidation preference of $50,000,000. The terms of the Series F
Stock are included in Note L of Notes to Consolidated Financial
Statements and incorporated herein by reference.
In conjunction with the above described exchange, the Company and
Gould also entered into an Amended and Restated Credit Agreement
(the "Credit Agreement"). The Credit Agreement provides the
Company with an additional committed borrowing facility of
$25,000,000. The amendment increases the maximum committed
borrowing limit under the Credit Agreement from $55,000,000 to
$80,000,000. On the Closing Date, the Company had incurred
borrowings under the Agreement of $55,000,000 and had available a
committed, unused credit facility of $25,000,000.
The Credit Agreement matures on April 16, 1996. Borrowings are
collateralized by substantially all of Encore'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 based on the length of
time the loan is outstanding beginning at the prime rate plus 1%
and increasing to prime rate plus 2% for amounts outstanding for
more than 180 days. In conjunction with the execution of the
Credit Agreement, Gould provided the Company with waivers of
compliance with certain terms contained in the agreement until
January 1, 1996.
In addition to the above described events, the Company and Gould
also agreed to the following: (i) the Encore period of exclusive
use under the Intellectual Property License shall not terminate
prior to June 30, 1995, and (ii) Gould shall 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 before
September 30, 1995. A complete discussion of the agreement to
extend the Encore exclusive use period under the terms of the
Intellectual Property License is included in Note I of Notes to
Consolidated Financial Statements and incorporated herein by
reference. A discussion regarding the Series B Stock is included
in Note L of Notes to Consolidated Financial Statements and
included herein by reference.
The following tables display the beneficial ownership of Japan
Energy Corporation through its wholly owned subsidiaries Gould and
EFI in the Company before the March 17, 1995 transaction as of
December 31, 1994 and on a pro forma basis after the transaction as
of December 31, 1994:
Before the Exchange of
Indebtedness for Series F
as of December 31, 1994
Debt (1) Beneficial Ownership (2)
($000's) % of total Shares % of total
--------- ------- ----------- -------
Gould $ 88,421 98.9% 67,232,892 49.9%
EFI(3) - - 28,310,092 21.0
Other 1,023 1.1 39,224,705 29.1
--------- ------- ----------- -------
Total $ 89,444 100.0% 134,767,689 100.0%
========= ====== =========== ======
After the Exchange of
Indebtednessfor Series F
Pro Forma as of December 31, 1994
Debt (1) Beneficial Ownership (4)
($000's) % of total Shares % of total
--------- ------- ----------- -------
Gould $ 38,421 97.4% 82,617,508 55.0%
EFI(3) - - 28,310,092 18.9
Other 1,023 2.6 39,224,705 26.1
--------- ------- ----------- -------
Total $ 39,444 100.0% 150,152,305 100.0%
========= ====== =========== ======
- ----------------------
(1) Includes both current and long-term portion of debt.
(2) Includes 92,580,961 shares of Common Stock issuable upon full
conversion of all outstanding Series A Stock, Series B Stock,
Series D Stock and Series E Stock after payment of all
dividends payable through January 15, 1995 as well as shares
which may be acquired within sixty days after December 31, 1994
by exercise of outstanding stock options.
(3) EFI, like Gould, is a wholly owned subsidiary of Japan Energy
Corporation. Its ownership consists solely of Series D Stock
whose conversion to common stock is limited by the terms of the
stock as discussed in Note (4) below.
(4) Includes 107,965,576 shares of Common Stock issuable upon full
conversion of all outstanding Series A Stock, Series B Stock,
Series D Stock, Series E Stock, and Series F Stock as well as
shares which may be acquired within sixty days after December
31, 1994 by exercise of outstanding stock options. The Series
D, Series E and Series F Stock is convertible by a United States
citizen or a corporation or other entity owned in the majority
by a United States shareholder or in connection with an
underwritten public offering.
In connection with the exchange of indebtedness for both the Series
E and Series F Stock by Gould the United States Defense
Investigative Service ("DIS") has indicated no objection to the
relationships under the United States government requirements
relating to foreign ownership, control or influence between the
Company, Japan Energy (a Japanese corporation) and its wholly owned
subsidiaries (EFI and Gould).
Since 1989, Japan Energy and its wholly owned subsidiaries, Gould
and EFI, have been the principal source of the Company's financing
by either directly providing or guaranteeing the Company's loans.
Each of the Company's debt agreements with Japan Energy and its
wholly owned subsidiaries have contained various covenants
including maintenance of cash flow, leverage, and tangible net
worth ratios and limitations on capital expenditures, dividend
payments and additional indebtedness. Currently and at various
times in the past, the Company has been in default of certain
covenants contained in the debt agreements but waivers of
compliance with those covenants have been obtained and, generally,
the Company has been able to successfully renegotiate favorable
terms with its creditor. To continue operating in the normal
course of business, the Company is and will remain dependent on the
continued financial support of Japan Energy and its subsidiaries.
Until such time as the Company returns to a state of sustained
profitability, Encore will be unable to secure funding from other
parties and/or generate sufficient levels of cash through
operations to meet the needs of the business.
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on
Form 8-K
(a)1. and (a)2. Index to Financial Statements and Financial
Statement Schedules
Form 10-K Page Number
- --------------------------------- -----------
Report of independent public accountants relating to
consolidated financial statements and financial
statement schedules 28
Consolidated statements of operations for the years
ended December 31, 1994, 1993 and 1992 29
Consolidated balance sheets at December 31, 1994 and 1993 30
Consolidated statements of cash flows for the years
ended December 31, 1994, 1993 and 1992 31
Consolidated statements of shareholders' equity
(capital deficiency) for the years ended
December 31, 1994, 1993, and 1992 33
Notes to consolidated financial statements 34-54
The following consolidated financial statement schedule is submitted
herewith:
Form 10-K Page Number
- ------------------------------------------------- -----------
Schedule II Valuation and qualifying accounts 71
The consolidated financial statement schedule should be read
in conjunction with the consolidated financial statements
included herein. All other schedules have been omitted since
the required information is not present or is not present in
amounts sufficient to require submission of the schedule, or
because the information required is included in the
consolidated financial statements and notes thereto.
(a)3. Index to Exhibits
The exhibits listed on the accompanying index to exhibits
immediately following the consolidated financial statement
schedules are filed as part of this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of
the year ended December 31, 1994.
For purposes of complying with the amendments to the rules
governing Form S-8 under the Securities Act of 1933, the
undersigned registrant hereby undertakes as follows, which
undertaking shall be incorporated by reference into the
Registrant's Registration Statements on Form S-8 Nos. 33-34171
and 33-33907.
Insofar as indemnification of liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the registrant pursuant to the
foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Securities Act of 1933 and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
registrant of expenses incurred or paid by as director, officer
or controlling person of the registrant in the successful defense
of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of
its counsel the matter has been settled by the appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
Valuation
<TABLE>
<S> <C> <S> <C> <S> <C>
ENCORE COMPUTER CORPORATION SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
BALANCE AT
BALANCE AT CHARGED TO CHARGED TO END
BEGINNING OF COSTS AND OTHER OF
DESCRIPTION PERIOD AND EXPENSES ACCOUNTS DEDUCTIONS(1) PERIOD
- ------------- --------- ------------- --------- ------------- ------
YEAR ENDED 12/31/92
ALLOWANCE FOR DOUBTFUL ACCOUNTS $ 3,804 $ 283 $ - $ (1,646) $ 2,441
======= ===== ====== ========== ========
YEAR ENDED 12/31/93
ALLOWANCE FOR DOUBTFUL ACCOUNTS 2,441 203 - (494) 2,150
====== ===== ======= ========== ========
YEAR ENDED 12/31/94
ALLOWANCE FOR DOUBTFUL ACCOUNTS 2,150 2,928 - ( 61) 5,017
====== ====== ======== ========== ========
</TABLE>
(1) Includes amounts deemed uncollectible
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 as the chief accounting officer and
an officer of the registrant thereunto duly authorized.
ENCORE COMPUTER CORPORATION
(Registrant)
By:T. MARK MORLEY
T. Mark Morley
Vice President, Finance
and Chief Financial Officer
April 13, 1995
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and
on the dates indicated.
Signature Title Date
KENNETH G. FISHER Chairman of the Board
Kenneth G. Fisher Chief Executive Officer April 13, 1995
President and Chief
ROWLAND H. THOMAS JR. Operating Officer and
Rowland H. Thomas, Jr. Director April 13, 1995
C. DAVID FERGUSON
C. David Ferguson Director ApriL 13, 1995
ROBERT J. FEDOR
Robert J. Fedor Director April 13, 1995
DANIEL O. ANDERSON
Daniel O. Anderson Director April 13, 1995
T. MARK MORLEY Vice President, Finance
T. Mark Morley and Chief Financial Officer April 13, 1995
KENNETH S. SILVERSTEIN
Kenneth S. Silverstein Corporate Controller April 13, 1995
(a)3. Index to Exhibits.
The exhibit numbers in the following index correspond to the
numbers assigned to such exhibits in the Exhibit Table of
Item 601 of Regulation S-K.
Exhibit No. Description
3.1 Certificate of Incorporation of the Company, as
amended (incorporated herein by reference to the
Company's Form 10-K for the year ended December
31, 1990)
3.1a Amendment to the Certificate of Incorporation
filed with the Delaware Secretary of State on
March 26, 1992 (incorporated herein by reference
to Exhibit 3.1a to the Company's Form 10-K for the
year ended December 31, 1991).
3.2 By-laws of the Company, as amended (incorporated
herein by reference to Exhibit 3.2 to the
Company's Form l0-K for the year ended December
31, 1989).
3.3 Amendment to the Certificate of Incorporation
dated September 30, 1993 increasing the number of
authorized common shares from 120,000,000 to
150,000,000 (incorporated herein by reference to
Exhibit 3.3 to the Company's Form l0-K for the
year ended December 31, 1993).
4.1 Articles NINTH and TENTH of the Certificate of
Incorporation of the Company, as amended, and
Certificates of Stock Designation relating,
respectively, to the Company's Series A
Convertible Participating Preferred Stock, Series
B Convertible Preferred Stock and Series C
Redeemable Preferred Stock (see Exhibit 3.1).
Incorporated herein by reference to the Company's
Form 10-K for the year ended December 31,1990.
4.2 Article 1 of the By-laws of the Company, as
amended (incorporated herein by reference to
Exhibit 3.2 to the Company's Form 10-K for the
year ended December 31,1989).
4.3 Certificate of Stock Designation relating to the
Company's Series D Convertible Preferred Stock
(incorporated herein by reference to Exhibit 4.3
to the Company's Form 10-K for the year ended
December 31,1992).
4.4 Certificate of Stock Designation relating to the
Company's Series E Convertible Preferred Stock
(incorporated herein by reference to Exhibit 4.4
to the Company's Form l0-K for the year ended
December 31, 1993).
*4.5 Certificate of Stock Designation relating to the
Company's Series F Convertible Preferred Stock
10.1 The Company's 1983 Incentive Stock Option Plan, as
amended (incorporated herein by reference to the
Company's Form S-8/Form S-3 Registration Statement
No. 33-34171).
10.2 The Company's 1985 Non-Qualified Stock Option
Plan, as amended (incorporated herein by reference
to the Company's Form S-8/Form S-3 Registration
Statement No. 33-34171).
10.3 The Company's 1990 Employee Stock Purchase Plan
as amended (incorporated herein by reference to
the Company's Form S-8/Form S-3 Registration
Statement No. 33-72458).
10.4 Form of Indemnification Agreement between the
Company and its executive officers (incorporated
herein by reference to Exhibit 10.4 to the
Company's Form 10-K for the year ended December
31, 1989).
10.5 Master Purchase Agreement dated as of February 3,
1994 between the Company and Gould Electronics
Inc. (incorporated herein by reference to Exhibit
10.7b to the Company's Form l0-K for the year
ended December 31, 1993).
10.6 Intellectual Property License Agreement dated as
of January 28, 1991, among the Company, Encore
Computer U.S., Inc. ("Encore U.S.") and Gould Inc.
(incorporated herein by reference to Exhibit 10.9
of the Company's Form 10-K for the year ended
December 31, 1990).
10.7a The Amended and Restated Revolving Loan Agreement
dated March 31, 1992 between Encore Computer
Corporation and Gould Inc. (incorporated herein by
reference to the Company's Form 10-K Exhibit
10.13c for the year ended December 31, 1991).
10.7b The Second Amended and Restated Revolving Loan
Note dated March 31, 1992 between Encore Computer
Corporation and Gould Inc. (incorporated herein by
reference to the Company's Form 10-K Exhibit
10.13d for the year ended December 31, 1991).
10.7c The Renewal Term Notes dated March 31, 1992
between Encore Computer Corporation and Gould Inc.
(incorporated herein by reference to the Company's
Form 10-K Exhibit 10.13e for the year ended
December 31, 1991).
10.7d Amendment Agreement to the Revolving Loan
Agreement among the Company and Gould Inc. and the
Term Loan Agreement among the Company and Gould
Inc. dated April 12, 1993 (incorporated herein by
reference to Exhibit 10.9d to the Company's Form
10-K for the year ended December 31, 1992)..
10.7e Amended Loan Agreement and related letter
agreement dated April 11, 1994 between the Company
and Gould Electronics Inc. (incorporated herein
by reference to Exhibit 10.13g to the Company's
Form l0-K for the year ended December 31, 1993).
10.8 Amended and Restated General Security Agreement
dated as of January 28, 1991, among the Company,
Encore U.S. and Gould Inc. (incorporated herein by
reference to the Company's Form 10-K Exhibit 10.14
for the year ended December 31,1990).
10.9 Support Services Provider Agreement dated December
9, 1993 between Encore Computer Corporation and
Halifax Corporation to subcontract certain
customer service field maintenance activities to
Halifax Corporation (incorporated herein by
reference to Exhibit 10.17 to the Company's Form
l0-K for the year ended December 31, 1993).
10.10 Amendment No. 1 to Nonqualified Stock Option
Agreement between Encore Computer Corporation and
T. Mark. Morley dated November 10, 1993
(incorporated herein by reference to Exhibit 10.18
to the Company's Form l0-K for the year ended
December 31, 1993).
10.11 Description of the Company's Corporate Executive
Compensation Plan (incorporated herein by
reference to Exhibit 10.19 to the Company's Form
l0-K for the year ended December 31, 1993).
10.12 Reseller Agreement for Encore Storage Products
between Amdahl Corporation and Encore Computer
Corporation and Amendment #1 to Reseller Agreement
for Encore Storage Products between Amdahl
Corporation and Encore Computer Corporation
(incorporated herein by reference to Exhibit 10 to
the Company's Form l0-Q for the quarter ended
October 2, 1994 and as amended on Form 10-QA-1
dated February 21, 1995).
*10.13 The Uncommitted Loan Agreement and certain
exhibits thereto dated as of December 21, 1994
between Encore Computer Corporation and Gould
Electronics Inc.
*10.14 The Amended and Restated Credit Agreement dated as
of March 17, 1995 between Encore Computer
Corporation and Gould Electronics Inc.
*10.15 Master Purchase Agreement dated as of March 17,
1995 between the Company and Gould Electronics
Inc. relating to the purchase of Series F
Convertible Preferred Stock, Cancellation of
Indebtedness and Related Documentation.
*11.0 Calculation of Earnings per Share
*22.0 Subsidiaries of the Company.
*24.1 Consent of Independent Public Accountants.
*27 Financial Data Schedule
* Filed herewith.
Exhibit 4.5
Page 1 of 15
CERTIFICATE OF DESIGNATIONS,
POWERS, RIGHTS AND PREFERENCES
OF SERIES F 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
March 17 , 1995, duly adopted a resolution designating the
designations, powers, rights and preferences relating to its
Series F 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 1,500,000
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 F Convertible Preferred Stock (the "Series F
Convertible Stock"). The total number of shares of Series F
Convertible Stock will be 1,000,000 shares. These shares may be
issued for any purpose determined by the Board of Directors.
2. Dividends and Distributions.
(a) Holders of shares of Series F 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 April 15, 1995 (each a "Dividend Payment Date"),
except that the annual cash dividend payable in 1995 will be
$5.00 per share and the quarterly installment payable on April
15, 1995 will be $0.483 per share. Dividends on the Series F
Convertible Stock will be cumulative from the date of initial
issuance of shares of Series F 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 Zto be able to pay a dividend
on the Series F Convertible Stock out of Stockholders Equity in
excess of $50,000,000, the Corporation will have the option to
(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 F 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 F 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 F 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 F 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 F Convertible Stock have been paid in cash or, to the
extent permitted by subparagraph 2(a), in shares of Series F
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 F 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 F Convertible Stock rank prior. If the Series F
Convertible Stock ranks prior to another class or series of
preferred stock as to some matters, but not as to other matters,
shares of the other class or series are "Junior Shares" with
regard to the matters as to which the Series F Convertible Stock
ranks prior to the other class or series but not as to other
matters. As used with regard to the Series F Convertible Stock,
the term "Parity Shares" means any class or series of preferred
stock which ranks on a parity with the shares of Series F
Convertible Stock. If the Series F 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 F Convertible Stock ranks on a parity but not as to
other matters. At any time when there are accumulated dividends
on the Series F 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 F
Convertible Stock constituting at least the same percentage of
the accumulated dividends on the Series F Convertible Stock that
the dividend on the Parity Stock is of the accumulated dividends
on the Parity Stock.
3. Ranking. The shares of Series F 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 F Convertible
Stock which are outstanding at the time the designation is made
(or such greater percentage of the outstanding shares of Series F
Convertible Stock as is required by law), as ranking prior to, or
on a parity with, the shares of Series F 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 F Convertible Stock rank prior to the shares of Series
B Convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred 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 F 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 F 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 F Convertible Stock and any Parity Shares are
insufficient to pay in full the preferential amount payable to
the holders of shares of Series F Convertible Stock described in
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 proceeds of those assets
which are available for distribution to the holders of shares of
Series F Convertible Stock and to the holders of such Parity
Shares, will be distributed to the holders of the Series F
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 F Convertible Stock are entitled, the holders of shares
of Series F 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.
(a) Subject to and upon compliance with the provisions
of this Paragraph 5, each holder of shares of Series F
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 F
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 F Convertible Stock
to be converted will surrender the certificate representing that
share to the conversion agent for the Series F 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 F
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.
(iii) The holders of record of shares of
Series F 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 F 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 F Convertible Stock on a dividend pay
ment 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 F 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 F 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 F
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 F 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 F
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 F Convertible Stock to
be converted and compliance with all the other requirements of
subparagraph 5(b)(i), the shares represented by those
certificates will no longer be 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 F Convertible Stock. Any fractional interest in a
share of Common Stock resulting from conversion of shares of
Series F 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 F Convertible Stock so
surrendered.
(d) The "Conversion Price" per share of Series F
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 F 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 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 when
ever 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 on 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 so 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.
(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 F Convertible Stock, the holder of the
Series F 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 F 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 of the National Association of Securities
Dealers, Inc. Automated Quotation System (the "NASDAQ National
Market"), 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), 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 F Convertible Stock, the term
"Trading Day" means (x) if the Common Stock is quoted on the
NASDAQ National Market or any similar system 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), 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
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
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 F
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 F 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
(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 F 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 F 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 F 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 F 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 F Convertible Stock, the Corporation
will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and non-assessable 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 F Convertible Stock, prior to the delivery, upon each
national securities exchange, if any, upon which the outstanding
Common Stock is listed at 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 F 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 F Convertible Stock; provided, however, that the
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 F 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 F 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 F 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
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 F
Convertible Stock at a time when (i) the last sale price of the
Common Stock quoted on the NASDAQ National Market, 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, but not less than 120% of the then Conversion
Price, 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, but not less than 120% of the then
Conversion Price, per share at least 50% of the shares of Common
Stock into which all the outstanding Series F 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, but not less than 107.69% of the then Conversion Price, at
least 75% of the shares of Common Stock into which all the
outstanding shares of Series F 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 F
Convertible Stock to convert their Series F 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 F Convertible Stock will be deemed to have
surrendered the certificates representing their shares of
Series F 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 F 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 F 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 F
Convertible Stock are entitled without requiring the surrender of
the certificates which formerly represented shares of Series F
Convertible Stock, or (B) set aside in trust for the respective
holders of certificates which formerly represented Series F
Convertible Stock, the cash, securities and other assets (other
than Common Stock, which need not be set aside) to which those
holders are entitled and issue or distribute the Common Stock,
cash, other securities or other assets which each former holder
of Series F Convertible Stock is entitled to receive, without
interest, when the former holder surrenders the certificates
which represented the Series F 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 F Convertible Stock will belong to the Corporation.
(c)If the Corporation presents to the holders of the
Series F 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, but not less than 120% of the then Conversion Price,
of at least 50% of the shares of Common Stock into which all the
outstanding shares of Series F Convertible Stock are convertible
at the Conversion Price then in effect or (y) to purchase for at
least $3.50 per share, but not less than 107.69% of the then
Conversion Price, at least 75% of the shares of Common Stock into
which all the outstanding shares of Series F 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 F 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 of 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 F 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 F 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 F 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 F Convertible Stock, the shares of Series F
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 which the Corporation
will have authority to issue will not be decreased by the
conversion, exchange or redemption of shares of Series F
Convertible Stock.
8.Voting Rights. (a) The holders of shares of Series F
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 F 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 F
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 F 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 F Convertible Stock, (iii)
authorize any reclassification of the Series F Convertible Stock
or (iv) increase the number of shares of Series F Convertible
Stock the Corporation may issue. This subparagraph will not
prevent the issuance of Series F Convertible Stock which is
authorized in Paragraph 1 or (x) 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 (y) 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") or
(z) the issuance of Series E Convertible Preferred Stock which is
authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferred of Series E Convertible Preferred
stock dated February 3, 1994 (the "Series E 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 F
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
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 F 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 F 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 F Convertible Stock.
(d)Except as may otherwise be required by law, the
shares of Series F 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 F 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 F Convertible Stock and (ii) 100% of the shares
of Series F Convertible Stock held by or for the benefit of Gould
Electronics Inc. and any permitted assignee thereof."
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 T. Mark Morley, its Secretary, this
day of March, 1995.
ENCORE COMPUTER CORPORATION
By: KENNETH G. FISHER
Kenneth G. Fisher
Chief Executive Officer
Attest:
T. MARK MORLEY
T. Mark Morley
Secretary
Exhibit 10.13
Page 1 of 60
UNCOMMITTED LOAN AGREEMENT
Dated as of December 21, 1994
between
ENCORE COMPUTER CORPORATION
and
GOULD ELECTRONICS INC.
TABLE OF CONTENTS
Section Page
1. DEFINED TERMS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Definitions . . . . . . . . . . . . . . . . . . . . . . . 1
2. UNCOMMITTED TERM LOAN FACILITY. . . . . . . . . . . . . . . . . . 5
2.01 The Loans . . . . . . . . . . . . . . . . . . . . . . . . 5
2.02 Manner of Borrowing . . . . . . . . . . . . . . . . . . . 5
2.03 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . 5
2.04 Payment of Principal and Interest . . . . . . . . . . . . 5
2.05 Payment of Interest . . . . . . . . . . . . . . . . . . . 5
2.06 Prepayment. . . . . . . . . . . . . . . . . . . . . . . . 6
2.07 Notes . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3. PROVISIONS RELATING TO LOANS. . . . . . . . . . . . . . . . . . . 6
3.01 Payment in Full . . . . . . . . . . . . . . . . . . . . . 6
3.02 Interest. . . . . . . . . . . . . . . . . . . . . . . . . 6
3.03 Payments. . . . . . . . . . . . . . . . . . . . . . . . . 7
4. REPRESENTATIONS AND WARRANTIES OF BORROWER. . . . . . . . . . . . 7
4.01 Integrated Group. . . . . . . . . . . . . . . . . . . . . 7
4.02 Corporate Existence . . . . . . . . . . . . . . . . . . . 7
4.03 Security Documents. . . . . . . . . . . . . . . . . . . . 7
4.04 Corporate Authority; No Contravention . . . . . . . . . . 7
4.05 Binding Effect. . . . . . . . . . . . . . . . . . . . . . 7
4.06 Financial Condition . . . . . . . . . . . . . . . . . . . 8
4.07 Amdahl Agreement. . . . . . . . . . . . . . . . . . . . . 8
4.08 Securities and Exchange Commission Filings. . . . . . . . 8
4.09 Disclosure. . . . . . . . . . . . . . . . . . . . . . . . 8
4.10 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.11 Litigation. . . . . . . . . . . . . . . . . . . . . . . . 9
4.12 Title to Properties; Liens. . . . . . . . . . . . . . . . 9
4.13 Indebtedness. . . . . . . . . . . . . . . . . . . . . . . 9
4.14 No Default. . . . . . . . . . . . . . . . . . . . . . . . 9
4.15 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.16 Investment Company Act. . . . . . . . . . . . . . . . . . 9
4.17 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . 10
4.18 Environmental Matters . . . . . . . . . . . . . . . . . . 10
5. AFFIRMATIVE COVENANTS . . . . . . . . . . . . . . . . . . . . . . 10
6. NEGATIVE COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . 11
7. CONDITIONS PRECEDENT. . . . . . . . . . . . . . . . . . . . . . . 11
7.01 Effectiveness of Agreement; Initial Loans . . . . . . . . 11
7.02 Additional Conditions to Loans. . . . . . . . . . . . . . 12
8. EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . . . . . . . 13
8.01 Events of Default . . . . . . . . . . . . . . . . . . . . 13
8.02 Default Remedies. . . . . . . . . . . . . . . . . . . . . 14
9. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . 14
9.01 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.02 Amendment; Waiver . . . . . . . . . . . . . . . . . . . . 15
9.03 Integration . . . . . . . . . . . . . . . . . . . . . . . 15
9.04 Successors and Assigns. . . . . . . . . . . . . . . . . . 15
9.05 Expenses; Documentary Taxes; Indemnification. . . . . . . 16
9.06 Counterparts. . . . . . . . . . . . . . . . . . . . . . . 16
9.07 Headings. . . . . . . . . . . . . . . . . . . . . . . . . 16
9.08 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . 16
9.09 WAIVER OF JURY TRIAL. . . . . . . . . . . . . . . . . . . 16
EXHIBIT A-1 - Master Term Note
EXHIBIT A-2 - Monthly Term Note
EXHIBIT B - Form of Request for Loan
EXHIBIT C-1 - Fourth Mortgage Modification and Security
Agreement (Brevard)
EXHIBIT C-2 - Fifth Mortgage Modification and Security
Agreement (Broward)
EXHIBIT D - Master Amendment Agreement
EXHIBIT E - Standstill Agreement
EXHIBIT F - Encore Certificate of Designations Letter
EXHIBIT G - Intellectual Property License Agreement Amendment
EXHIBIT H-1* - Opinion of Special Counsel to Borrower
EXHIBIT H-2* - Opinion of General Counsel to Borrower
EXHIBIT I* - Fourth Amended and Restated Registration Agreement
SCHEDULE 4.10* - Taxes
SCHEDULE 4.11* - Litigation
SCHEDULE 4.17* - Subsidiaries
SCHEDULE 4.18* - Environmental Matters
SCHEDULE 5* - Terminated Liens
SCHEDULE 6.01(c)* - Indebtedness
SCHEDULE 6.01(d)* - Intercompany Indebtedness
*not included herein
<PAGE>
UNCOMMITTED LOAN AGREEMENT, dated as of December 21, 1994, between
ENCORE COMPUTER CORPORATION, a Delaware corporation ("Borrower"), and GOULD
ELECTRONICS INC., an Ohio corporation ("Lender").
W I T N E S S E T H:
WHEREAS, Lender shall have no obligation to but may, in its absolute
and sole discretion, loan up to $55,000,000 to Borrower to provide funds (a)
with
which Borrower can repay principal and interest under an Amended and Restated
Loan Agreement dated as of March 31, 1992, as amended by an Amendment to Loan
Agreement dated as of April 11, 1994, (the "Revolving Loan Agreement") to the
extent these borrowings exceed $50,000,000, and (b) which Borrower can use for,
among other things, to pay the cost of inventory and carry accounts receivable
related to Borrower's sales of products to Amdahl Corporation ("Amdahl") in
accordance with the Reseller Agreement for Encore Storage Products, dated March
24, 1994, as amended by Amendment #1, dated September 30, 1994 (the "Amdahl
Agreement") and for general corporate purposes;
WHEREAS, as of the date hereof Lender has advanced $87,788,363.19 to
Borrower pursuant to the Revolving Loan Agreement;
WHEREAS, Lender has advanced $9,479,679.47 to Borrower pursuant to
the Revolving Loan Agreement from and including September 7, 1994 to and
including September 30, 1994 in order to pay amounts due under the Revolving
Loan Agreement (the "September Revolving Credit Borrowings");
WHEREAS, Lender has advanced $9,879,978.83 to Borrower pursuant to
the Revolving Loan Agreement from and including October 1, 1994 to and including
October 31, 1994 in order to pay amounts due under the Revolving Loan Agreement
(the "October Revolving Credit Borrowings");
WHEREAS, Lender has advanced $10,166,254.35 to Borrower pursuant to
the Revolving Loan Agreement from and including November 1, 1994 to and
including November 30, 1994 in order to pay amounts due under the Revolving
Loan Agreement (the "November Revolving Credit Borrowings"); and
WHEREAS, Lender has advanced $8,262,450.54 to Borrower pursuant to
the Revolving Loan Agreement from and including December 1, 1994 to and
including December 21, 1994 in order to pay amounts due under the Revolving
Loan Agreement (the "December Revolving Credit Borrowings");
NOW, THEREFORE, Borrower and Lender hereby agree as follows:
1. DEFINED TERMS
1.01 Definitions. (a) As used in this Agreement, the following
terms have the following meanings:
"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 Uncommitted Loan Agreement as the same
may be extended, renewed, amended, modified or supplemented from time to time.
"Amdahl Agreement" shall have the meaning given to that term in the
recitals to this Agreement.
"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 (or should have been) consolidated
with the financial statements of such Person in accordance with GAAP.
"December Revolving Credit Borrowings" shall have the meaning given
to that term in the recitals to this Agreement.
"Default" shall mean any of the events specified in subsection 8.01
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, in substantially the form annexed hereto as
Exhibit F, 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 8.01 hereof.
"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 substantially in the form
annexed hereto as Exhibit I, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"Fourth Mortgage Modification (Brevard)" shall mean the Fourth
Mortgage Modification and Security Agreement executed by Encore U.S., in
substantially
the form annexed hereto as Exhibit C-1, 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 executed by Encore U.S., in
substantially
the form annexed hereto as Exhibit C-2, 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 Amendment" shall mean the
Intellectual Property License Agreement Amendment, substantially in the form
annexed hereto as Exhibit G, 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 Term Note, the
Monthly Term Notes, the Security Agreement, the Security Documents, the Master
Amendment Agreement, the Standstill Agreement, the Fourth Mortgage Modification
(Brevard), the Fourth Mortgage Modification (Broward), 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 loans made by Lender to Borrower pursuant to
Section 2 hereof.
"Master Amendment Agreement" shall mean the Master Amendment
Agreement, substantially
in the form annexed hereto as Exhibit D, as the same may
be amended, modified, supplemented, extended or renewed from time to time.
"Master Term Note" shall mean the Master Term 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.
"Maturity Date" shall mean the earlier of (a) September 30, 1995 or
(b) the date, if any, upon which the Loans shall become due and payable pursuant
to subsection 3.01 or 8.02 hereof.
"Monthly Term Note" shall mean a Monthly 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").
"Maximum Amount of the Loans" shall mean $55,000,000.
"Notes" shall mean the collective reference to the Master Term Note
and the Monthly Term Notes.
"November Revolving Credit Borrowings" shall have the meaning given
to that term in the recitals to this Agreement.
"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.
"October Revolving Credit Borrowings" shall have the meaning given
to that term in the recitals to this 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.
"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.
"September Revolving Credit Borrowings" shall have the meaning given
to that term in the recitals to this Agreement.
"Standstill Agreement" shall mean the Standstill Agreement,
substantially in the form annexed hereto as Exhibit E, 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.
(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 TERM LOAN FACILITY
CIST The Loans. Subject to the terms and conditions of this
Agreement, Lender shall have no obligation to but may, in its absolute and sole
discretion, make Loans to Borrower upon its request from time to time, provided
that the aggregate of all Loans shall
not exceed the Maximum Amount of the Loans.
Lender does not have any commitment to make any Loans hereunder.
2.02 Manner of Borrowing. Unless otherwise agreed to by Lender,
each 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 Loan. Each such notice of a requested 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 B, properly completed,
specifying
therein the requested date (which must be a Business Day) and amount
of such Loan
and certifying that (a) there is no Default or Event of Default under this
Agreement and (b) the total amount of all the Loans does not exceed the Maximum
Amount of the Loans (a "Request for Loan"). The information set forth in such
Request for Loan shall be conclusive against Borrower (but not against Lender).
Each Request for Loan by Borrower hereunder shall be deemed a representation by
Borrower to Lender that the conditions to such Loan set forth in
Section 7 hereof
have been satisfied. Each Request for Loan shall be reviewed by Lender
on a case
by case basis and the decision to make the
requested Loan shall be made by Lender
in its absolute and sole discretion and irrespective of whether or not Borrower
is in compliance with any of the terms and conditions set forth herein or in any
of the other Loan Documents. Lender reserves the right to refuse summarily any
Request for Loan without any review as contemplated herein. Borrower shall be
promptly notified of Lender's approval or denial of each Request for Loan. If
a Request for Loan is approved by Lender, not later than 3:00 p.m. New York City
time on the date such Loan is requested to be made and upon fulfillment of the
applicable conditions set forth in this Agreement, Lender will make such Loan
available to Borrower by wire transfer of the amount of such 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 Use of Proceeds. All proceeds of the Loans shall be used by
Borrower for (i) the repayment of principal and interest under the Revolving
Credit Agreement, (ii) working capital purposes in the ordinary course of
Borrower's business and (iii) general corporate purposes.
2.04 Payment of Principal and Interest. The full amount of the
outstanding principal and all accrued but unpaid interest on the Loans and all
other amounts due and owing shall be paid to Lender on the Maturity Date.
2.05 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 set forth below based on the number of days from the date of
issuance of such Note to and including the Maturity Date or such earlier date as
prepaid in accordance with Section 2.06, provided, that interest on the Master
Term Note shall be paid at the Prime Rate plus 1%. 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 with interest being
recalculated
on the principal amount thereof based on the number of days from the
date of issuance of such Note to and including the date of prepayment. Interest
hereunder and under the Notes shall be computed on the actual number of days
elapsed over a year comprised of 360 days.
30 days or less Prime Rate plus 1%
31-60 days Prime Rate plus 1-1/8%
61-90 days Prime Rate plus 1-1/4%
91-120 days Prime Rate plus 1-3/8%
121-150 days Prime Rate plus 1-1/2%
151-180 days Prime Rate plus 1-5/8%
181 and over Prime Rate plus 2%.
2.06 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 Term Note, shall be the last Business Day of a month) and amount of
prepayment, provided, however, that any partial 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 which are prepaid may
not be reborrowed.
2.07 Notes.
(a) Except as provided in Section 2.07(b), each Loan shall be
initially evidenced by a single Master Term Note payable to the order of
Lender.
On the first Business Day of each month, commencing with January 1995, the
aggregate principal amount of the Loans made during the previous month, if any,
together with interest thereon evidenced by the Master Term Note shall, upon
execution by Borrower of a Monthly Term Note (with respect to such month)
payable
to the order of Lender, be evidenced by such Monthly Term Note and no longer be
evidenced by the Master Term Note. Each borrowing, prepayment and transfer
between the Master Term Note and a Monthly Term 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.
(b) Loans made with respect to the September Revolving Credit
Borrowings, October Revolving Credit Borrowings, November Revolving Credit
Borrowings, and December Revolving Credit Borrowings shall be evidenced by an
individual Monthly Term Note for each of such months dated the date hereof.
3. PROVISIONS RELATING TO LOANS
3.01 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.
3.02 Interest.
(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 under Section 2.05.
(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.
3.03 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. REPRESENTATIONS AND WARRANTIES OF BORROWER
Borrower represents and warrants to Lender that:
4.01 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.
4.02 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.
4.03 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.
4.04 Corporate Authority; No Contravention. The execution,
delivery
and performance of this Agreement, the Notes, 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.
4.05 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.
4.06 Financial Condition. The consolidated balance sheets of the
Borrower and its Consolidated Subsidiaries as at September 30, 1994, and the
related statements of income and cash flows for the nine months ended on such
date, included in Borrower's Report on Form 10-Q for the quarter ended September
30, 1994, 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 nine 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, 1993, there has been
no material adverse change in the consolidated financial condition, operations
or business of Borrower and its Subsidiaries taken as a whole.
4.07 Amdahl Agreement. The Amdahl Agreement has been duly executed
and delivered by Borrower, and is a valid and binding agreement of Borrower.
Borrower has been told by Amdahl verbally, and Borrower does not have any reason
to disbelieve Amdahl, that the Amdahl Agreement is a valid and binding agreement
of Amdahl, enforceable against Amdahl in accordance with its terms (except
to the
extent enforceability may be affected by bankruptcy, reorganization or similar
laws affecting the rights of creditors generally or by equitable principles of
general application), and Borrower has no reason to believe what Borrower has
been told is not correct. All the conditions precedent to Amdahl's obligation
to purchase products under the Amdahl Agreement (including general availability,
as that term is defined in the Amdahl Agreement) either (a) have been fulfilled,
or (b) relate to development of products which (i) is in process and (ii)
Borrower believes will be fulfilled by the date contemplated by the Amdahl
Agreement and in any event by January 31, 1995. Amdahl has not informed
Borrower
that Amdahl does not intend to purchase products from Borrower to the full
extent
contemplated by the Amdahl Agreement, and Borrower has no other reason to
believe
Amdahl will not purchase products from Borrower to the full extent contemplated
by the Amdahl Agreement. The first regular shipment of products to Amdahl under
the Amdahl Agreement in the ordinary course (i.e., excluding prototypes, test
products, samples and similar items) either has taken place or Borrower expects
that first shipment to take place not later than January 31, 1995.
4.08 Securities and Exchange Commission Filings. Borrower's
annual report on Form 10-K for the year ended December 31, 1993, its quarterly
report on Form 10-Q for the period ended September 30, 1994 and its definitive
proxy statement dated May 13, 1994, 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.
4.09 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.
ST\M Taxes. Except as set forth on Schedule 4.10 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.
4.11 Litigation. Except as set forth on Schedule 4.11 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, 1993, or its quarterly report for the period ended September 30,
1994, in either case as filed with the Securities Exchange Commission, or on
Schedule 4.11 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.
4.12 Title to Properties; Liens. Borrower and each of its
Subsidiaries has good title to all of its respective assets 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.
4.13 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
6.01(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.
4.14 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 (including, but not limited to, the
Revolving Credit Agreement (except for as provided in the Standstill Agreement
for so long as the Standstill Agreement is in effect)). No Default or Event of
Default has occurred and is continuing.
4.15 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.
4.16 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.
4.17 Subsidiaries. Schedule 4.17 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 and the Liens under the
Subordinated Loan Agreement in favor of EFI. 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 4.17. 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.
4.18 Environmental Matters. Except as described on Schedule 4.18
annexed hereto, Borrower and each of its 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.
5. AFFIRMATIVE COVENANTS
(a) Section 6 of the Revolving Credit Agreement is incorporated
herein by reference in its entirety, as Sections 5.01 through 5.08 hereof, with
the same effect as though set forth at length herein. Any amendment to Section
6 of the Revolving Credit Agreement agreed to in writing by Lender will, unless
otherwise stated in the document by which Lender agrees to the amendment, apply
to this Agreement as well.
(b) Within thirty days of the date of this Agreement, Borrower
shall deliver to Lender:
(i) an opinion by outside counsel to Borrower, in form and
substance reasonably satisfactory to Lender, with respect to (i) the
validity of the liens granted pursuant to the Security Documents, as
amended by the Master Amendment Agreement, under the laws of the State of
Florida and (ii) the non-impairment of the validity and perfection of
those liens by the execution of this Agreement, the Notes and the other
Loan Documents under the laws of the State of Florida;
(ii) an opinion by Messrs. Weil, Gotshal & Manges, special counsel
to Borrower, in form and substance reasonably satisfactory to Lender, with
respect to (i) the validity of the liens granted pursuant to the Security
Agreements, as amended by the Master Amendment Agreement, under the laws
of the State of New York and (ii) the non-impairment of the validity and
perfection of those liens by the execution of this Agreement, the Notes
and the other Loan Documents under the laws of the State of New York;
(iii) a good standing certificate for Borrower for the State of
Florida;
(iv) evidence satisfactory to Lender that the liens set forth on
Schedule 5 have been terminated; and
(v) endorsements issued by Chicago Title Insurance Company with
respect to the properties covered by the Fourth Mortgage Modification
(Brevard) and Fourth Mortgage Modification (Broward) in form and substance
satisfactory to the Lender in all respects.
6. NEGATIVE COVENANTS
(a) Section 7 of the Revolving Credit Agreement is incorporated
herein by reference in its entirety as Sections 6.01 through 6.12 hereof with
the
same effect as though set forth at length herein. Any amendment to Section 7 of
the Revolving Credit Agreement agreed to in writing by Lender will, unless
otherwise stated in the document by which Lender agrees to the amendment, apply
to this Agreement as well.
(b) The proceeds of the Loan will not be used for any purpose other
than (i) to pay principal or interest with regard to borrowings under the
Revolving Credit Agreement, (ii) to fund ordinary needs of Borrower and its
Subsidiaries (including, but not limited to, to pay the cost of inventory and
carry accounts receivable related to Borrower's sales of products to Amdahl in
accordance with the Amdahl Agreement) or (iii) for general corporate purposes.
7. CONDITIONS PRECEDENT
7.01 Effectiveness of Agreement; Initial Loans. As conditions
precedent to the effectiveness of this Agreement and the making of the initial
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 Term Note;
(c) the Monthly Term Notes for the September Revolving
Credit Borrowings, October Revolving Credit Borrowings, November
Revolving Credit Borrowings, and December Revolving Credit
Borrowings;
(d) the Master Amendment Agreement;
(e) the Standstill Agreement;
(f) 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 4 of
this Agreement are true and complete as of the date hereof with the
same effect as though made on that date, (ii) there has been no
cessation of orders or deliveries under the Amdahl Agreement and
(iii) no Default or Event of Default has occurred and is continuing
or would result from the execution or delivery of this Agreement,
the Notes or any other Loan Document;
(g) 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 as of the date hereof;
(h) a Secretary's Certificate or an Assistant
Secretary's Certificate for each of Borrower, Encore U.S., Encore
International and Encore Puerto Rico, 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 7.01 to which each is a party,
(ii) that there have been no changes to the By-Laws of each entity
since January 28, 1991, 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 January 28, 1991
(or the date hereof with respect to Borrower);
(i) good standing certificates for the following
entities in the following jurisdictions:
(i) Encore - Delaware;
(ii) Encore U.S. - Delaware, Florida and
Massachusetts;
(iii) Encore International - Delaware; and
(iv) Encore Puerto Rico - Delaware;
(j) the Fourth Mortgage Modification (Brevard);
(k) the Fourth Mortgage Modification (Broward);
(l) the Intellectual Property License Agreement
Amendment;
(m) an opinion by Messrs. Weil, Gotshal & Manges,
special counsel to Borrower, in substantially the form annexed
hereto as Exhibit H-1;
(n) an opinion by Mary Macomber, Esq., general counsel
to Borrower, in substantially the form annexed hereto as Exhibit H-
2;
(o) 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;
(p) a certificate of the Secretary or Assistant
Secretary of each of Encore U.S., Encore International and Encore
Puerto Rico, certifying as to the incumbency of the officers
executing the agreements required to be executed hereby to which it
is a party;
(q) the Fourth Amended and Restated Registration Agreement;
(r) an instruction from Borrower to Lender, executed
by an appropriate officer of Borrower, to apply proceeds of the
initial Loan (which shall include the aggregate amount of the
September Revolving Credit Borrowings, October Revolving Credit
Borrowings, November Revolving Credit Borrowings, and December
Revolving Credit Borrowings) to reduce the outstanding principal
amount of the Borrowings under the Revolving Credit Agreement to
$50,000,000 and to pay all accrued interest on all borrowings under
the Revolving Credit Agreement which are repaid in order to
accomplish that reduction; and
(s) such other documents and instruments as Lender may
reasonably request.
7.02 Additional Conditions to Loans. The following additional
conditions shall be satisfied as conditions precedent to the effectiveness of
this Agreement and making of each Loan, including the initial Loan:
(i) on the first Business Day of each month,
commencing with January 1995, Lender shall have received a Monthly
Term Note (with respect to Loans, if any, made during the previous
month) payable to the order of Lender substantially in the form of
Exhibit A-2;
(ii) no Default or Event of Default shall have
occurred and be continuing;
(iii) all representations and warranties of
Borrower herein shall be true and complete in all material respects
at the date of such 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
(iv) Borrower shall have delivered to Lender such
other documents and instruments as Lender may reasonably request.
8. EVENTS OF DEFAULT
8.01 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 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 5.02 to 5.08 or Section 6 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 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) Any Event of Default under the Revolving Credit
Agreement (as that term is defined in the Revolving Credit Agreement)
shall have occurred and be continuing; or
(n) 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.
8.02 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 8.01 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).
9. GENERAL PROVISIONS
9.01 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: T. Mark Morley, Chief Financial Officer
Facsimile Number: (305) 797-5719
With a copy to:
Warren T. Buhle, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, N.Y. 10153
Facsimile Number: (212) 310-8007
9.02 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.
9.03 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 Revolving Credit Agreement
or under any note, security agreement or other document executed by Borrower in
connection therewith, or under an Intellectual Property License Agreement dated
January 28, 1991 among Borrower, Encore Computer U.S. Inc. and Gould Inc.
9.04 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.
9.05 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 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.
9.06 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.
9.07 Headings. The headings contained in this Agreement are for
convenience of reference only and shall not affect the construction hereof.
9.08 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 9.01 ABOVE.
9.09 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.
IN WITNESS WHEREOF, Borrower and Lender have executed this Agreement
as of the date first written above.
ENCORE COMPUTER CORPORATION
By: ROBERT P. WATSON
Name: Robert P. Watson
Title: Vice President
By: MICHAEL C. VEYSEY
Name: Michael C. Veysey
Title: Senior Vice President
GOULD ELECTRONICS INC.
Exhibit A-1
MASTER TERM NOTE
$55,000,000 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement, dated as of December
21, 1994, 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) FIFTY FIVE
MILLION DOLLARS ($55,000,000), or, if less, (b) the aggregate unpaid principal
amount of all Loans not evidenced by Monthly 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and a Monthly 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 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 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:VICE PRESIDENT
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
Principal
Date of Amount of Prepayment Outstanding
Loan Loan of Principal Balance
- --------- ----------- ------------ ----------
<PAGE>
Exhibit A-2
MONTHLY TERM NOTE
[MONTH, YEAR]
$_____________ New York, New York
____________ __, 1994
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of business located at
6901 West Sunrise Boulevard, Fort Lauderdale, Florida 33313 ("Borrower"), hereby
promises to pay to the order of GOULD ELECTRONICS INC., with its office located
at 35129 Curtis Boulevard, Eastlake, Ohio 44095 ("Lender") on or before the
Maturity Date(as defined in the Uncommitted Loan Agreement, dated as of December
21, 1994, between Borrower and Lender, as it may be further extended, renewed,
amended, modified or supplemented from time to time, "Loan Agreement";
capitalized terms used herein and not otherwise defined herein have the meanings
given to them in the Loan Agreement), the principal amount of
________________________ DOLLARS ($_______________), 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and the Master 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 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 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.
Principal
Date of Amount of Prepayment Outstanding
Loan Loan of Principal Balance
- --------- ----------- ------------ ----------
<PAGE>
Exhibit B
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: John Monaco
Re: Request for Loan
Pursuant to Subsection 2.02 of the Uncommitted Loan Agreement dated as
of December 21, 1994 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 all representations and warranties contained in
Section 10 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, and that
no Default or Event of Default exists under the Loan Agreement as of the date
hereof.
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:
Title:
<PAGE>
MONTHLY TERM NOTE
September 1993 Borrowings
$9,479,679.47 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement,
dated as of December 21, 1994, 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 MILLION FOUR-HUNDRED AND SEVENTY-NINE THOUSAND SIX-
HUNDRED AND SEVENTY-NINE DOLLARS AND FORTY-NINE CENTS ($9,479,679.47), 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and the Master 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 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 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: VICE PRESIDENT
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 TERM NOTE
October 1993 Borrowings
$9,879,978.83 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement,
dated as of December 21, 1994, 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 MILLION EIGHT-HUNDRED AND SEVENTY-NINE THOUSAND
NINE-HUNDRED AND SEVENTY-EIGHT DOLLARS AND EIGHTY-THREE CENTS
($9,879,978.83), 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and the Master 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 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 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: VICE PRESIDENT
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 TERM NOTE
November 1993 Borrowings
$10,166,254.35 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement,
dated as of December 21, 1994, 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 TEN MILLION ONE-HUNDRED AND SIXTY-SIX THOUSAND TWO-
HUNDRED AND FIFTY-FOUR DOLLARS AND THIRTY-FIVE CENTS ($10,166,254.35), 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and the Master 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 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 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: VICE PRESIDENT
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 TERM NOTE
December 1 - December 21, 1993 Borrowings
$8,262,450.54 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement,
dated as of December 21, 1994, 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 EIGHT MILLION TWO-HUNDRED AND SIXTY-TWO THOUSAND FOUR-
HUNDRED AND FIFTY DOLLARS AND FIFTY-FOUR CENTS ($8,262,450.54), 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and the Master 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 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 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: VICE PRESIDENT
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>
MASTER TERM NOTE
$55,000,000 New York, New York
December 21, 1994
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 Uncommitted Loan Agreement,
dated as of December 21, 1994, 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) FIFTY FIVE MILLION DOLLARS ($55,000,000), or, if
less, (b) the aggregate unpaid principal amount of all Loans not evidenced by
Monthly 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 Loan, each prepayment of principal
thereof by Borrower and each transfer between this Note and a Monthly 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 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 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: VICE PRESIDENT
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>
FIFTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
THIS FIFTH MODIFICATION OF MORTGAGE AND SECURITY
AGREEMENT (this "Agreement") dated as of the 17 day of March,
1995, by and between ENCORE COMPUTER U.S., INC., a Delaware
corporation, having an office at 6901 West Sunrise Boulevard, Fort
Lauderdale, Florida 33340-9148 ("Mortgagor") and GOULD ELECTRONICS
INC., an Ohio corporation, having an office at 35129 Curtis
Boulevard, Eastlake, Ohio 44095 ("Mortgagee").
R E C I T A L S:
WHEREAS, Mortgagee is the holder of that certain Mortgage
and Security Agreement, dated as of April 27, 1989, recorded in
Official Records Book 16399, Page 799 of the Public Records of
Broward County, Florida, as modified by that certain Mortgage
Modification Agreement, dated as of January 28, 1991, recorded in
Official Records Book 18121, Page 256, of the Public Records of
Broward County, Florida, as further modified and spread by that
certain Mortgage Modification and Spreader Agreement, dated as of
May 23, 1991, recorded in Official Records Book 18445, Page 360 of
the Public Records of Broward County, Florida and in Official
Records Book 3130, Page 1558 of the Public Records of Brevard
County, Florida, as further modified by that certain Third
Modification of Mortgage and Security Agreement, dated as of March
31, 1992, recorded in the Official Records Book 19636, Page 54 of
the Public Records of Broward County, Florida and in Official
Records Book 3211, at Page 3811 of the Public Records of Brevard
County, Florida, and as further modified by that certain Fourth
Modification of Mortgage and Security Agreement recorded in
Official Records Book 23107, Page 403 of the Public Records of
Broward County, Florida and in Official Records Book 3452, Page
4683 of the Public Records of Brevard County, Florida
(collectively, the "Mortgage"), which Mortgage was assigned by
Gould Inc. to Mortgagee pursuant to the terms of that certain
Assignment of Mortgage dated as of January 31, 1994, recorded in
Official Records Book 23107, Page 400 of the Public Records of
Broward County, Florida and in Official Records Book 3452, Page
4680 of the Public Records of Brevard County, Florida.
WHEREAS, Encore Computer Corporation ("ECC") and Gould
Inc. ("Gould") have entered into an Amended and Restated Loan
Agreement dated as of March 31, 1992 (the "Amended and Restated
Loan Agreement"), amending and restating in its entirety that
certain Revolving Loan Agreement, dated as of January 28, 1991, as
amended by a letter agreement dated April 12, 1991, and by a First
Amendment to Revolving Loan Agreement dated as of May 23, 1991
(collectively, the "Revolving Loan Agreement"). Pursuant to the
Amended and Restated Loan Agreement, Mortgagee agreed, among other
things, to (i) convert the principal amount outstanding under the
revolving loan facility provided for in the Revolving Loan
Agreement to a term loan ("Term Loan") as evidenced by two (2)
Renewal Term Notes, each dated as of March 31, 1992, and each in
the principal amount of $25,000,000, made by ECC payable to the
order of Gould (the "Renewal Term Notes") and (ii) establish a new
revolving credit facility for the benefit of ECC as evidenced by a
certain Second Amended and Restated Revolving Loan Note, dated
March 31, 1992 in the principal amount of $10,000,000 made by ECC
to Gould ("Second Amended and Restated Revolving Loan Note");
WHEREAS, ECC and Gould have heretofore entered into the
following amendments to the Amended and Restated Loan Agreement:
(i) First Amendment to the Revolving Loan Agreement, dated October
5, 1992, whereby the maximum amount of the revolving credit
facility was increased to $15,000,000, as evidenced by that certain
Third Amended and Restated Revolving Note, dated October 5, 1992 in
the principal amount of $15,000,000, (ii) Amendment Agreement,
dated April 12, 1993, whereby the maximum amount of the revolving
credit facility was increased to $35,000,000, as evidenced by that
certain Fourth Amended and Restated Loan Note, dated April 1, 1993,
in the principal amount of $35,000,000 ("April, 1993 Credit
Facility") and (iii) Amendment to Loan Agreement, dated as of April
11, 1994, whereby the maximum amount of the revolving credit
facility was increased to $50,000,000, as evidenced by that certain
Fifth Amended and Restated Revolving Loan Note dated April 11, 1994
(the "Fifth Amended and Restated Revolving Note") in the principal
amount of $50,000,000;
WHEREAS, ECC and Mortgagee have entered into a certain
Master Purchase Agreement, dated as of February 3, 1994, pursuant
to which (i) the entire outstanding principal balance of the Term
Loan in the amount of $50,000,000 and (ii) $15,394,645.67 of the
entire outstanding principal balance due under the April, 1993
Credit Facility, as well as $34,615,354.33 of unsecured loans not
specifically made under the Amended and Restated Loan Agreement,
were exchanged by Gould for shares of stock of ECC (the
"Recapitalization"). Immediately following the Recapitalization
approximately $19,100,000 remained outstanding under the April,
1993 Credit Facility;
WHEREAS, ECC and Mortgagee have heretofore entered into
an Uncommitted Loan Agreement (the "Uncommitted Loan Agreement"),
dated as of December 21, 1994, whereby Mortgagee made a series of
loans to ECC in the aggregate amount of $55,000,000 (the
"Uncommitted Loan"). The Uncommitted Loan was originally evidenced
by a Master Term Note dated December 21, 1994 in the principal
amount of $55,000,000 ("Master Note"), which Master Note was
replaced and substituted by the following Monthly Term Notes (each
a "Monthly Term Note"), aggregating $55,000,000, as provided by the
terms of the Uncommitted Loan Agreement: (i) Monthly Term Note,
dated September 21, 1994 in the aggregate principal amount of
$9,479,679.47, (ii) Monthly Term Note, dated December 21, 1994, in
the aggregate principal amount of $9,879,978.83, (iii) Monthly Term
Note, dated December 21, 1994 in the aggregate principal amount of
$10,166,254.35, (iv) Monthly Term Note, dated December 21, 1994 in
the aggregate principal amount of $10,166,254.35 and (v)
;
WHEREAS, ECC and Mortgagee have entered into as of the
date hereof that certain Master Purchase Agreement whereby the
entire indebtedness evidenced by the Fifth Amended and Restated
Revolving Loan Note was exchanged by Mortgagee for shares of Series
F Convertible Preferred Stock of ECC;
WHEREAS, ECC and Mortgagee have entered into as of the
date hereof that certain Amended and Restated Credit Agreement (the
"March '95 Credit Agreement"), whereby Mortgagee has agreed to
amend and restate the Uncommitted Loan Agreement in its entirety
and make certain revolving credit loans to ECC not to exceed in the
principal aggregate amount $25,000,000. The obligations due under
the March '95 Credit Agreement are to be evidenced by a Master
Revolving Note, dated March 17, 1995, in the principal amount of
$25,000,000 (the "Master Revolving Note") and certain Monthly
Revolving Term Notes to be delivered by ECC to Mortgagee pursuant
to the terms of the March '95 Credit Agreement (the "Monthly
Revolving Term Notes").
WHEREAS, the Mortgage now secures, among other things,
the repayment of all indebtedness and any other sums due or to
become due under the terms of the Amended and Restated Loan
Agreement, the Uncommitted Loan Agreement, the Subsidiary Guaranty
and the Security Documents (as such terms are defined in the
Mortgage), the Fifth Amended and Restated Revolving Note, the
Master Note and each of the Monthly Term Notes;
WHEREAS, Mortgagor and Mortgagee now desire to secure (i)
all Obligations and Indebtedness (as such terms are defined in the
March '95 Credit Agreement) arising or becoming due under the March
'95 Credit Agreement, (ii) the Master Revolving Note and (iii) the
Monthly Revolving Term Notes; and
WHEREAS, the Mortgage presently encumbers certain Real
Estate (as defined in the Mortgage) owned by Mortgagor located in
Brevard and Broward Counties, Florida (collectively, the
"Properties"), which are described on Exhibit A attached hereto and
made a part hereof.
NOW, THEREFORE, in consideration of the sum of one
($1.00) dollar in hand paid by Mortgagee to Mortgagor and other
good and valuable consideration paid by Mortgagor to Mortgagee, the
receipt and sufficiency of which are hereby acknowledged, and in
consideration of the mutual covenants and agreements set forth
herein, Mortgagor and Mortgagee hereby agree as follows:
1. All references in the Mortgage to the "Renewal Term
Note" shall mean and refer to the Fifth Amended and Restated
Revolving Note, the Master Note, the Monthly Term Notes, the Master
Revolving Note and the Monthly Revolving Term Notes and all
subsequent amendments, modifications, extensions and renewals
thereof. All references to the Amended and Restated Loan Agreement
shall mean and refer to the Amended and Restated Loan Agreement,
the Uncommitted Loan Agreement and the March '95 Credit Agreement
and all subsequent amendments, modifications, extensions and
renewals thereof.
2. Mortgagor and Mortgagee hereby confirm that the
Mortgage secures:
(a) repayment of all principal and payment of all
interest, prepayment premiums, if any, other charges arising under
or evidenced by the Fifth Amended and Restated Revolving Note, the
Master Note, the Monthly Term Notes, the Master Revolving Note and
the Monthly Revolving Term Notes the terms of which are hereby made
part of the Mortgage, and all other sums due or to become due under
said Notes, and any renewals, extensions, modifications, amendments
or restatements thereof, and the payment of all sums payable under
the Mortgage as modified by this Agreement, the Amended and
Restated Loan Agreement, the Uncommitted Loan Agreement, the March
'95 Credit Agreement, the Subsidiary Guaranty or the Security
Documents (the foregoing together with all other amounts secured
hereby as otherwise set forth herein being hereinafter collectively
referred to as the "Indebtedness") (including any and all
additional advances made by Mortgagee pursuant to the provisions of
the Mortgage, the Security Agreement, the Amended and Restated Loan
Agreement, the Uncommitted Loan Agreement, the March '95 Credit
Agreement or the Security Documents (1) to protect or preserve the
Mortgaged Property or the lien and security interests of the
Mortgage and the Security Documents on or in the Mortgaged Property
or (2) for taxes, assessments or insurance premiums); provided,
however, that in no event shall the Mortgage secure an amount of
the Indebtedness exceeding $1,000,000 and it is agreed that
Mortgagee shall have the right to select any portion of the
Indebtedness in an amount not to exceed $1,000,000 to be secured by
the Mortgage, and that such selection may be made at any time; and
(b) the performance and observance of all
covenants, agreements, conditions, obligations or liabilities of
Mortgagor under or pursuant to the Mortgage and the performance of
the Obligations.
3. With respect to the Master Revolving Note and the
Monthly Revolving Term Notes, Mortgagor and Mortgagee hereby
confirm that the Mortgage is given to secure not only the amount
advanced on the date hereof, but also such future advances, up to
a total indebtedness of $25,000,000, as may be made within twenty
(20) years from the date hereof, plus interest thereon, and any
disbursements made by the Mortgagee for the payment of taxes,
insurance or other liens on the property encumbered by the
Mortgage, with interest on such disbursements, which advances shall
be secured hereby to the same extent as if such future advances
were made this date. The total amount of Indebtedness secured
hereby may increase or decrease from time to time. The provisions
of this paragraph shall not be construed to imply any obligation on
Mortgagee to make any future advances, it being the intention of
the parties that any future advances shall be solely at the
discretion and option of the Mortgagee, subject to the terms of the
March '95 Credit Agreement. Any reference to the Master Revolving
Note and the Monthly Revolving Term Notes in the Mortgage shall be
construed to reference any future advances made pursuant to this
paragraph.
4. Except as specifically modified hereby, all of the
terms, covenants and conditions contained in the Mortgage are
hereby ratified and confirmed in all respects and shall remain in
full force and effect.
5. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to them
in the Mortgage.
6. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which shall constitute
one and the same instrument.
7. Mortgagor represents and warrants to Mortgagee that
Mortgagor has no counterclaims, defenses or offsets to (i) the
March '95 Credit Agreement, the Uncommitted Loan Agreement or the
Amended and Restated Loan Agreement or (ii) the Mortgage, as
modified by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first above written.
Signed, Sealed and ENCORE COMPUTER U.S., INC.
delivered in the
presence of:
WITNESS: MARIE WIDO By:
JANE SCHACHTMAN Name: ROBERT P. WATSON
Title: VICE PRESIDENT
(corp. seal)
Name:
GOULD ELECTRONICS INC.
By:
Name: MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
Name:ANDREA L. SCHUETTE
MARY C. DARNELL
(corp. seal)
Name:
STATE OF FLORIDA )
) ss.:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this 17
day of March, 1995 by ROBERT P. WATSON, as Vice President of Encore
Computer U.S., Inc., a Delaware corporation, on behalf of the
corporation. He _X__ (a) is personally known to me, or ___ (b) has
produced _______________________________ as identification and
did/did not take an oath.
JUDITH R. LASSITER
Notary Public - State of FL
Name:JUDITH R. LASSITER
(Print Name)
(Seal)
My commission expires:11/28/97
STATE OF OHIO )
) ss.:
COUNTY OF LAKE )
The foregoing instrument was acknowledged before me this 16
day of March, 1995 by MICHAEL C. VEYSEY, as Senior Vice President,
General Counsel and Secretary of Gould Electronics Inc., an Ohio
corporation, on behalf of the corporation. He _X__ (a) is
personally known to me, or ___ (b) has produced
_____________________ as identification and did/did not take an
oath.
ANDREA L. SCHUETTE
Notary Public - State of OHIO
Name: ANDREA L. SCHUETTE
(Print Name)
(Seal)
My commission expires:
THIS INSTRUMENT PREPARED BY:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Att'n: Craig M. Lieberman, Esq.
FOURTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
THIS FOURTH MODIFICATION OF MORTGAGE AND SECURITY
AGREEMENT (this "Agreement") dated as of the 21st day of December,
1994, by and between ENCORE COMPUTER U.S., INC., a Delaware
corporation, having an office at 6901 West Sunrise Boulevard, Fort
Lauderdale, Florida 33340-9148 ("Mortgagor") and GOULD ELECTRONICS
INC., an Ohio corporation, having an office at 35129 Curtis
Boulevard, Eastlake, Ohio 44095 ("Mortgagee").
R E C I T A L S:
WHEREAS, Mortgagee is the holder of that certain Mortgage
and Security Agreement, dated as of March 23, 1990, recorded in
Official Records Book 3051, Page 3289 of the Public Records of
Brevard County, Florida, as modified by that certain Mortgage
Modification Agreement, dated as of January 28, 1991, recorded in
Official Records Book 3107, Page 2896, of the Public Records of
Brevard County, Florida, as further modified and spread by that
certain Mortgage Modification and Spreader Agreement, dated as of
May 23, 1991, recorded in Official Records Book 3130, Page 1566 of
the Public Records of Brevard County, Florida and in Official
Records Book 18445, Page 368 of the Public Records of Broward
County, Florida, and as further modified by that certain Third
Modification of Mortgage and Security Agreement, dated as of March
31, 1992, recorded in the Official Records Book 3211, Page 3802 of
the Public Records of Brevard County, Florida and in Official
Records Book 19636, Page 63 of the Public Records of Broward
County, Florida (collectively, the "Mortgage"), which Mortgage was
assigned by Gould Inc. to Mortgagee pursuant to the terms of that
certain Assignment of Mortgage dated as of January 31, 1994, which
Assignment is being recorded in the Public Records of Brevard
County, Florida immediately prior to recordation of this Fourth
Modification of Mortgage;
WHEREAS, Encore Computer Corporation ("ECC") and Gould
Inc. ("Gould") have entered into an Amended and Restated Loan
Agreement dated as of March 31, 1992 (the "Amended and Restated
Loan Agreement"), amending and restating in its entirety that
certain Revolving Loan Agreement, dated as of January 28, 1991, as
amended by a letter agreement dated April 12, 1991, and by a First
Amendment to Revolving Loan Agreement dated as of May 23, 1991
(collectively, the "Revolving Loan Agreement"). Pursuant to the
Amended and Restated Loan Agreement, Mortgagee agreed, among other
things, to (i) convert the principal amount outstanding under the
revolving loan facility provided for in the Revolving Loan
Agreement to a term loan ("Term Loan") as evidenced by two (2)
Renewal Term Notes, each dated as of March 31, 1992, and each in
the principal amount of $25,000,000, made by ECC payable to the
order of Gould (the "Renewal Term Notes") and (ii) establish a new
revolving credit facility for the benefit of ECC as evidenced by a
certain Second Amended and Restated Revolving Loan Note, dated
March 31, 1992 in the principal amount of $10,000,000 made by ECC
to Gould ("Second Amended and Restated Revolving Loan Note");
WHEREAS, ECC and Gould have heretofore entered into the
following amendments to the Amended and Restated Loan Agreement:
(i) First Amendment to the Revolving Loan Agreement, dated October
5, 1992, whereby the maximum amount of the revolving credit
facility was increased to $15,000,000, as evidenced by that certain
Third Amended and Restated Revolving Note, dated October 5, 1992 in
the principal amount of $15,000,000, (ii) Amendment Agreement,
dated April 12, 1993, whereby the maximum amount of the revolving
credit facility was increased to $35,000,000, as evidenced by that
certain Fourth Amended and Restated Loan Note, dated April 1, 1993,
in the principal amount of $35,000,000 ("April, 1993 Credit
Facility") and (iii) Amendment to Loan Agreement, dated as of April
11, 1994, whereby the maximum amount of the revolving credit
facility was increased to $50,000,000, as evidenced by that certain
Fifth Amended and Restated Revolving Loan Note dated April 11, 1994
(the "Fifth Amended and Restated Revolving Note") in the principal
amount of $50,000,000;
WHEREAS, ECC and Mortgagee have entered into a certain
Master Purchase Agreement, dated as of February 3, 1994, pursuant
to which (i) the entire outstanding principal balance of the Term
Loan in the amount of $50,000,000 and (ii) $15,394,645.67 of the
entire outstanding principal balance due under the April, 1993
Credit Facility, as well as $34,615,354.33 of unsecured loans not
specifically made under the Amended and Restated Loan Agreement,
were exchanged by Gould for shares of stock of ECC (the
"Recapitalization"). Immediately following the Recapitalization
approximately $19,100,000 remained outstanding under the April,
1993 Credit Facility;
WHEREAS, ECC and Mortgagee have entered into an
Uncommitted Loan Agreement (the "Uncommitted Loan Agreement"),
dated as of December 21, 1994, whereby Mortgagee may in its sole
discretion loan ECC up to $55,000,000 (the "Uncommitted Loan").
The Uncommitted Loan is evidenced by a Master Term Note dated
December 21, 1994 in the principal amount of $55,000,000 ("Master
Note") and Monthly Term Notes ("Monthly Term Notes") which may be
given in substitution thereof as provided by the terms of the
Uncommitted Loan Agreement;
WHEREAS, the Mortgage now secures, among other things,
the repayment of all indebtedness and any other sums due or to
become due under the terms of the Amended and Restated Loan
Agreement, the Subsidiary Guaranty and the Security Documents (as
such terms are defined in the Mortgage);
WHEREAS, Mortgagor and Mortgagee now desire to secure the
Fifth Amended and Restated Revolving Note, the Master Note, and any
other notes substituted in lieu thereof, including the Monthly Term
Notes; and
WHEREAS, the Mortgage presently encumbers certain Real
Estate (as defined in the Mortgage) owned by Mortgagor located in
Brevard and Broward Counties, Florida (collectively, the
"Properties"), which are described on Exhibit A attached hereto and
made a part hereof.
NOW, THEREFORE, in consideration of the sum of one
($1.00) dollar in hand paid by Mortgagee to Mortgagor and other
good and valuable consideration paid by Mortgagor to Mortgagee, the
receipt and sufficiency of which are hereby acknowledged, and in
consideration of the mutual covenants and agreements set forth
herein, Mortgagor and Mortgagee hereby agree as follows:
1. All references in the Mortgage to the "Renewal Term
Note" shall mean and refer to the Fifth Amended and Restated
Revolving Note, the Master Note, the Monthly Term Notes and all
subsequent amendments, modifications, extensions and renewals
thereof. All references to the Amended and Restated Loan Agreement
shall mean and refer to the Amended and Restated Loan Agreement,
the Uncommitted Loan Agreement and all subsequent amendments,
modifications, extensions and renewals thereof.
2. Mortgagor and Mortgagee hereby confirm that the
Mortgage secures:
(a) repayment of all principal and payment of all
interest, prepayment premiums, if any, other charges arising under
or evidenced by the Fifth Amended and Restated Revolving Note, the
Master Note, and the Monthly Term Notes, the terms of which are
hereby made part of the Mortgage, and all other sums due or to
become due under said Notes, and any renewals, extensions,
modifications, amendments or restatements thereof, and the payment
of all sums payable under the Mortgage as modified by this
Agreement, the Amended and Restated Loan Agreement, the Uncommitted
Loan Agreement, the Subsidiary Guaranty or the Security Documents
(the foregoing together with all other amounts secured hereby as
otherwise set forth herein being hereinafter collectively referred
to as the "Indebtedness") (including any and all additional
advances made by Mortgagee pursuant to the provisions of the
Mortgage, the Security Agreement, the Amended and Restated Loan
Agreement, the Uncommitted Loan Agreement or the Security Documents
(1) to protect or preserve the Mortgaged Property or the lien and
security interests of the Mortgage and the Security Documents on or
in the Mortgaged Property or (2) for taxes, assessments or
insurance premiums); provided, however, that in no event shall the
Mortgage secure an amount of the Indebtedness exceeding $4,000,000
and it is agreed that Mortgagee shall have the right to select any
portion of the Indebtedness in an amount not to exceed $4,000,000
to be secured by the Mortgage, and that such selection may be made
at any time; and
(b) the performance and observance of all
covenants, agreements, conditions, obligations or liabilities of
Mortgagor under or pursuant to the Mortgage and the performance of
the Obligations.
3. With respect to the Fifth Amended and Restated
Revolving Note, Mortgagor and Mortgagee hereby confirm that the
Mortgage is given to secure not only the amount advanced on the
date hereof, but also such future advances, up to a total
indebtedness of $50,000,000, as may be made within twenty (20)
years from the date hereof, plus interest thereon, and any
disbursements made by the Mortgagee for the payment of taxes,
insurance or other liens on the property encumbered by the
Mortgage, with interest on such disbursements, which advances shall
be secured hereby to the same extent as if such future advances
were made this date. The total amount of Indebtedness secured
hereby may increase or decrease from time to time. The provisions
of this paragraph shall not be construed to imply any obligation on
Mortgagee to make any future advances, it being the intention of
the parties that any future advances shall be solely at the
discretion and option of the Mortgagee, subject to the terms of the
Amended and Restated Loan Agreement. Any reference to the Fifth
Amended and Restated Revolving Note in the Mortgage shall be
construed to reference any future advances made pursuant to this
paragraph.
4. Except as specifically modified hereby, all of the
terms, covenants and conditions contained in the Mortgage are
hereby ratified and confirmed in all respects and shall remain in
full force and effect.
5. All capitalized terms used herein and not otherwise
defined herein shall have the respective meanings ascribed to them
in the Mortgage.
6. This Agreement may be executed in counterparts, each
of which shall be an original, but all of which shall constitute
one and the same instrument.
7. Mortgagor represents and warrants to Mortgagee that
Mortgagor has no counterclaims, defenses or offsets to (i) the
Uncommitted Loan Agreement or the Amended and Restated Loan
Agreement or (ii) the Mortgage, as modified by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
instrument as of the date first above written.
Signed, Sealed and ENCORE COMPUTER U.S., INC.
delivered in the
presence of:
WITNESS: MARIE WIDO
Name: ROBERT P. WATSON
Title: VICE PRESIDENT
(corp. seal)
Name:ANDREA L. SCHUETTE
MARY C. DARNELL
GOULD ELECTRONICS INC.
By:
Name: MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
(corp. seal)
Name:
STATE OF FLORIDA )
) ss.:
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this
____________ day of December, 1994 by _________________________, as
____________________ of Encore Computer U.S., Inc., a Delaware
corporation, on behalf of the corporation. He (a) is personally
known to me, or (b) has produced _______________________________ as
identification and did/did not take an oath.
_____________________________________
Notary Public - State of ____________
Name:________________________________
(Print Name)
(Seal)
My commission expires:
STATE OF OHIO )
) ss.:
COUNTY OF _________ )
The foregoing instrument was acknowledged before me this
____________ day of December, 1994 by _________________________, as
____________________ of Gould Electronics Inc., a Delaware
corporation, on behalf of the corporation. He/she ___ (a) is
personally known to me, or ___ (b) has produced
_____________________ as identification and did/did not take an
oath.
_____________________________________
Notary Public - State of ____________
Name:________________________________
(Print Name)
(Seal)
My commission expires:
THIS INSTRUMENT PREPARED BY:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Att'n: Craig M. Lieberman, Esq.
<PAGE>
Exhibit C-1
FOURTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
BETWEEN
ENCORE COMPUTER U.S., INC.,
Mortgagor
AND
GOULD ELECTRONICS INC.,
Mortgagee
Dated: as of December 21, 1994
BREVARD COUNTY, FLORIDA
NOTES TO TAX EXAMINER
THIS FOURTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT (THIS
"AGREEMENT") MODIFIES THAT CERTAIN MORTGAGE AND SECURITY AGREEMENT RECORDED IN
OFFICIAL RECORDS BOOK 3051, PAGE 3289 OF THE PUBLIC RECORDS OF BREVARD COUNTY,
FLORIDA,
AS MODIFIED BY THAT CERTAIN MORTGAGE MODIFICATION AGREEMENT, RECORDED IN
OFFICIAL RECORDS BOOK 3107, PAGE 2896 OF THE PUBLIC RECORDS OF BREVARD COUNTY,
FLORIDA,
AS FURTHER MODIFIED AND SPREAD BY THAT CERTAIN MORTGAGE MODIFICATION AND
SPREADER
AGREEMENT RECORDED IN OFFICIAL RECORDS BOOK 3130, PAGE 1566 OF THE PUBLIC
RECORDS
OF BREVARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 18445, PAGE 368 OF
THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA AND AS FURTHER MODIFIED BY THAT
CERTAIN
THIRD MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT, RECORDED IN OFFICIAL
RECORDS
BOOK 3211, PAGE 3802 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA AND
IN OFFICIAL RECORDS BOOK 19636, PAGE 63 OF THE PUBLIC RECORDS OF BROWARD COUNTY,
FLORIDA (COLLECTIVELY, THE "MORTGAGE"). MORTGAGEE, AS SAME IS DEFINED IN THIS
AGREEMENT, BY ACCEPTANCE AND RECORDING OF THIS AGREEMENT AGREES THAT THE MAXIMUM
AMOUNT THAT MAY BE RECOVERED UNDER THE LIEN CREATED BY THE MORTGAGE SHALL REMAIN
LIMITED TO $4,000,000. THE PROPER FLORIDA DOCUMENTARY STAMP TAX AND FLORIDA
INTANGIBLE TAX
HAVE BEEN PAID ON THE MORTGAGE AS HERETOFORE MODIFIED TO THE CLERK
OF COURT, BREVARD COUNTY, FLORIDA AT THE TIME OF THE RECORDING OF THE MORTGAGE
RECORDED IN
OFFICIAL RECORDS BOOK 3051, AT PAGE 3289 AND THE MORTGAGE MODIFICATION
AGREEMENT
RECORDED IN OFFICIAL RECORDS BOOK 3107, AT PAGE 2896, BOTH OF THE PUBLIC
RECORDS OF
BREVARD COUNTY, FLORIDA, AND NO ADDITIONAL FLORIDA DOCUMENTARY STAMP TAX
OR FLORIDA
INTANGIBLE TAX IS REQUIRED TO BE PAID IN CONNECTION WITH THE RECORDING
OF THIS AGREEMENT IN THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA.
Exhibit C-2
FIFTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
BETWEEN
ENCORE COMPUTER U.S., INC.,
Mortgagor
AND
GOULD ELECTRONICS INC.,
Mortgagee
Dated: as of March 17_, 1995
BROWARD COUNTY, FLORIDA
NOTES TO TAX EXAMINER
THIS FIFTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT (THIS
"AGREEMENT") MODIFIES THAT CERTAIN MORTGAGE AND SECURITY AGREEMENT RECORDED IN
OFFICIAL RECORDS BOOK 16399, PAGE 799 OF THE PUBLIC RECORDS OF BROWARD COUNTY,
FLORIDA,
AS MODIFIED BY THAT CERTAIN MORTGAGE MODIFICATION AGREEMENT, RECORDED IN
OFFICIAL RECORDS BOOK 18121, PAGE 256 OF THE PUBLIC RECORDS OF BROWARD COUNTY,
FLORIDA,
AS FURTHER MODIFIED AND SPREAD BY THAT CERTAIN MORTGAGE MODIFICATION AND
SPREADER
AGREEMENT RECORDED IN OFFICIAL RECORDS BOOK 18445, PAGE 360 OF THE PUBLIC
RECORDS OF
BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3130, PAGE 1558 OF
THE PUBLIC
RECORDS OF BREVARD COUNTY, FLORIDA, AS FURTHER MODIFIED BY THAT CERTAIN
THIRD
MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT, RECORDED IN OFFICIAL RECORDS
BOOK
19636, PAGE 54 OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL
RECORDS
BOOK 3211, AT PAGE 3811 OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA AND
AS FURTHER MODIFIED BY THAT CERTAIN FOURTH MODIFICATION OF MORTGAGE AND SECURITY
AGREEMENT
RECORDED IN OFFICIAL RECORDS BOOK 23107, PAGE 403 OF THE PUBLIC RECORDS
OF BROWARD COUNTY, FLORIDA AND IN OFFICIAL RECORDS BOOK 3452, PAGE 4683 OF THE
PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA (COLLECTIVELY, THE "MORTGAGE"); WHICH
MORTGAGE
HAVING BEEN ASSIGNED TO GOULD ELECTRONICS INC. BY ASSIGNMENT OF MORTGAGE
RECORDED
IN OFFICIAL RECORDS BOOK 23107, PAGE 400 OF THE PUBLIC RECORDS OF BROWARD
COUNTY, FLORIDA
AND IN OFFICIAL RECORDS BOOK 3452, PAGE 4680 OF THE PUBLIC RECORDS
OF BREVARD COUNTY, FLORIDA. MORTGAGEE, AS SAME IS DEFINED IN THIS AGREEMENT, BY
ACCEPTANCE
AND RECORDING OF THIS AGREEMENT AGREES THAT THE MAXIMUM AMOUNT THAT MAY
BE RECOVERED UNDER THE LIEN CREATED BY THE MORTGAGE SHALL REMAIN LIMITED TO
$1,000,000. THE PROPER FLORIDA DOCUMENTARY STAMP TAX AND FLORIDA INTANGIBLE TAX
HAVE
BEEN PAID ON THE MORTGAGE AS HERETOFORE MODIFIED TO THE CLERK OF COURT, BROWARD
COUNTY, FLORIDA
AT THE TIME OF THE RECORDING OF THE MORTGAGE RECORDED IN OFFICIAL
RECORDS BOOK 16399,
AT PAGE 799 AND THE MORTGAGE MODIFICATION AGREEMENT RECORDED IN
OFFICIAL RECORDS BOOK 18121, AT PAGE 256, BOTH OF THE PUBLIC RECORDS OF BROWARD
COUNTY, FLORIDA, AND NO ADDITIONAL FLORIDA DOCUMENTARY STAMP TAX OR FLORIDA
INTANGIBLE TAX IS REQUIRED TO BE PAID IN CONNECTION WITH THE RECORDING OF THIS
AGREEMENT IN THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA.
<PAGE>
EXHIBIT D
MASTER AMENDMENT AGREEMENT
MASTER AMENDMENT AGREEMENT, dated as of December 21,
1994, among Encore Computer Corporation ("ECC"), Encore Computer
International, Inc. ("Encore International"), Encore Computer U.S.,
Inc. ("Encore U.S."), Encore Computer de Puerto Rico, Inc. ("Encore
Puerto Rico") and Gould Electronics Inc. ("Gould").
WHEREAS, Gould is willing to lend up to $55,000,000 to
ECC pursuant to the terms of the Uncommitted Loan Agreement, dated
as of the date hereof, between Gould and ECC (as amended, modified
and otherwise supplemented from time to time, the "Term Loan
Agreement");
WHEREAS, it is a condition precedent to the obligation of
Gould to make loans to ECC under the Loan Agreement that ECC,
Encore International, Encore U.S. and Encore Puerto Rico shall have
executed and delivered this Master Amendment Agreement to Gould;
WHEREAS, ECC, Encore U.S. and Gould (as assignee of Gould
Inc.) have entered into the Amended and Restated General Security
Agreement, dated as of January 28, 1991 (as amended, modified and
otherwise supplemented from time to time, the "General Security
Agreement"; capitalized terms defined in the General Security
Agreement are used herein as therein defined);
WHEREAS, the parties hereto desire to amend the Security
Documents so that each such Security Document secures the
obligations of ECC to Gould under the Term Loan Agreement in
addition to the obligations of ECC to Gould under the Revolving
Loan Agreement;
NOW, THEREFORE, in consideration of the premises, and for
other good and valuable consideration, the receipt of which is
hereby acknowledged, the parties hereto hereby agree as follows:
1. Amendment to General Security Agreement. (a) Section
1 of the General Security Agreement is hereby amended by:
(a) amending and restating the definition of "Event of
Default" as follows:
"'Event of Default' shall mean the collective reference to an
Event of Default (as defined in the Revolving Loan Agreement)
and an Event of Default (as defined in the Term Loan
Agreement).";
(b) amending and restating the definition of "Note" as
follows:
"'Notes' shall mean the collective reference to the Note (as
defined in the Revolving Loan Agreement) and the Note (as
defined in the Term Loan Agreement).";
(c) amending and restating the definition of "Loan Documents"
as follows:
"'Loan Documents' shall mean the collective reference to the
Loan Documents (as defined in the Revolving Loan Agreement)
and the Loan Documents (as defined in the Term Loan
Agreement).";
(d) amending and restating the definition of "Obligations" as
follows:
"'Obligations' shall mean the collective reference to
Obligations (as defined in the Revolving Loan Agreement) and
Obligations (as defined in the Term Loan Agreement)."; and
(e) inserting after the definition of "Technology License"
the following definitions:
"'Term Loan Agreement' shall mean the Loan Agreement, dated as
of the date hereof, between ECC and Gould, as the same may be
amended, modified, supplemented, extended or renewed from time
to time."
"'Term Loan Note' shall have the meaning given to the term
Note in the Term Loan Agreement."
(b) Each reference to the term "Note" in the General Security
Agreement shall be amended to refer to "Notes".
(c) Section 2.01 of the General Security Agreement is hereby
amended by inserting the phrase ", under the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the second sentence thereof.
(d) Section 2.02 of the General Security Agreement is hereby
amended by inserting the phrase "and under the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the second line thereof.
(e) Section 2.03 of the General Security Agreement is hereby
amended by inserting the phrase "and under the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the last line thereof.
(f) Section 2.05 of the General Security Agreement is hereby
amended by inserting the phrase "and the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the fourth line thereof.
(g) Section 4.04 of the General Security Agreement is hereby
amended by inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the fifth line thereof.
(h) Section 5.05(c) of the General Security Agreement is hereby
amended by inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the eighth line thereof.
(i) Section 6.02 of the General Security Agreement is hereby
amended by inserting the phrase "or Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the ninth line thereof.
(j) Section 8.01 of the General Security Agreement is hereby
amended by inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the third line thereof.
(k) Section 9.01 of the General Security Agreement is hereby
amended by inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the fourth line thereof.
(l) Section 9.04 of the General Security Agreement is hereby
amended by:
(i) inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Loan Agreement" appearing in the
fourth line thereof;
(ii) inserting the phrase ", THE TERM LOAN AGREEMENT"
immediately after the word "NOTE" appearing in the thirteenth
line thereof; and
(iii) inserting the phrase ", THE TERM LOAN AGREEMENT"
immediately after the word "NOTE" appearing in the seventeenth
line thereof.
2. Amendment to Subsidiary Guaranty. (a) As used in the
Subsidiary Guaranty:
(i) the term "Obligations" shall have the meaning given to
that term in the General Security Agreement;
(ii) the term "Term Loan Agreement" shall have the meaning
given to that term in the General Security Agreement; and
(iii) the term "Term Loan Note" shall have the meaning given
to that term in the General Security Agreement.
(b) Section 1(a) of the Subsidiary Guaranty shall be deleted in its
entirety and the following substituted in lieu thereof :
"Each of the Guarantors, jointly and severally, hereby
absolutely and unconditionally guarantees to Gould the full
payment when and as due, whether at stated due date, by
acceleration or otherwise, of the Revolving Loan Note, the
Term Loan Note and all the other Obligations (the Revolving
Loan Note, the Term Loan Note and all such other Obligations
being hereinafter collectively referred to as the
"Liabilities"). Upon default in the payment of any of the
Liabilities when and as due, the Guarantors, and each of them,
shall forthwith pay the same to Gould immediately upon its
demand therefor."
(c) Section 1(b) of the Subsidiary Guaranty shall be amended by
deleting the last sentence of said paragraph (b) and the following
substituted in lieu thereof :
"For purposes of this Guaranty, 'Financing Documents' shall
mean and include the Revolving Loan Note, the Term Loan Note,
the Revolving Loan Agreement, the Term Loan Agreement, the
Security Agreement and all other Loan Documents."
(d) Section 3(c) of the Subsidiary Guaranty shall be deleted in its
entirety and the following substituted in lieu thereof:
"(c) extend the time or change the manner, place or terms of
payment of, or renew, increase or alter, any of the
Liabilities or any security therefor, modify, amend or waive
the terms of any note (including, but not limited to, the
Revolving Loan Note and the Term Loan Note) or any other
instrument evidencing the Liabilities or any part thereof, or
amend in any manner any agreement relating thereto (including,
but not limited to, the Revolving Loan Agreement, the Term
Loan Agreement and the Security Agreement), and the Guaranty
herein made shall apply to, and the term Liabilities herein
shall include, the Liabilities so changed, extended, renewed
or altered;"
(e) Section 8 of the Subsidiary Guaranty shall be amended by
deleting lines 17 and 18 thereof and the following substituted in
lieu thereof:
"amounts owing under the Revolving Loan Note and the Term Loan
Note and each of the Revolving Loan Agreement and the Term
Loan Agreement".
(f) Section 16 of the Subsidiary Guaranty shall be amended by:
(a) inserting immediately after the phrase "THE REVOLVING LOAN
AGREEMENT" appearing on the tenth line thereof the phrase ",
THE TERM LOAN AGREEMENT"; and
(b) inserting immediately after the phrase "THE REVOLVING LOAN
NOTE" appearing on the eleventh line thereof the phrase "AND
TERM LOAN NOTE".
3. Amendment to Pledge Agreement. (a) As used in the
Pledge Agreement:
(i) the term "Obligations" shall have the meaning given to
that term in the General Security Agreement;
(ii) the term "Term Loan Agreement" shall have the meaning
given to that term in the General Security Agreement;
(iii) the term "Term Loan Note" shall have the meaning given
to that term in the General Security Agreement; and
(iv) the term "Loan Documents" shall have the meaning given to
that term in the General Security Agreement.
(b) Section 1 of the Pledge Agreement is hereby amended by deleting
the parenthetical immediately after the word "Obligations" on the
second line thereof and substituting in lieu thereof the following
parenthetical:
"(including, without limitation, the Obligations under the
Revolving Loan Agreement, the Term Loan Agreement, the
Revolving Loan Note, the Term Loan Note, and all other Loan
Documents)".
(c) Section 6(b) of the Pledge Agreement is hereby amended by
inserting after the phrase "Revolving Loan Agreement" appearing in
the first sentence thereof the following phrase:
"and Sections 5.01(c), 5.02(b), 5.02(c), 5.03, 5.04, 5.05,
5.06, 5.07 and 5.08 of the Term Loan Agreement".
(d) Section 6(c)(ii) of the Pledge Agreement is hereby amended by
inserting after the phrase "Revolving Loan Agreement" appearing in
the first sentence thereof the following phrase:
"and Sections 6.01 through 6.12, inclusive, of the Term Loan
Agreement".
(e) Section 7 of the Pledge Agreement is hereby amended by deleting
the term "Revolving Loan Agreement" on the fourth line and
substituting therefor the term "General Security Agreement".
(f) Clause (ii) of Section 11(a) of the Pledge Agreement is hereby
amended and restated in its entirety as follows:
"(ii) to the payment of the Pledgor's Obligations under the
Revolving Loan Note, the Term Loan Note, the Revolving Loan
Agreement, the Term Loan Agreement, the General Security
Agreement and to any other Obligations in such order as
Pledgee may elect; and".
(g) The first sentence of Section 12 of the Pledge Agreement is
hereby amended and restated in its entirety as follows:
"This Pledge Agreement shall continue in full force and effect
until all of the Obligations of Pledgor under the Revolving
Loan Note, the Term Loan Note, the Revolving Loan Agreement,
the Term Loan Agreement, all other Loan Documents and this
Pledge Agreement shall have been paid in full and satisfied
and the Revolving Loan Agreement and the Term Loan Agreement
and Pledgee's commitment to lend thereunder shall have been
terminated."
(h) Section 14(d) of the Pledge Agreement is hereby amended and
restated in its entirety as follows:
"(d) Any notice or other communication given hereunder shall
be given in the same manner and to the persons specified in
Section 9.03 of the General Security Agreement."
4. Amendment to Subsidiary Pledge Agreements. (a) As
used in each of the Subsidiary Pledge Agreements:
(i) the term "Obligations" shall have the meaning given to
that term in the General Security Agreement; and
(ii) each reference to the term "Note" shall be amended to
refer to "Notes" and shall have the meaning given to that term
in the General Security Agreement.
(b) Each of Sections 6(b)(i) and 6(b)(ii) of each of the Subsidiary
Pledge Agreements shall be amended to insert the phrase "and the
Term Loan Agreement" immediately after the phrase "Revolving Loan
Agreement" appearing therein.
(c) Section 7 of each of the Subsidiary Pledge Agreements shall be
amended by deleting the term "Revolving Loan Agreement" on the
fourth line thereof and substituting in lieu thereof the term
"General Security Agreement".
(d) Section 12 of each of the Subsidiary Pledge Agreement shall be
amended by adding immediately after the phrase "Revolving Loan
Agreement" appearing in the third line thereof the phrase ", the
Term Loan Note, the Term Loan Agreement".
5. Amendment to Contribution Agreement. As used in the
Contribution Agreement the term "Obligations" shall have the
meaning given to that term in the General Security Agreement.
6. Amendment to ECC Patent Collateral Assignment. The
ECC Patent Collateral Assignment is hereby amended by:
(a) deleting the parenthetical appearing in the third recital
thereof and inserting in lieu thereof the following
parenthetical "(as that term is defined in the Amended and
Restated General Security Agreement, dated as of January 28,
1991, among Assignor, Assignee and Encore Computer U.S., Inc.,
as amended, modified or supplemented from time to time, the
"General Security Agreement")"; and
(b) deleting the parenthetical appearing in paragraph 6
thereof and inserting in lieu thereof the following
parenthetical "(as defined in the General Security
Agreement)".
7. Amendment to ECC Trademark Collateral Assignment. As
used in the ECC Trademark Collateral Assignment:
(a) the term "Obligations" shall have the meaning given to
that term in the General Security Agreement; and
(b) each reference to the term "Note" shall be amended to
refer to "Notes" and shall have the meaning given to that term
in the General Security Agreement.
8. Amendment to ECC Copyright Security Agreement. As
used in the ECC Copyright Security Agreement:
(a) the term "Obligations" shall have the meaning given to
that term in the General Security Agreement; and
(b) each reference to the term "Note" shall be amended to
refer to "Notes" and shall have the meaning given to that term
in the General Security Agreement.
9. Amendment to ECC Assignments of Government
Receivables. The penultimate sentence of Section IV of each of
the Assignments of Government Receivables is hereby amended by
deleting the parenthetical "(the "Security Agreement")" appearing
therein and inserting in lieu thereof the following parenthetical
"(as amended, modified or supplemented from time to time, the
"Security Agreement")".
10. Amendment to ECC Tradename Letter. The second line
of the ECC Tradename Letter is hereby amended by deleting the
parenthetical appearing therein and inserting in lieu thereof the
following parenthetical "(as amended, modified or supplemented from
time to time, the "General Security Agreement")".
11. Amendment to Encore U.S. Copyright Security
Agreement. (a) As used in the Encore U.S. Copyright Security
Agreement the term "Term Loan Agreement" shall have the meaning
given to that term in the General Security Agreement.
(b) The second full paragraph of the second page of the Encore U.S.
Copyright Security Agreement is hereby amended by inserting the
phrase "or under the Term Loan Agreement" immediately after the
phrase "Revolving Loan Agreement" appearing therein.
(c) The second full paragraph of the third page of the Encore U.S.
Copyright Security Agreement is hereby amended by inserting the
phrase "and under the Term Loan Agreement" immediately after the
phrase "Revolving Loan Agreement" appearing therein.
(d) The third full paragraph of the third page of the Encore U.S.
Copyright Security Agreement is hereby amended by:
(i) inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement"
appearing in the second line thereof;
(ii) inserting the phrase "or under the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement"
appearing in the fourth line thereof; and
(iii) inserting the phrase "or under the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement"
appearing in the thirteenth line thereof.
12. Amendment to Encore U.S. Patent Collateral
Assignment. (a) Section 6 of the Encore U.S. Patent Collateral
Assignment is hereby amended by deleting the parenthetical
appearing therein and substituting in lieu thereof the following
parenthetical "(as defined in the General Security Agreement)".
(b) Section 13 of the Encore U.S. Patent Collateral Assignment is
hereby amended by inserting the phrase ", the Term Loan Agreement"
immediately after the phrase "Revolving Loan Agreement" appearing
in the fourth line thereof.
13. Amendment to Encore U.S. Trademark Collateral
Assignment. (a) Section 7 of the Encore U.S. Trademark Collateral
Assignment is hereby amended by inserting the following
parenthetical "(as defined in the General Security Agreement)"
immediately after the phrase "Event of Default" appearing in the
second line thereof.
(b) Section 13 of the Encore U.S. Trademark Collateral Assignment
is hereby amended by inserting the phrase "or under the Term Loan
Agreement" immediately after the phrase "the Revolving Loan
Agreement" appearing in the second line thereof.
(c) Section 15 of the Encore U.S. Trademark Collateral Assignment
is hereby amended by inserting the phrase ", the Term Loan
Agreement" immediately after the phrase "the Revolving Loan
Agreement" appearing in the fourth line thereof.
14. Amendment to Encore U.S. Tradename Letter. The
Encore U.S. Tradename Letter is hereby amended by deleting the
parenthetical appearing in the first sentence thereof and inserting
in lieu thereof the following parenthetical "(as amended, modified
or supplemented from time to time, the "General Security
Agreement")".
15. No other provision of any Security Document shall be
amended or modified except as specifically provided for herein.
The parties hereto agree that by making this Master Amendment
Agreement, Gould has not waived any defaults, nor waived or
modified any rights Gould may have under any Security Document as
in effect immediately before or after the making of this Master
Amendment Agreement. Each of ECC, Encore International, Encore
U.S. and Encore Puerto Rico hereby confirms to Gould that all the
terms of the Security Documents, as amended hereby, remain in full
force and effect and that each of the Security Documents, as
amended hereby, continues to constitute the legal, valid and
binding obligations of the parties thereto enforceable in
accordance with its terms.
16. Each of ECC, Encore International, Encore U.S. and
Encore Puerto Rico hereby confirms to Gould that each of the
representations and warranties contained in each Security Document
to which it is a party, after giving effect to this Master
Amendment Agreement, is true and complete as if made on the date
hereof except as may have been previously disclosed to Gould in a
written amendment to such Security Document.
17. This Master Amendment Agreement may be executed in
any number of counterparts, all of which shall taken together shall
constitute one and the same instrument and any of the parties
hereto may execute this Master Amendment Agreement by signing any
such counterpart.
18. Any provisions hereof found to be invalid under the
law of the United States of America, the State of New York or any
other State having jurisdiction, shall be invalid only with respect
to the offending provision. All words used herein shall be
construed to be of such gender or number as the circumstances
require. This Master Amendment Agreement shall be binding upon the
successors or assigns of the parties hereto, but shall inure to the
benefit of the successors or assigns of Gould only. This Master
Amendment Agreement and the rights and obligations of the parties
hereto shall be governed by, and construed in accordance with, the
law of the State of New York.
IN WITNESS WHEREOF, the parties have caused this First
Amendment to be duly executed as of the date first above written.
ENCORE COMPUTER CORPORATION
Name: ROBERT P. WATSON
Title: VICE PRESIDENT
ENCORE COMPUTER INTERNATIONAL, INC.
NAME: ROBERT P. WATSON
Title: VICE PRESIDENT
(corp. seal)
Name:
GOULD ELECTRONICS INC.
By:
Name: MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
ENCORE COMPUTER U.S., INC.
Name: ROBERT P. WATSON
Title: VICE PRESIDENT
ENCORE COMPUTER DE PUERTO RICO, INC.
By:________________________
Name: ROBERT P. WATSON
Title: VICE PRESIDENT
GOULD ELECTRONICS INC.
By:________________________
Name: ROBERT P. WATSON
Title: VICE PRESIDENT
) ss.:
COUNTY OF ________ )
On the ___ day of December, 1994, before me personally
came ________________________, to me known, who being by me duly
sworn, did depose and say that he(she) resides at
______________________; that he(she) is ______________________ of
__________________________________, the corporation described in,
and which executed the above instrument; that he(she) knows the
seal of the said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the Board of Directors of said corporation, and that he(she)
signed his(her) name thereto by like order.
___________________________
Notary Public
(Notary's Seal to be affixed)
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On the ___ day of December, 1994, before me personally
came ________________________, to me known, who being by me duly
sworn, did depose and say that he(she) resides at
______________________; that he(she) is ______________________ of
__________________________________, the corporation described in,
and which executed the above instrument; that he(she) knows the
seal of the said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the Board of Directors of said corporation, and that he(she)
signed his(her) name thereto by like order.
___________________________
Notary Public
(Notary's Seal to be affixed)
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On the ___ day of December, 1994, before me personally
came ________________________, to me known, who being by me duly
sworn, did depose and say that he(she) resides at
______________________; that he(she) is ______________________ of
__________________________________, the corporation described in,
and which executed the above instrument; that he(she) knows the
seal of the said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the Board of Directors of said corporation, and that he(she)
signed his(her) name thereto by like order.
___________________________
Notary Public
(Notary's Seal to be affixed)
STATE OF ________ )
) ss.:
COUNTY OF ________ )
On the ___ day of December, 1994, before me personally
came ________________________, to me known, who being by me duly
sworn, did depose and say that he(she) resides at
______________________; that he(she) is ______________________ of
__________________________________, the corporation described in,
and which executed the above instrument; that he(she) knows the
seal of the said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the Board of Directors of said corporation, and that he(she)
signed his(her) name thereto by like order.
___________________________
Notary Public
(Notary's Seal to be affixed)
STATE OF ________ )
) ss.:
COUNTY OF NEW YORK )
On the ___ day of December, 1994, before me personally
came ________________________, to me known, who being by me duly
sworn, did depose and say that he(she) resides at
______________________; that he(she) is ______________________ of
__________________________________, the corporation described in,
and which executed the above instrument; that he(she) knows the
seal of the said corporation; that the seal affixed to said
instrument is such corporate seal; that it was so affixed by order
of the Board of Directors of said corporation, and that he(she)
signed his(her) name thereto by like order.
___________________________
Notary Public
(Notary's Seal to be affixed)
EXHIBIT E
STANDSTILL AGREEMENT
STANDSTILL AGREEMENT, dated as of December 21, 1994 (this
"Agreement"), to the Amended and Restated Loan Agreement, dated as
of March 31, 1992 (as amended, supplemented or otherwise modified
from time to time, the "Credit Agreement") between ENCORE COMPUTER
CORPORATION (the "Company"), and GOULD ELECTRONICS INC. (as
successor to Gould Inc.) (the "Lender").
W I T N E S S E T H :
WHEREAS, the Lender has agreed not to exercise certain
remedies with respect to certain defaults under the Credit
Agreement until after January 31, 1995 in accordance with, and
subject to, the provisions hereof; and
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
Company and the Lender hereby agree as follows:
SECTION 1. Defined Terms. Unless otherwise defined
in this Agreement, terms which are defined in the Credit Agreement
and used in this Agreement are used as so defined.
SECTION 2. Representations and Warranties. As an
inducement for the Lender to enter into this Agreement, the Company
represents and warrants that with respect to the Credit Agreement
and the other Loan Documents:
(a) all of the representations and warranties made by
the Company in any Loan Document are true and correct in all
material respects as if made on the date hereof except for any such
representations and warranties made with reference to a particular
date; and
(b) except Defaults and Events of Default arising from
subsection 6.01(b) (to the extent the audited financial statements
of the Company and its Subsidiaries for fiscal year 1994 are
qualified with an emphasis of a matter by the Company's independent
certified public accountants) and subsections 7.12(a), (b), (c) and
(e) of the Credit Agreement, no Default or Event of Default is
existing under the Credit Agreement or any other Loan Document.
SECTION 3. Confirmation. All of the provisions of
the Credit Agreement and the other Loan Documents are and shall
remain in full force and effect and are hereby ratified and
confirmed in all respects.
SECTION 4. Standstill. Provided the Company complies
in all respects with this Agreement and the Loan Documents, the
Lender agrees that it shall not exercise its rights, remedies,
powers and privileges under the Loan Documents with respect to the
Defaults and the Events of Default existing as of December 31, 1994
and known by the Lender as described in Section 2(b) hereof until
after January 31, 1995. The Lender reserves the right to invoke
fully any or all its rights, remedies, powers or privileges under
the Loan Documents and applicable law in respect of other Defaults
or Events of Defaults.
SECTION 5. Miscellaneous.
(a) This Agreement 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.
(b) This Agreement may be signed in any number of
counterparts, all of which counterparts, taken together, shall
constitute one and the same instrument.
(c) Each of the Company and the Lender 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. The Company acknowledges that the
provisions of this subsection have been bargained for and that it
has been represented by counsel in connection herewith.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement 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
By: ROBERT P. WATSON
Name: Robert P. Watson
Title: Vice President
By: MICHAEL C. VEYSEY
Name: Michael C. Veysey
Title: Senior Vice President
GOULD ELECTRONICS INC.
- ----------------
Exhibit F is not ioncluded in this document
- ----------------
EXHIBIT G
AMENDMENT
AMENDMENT, dated as of December 21, 1994 (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.) (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 January 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.
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
By: ROBERT P. WATSON
Name: Robert P. Watson
Title: Vice President
ENCORE COMPUTER U.S., INC.
By: ROBERT P. WATSON
Name: Robert P. Watson
Title: Vice President
GOULD ELECTRONICS INC.
By: MICHAEL C. VEYSEY
Name: Michael C. Veysey
Title: Senior Vice President
Exhibit 10.14
Page 1 of 34
AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of March 17, 1995
between
ENCORE COMPUTER CORPORATION
and
GOULD ELECTRONICS INC.
TABLE OF CONTENTS
Page
1. DEFINED TERMS 1
1.01 Definitions 1
2. ORIGINAL LOANS 8
2.01 The Original Loans 8
2.02 Payment of Interest 8
2.03 Prepayment 8
2.04 Notes 9
3. REVOLVING LOAN FACILITY 9
3.01 The Loans 9
3.02 Manner of Borrowing 9
3.03 Use of Proceeds 10
3.04 Payment of Interest 10
3.05 Prepayment 10
3.06 Notes 10
4. PROVISIONS RELATING TO LOANS 11
4.01 Payment in Full 11
4.02 Interest 11
4.03 Payments 11
4.04 Payment of Principal and Interest 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
10. GENERAL PROVISIONS 21
10.01 Notices 21
10.02 Amendment; Waiver 22
10.03 Integration 22
10.04 Successors and Assigns 22
10.05 Expenses; Documentary Taxes; Indemnification 23
10.06 Counterparts 23
10.07 Headings 23
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION 23
10.09 WAIVER OF JURY TRIAL 24
EXHIBIT A-1 - Master Revolving Note
EXHIBIT A-2 - Monthly Master Term Note
EXHIBIT B - Form of Request for Advance
EXHIBIT C - Termination of Commitments
EXHIBIT D - Intellectual Property License Agreement
Amendment
EXHIBIT E-1 - Fifth Mortgage Modification and Security
Agreement (Brevard)
EXHIBIT E-2 - Fifth 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
AMENDED AND RESTATED CREDIT AGREEMENT, dated as of March 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
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, under the Original Agreement, Lender has loaned
Borrower $55,000,000 which Borrower has used for (i) the repayment
of principal and interest under the Amended and Restated Loan
Agreement, dated as of March 31, 1992, as amended by an Amendment
to Loan Agreement, dated as of April 11, 1994 (the "Revolving
Credit Agreement") and (ii) general corporate purposes;
WHEREAS, pursuant to the Master Purchase Agreement,
dated as of the date hereof (the "Master Purchase Agreement"),
between Lender and Borrower, the entire $50,000,000.00 principal
amount of the Revolving Loan (as defined in the Revolving Credit
Agreement) shall be exchanged by Lender for shares of Series F
Convertible Preferred Stock of Borrower; and
WHEREAS, Lender has agreed to make additional revolving
credit loans to Borrower not to exceed $25,000,000 in aggregate
principal amount outstanding at any one time in accordance with
the terms hereof;
NOW, THEREFORE, Borrower and Lender hereby agree to
amend and restate the Original Agreement in its entirety as
follows:
.c1.1. DEFINED TERMS;
.c2.1.01 Definitions;. (a) As used in this Agreement,
the following terms have the following meanings:
"Advance" shall mean each advance made by Lender to
Borrower pursuant to subsection 3.01 hereof.
"Amdahl Letter" shall mean the letter from Borrower to
Lender dated March __, 1995 detailing recent developments with
respect to the Amdahl Corporation.
"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 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
(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
the date hereof, between Encore U.S. and Borrower, in the form
annexed hereto as Exhibit E-1, 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
the date hereof, between Encore U.S. and Borrower, in the form
annexed hereto as Exhibit E-2, 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.
"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, 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, 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 No.
1" shall mean the Intellectual Property License Agreement
Amendment, dated as of December 21, 1994, 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 No.
2" 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.
"Intellectual Property License Agreement Amendments"
shall mean the collective reference to the Intellectual Property
License Agreement Amendment No. 1 and Intellectual Property
License Agreement Amendment No. 2.
"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 Original
Notes, the Master Revolving Note, the Monthly Revolving Term
Notes, the Termination Agreement, 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 Fourth Mortgage Modification (Broward), the Fifth Mortgage
Modification (Broward), the Fourth Amended and Restated
Registration Agreement, the Intellectual Property License
Agreement Amendments, 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
Original 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.
"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.
"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").
"Maximum Amount of Revolving Loan" shall mean
$25,000,000.
"Notes" shall mean the collective reference to the
Master Revolving Note, the Monthly Revolving Term Notes and the
Original Monthly Term 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 as evidenced by
the Original Monthly Term Notes.
"Original Master Term Note" shall mean the Master Term
Note made by Borrower in favor of Lender pursuant to the terms of
the Original Agreement.
"Original Monthly Term Notes" shall mean each of the
Monthly Term Notes made by Borrower in favor of Lender pursuant to
the terms of the Original Agreement set forth below:
(i) Monthly Term Note (September 1994 Borrowings), dated
December 21, 1994, in an aggregate principal of
$9,479,679.47;
(ii) Monthly Term Note (October 1994 Borrowings), dated
December 21, 1994, in an aggregate principal of
$9,879,978.83;
(iii) Monthly Term Note (November 1994 Borrowings), dated
December 21, 1994, in an aggregate principal of
$10,166,254.35;
(iv) Monthly Term Note (December 1 - December 21, 1994
Borrowings), dated December 21, 1994, in an aggregate
principal of $8,262,450.54;
(v) Monthly Term Note (December 21 - December 31, 1994
Borrowings), dated December 31, 1994, in an aggregate
principal of $632,340.27;
(vi) Monthly Term Note (January 1995 Borrowings), dated
January 31, 1995, in an aggregate principal of
$7,632,619.45;
(vii) Monthly Term Note (February 1995 Borrowings), dated
February 28, 1995, in an aggregate principal of
$5,607,777.78; and
(vii) Monthly Term Note (March 2 - March 17, 1995 Borrowings),
dated March __, 1995, in an aggregate principal of
$3,338,899.31.
"Original Notes" shall mean the Original Master Term
Note and each of the Original Monthly Term Notes.
"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.
"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.
"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.
"Termination of Commitments" shall mean the Termination
of Commitments, substantially in the form annexed hereto as
Exhibit C, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
(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.
.c1.2. ORIGINAL LOANS;
.c2.2.01 The Original Loans;. Subject to the terms and
conditions of this Agreement, the Original Loans shall be
continued hereunder in an amount equal to an aggregate principal
amount of $55,000,000 and the Maturity Date with respect thereto
shall be extended in accordance with the terms hereof.
.c2.2.02 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 Original Monthly Note outstanding during
the prior month, at a rate set forth below based on the number of
days from the date of issuance of such Original Monthly Note to
and including the Maturity Date or such earlier date as prepaid in
accordance with Section 2.03. In addition, Borrower shall pay, on
the date of any prepayment of the principal amount of the Original
Loans, accrued interest on the amount prepaid to the date of
prepayment with interest being recalculated on the principal
amount thereof based on the number of days from the date of
issuance of such Original Monthly Note to and including the date
of prepayment. Interest hereunder and under the Original Monthly
Notes shall be computed on the actual number of days elapsed over
a year comprised of 360 days.
30 days or less Prime Rate plus 1%
31-60 days Prime Rate plus 1-1/8%
61-90 days Prime Rate plus 1-1/4%
91-120 days Prime Rate plus 1-3/8%
121-150 days Prime Rate plus 1-1/2%
151-180 days Prime Rate plus 1-5/8%
181 and over Prime Rate plus 2%.
.c2.2.03 Prepayment;. From time to time Borrower may
prepay any Original Monthly Note, in whole or in part, without
premium or penalty, upon at least three Business Days' irrevocable
notice to Lender, specifying the date (which shall be the last
Business Day of a month) and amount of prepayment, provided,
however, that any partial 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 Original Monthly 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 Original Monthly Note or Original Monthly Notes
selected to be prepaid by Borrower. Amounts which are prepaid may
not be reborrowed.
.c2.2.04 Notes;. The Original Loans shall be evidenced
by the Original Monthly Notes which represent the continuing
obligation of Borrower to pay Lender the amounts to be paid
thereunder in accordance with the terms hereof. Each payment and
prepayment hereunder shall be recorded by Lender on the schedule
attached to the Original Monthly Note 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 Original Monthly Notes.
.c1.3. REVOLVING LOAN FACILITY;
.c2.3.01 The Loans;. Subject to the terms and
conditions of this Agreement, Lender agrees to make Advances under
the Revolving Loan to Borrower upon its request from time to time,
provided the aggregate of all Advances outstanding at any one time
hereunder shall at no time exceed the Maximum Amount of the
Revolving Loan then in effect. Within the limits of the Maximum
Amount of the Revolving Loan, Borrower may borrow, repay or prepay
and reborrow the Revolving Loan pursuant to this Section 3.
.c2.3.02 Manner of Borrowing;. Unless otherwise agreed
to by Lender, each Advance 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 Advance. Each such notice of a requested Advance
shall be by telephone, confirmed immediately by the delivery by
hand or facsimile to Lender of a Request for Advance, in the form
annexed hereto as Exhibit B, properly completed, specifying
therein the requested date (which must be a Business Day) and
amount of such Advance and 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 the Revolving Loan (a "Request for Advance"). The
information set forth in such Request for Advance shall be
conclusive against Borrower (but not against Lender). Each
Request for Advance by Borrower hereunder shall be deemed a
representation by Borrower to Lender that the conditions to such
Advance set forth in Section 8 hereof have been satisfied. Not
later than 3:00 p.m. New York City time on the date such Advance
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 Advance available to Borrower by
wire transfer of the amount of such Advance 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.
.c2.3.03 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.
.c2.3.04 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 Revolving Note outstanding during the
prior month, at a rate set forth below based on the number of days
from the date of issuance of such Revolving Note to and including
the Maturity Date or such earlier date as prepaid in accordance
with Section 3.05, provided, that interest on the Master Revolving
Note shall be paid at the Prime Rate plus 1%. 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 with interest being recalculated on the
principal amount thereof based on the number of days from the date
of issuance of such Revolving Note to and including the date of
prepayment. Interest hereunder and under the Revolving Notes
shall be computed on the actual number of days elapsed over a year
comprised of 360 days.
30 days or less Prime Rate plus 1%
31-60 days Prime Rate plus 1-1/8%
61-90 days Prime Rate plus 1-1/4%
91-120 days Prime Rate plus 1-3/8%
121-150 days Prime Rate plus 1-1/2%
151-180 days Prime Rate plus 1-5/8%
181 and over Prime Rate plus 2%.
.c2.3.05 Prepayment;. From time to time Borrower may
prepay any Revolving 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
Revolving Term Note, shall be the last Business Day of a month)
and amount of prepayment, provided, however, that any partial
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 Revolving 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 Revolving Note or
Revolving Notes selected to be prepaid by Borrower.
.c2.3.06 Notes;. Each Advance 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 Advances
made during the previous month, if any, together with 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.
.c1.4. PROVISIONS RELATING TO LOANS;
.c2.4.01 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.
.c2.4.02 Interest;.
(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.
.c2.4.03 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.
.c2.4.04 Payment of Principal and Interest;. The full
amount of the outstanding principal and all accrued but unpaid
interest on the Loans and all other amounts due and owing shall be
paid to Lender on the Maturity Date.
.c1.5. REPRESENTATIONS AND WARRANTIES OF BORROWER;
Borrower represents and warrants to Lender that:
.c2.5.01 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.
.c2.5.02 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.
.c2.5.03 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 Fifth Mortgage
Modification (Brevard) and Fifth 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.
.c2.5.04 Corporate Authority; No Contravention;. The
execution, delivery and performance of this Agreement, the Notes,
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.
.c2.5.05 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.
.c2.5.06 Financial Condition;. The consolidated
balance sheets of the Borrower and its Consolidated Subsidiaries
as at September 30, 1994, and the related statements of income and
cash flows for the nine months ended on such date, included in
Borrower's Report on Form 10-Q for the quarter ended September 30,
1994, 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 nine 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
(a) in the Amdahl Letter and (b) in that Form 10-Q, since December
31, 1993, there has been no material adverse change in the
consolidated financial condition, operations or business of
Borrower and its Subsidiaries taken as a whole.
.c2.5.07 Securities and Exchange Commission Filings;. Borrower's annual
report on Form 10-K for the year ended December 31, 1993, its quarterly report
on Form 10-Q for the period ended
September 30, 1994 and its definitive proxy statement dated May
13, 1994, 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.
.c2.5.08 Disclosure;. Except as described in the
Amdahl Letter, 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. Except as described in the Amdahl Letter,
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.
.c2.5.09 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.
.c2.5.10 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, 1993, or its quarterly report for the period ended
September 30, 1994, 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.
.c2.5.11 Title to Properties; Liens;. Borrower and
each of its Subsidiaries has good title to all of its respective
assets 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.
.c2.5.12 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.
.c2.5.13 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.
.c2.5.14 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.
.c2.5.15 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.
.c2.5.16 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.
.c2.5.17 Environmental Matters;. Except as described
on Schedule 5.17 annexed hereto, Borrower and each of its
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.
.c1.6. 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 fourteen 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
Fifth Mortgage Modification (Brevard) and the Fifth Mortgage
Modification (Broward) in form and substance satisfactory to
Lender.
.c1.7. 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 December 31, 1995.
(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.
.c1.8. CONDITIONS PRECEDENT;
.c2.8.01 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;
(c) the Termination of Commitments;
(d) the Intellectual Property License
Agreement Amendment No. 2;
(e) Fifth Mortgage Modification (Brevard);
(f) Fifth Mortgage Modification (Brevard);
(g) Master Purchase Agreement and all documents
executed and delivered in connection therewith;
(h) all Intellectual Property (as defined in the
Intellectual Property License Agreement) shall have been
placed in escrow in accordance with the terms of paragraph 3
of the Intellectual Property Agreement; and
(i) 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 or any other Loan Document and the
transactions contemplated hereby and thereby;
(j) 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;
(k) 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;
(l) good standing certificates for the
following entities in the following jurisdictions:
(i) Encore - Delaware; and
(ii) Encore U.S. - Delaware, Florida and
Massachusetts;
(m) an opinion by Messrs. Weil, Gotshal &
Manges, special counsel to Borrower, in substantially
the form annexed hereto as Exhibit F-1;
(n) an opinion by Mary Macomber, Esq., general
counsel to Borrower, in substantially the form annexed
hereto as Exhibit F-2;
(o) 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;
(p) 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;
(q) such other documents and instruments as
Lender may reasonably request.
.c2.8.02 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 April 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) no Default or Event of Default shall
have occurred and be continuing;
(iii) 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
(iv) Borrower shall have delivered to
Lender such other documents and instruments as Lender
may reasonably request.
.c1.9. EVENTS OF DEFAULT;
.c2.9.01 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
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
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.
.c2.9.02 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).
.c1.10. GENERAL PROVISIONS;
.c2.10.01 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: T. Mark Morley, Chief Financial Officer
Facsimile Number: (305) 797-5719
With a copy to:
Warren T. Buhle, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, N.Y. 10153
Facsimile Number: (212) 310-8007
.c2. 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.
.c2. 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).
.c2. 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.
.c2. 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 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.
.c2. 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.
.c2.10.07 Headings;. The headings contained in this
Agreement are for convenience of reference only and shall not
affect the construction hereof.
.c2. 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.
.c2.10.09 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.
IN WITNESS WHEREOF, Borrower and Lender have executed
this Agreement as of the date first written above.
ENCORE COMPUTER CORPORATION
By:ROBERT P. WATSON
Robert P. Watson
Title: Vice President
GOULD ELECTRONICS INC.
By: MICHAEL C. VEYSEY
Michael C. Veysey
Title: SeniorVice President
<PAGE>
Exhibit A-1
MASTER REVOLVING NOTE
$25,000,000
New York, New York
March 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 Amended and Restated Credit
Agreement, dated as of March 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.
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: VICE PRESIDENT
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.
SCHEDULE OF LOANS
!--------------------------------------------------------------!
! ! Principal ! Prepayment ! Outstanding!
!Date of Loan! Amount of Loan ! of Principal! Balance !
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
Exhibit A-2
MONTHLY REVOLVING TERM NOTE
[MONTH, YEAR]
$_____________New York, New York
____________ __, 1995
FOR VALUE RECEIVED, ENCORE COMPUTER CORPORATION, a Delaware
corporation with its executive office and principal place of
business located at 6901 West Sunrise Boulevard, Fort Lauderdale,
Florida 33313 ("Borrower"), hereby promises to pay to the order of
GOULD ELECTRONICS INC., with its office located at 35129 Curtis
Boulevard, Eastlake, Ohio 44095 ("Lender") on or before the
Maturity Date (as defined in the Amended and Restated Credit
Agreement, dated as of March 17, 1995, between Borrower and
Lender, as it may be further extended, renewed, amended, modified
or supplemented from time to time, "Loan Agreement"; capitalized
terms used herein and not otherwise defined herein have the
meanings given to them in the Loan Agreement), the principal
amount of ________________________ DOLLARS ($_______________), 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.
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.
SCHEDULE OF LOANS
!--------------------------------------------------------------!
! ! Principal ! Prepayment ! Outstanding!
!Date of Loan! Amount of Loan ! of Principal! Balance !
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
!------------!---------------------!--------------!------------!
Exhibit B
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: John Monaco
Re: Request for Advance
Pursuant to Subsection 3.02 of the Amended and Restated
Credit Agreement, dated as of March 17, 1995, between Encore
Computer Corporation and Gould Electronics Inc. (the "Loan
Agreement"), the undersigned hereby gives you irrevocable notice
that it requests that an Advance 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
Revolving Loans, after giving effect to the request for Advance
herein, does not exceed the 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:
Exhibit C
TERMINATION OF COMMITMENTS
TERMINATION OF COMMITMENTS, dated as of March 17, 1995
(the "Agreement"), between ENCORE COMPUTER CORPORATION, a Delaware
corporation (the "Borrower"), and GOULD ELECTRONICS INC., an Ohio
corporation, as lender (the "Lender").
W I T N E S S E T H :
WHEREAS, the Borrower and the Lender (as successor to
Gould Inc.) are parties to an Amended and Restated Loan Agreement
dated as of March-31, 1992 (as heretofore amended, the "Loan
Agreement", and capitalized terms defined in the Loan Agreement
are used herein as therein defined);
WHEREAS, pursuant to a Master Purchase Agreement, dated
as of the date hereof, between the Lender and the Borrower, the
entire $50,000,000.00 principal amount of the Revolving Loan shall
be exchanged by the Lender for shares of Series F Convertible
Preferred Stock of the Borrower (the "Recapitalization");
WHEREAS, the parties hereto wish to terminate the
commitments of the Lender under the Loan Agreement; and
NOW, THEREFORE, in consideration of the premises and
mutual covenants contained herein, the parties hereto hereby agree
as follows:
SECTION 1. Termination of Commitments. Notwithstanding
any provisions of the Loan Agreement to the contrary, the parties
hereto hereby agree to terminate the commitment of the Lender to
make Advances under Section 2.01 of the Loan Agreement.
Notwithstanding any provisions of the Loan Agreement to the
contrary, the Lender shall not have any obligations to make any
loans or extensions of credit to the Borrower under the Loan
Agreement.
SECTION 2. Effectiveness. This Agreement shall become
effective when, and only when the Lender shall have received a
counterpart of this Agreement duly executed by the Borrower.
SECTION 3. Execution in Counterparts. This Agreement
may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which, when so
executed and delivered shall be deemed to be an original and all
of which taken together shall constitute but one and the same
instrument.
SECTION 4. Governing Law. This Agreement shall be
governed by and construed in accordance with the laws of the State
of New York.
SECTION 5. Expenses. The Borrower agrees to pay and
reimburse the Lender for all of its out-of-pocket costs and
expenses incurred in connection with the negotiation, preparation,
execution and delivery of this Agreement and the documents
contemplated hereby including, without limitation, the fees and
expenses of counsel to the Lender.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective officers thereunto
duly authorized as of the date first above written.
ENCORE COMPUTER CORPORATION
NAME: T. MARK MORLEY
Title: VICE PRESIDENT
GOULD ELECTRONICS INC.
By:
Name:MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
Exhibit D
AMENDMENT NO. 2
AMENDMENT NO. 2, dated as of March 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 June 30, 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.
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
By:T. MARK MORLEY
T. MARK MORLEY
Title: Vice President
GOULD ELECTRONICS INC.
By: MICHAEL C. VEYSEY
Michael C. Veysey
Title: Senior Vice President
Exhibit 10.23
Page 1 of 64
MASTER PURCHASE AGREEMENT
DATED
March 17, 1995
BETWEEN
GOULD ELECTRONICS INC.
AND
ENCORE COMPUTER CORPORATION
TABLE OF CONTENTS
Page
ARTICLE I
PURCHASE OF SHARES
1.1 Issuance of Shares 1
1.2 Consideration for Shares 1
ARTICLE II
THE CLOSING
2.1 Time and Place of Closing 2
2.2 Items to be Delivered by Encore to Gould at Closing 2
2.3 Items to be Delivered by Gould to Encore at Closing 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Encore 4
3.2 Representations and Warranties of Gould 10
3.3 Indemnification 12
ARTICLE IV
ACTIONS PRIOR TO THE CLOSING
4.1 Limitations on Acts of Encore 12
4.2 Efforts to Fulfill Conditions 13
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
5.1 Conditions Precedent to Obligations of Encore toGould 13
5.2 Conditions Precedent to Obligations of Gould toEncore 15
ARTICLE VI
ABSENCE OF BROKERS
6.1 Representations Regarding Brokers 16
ARTICLE VII
MISCELLANEOUS
7.1 Definition of Subsidiary 17
7.2 Reimbursement for Expenses of Transaction 17
7.3 Entire Agreement 17
7.4 Effect of Headings 18
7.5 Prohibition Against Assignment 18
7.6 Notices 18
7.7 Governing Law 19
7.8 Amendments 19
7.9 Counterparts 19
MASTER PURCHASE AGREEMENT
This is an Agreement dated March 17, 1995 between Gould
Electronics Inc. ("Gould"), an Ohio corporation, as assignee of
Gould Inc., and Encore Computer Corporation ("Encore"), a
Delaware corporation, relating to the cancellation by Gould of
the Exchanged Indebtedness (as that term is defined in Paragraph
1.2) in exchange for shares of Series F Convertible Stock (as
that term is defined in Paragraph 1.1).
NOW, THEREFORE, Gould and Encore agree as follows:
ARTICLE I
PURCHASE OF SHARES
;
1.1 Issuance of Shares. At the Closing described in
Paragraph 2.1, Encore will issue to Gould 500,000 shares of
Series F Convertible Preferred Stock of Encore with the powers,
rights and preferences set forth on Exhibit 1.1 (the "Series F
Convertible Stock").
1.2 Consideration for Shares. The consideration to be
paid by Gould for the shares of Series F Convertible Stock to be
issued to Gould pursuant to Paragraph 1.1 will be cancellation of
the Exchanged Indebtedness. As used in this Agreement, the term
"Exchanged Indebtedness" means $50,000,000 in revolving credit
loans (the "Loans") outstanding under the Amended and Restated
Loan Agreement dated as of March 31, 1992, as amended (the "Loan
Agreement") between Encore and Gould.
ARTICLE II
THE CLOSING
;
2.1 Time and Place of Closing. The closing (the
"Closing") of the issuance of the shares of Series F Convertible
Stock pursuant to Paragraph 1.1 will take place at the offices of
Rogers & Wells, 200 Park Avenue, New York, New York, at 10:00
a.m. New York City time, on March 17, 1995, or such other place,
time and date as Gould and Encore may agree in writing (the
"Closing Date").
2.2 Items to be Delivered by Encore to Gould at
Closing. At the Closing, Encore will deliver to Gould the
following:
(a) Certificates representing all of the shares of
Series F Convertible Stock to be issued to Gould pursuant to
Paragraph 1.1, registered in the name of Gould. These
certificates shall be legended to the effect that the shares
represented by them were issued in a transaction which was not
registered under the Securities Act of 1933, as amended, and
those shares may only be sold or transferred in a transaction
which is registered under that Act or exempt from the
registration requirements of that Act.
(b) A copy, executed by Encore and Indian Creek
Capital, Ltd. ("Indian Creek"), as assignee of Kenneth G. Fisher,
of a Fifth Amended and Restated Registration Agreement (the
"Registration Agreement"), substantially in the form of Exhibit
2.2-B.
(c) A copy, executed by Indian Creek and Encore, of
the Second Amended and Restated Stockholders Agreement (as
amended, the "Stockholders Agreement"), substantially in the form
of Exhibit 2.2-C.
2.3 Items to be Delivered by Gould to Encore at
Closing. At the Closing, Gould will deliver to Encore copies of
the following documents:
(a) The Registration Agreement, executed by Gould and
EFI International, Inc. ("EFI").
(b) A document (the "Acknowledgement of
Cancellation"), executed by Gould, in which Gould acknowledges
cancellation of the Exchanged Indebtedness, together with the
original promissory notes evidencing such of the Exchanged
Indebtedness as is evidenced by promissory notes marked
"CANCELLED".
(c) A letter, executed by Gould, in which Gould
acknowledges that it will be acquiring the shares of Series F
Convertible Stock to be issued to it pursuant to Paragraph 1.1
for investment and not with a current view toward their sale or
distribution.
(d) The Stockholders Agreement Amendment, executed by
Gould and EFI.
(e) Written consents executed by Gould, in its
capacities as the holder of 635,269 shares of Series B
Convertible Preferred Stock of Encore, 113,306 shares of Series D
Convertible Preferred Stock of Encore and 1,042,381 shares of
Series E Convertible Preferred Stock of Encore, and a written
consent executed by EFI, in its capacity as the holder of 804,696
shares of Series D Convertible Preferred Stock of Encore, each
approving the creation and designation of the Series F
Convertible Stock and the issuance of the Series F Convertible
Stock pursuant to Paragraph 1.1 of this Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
;
3.1 Representations and Warranties of Encore. Encore
represents and warrants to Gould as follows:
(a) Encore and each of its subsidiaries is a
corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation. Encore
and each of its subsidiaries is qualified to do business as a
foreign corporation in each jurisdiction in which qualification
is required, except jurisdictions in which the failure to
qualify, in the aggregate, will not have a material adverse
effect upon Encore and its subsidiaries taken as a whole.
(b) This Agreement has been duly executed by Encore
and, upon receipt of the consents referred to in Paragraph
2.3(e), is authorized by all necessary corporate action on the
part of Encore, and is a valid and binding agreement of Encore,
enforceable against Encore in accordance with its terms. Encore
has all corporate power and authority necessary to enable it to
carry out the transactions contemplated by this Agreement, upon
receipt of the consents referred to in Paragraph 2.3(e). Neither
the execution or delivery by Encore of this Agreement or any
document contemplated by this Agreement nor the consummation by
Encore of the transactions contemplated by this Agreement or any
document contemplated by this Agreement will violate, result in a
breach of, constitute a default under, or give any party other
than Encore or a subsidiary of Encore the right to terminate, or
modify the rights or obligations of Encore or any of its
subsidiaries under, (i) subject to receipt of the consents
referred to in Paragraph 2.3(e), any agreement or instrument to
which Encore or any of its subsidiaries is a party or by which
any of then is bound, (ii) any statute, ordinance or other law to
which Encore or any of its subsidiaries is subject, (iii) any
rule or regulation of any governmental agency having jurisdiction
over Encore or any of its subsidiaries, (iv) any license, permit
or other governmental authorization held by Encore or any of its
subsidiaries, or (v) any order or decree of any court or govern
mental agency having jurisdiction over Encore or any of its
subsidiaries or any of their assets.
(c) Except as disclosed on Exhibit 3.1-C, no
governmental filings, authorizations, approvals or consents, or
other governmental action, are required to permit Encore to
fulfill all its obligations under this Agreement or any document
contemplated by this Agreement.
(d) When executed and delivered at the Closing, the
Stockholders Agreement Amendment and the Registration Agreement
(together, the "Encore Agreements") will each be a valid and
binding agreement of Encore and Indian Creek, enforceable against
each of them in accordance with their respective terms.
(e) The only authorized stock of Encore is 150,000,000
shares of common stock, par value $.01 per share, and 10,000,000
shares of preferred stock, par value $.01 per share, and the only
preferred stock authorized by the Board of Directors of Encore is
73,641 shares of Series A Convertible Participating Preferred
Stock, 1,000,000 shares of Series B Convertible Preferred Stock,
1,500,000 shares of Series D Convertible Preferred Stock,
1,500,000 shares of Series E Preferred Convertible Stock and
1,000,000 of Series F Convertible Preferred Stock. At the date
of this Agreement, the only outstanding stock of Encore is not
more than 34,255,299 shares of common stock, 73,641 shares of
Encore Series A Convertible Participating Preferred Stock,
666,453 shares of Series B Convertible Preferred Stock, 1,019,787
shares of Series D Convertible Preferred Stock and 1,012,381
shares of Series E Convertible Preferred Stock. Except as
disclosed in Encore's Annual Report on Form 10-K for the year
ended December 31, 1993 (the "1993 10-K") or Encore's Quarterly
Report on Form 10-Q for the period ended September 30, 1994 (the
"September 10-Q" and, together with the 1993 10-K, the "Encore
Reports") or shown on Exhibit 3.1-E, Encore does not have any
outstanding options, warrants or convertible or exchangeable
securities, and Encore is not a party to any other agreements
(other than this Agreement), which require, or upon the passage
of time, the payment of money or the occurrence of any other
event may require Encore to issue any of its stock.
(f) When issued as contemplated in this Agreement, the
shares of Series F Convertible Stock to be issued to Gould
pursuant to Paragraph 1.1 (i) will all be duly authorized,
validly issued, fully paid and nonassessable and will have the
powers, rights and preferences set forth on Exhibit 1.1 and (ii)
will be the only outstanding shares of Series F Convertible
Stock. When issued, the shares of common stock issuable on
conversion of such shares of Series F Convertible Stock will be
duly authorized, validly issued, fully paid and nonassessable.
When Gould receives such shares of Series F Convertible Stock at
the Closing, it will own such shares free and clear of any liens
or encumbrances attributable to Encore, other than restrictions
imposed by the Stockholders Agreement.
(g) The subsidiaries of Encore are set forth on
Exhibit 3.1-G. Except as set forth on Exhibit 3.1-G, each of the
subsidiaries is wholly owned by Encore. Neither Encore nor any
of those subsidiaries has any outstanding options, warrants or
convertible or exchangeable securities, or is a party to any
other agreements (other than the Security Documents (as that term
is defined in the Loan Agreement) and except as set forth on
Exhibit 3.1-G), which require, or upon the passage of time, the
payment of money or the occurrence of any other event, may
require Encore or any of those subsidiaries to issue or transfer
any stock or other ownership interests in any of those
subsidiaries.
(h) Each of the Encore Reports, including the
documents incorporated by reference in each of the Encore
Reports, contains all the information required to be included in
it and does not contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the
statements made therein, in light of the circumstances under
which they were made, not misleading. The financial statements
included in the 1993 10-K all were, and the financial information
in the September l0-Q was derived from financial statements which
were, prepared in accordance with generally accepted accounting
principles, consistently applied, and present fairly the consoli
dated financial position, results of operations and cash flows of
Encore and its subsidiaries at the dates, and for the periods, to
which they apply. Since September 30, 1994, Encore has made all
disclosures about its activities and financial condition required
by the Securities Exchange Act of 1934, as amended, and the rules
under that Act. Except as set forth on Exhibit 3.1-H, since
September 30, 1994 there has been no material adverse change in
(i) the consolidated financial condition of Encore and its
subsidiaries, (ii) the consolidated results of operations of
Encore and its subsidiaries for the three-month period ended on
December 31, 1994 compared with the consolidated results of
operations of those corporations for the same period of the prior
year, or (iii) the operations or prospects of Encore and its
subsidiaries taken as a whole. For the purposes of this
Paragraph, (x) an adverse change in financial condition will be
material if it is a material reduction of working capital,
tangible net worth or shareholders' equity, and (y) an adverse
change in results of operations will be material if it is a
material reduction in total revenues, net income before income
taxes or net income. As a result of the transactions contem
plated by this Agreement, following the Closing, Encore, as a
separate entity, and Encore and its subsidiaries as a consoli
dated group, will each be solvent.
(i) Encore and each of its subsidiaries has filed when
due (after the taking into account of extensions) all national
(including United States federal), state and local tax returns
which they have been required to file and have paid all taxes
shown on those returns to be due. Each tax return filed by
Encore or a subsidiary has been a complete and correct return and
has reported all taxable items and taxes which were required to
be reported, other than items as to which there was substantial
authority to support a position that the items need not be re
ported and for which there are adequate reserves on the consoli
dated financial statements included in the Encore Reports. The
United States federal corporate income tax returns of Encore have
been audited, or the period of limitations has expired, with
regard to all years to and including the year ended December 31,
1989. Except as described on Exhibit 3.1-I, (i) no tax return
filed by Encore or any of its subsidiaries is the subject of a
pending audit, (ii) no deficiency has been asserted against
Encore or any of its subsidiaries with regard to any tax return
filed by it, other than (x) deficiencies which are being con
tested in good faith and for which there are adequate reserves on
the financial statements included in the Encore Reports, or (y)
deficiencies which have been satisfied, and (iii) except as
described on Exhibit 3.1-I, neither Encore nor any of its
subsidiaries has granted any extensions of the time for the
assessment of any taxes.
(j) Encore and each of its subsidiaries has complied
in all material respects with the requirements of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and
of the Internal Revenue Code of 1986, as amended (the "Code"),
and all other applicable laws and regulations, with regard to
each of the "employee benefit plans" within the meaning of
Section 3(3) of ERISA under which any of them is providing
compensation or benefits to any of their employees which is or
was subject to ERISA, the Code or other applicable laws or regu
lations of either. No employee benefit plan which Encore or any
of its subsidiaries maintains or sponsors has (i) incurred an
"accumulated funding deficiency," as that term is used in Section
412(a) of the Code, whether or not waived, (ii) been the subject
of a "reportable event," as that term is used in Section 4043(b)
of ERISA (except to the extent reporting has been waived by the
Pension Benefit Guaranty Corporation ("PBGC")), or (iii)
resulted, or is expected to result, in termination liability to
the PBGC.
(k) Except as described in Exhibit 3.1-K, Encore has
not received any notice from any governmental authority, or
otherwise become aware, that any facility owned or leased by it,
or any operation being conducted by it, is violating any applica
ble law or regulation regarding the discharge of pollutants or
other hazardous substances into the atmosphere, contamination of
soil or ground water, storage of hazardous substances or other
matters relating to protection of the environment.
3.2 Representations and Warranties of Gould. Gould
represents and warrants to Encore as follows:
(a) Gould is a corporation duly organized, validly
existing and in good standing under the laws of the State of
Ohio.
(b) This Agreement has been duly executed by Gould and
authorized by all necessary corporate action on the part of Gould
and is a valid and binding agreement of Gould, enforceable
against Gould in accordance with its terms. Gould has all
corporate power and authority necessary to enable it to carry out
the transactions contemplated by this Agreement. When delivered
at the Closing, the Registration Agreement, the Stockholders
Agreement, the Acknowledgment of Cancellation and the
stockholder's consents of Gould referred to in Section 2.3(e)
(together, the "Gould Agreements"), will each be a valid and
binding agreement of Gould, enforceable against Gould in
accordance with its terms. Neither the execution or delivery by
Gould of this Agreement or any document contemplated by this
Agreement nor the consummation by Gould of the transactions
contemplated by this Agreement or any document contemplated by
this Agreement will violate, result in a breach of, or constitute
a default under (i) except as set forth on Exhibit 3.2-B, any
agreement or instrument to which Gould or any of its subsidiaries
is a party or by which any of them is bound, (ii) any statute,
ordinance or other law to which Gould or any of its subsidiaries
is subject, (iii) any rule or regulation of any governmental
agency having jurisdiction over Gould or any of its subsidiaries,
(iv) any license, permit or other governmental authorization held
by Gould or any of its subsidiaries, or (v) any order or decree
of any court or governmental agency having jurisdiction over
Gould or any of its subsidiaries or any of their assets.
(c) Except as disclosed on Exhibit 3.2-C, no
governmental filings, authorizations, approvals or consents, or
other governmental action, are required to permit Gould to ful
fill all its obligations under this Agreement or any document
contemplated by this Agreement.
(d) Gould is the owner of all right, title and
interest in all of the Exchanged Indebtedness and has the right
to surrender the Exchanged Indebtedness as contemplated by this
Agreement as consideration for the Series F convertible Stock to
be issued to it pursuant to Paragraph 1.1 and such Exchanged
Indebtedness is not subject to any lien.
3.3 Indemnification. If any representation or war
ranty contained in Paragraph 3.1 or 3.2 or in any certificate
delivered at or prior to the Closing is not correct in any
respect, the party which gave that representation or warranty
will indemnify each other party against, and will hold each other
party harmless from, all liabilities, costs and expenses, includ
ing legal and accounting fees and disbursements and costs of
settlements or judgments, which that other party suffers because
the facts were not as represented or warranted, so that, after
taking account of any applicable tax benefits resulting from the
facts which were not as represented or warranted, and any appli
cable taxes resulting from the indemnification payments, the in
demnified party will be in the same position in which it would
have been if the facts had been as represented or warranted.
ARTICLE IV
ACTIONS PRIOR TO THE CLOSING
;
4.1 Limitations on Acts of Encore. Encore agrees that
from the date this Agreement is signed to the date of the Closing
it and its subsidiaries will, except with the written consent of
Gould:
(a) Operate its business and the business of each of
its subsidiaries in a manner consistent with the manner in which
it was being operated at the date of this Agreement.
(b) Comply in all material respects with all
applicable laws and regulations of governmental agencies, other
than laws and regulations the applicability of which Encore or a
subsidiary of Encore is contesting in good faith.
(c) Not issue or agree to issue any stock, or any
options, rights or convertible or exchangeable securities, or
enter into any other agreements (except as set forth on Exhibit
4.1-C) by which Encore or any of its subsidiaries is, or upon the
passage of time, the payment of money, or the occurrence of any
other event may be, required to issue any stock, except as
contemplated by this Agreement.
4.2 Efforts to Fulfill Conditions. Gould will use its
best efforts to cause all the conditions set forth in Paragraph
5.1 to be fulfilled prior to or at the Closing, and Encore will
use its best efforts to cause all the conditions contained in
Paragraph 5.2 to be fulfilled prior to or at the Closing.
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
;
5.1 Conditions Precedent to Obligations of Encore to
Gould. The obligations of Encore to Gould at the Closing are
subject to satisfaction of the following conditions (any or all
of which may be waived by Encore):
(a) The representations and warranties of Gould
contained in this Agreement will be true and correct in all
material respects at the date of the Closing with the same effect
as though made on that date, and Gould will have delivered to
Encore a certificate dated that date and signed by the President
or a Vice President of Gould to that effect.
(b) Gould will have fulfilled in all material respects
all its obligations under this Agreement required to have been
fulfilled at or prior to the Closing.
(c) All government filings, authorizations, approvals
and consents listed on Exhibit 3.2-C shall have been completed or
received, as appropriate.
(d) No order will have been entered by any court or
governmental authority and be in force which invalidates this
Agreement or restrains Encore from completing the transactions
which are the subject of this Agreement.
(e) Encore will have received an opinion of Rogers &
Wells, counsel to Gould, to the effect that (i) Gould is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Ohio; (ii) Gould has all corporate
power and authority necessary to enable it to enter into this
Agreement and each of the Gould Agreements and to carry out the
transactions contemplated by this Agreement and each of the Gould
Agreements; (iii) this Agreement and each of the Gould Agreements
have been duly executed and delivered by Gould and each of them
is a valid and binding obligation of Gould, enforceable against
Gould in accordance with its terms, except to the extent
enforceability may be affected by bankruptcy, reorganization or
other laws affecting the rights of creditors generally or
equitable principles of general application; (iv) the
consummation of the transactions contemplated by this Agreement
and the Gould Agreements will not violate, result in a breach of,
or constitute a default under, (A) any agreement or instrument of
which that counsel is aware, after a reasonable investigation, to
which Gould or any of its subsidiaries is a party or by which any
of them is bound, (B) any statute, ordinance or other law to
which Gould or any of its subsidiaries is subject, (C) any rule
or regulation of any governmental agency having jurisdiction over
Gould or any of its subsidiaries, (D) any license, permit or
other governmental authorization held by Gould or any of its
subsidiaries of which that counsel is aware, after reasonable
investigation, or (E) any order or decree of which that counsel
is aware, after a reasonable investigation, of any court or
governmental agency having jurisdiction over Gould or any of its
subsidiaries or any of their assets; and (v) no governmental
filings, authorizations, approvals or consents or other govern
mental action are required to permit Gould to fulfill all its
obligations under this Agreement and each of the Gould
Agreements.
5.2 Conditions Precedent to Obligations of Gould to
Encore. The obligations of Gould to Encore at the Closing are
subject to the following conditions (any or all of which may be
waived by Gould):
(a) The representations and warranties of Encore
contained in this Agreement will be true and correct in all
material respects at the date of the Closing with the same effect
as though made at that date, and Encore will have delivered to
Gould a certificate dated that date and signed by the President
or a Vice President of Encore to that effect.
(b) Encore will have fulfilled in all material
respects all its obligations under this Agreement required to
have been fulfilled at or prior to the Closing.
(c) No order will have been entered by any court or
governmental authority and be in force which invalidates this
Agreement or restrains Encore from completing the transactions
which are the subject of this Agreement.
(d) Gould will have received an opinion of Weil,
Gotshal & Manges, counsel to Encore, substantially in the form of
Exhibit 5.2-D.
(e) Gould will have received an opinion of Mary F.
Macomber, Esq., General Counsel of Encore, substantially in the
form of Exhibit 5.2-E.
(f) The consents of third parties listed on Exhibit
3.2-B shall have been obtained and shall be in form and substance
satisfactory to Gould.
(g) The issuance of Series F Convertible Stock to
Gould contemplated by Paragraph 1.1 will have taken place.
ARTICLE VI
ABSENCE OF BROKERS
;
6.1 Representations Regarding Brokers. Each party to
this Agreement represents and warrants to each other party that
nobody acted as a broker, a finder or in any similar capacity in
connection with the transactions which are the subject of this
Agreement. Each party to this Agreement indemnifies each other
party against, and agrees to hold each such other party harmless
from, all liabilities and expenses (including reasonable attor
neys' fees) in connection with any claim by anyone for compensa
tion as a broker, a finder or in any similar capacity by reason
of services allegedly rendered to the indemnifying party in con
nection with the transactions which are the subject of this
Agreement.
ARTICLE VII
MISCELLANEOUS
;
7.1 Definition of Subsidiary. As used in this
Agreement with respect to any specified entity, the term
"subsidiary" means any other entity with respect to which such
specified entity, directly or indirectly, beneficially owns fifty
percent or more in value of the equity interests in, or holds the
voting control of fifty percent or more of the voting equity
interests in, such other entity.
7.2 Reimbursement for Expenses of Transaction. Encore
will reimburse Gould for all out-of-pocket expenses of Gould in
connection with the transactions which are the subject of this
Agreement and in connection with the preparation, negotiation,
execution and delivery of this Agreement and the documents,
instruments and agreements referred to in this Agreement. Encore
will bear its own expenses in connection with the transactions
which are the subject of this Agreement and in connection with
the preparation, negotiation, execution and delivery of this
Agreement and the documents, instruments and agreements referred
to in this Agreement.
7.3 Entire Agreement. This document, together with
the documents and agreements to be delivered as provided in this
Agreement, contain the entire agreement between Encore and Gould
regarding the subject matter of this Agreement and those other
documents. All prior negotiations, understandings and agreements
between Encore and Gould are superseded by this Agreement and
such other documents, and there are no representations, warran
ties, understandings or agreements concerning the transactions
which are the subject of this Agreement and those other docu
ments, other than those expressly set forth in this Agreement and
those other documents.
7.4 Effect of Headings. The article and paragraph
headings are for reference only, and do not affect the meaning or
interpretation of this Agreement.
7.5 Prohibition Against Assignment. Neither this
Agreement nor any right of any party under it may be assigned by
any party hereto without the consent of the other parties and any
purported assignment in violation hereof shall be null and void.
7.6 Notices. Any notice or other communication re
quired 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 day after the day on which mailed by first class mail from
within the United States of America, to the following addresses:
If to Encore:
Encore Computer Corporation
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313
Attention: T. Mark Morley
Facsimile no.: (305) 797-5719
with a copy to:
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Attention: Warren T. Buhle, Esq.
Facsimile no.: (212) 310-8007
If to Gould:
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: General Counsel
Facsimile no.: (216) 953-5120
with a copy to:
Rogers & Wells
200 Park Avenue
New York, New York 10166
Attention: David W. Bernstein, Esq.
Facsimile no.: (212) 878-8375
7.7 Governing Law. This Agreement will be governed
by, and construed under, the laws of the State of New York
without regard to principles of conflicts of law.
7.8 Amendments. This Agreement may be amended only by
a document in writing signed by Gould and Encore.
7.9 Counterparts. This Agreement may be executed in
two or more counterparts, each of which will be deemed an
original, but all of which together will constitute one and the
same agreement.
This Agreement has been executed on the day set forth on the
first page and constitutes a binding agreement between the
parties to it.
ENCORE COMPUTER CORPORATION GOULD ELECTRONICS INC.
By: ROBERT P. WATSON By: MICHAEL C. VEYSEY
Name: Robert P. Watson Name: Michael C. Veysey
Title: Vice President Title: Senior Vice President
EXHIBITS
Exhibit 1.1 Certificate of Designations of
Series F Convertible Stock
Exhibit 2.2-B Registration Agreement
Exhibit 2.2-C Stockholders Agreement Amendment
Exhibit 3.1-C Governmental Filings,
Authorizations, Approvals or
Consents of Encore
Exhibit 3.1-E Issued Options, Warrants or
Convertible Securities and
Agreements
Exhibit 3.1-G Subsidiaries
Exhibit 3.1-H Material Adverse Changes
Exhibit 3.1-I Tax Return Information
Exhibit 3.1-K Environmental Violations
Exhibit 3.2-B Conflicts
Exhibit 3.2-C Governmental Filings,
Authorizations, Approvals or
Consents of Gould
Exhibit 4.1-C Issuance of Stock
Exhibit 5.2-D Form of opinion of Weil, Gotshal &
Manges
Exhibit 5.2-E Form of opinion of In-House Counsel
to Encore
<PAGE>
CERTIFICATE OF DESIGNATIONS,
POWERS, RIGHTS AND PREFERENCES
OF SERIES F 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
March 17, 1995, duly adopted a resolution designating the
designations, powers, rights and preferences relating to its
Series F 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 1,500,000
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 F Convertible Preferred Stock (the "Series F
Convertible Stock"). The total number of shares of Series F
Convertible Stock will be 1,000,000 shares. These shares may be
issued for any purpose determined by the Board of Directors.
2. Dividends and Distributions.
(a) Holders of shares of Series F 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 April 15, 1995 (each a "Dividend Payment Date"),
except that the annual cash dividend payable in 1995 will be
$5.00 per share and the quarterly installment payable on April
15, 1995 will be $0.483 per share. Dividends on the Series F
Convertible Stock will be cumulative from the date of initial
issuance of shares of Series F 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 Zto be able to pay a dividend
on the Series F Convertible Stock out of Stockholders Equity in
excess of $50,000,000, the Corporation will have the option to
(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 F 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 F 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 F 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 F 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 F Convertible Stock have been paid in cash or, to the
extent permitted by subparagraph 2(a), in shares of Series F
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 F 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 F Convertible Stock rank prior. If the Series F
Convertible Stock ranks prior to another class or series of
preferred stock as to some matters, but not as to other matters,
shares of the other class or series are "Junior Shares" with
regard to the matters as to which the Series F Convertible Stock
ranks prior to the other class or series but not as to other
matters. As used with regard to the Series F Convertible Stock,
the term "Parity Shares" means any class or series of preferred
stock which ranks on a parity with the shares of Series F
Convertible Stock. If the Series F 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 F Convertible Stock ranks on a parity but not as to
other matters. At any time when there are accumulated dividends
on the Series F 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 F
Convertible Stock constituting at least the same percentage of
the accumulated dividends on the Series F Convertible Stock that
the dividend on the Parity Stock is of the accumulated dividends
on the Parity Stock.
3. Ranking. The shares of Series F 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 F Convertible
Stock which are outstanding at the time the designation is made
(or such greater percentage of the outstanding shares of Series F
Convertible Stock as is required by law), as ranking prior to, or
on a parity with, the shares of Series F 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 F Convertible Stock rank prior to the shares of Series
B Convertible Preferred Stock, Series D Convertible Preferred
Stock and Series E Convertible Preferred 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 F 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 F 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 F Convertible Stock and any Parity Shares are
insufficient to pay in full the preferential amount payable to
the holders of shares of Series F Convertible Stock described in
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 proceeds of those assets
which are available for distribution to the holders of shares of
Series F Convertible Stock and to the holders of such Parity
Shares, will be distributed to the holders of the Series F
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 F Convertible Stock are entitled, the holders of shares
of Series F 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.
(a) Subject to and upon compliance with the provisions
of this Paragraph 5, each holder of shares of Series F
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 F
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 F Convertible Stock
to be converted will surrender the certificate representing that
share to the conversion agent for the Series F 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 F
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.
(iii) The holders of record of shares of
Series F 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 F 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 F Convertible Stock on a dividend pay
ment 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 F 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 F 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 F
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 F 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 F
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 F Convertible Stock to
be converted and compliance with all the other requirements of
subparagraph 5(b)(i), the shares represented by those
certificates will no longer be 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 F Convertible Stock. Any fractional interest in a
share of Common Stock resulting from conversion of shares of
Series F 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 F Convertible Stock so
surrendered.
(d) The "Conversion Price" per share of Series F
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 F 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 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 when
ever 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 on 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 so 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.
(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 F Convertible Stock, the holder of the
Series F 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 F 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 of the National Association of Securities
Dealers, Inc. Automated Quotation System (the "NASDAQ National
Market"), 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), 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 F Convertible Stock, the term
"Trading Day" means (x) if the Common Stock is quoted on the
NASDAQ National Market or any similar system 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), 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
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
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 F
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 F 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
(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 F 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 F 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 F 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 F 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 F Convertible Stock, the Corporation
will take any corporate action which may, in the opinion of its
counsel, be necessary in order that the Corporation may validly
and legally issue fully paid and non-assessable 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 F Convertible Stock, prior to the delivery, upon each
national securities exchange, if any, upon which the outstanding
Common Stock is listed at 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 F 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 F Convertible Stock; provided, however, that the
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 F 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 F 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 F 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
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 F
Convertible Stock at a time when (i) the last sale price of the
Common Stock quoted on the NASDAQ National Market, 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, but not less than 120% of the then Conversion
Price, 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, but not less than 120% of the then
Conversion Price, per share at least 50% of the shares of Common
Stock into which all the outstanding Series F 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, but not less than 107.69% of the then Conversion Price, at
least 75% of the shares of Common Stock into which all the
outstanding shares of Series F 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 F
Convertible Stock to convert their Series F 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 F Convertible Stock will be deemed to have
surrendered the certificates representing their shares of
Series F 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 F 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 F 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 F
Convertible Stock are entitled without requiring the surrender of
the certificates which formerly represented shares of Series F
Convertible Stock, or (B) set aside in trust for the respective
holders of certificates which formerly represented Series F
Convertible Stock, the cash, securities and other assets (other
than Common Stock, which need not be set aside) to which those
holders are entitled and issue or distribute the Common Stock,
cash, other securities or other assets which each former holder
of Series F Convertible Stock is entitled to receive, without
interest, when the former holder surrenders the certificates
which represented the Series F 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 F Convertible Stock will belong to the Corporation.
(c)If the Corporation presents to the holders of the
Series F 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, but not less than 120% of the then Conversion Price,
of at least 50% of the shares of Common Stock into which all the
outstanding shares of Series F Convertible Stock are convertible
at the Conversion Price then in effect or (y) to purchase for at
least $3.50 per share, but not less than 107.69% of the then
Conversion Price, at least 75% of the shares of Common Stock into
which all the outstanding shares of Series F 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 F 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 of 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 F 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 F 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 F 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 F Convertible Stock, the shares of Series F
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 which the Corporation
will have authority to issue will not be decreased by the
conversion, exchange or redemption of shares of Series F
Convertible Stock.
8.Voting Rights. (a) The holders of shares of Series F
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 F 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 F
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 F 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 F Convertible Stock, (iii)
authorize any reclassification of the Series F Convertible Stock
or (iv) increase the number of shares of Series F Convertible
Stock the Corporation may issue. This subparagraph will not
prevent the issuance of Series F Convertible Stock which is
authorized in Paragraph 1 or (x) 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 (y) 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") or
(z) the issuance of Series E Convertible Preferred Stock which is
authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferred of Series E Convertible Preferred
stock dated February 3, 1994 (the "Series E 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 F
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
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 F 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 F 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 F Convertible Stock.
(d)Except as may otherwise be required by law, the
shares of Series F 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 F 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 F Convertible Stock and (ii) 100% of the shares
of Series F Convertible Stock held by or for the benefit of Gould
Electronics Inc. and any permitted assignee thereof."
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 T. Mark Morley, its Secretary, this
day of March, 1995.
ENCORE COMPUTER CORPORATION
By: KENNETH G. FISHER
Kenneth G. Fisher
Chief Executive Officer
Attest:
T. MARK MORLEY
T. Mark Morley
Secretary
<PAGE>
EXHIBIT 2.2-B
FIFTH AMENDED AND RESTATED
REGISTRATION AGREEMENT
This Fifth Amended and Restated Registration Agreement
dated as of March 17, 1995, among Gould Electronics Inc.
("Gould"), an Ohio corporation, as assignee of Gould Inc., EFI
International Inc. ("EFI"), a Delaware corporation, Encore
Computer Corporation ("Encore"), a Delaware corporation, and
Indian Creek Capital, Ltd. ("Indian Creek"), as assignee of
Kenneth G. Fisher, and its transferees as permitted under the
terms of this Agreement (collectively, Indian Creek and any such
transferees, the "Management Stockholders") amends and restates
the Fourth Amended and Restated Registration Agreement dated as
of December 21, 1994 among Gould, EFI, Encore and Kenneth G.
Fisher.
W I T N E S S E T H:
WHEREAS, Gould currently owns 3,935,900 shares of
Encore Common Stock, 73,641 shares of Encore Series A Convertible
Participating Preferred Stock (the "Series A Stock"), 635,269
shares of Series B Convertible Preferred Stock (the "Series B
Stock"), 113,306 shares of Series D Convertible Preferred Stock
(the "Series D Stock"), 1,042,381 shares of Series E Convertible
Preferred Stock (the "Series E Stock") and 500,000 shares of
Series F Convertible Preferred Stock (the "Series F Stock"), and
EFI currently owns 804,696 shares of Series D Stock (the Series A
Stock, Series B Stock, Series D Stock, Series E Stock and Series
F Stock, together, being "Encore Preferred Stock"). The Encore
Preferred Stock collectively is convertible into an additional
91,321,669 shares of Encore Common Stock;
WHEREAS, the Management Stockholders currently own
shares of Series B Stock which are convertible into 959,507
shares of Encore Common Stock; and
WHEREAS, Encore, Gould, EFI and the Management Stock
holders wish to set forth certain registration rights which
Gould, EFI and the Management Stockholders have with respect to
said shares of Encore Common Stock.
NOW, THEREFORE, in consideration of the mutual
covenants and conditions contained herein, the parties hereto
agree as follows:
1.Registration on Request of Gould.
(a)Encore agrees that any time it receives a written
notice from Gould or EFI that either or both of Gould and EFI
desires to sell Gould Shares with a reasonably estimated public
offering price of $10,000,000 or more (as hereinafter defined) in
a transaction or transactions requiring registration under the
Securities Act of 1933, as amended (the "Act"), and requesting
that Encore effect registration with respect to the Gould Shares
specified in the notice (which, at the election of Gould or EFI,
may be or include a registration of a delayed offering in
accordance with Rule 415 under the Act or a successor to that
Rule), Encore will, subject to subparagraph (c) of this Paragraph
1, promptly file a registration statement with the Securities and
Exchange Commission (the "SEC") relating to the Gould Shares
specified in the notice from Gould or EFI and use its best
efforts to make the registration statement become effective and
qualify the sale of the shares to which it relates under the Blue
Sky laws of those states reasonably requested by Gould and/or
EFI, as applicable, as promptly as practicable. The notice
received by Encore from Gould and/or EFI will contain Gould's
and/or EFI's undertaking, as applicable, to cooperate with Encore
in connection with the registration and to furnish Encore all
such information in connection with the registration as Encore
may reasonably request or as may be required by the SEC. There
will be no limit on the number of notices Gould or EFI can give
under this subparagraph or the number of registration statements
Encore will be required under this subparagraph to file.
(b)Encore will not be obligated to file a
registration statement during the period beginning at Encore's
fiscal year end and ending at the time Encore's year end
financial statements are completed, which will be no later than
the time Encore's Annual Report on Form 10-K is required to be
filed with the SEC. If Encore has any contractual obligation to
others entitling them to join any registration of securities of
Encore and Encore wishes to include such other securities of
Encore in any registration statement filed pursuant to this
Paragraph 1, Encore will be permitted to so include such other
securities; provided, however, that Encore will not be permitted
to so include such other securities if the managing underwriter
determines in good faith that the inclusion of such other
securities would interfere with the successful sale of the Gould
Shares proposed to be sold.
(c)Encore will not be required to effect registration
pursuant to paragraph (a) or (b) of this Paragraph 1 if a
majority of the directors of Encore determines in good faith that
owing to business or market conditions or the business or
financial condition of Encore it is inappropriate at such time to
undertake a public offering of Encore securities;, provided,
however, that Encore may elect not to effect registration on such
grounds only once in any two year period beginning on the date of
such election by Encore, and that within six months after Encore
elects not to effect registration on such grounds Encore will
file a registration statement which will effect such
registration. Furthermore, Encore will not be required to effect
registration pursuant to paragraph (a) or (b) of this Paragraph 1
if a registration statement filed in connection with an
underwritten public offering of Encore Common Stock has become
effective under the Act within six months before the date of
receipt of the notice from Gould or EFI; provided, however, that
Encore may elect not to effect registration on such grounds only
once in any two year period. In addition, if Encore can
establish, by delivery of an opinion of responsible underwriters,
that sale of Gould Shares by a means legally available but not
involving an underwriting --whether by block transaction, private
placement, Rule 144 sale or Rule 144A sale -- will produce a net
price to the prospective seller not lower than that which would
be obtained in an underwriting, Gould and/or EFI, as applicable,
will be obligated to pursue the non-underwritten method (for
which registration is not required) for disposal of such Gould
Shares.
(d)The term "Gould" as used in this Agreement shall
be deemed to include, in addition to Gould, any subsequent holder
of all or a portion of the Gould Shares initially owned by Gould
who agrees to become a party to this Agreement. The term "EFI"
as used in this Agreement shall be deemed to include, in addition
to EFI, any subsequent holder of all or a portion of the Gould
Shares initially owned by EFI who agrees to become a party to
this Agreement.
(e)The term "Gould Shares" means (i) the shares of
Encore Common Stock currently held by Gould, (ii) the shares of
the Series A Stock, the Series B Stock, the Series D Stock,
Series E Stock and the Series F Stock currently held by Gould or
EFI, as the case may be, or issued as a dividend with regard to
those shares, (iii) any shares of Encore Common Stock issued or
issuable to Gould or EFI upon conversion of any shares of
Series A Stock, Series B Stock, Series D Stock, Series E Stock or
Series F Stock currently held by Gould or EFI or issued as a
dividend with regard to those shares and (iv) any shares of
Encore Common Stock or preferred stock issued in respect of
shares described in clauses (i), (ii) and (iii) upon any stock
split, stock dividend or recapitalization. A notice under
Paragraph 1(a) requesting registration of Gould Shares may
specifically be with regard to one or more specified series of
Encore Preferred Stock, and if that is the case, the registration
statement filed as a result of that request will relate only to
Preferred Stock of the specified series.
2."Piggyback" Rights.
(a)If Encore shall at any time propose to file a
registration statement under the Act for any underwritten sale of
shares of Encore Common Stock, Encore will give written notice to
Gould, EFI and the Management Stockholders of the registration
and the form of registration statement on which it intends to
register such shares. If Gould, EFI or any Management
Stockholder so requests within 10 days, Encore will include in
any such registration Gould Shares or Management Shares (as
hereinafter defined), but Encore will not be obligated to so
include the Gould Shares or the Management Shares if the managing
underwriter or underwriters of such sale determines in good faith
that the inclusion of those shares would interfere with the
successful sale of the shares of Encore Common Stock proposed to
be sold or would require the use of a form of registration
statement other than the form which could have been used with
regard to the transaction and which was originally proposed by
such managing underwriter. Any cut-back of the Gould Shares and
the Management Shares will be pro rata based upon the respective
numbers of Gould Shares and Management Shares requested to be
sold. Except as set forth in Paragraph 2(b) hereof, the
obligations and rights of Encore, Gould and EFI under this
Paragraph 2 will not affect in any way their obligations and
rights under Paragraph 1.
(b)If Gould or EFI requests inclusion of Gould Shares
in any registration statement pursuant to Paragraph 2(a) and
Encore decides, pursuant to the terms of such provisions, not to
include such Gould Shares, Encore will, within a reasonable time
thereafter, such time not to exceed six months, use all
reasonable efforts to cause the Gould Shares to be registered
under the Act and to prepare and file a registration statement to
effect such registration, unless Encore can establish, by
delivery of an opinion of responsible underwriters, that the sale
of such Gould Shares by a means legally available but not
involving a public offering or an underwriting whether by block
transaction, private placement, Rule 144 sale or Rule 144A sale -
will produce a net price to the prospective seller not lower than
that which would be obtained in an underwriting.
(c)The term "Management Stockholders" means Indian
Creek and any individual who is an officer of Encore to whom
Indian Creek transfers any shares of Series B Stock and who
agrees to become a party to this Agreement.
(d)The term "Management Shares" means (i) the shares
of Encore Common Stock issued or issuable to any Management
Stockholder upon conversion of the Series B Stock held by the
Management Stockholder, (ii) any shares of Encore Common Stock
issued or issuable to any Management Stockholder upon conversion
of any shares of Series B Stock issued to the Management
Stockholders as a dividend on Series B Stock, (iii) shares of
Series B Stock presently held by Indian Creek or issued as a
dividend with regard to these shares and (iv) any shares of
Encore Common Stock or Preferred Stock issued in respect of the
shares described in clauses (i), (ii) and (iii) upon any stock
split, stock dividend or recapitalization.
3.Expenses.
(a)Subject to the limitations contained in this
Paragraph 3, the entire costs and expenses of the registration
and qualification pursuant to Paragraph 1(a) will be borne by
Encore. Such costs and expenses shall include the fees and
expenses of counsel for Encore and of its accountants, all other
costs and expenses of Encore incident to the preparation,
printing and filing under the Act of the registration statement
and all amendments and supplements thereto, the cost of
furnishing copies of each preliminary prospectus, each final
prospectus and each amendment or supplement thereto to
underwriters, dealers and other purchasers of the Encore Shares,
and the costs and expenses (including fees and disbursements of
counsel) incurred by Encore in connection with the qualification
of the Gould Shares under the Blue Sky laws of various
jurisdictions. Notwithstanding the above, Encore will not be
required to pay the underwriting fees or commissions, or the fees
of counsel for the underwriters or Gould or EFI, in connection
with any sale pursuant to Paragraph 1.
(b)Gould, EFI and the Management Stockholders will
bear their pro rata shares (based on the percentage the Gould
Shares and the Management Shares registered pursuant to
Paragraph 2 bear to the total number of shares of Encore Common
Stock included in such registration) of the costs and expenses of
such registration, including the costs and expenses listed in
paragraph (a) hereof.
4.Procedures.
In the case of each registration or qualification
pursuant to Paragraph 1 or 2, Encore will keep Gould and EFI
(and, in the case of each registration or qualification pursuant
to Paragraph 2, each Management Stockholder) advised in writing
as to the initiation of proceedings for such registration and
qualification and as to the completion thereof, and will advise
Gould and EFI (and, in the case of each registration or
qualification pursuant to Paragraph 2, each Management
Stockholder), upon request, of the progress of such proceedings.
At its expense Encore will keep such registration and
qualification effective by any action as may be necessary or
appropriate for a period of 120 days after the effective date of
the registration statement including, without limitation, the
filing of post-effective amendments and supplements to any
registration statement or prospectus necessary to keep the
registration statement current and further qualification under
any applicable Blue Sky or other state securities law to permit
such sale or distribution, all as requested by Gould, EFI or any
Management Stockholder (except that (i) in the case of an
underwritten offering said 120-day period will instead be a 90-
day period and (ii) in the case of a registration statement under
Rule 415 said 120-day period will instead be a nine-month period
or a shorter period which expires when all the Gould Shares and
the Management Shares to which the registration statement relates
are sold).
5.Indemnification.
(a)Encore will indemnify and hold harmless Gould, EFI
and any underwriter (as defined in the Act) for Gould, EFI and
each person, if any, who controls Gould, EFI or any underwriter
within the meaning of the Act against any losses, claims,
damages, or liabilities, joint or several, and expenses
(including reasonable costs of investigation) to which Gould, EFI
or any underwriter or such controlling person may be subject,
under the Act or otherwise, insofar as any thereof arise out of
or are based upon any untrue statement or alleged untrue
statement of a material fact contained in any registration
statement under which the Gould Shares were registered under the
Act pursuant to Paragraphs 1 and 2, any prospectus or preliminary
prospectus contained therein (provided, in the case of any
preliminary prospectus, that the foregoing indemnification shall
not apply to any underwriter or controlling person from whom the
person asserting any such losses, claims, damages or liabilities
purchased the Gould Shares if a copy of the final prospectus had
not been sent or given by or on behalf of such underwriter or
controlling person to such person at or prior to the written
confirmation of the sale of such securities to such person), or
any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as such losses,
claims, damages, liabilities or expenses arise out of or are
based upon any untrue statement or alleged untrue statement or
omission or alleged omission based upon information furnished to
Encore in writing by Gould or EFI (with respect to which
information furnished by it, each of Gould and EFI shall so
indemnify and hold harmless Encore, any underwriter for Encore
and each person, if any, who controls Encore or such underwriter
within the meaning of the Act).
(b)Encore will indemnify and hold harmless each
Management Stockholder and any underwriter (as defined in the
Act) for each Management Stockholder and each person, if any, who
controls each Management Stockholder or any underwriter within
the meaning of the Act against any losses, claims, damages, or
liabilities, joint or several, and expenses (including reasonable
costs of investigation) to which each Management Stockholder or
any underwriter or such controlling person may be subject, under
the Act or otherwise, insofar as any thereof arise out of or are
based upon any untrue statement or alleged untrue statement of a
material fact contained in any registration statement under which
the Management Shares were registered under the Act pursuant to
Paragraph 2, any prospectus or preliminary prospectus contained
therein (provided, in the case of any preliminary prospectus,
that the foregoing indemnification shall not apply to any
underwriter or controlling person from whom the person asserting
any such losses, claims, damages or liabilities purchased the
Management Shares if a copy of the final prospectus had not been
sent or given by or on behalf of such underwriter or controlling
person to such person at or prior to the written confirmation of
the sale of such securities to such person), or any amendment or
supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims,
damages, liabilities or expenses arise out of or are based upon
any untrue statement or alleged untrue statement or omission or
alleged omission based upon information furnished to Encore in
writing by any Management Stockholder (with respect to which
information furnished by it, such Management Stockholder shall so
indemnify and hold harmless Encore, any underwriter for Encore
and each person, if any, who controls Encore or such underwriter
within the meaning of the Act).
6.General.
(a)This document contains the entire agreement
between Gould, EFI, Encore and the Management Stockholders
concerning the transactions which are the subject of this
Agreement, all prior negotiations, understandings and agreements
between them are superseded by this Agreement, and there are no
representations, warranties, understandings or agreements
concerning the transactions which are the subject of this
Agreement other than those expressly set forth in this Agreement.
(b)Except to the extent provided in Paragraph 1(d),
neither this Agreement nor any right of any party under it may be
assigned without the prior written consent of Gould, EFI and
Encore.
7. 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 day after the day on which mailed by first class mail from
within the United States of America, to the following addresses:
If to Gould:
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Attention: General Counsel
Facsimile No.: (216) 953-5120
Telephone No.: (216) 953-5000
with a copy to:
David W. Bernstein, Esq.
Rogers & Wells
200 Park Avenue
New York, New York 10166
Facsimile No.: (212) 878-8375
Telephone No.: (212) 878-8342
If to EFI:
EFI International Inc.
c/o Japan Energy Corporation
12 East 49th Street
Suite 1710
New York, New York 10017
Attn: Treasurer
Facsimile No.: (212) 949-0712
Telephone No.: (212) 832-7483
If to Encore or any Management Stockholder:
Encore Computer Corporation
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33340-9148
Attention: President
Facsimile No.: (305) 797-5719
Telephone No.: (305) 587-2900
with a copy to:
Warren T. Buhle, Esq.
Weil, Gotshal & Manges
767 Fifth Avenue
New York, New York 10153
Facsimile No.: (212) 312-8007
Telephone No.: (212) 310-8000
8.This Agreement will be governed by, and construed
under, the laws of the State of New York.
9.This Agreement may be amended only by a document in
writing signed by Encore, Gould, EFI, and, with respect to
Sections 2, 3(b), 4, 5(b) and 6 through 11, Management
Stockholders holding at least 65% of the Management Shares;
provided, however, that any amendment to this Agreement which
merely adds transferees of Gould, EFI or Indian Creek permitted
by the terms hereof as parties to this Agreement may be
accomplished by a writing signed by Encore and by the new party
to this Agreement.
10.This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all
of which together will constitute one and the same agreement.
IN WITNESS WHEREOF, Encore, Gould, EFI and the
Management Stockholders have executed this Agreement on the date
shown on the first page.
Management Stockholders
INDIAN CREEK CAPITAL, LTD., ENCORE COMPUTER CORPORATION
as assignee of
Kenneth G. Fisher
By: By: T. MARK MORLEY
Kenneth G. Fisher, a Title: VICE PRESIDENT
General Partner
GOULD ELECTRONICS INC.,
By: MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
EFI INTERNATIONAL INC.
By: MICHAEL C. VEYSEY
Title: SENIOR VICE PRESIDENT
<PAGE>
EXHIBIT 2.2-C
SECOND AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Second Amended and Restated Stockholders Agreement
dated as of March 17, 1995 among Indian Creek Capital, Ltd.
("Indian Creek"), a Texas limited partnership which is an
assignee from Kenneth G. Fisher ("Fisher"), Gould Electronics
Inc. ("GEI"), a Delaware corporation which is an assignee from
Gould Inc. ("Gould"), a Delaware corporation, EFI International
Inc. ("EFI"), a Delaware corporation, and Encore Computer
Corporation (the "Corporation"), a Delaware corporation, further
amends and restates the Stockholders Agreement dated as of April
27, 1989 among Fisher, Gould and the Corporation, as previously
amended by documents dated August 1, 1989, January 28, 1991,
March 31, 1992, September 10, 1992 and February 3, 1994 (as
previously amended, the "Original Stockholders Agreement").
Indian Creek, Fisher, GEI and Encore agree as follows:
1. (a)Subject to the provisions of paragraph 1(d) below,
at all times when GEI or an affiliate of GEI owns at least 10% of
the outstanding common stock of the Corporation, (i) at each
meeting of the stockholders of the Corporation or other occasion
on which there is an election of directors of the Corporation,
Indian Creek and Fisher each will vote all the stock of the
Corporation owned by it or him in favor of the election of
persons designated by GEI to one-third of the positions on the
entire Board of Directors of the Corporation, rounded up to the
nearest whole directorship, and (ii) the Corporation, Indian
Creek and Fisher (in his capacity as a stockholder, officer and
director of the Corporation) will in all other ways use its and
his best efforts to cause the persons designated by GEI to be
elected to the Board of Directors of the Corporation.
(b)Subject to the provisions of paragraph 1(d) below,
at all times when Gould or an affiliate of Gould owns less than
10% of the outstanding Common Stock of the Corporation but (i)
Gould or an affiliate of Gould owns at least 3% of the
outstanding common stock of the Corporation, or (ii) the
Corporation or an affiliate of the Corporation and Japan Energy
Corporation ("JEC"), a Japanese corporation, as successor to
Nippon Mining Company, Limited ("NMC"), a Japanese corporation,
or an affiliate of JEC, are both parties to a Joint Venture
Agreement dated July 26, 1988 between NMC and Gould, as it has
been and may be amended or (iii) JEC is directly or indirectly
guaranteeing indebtedness of the Corporation (which will include,
but not be limited to, guaranteeing the obligations of the
Corporation to reimburse an issuer of letters of credit securing
obligations of the Corporation), (A) at each meeting of the
stockholders of the corporation at which there is an election of
directors or other occasion on which there is an election of
directors, at GEI's request Indian Creek and Fisher each will
vote all the stock of the Corporation owned by it or him in favor
of persons designated by GEI to one-sixth of the positions on the
entire Board of Directors of the Corporation, rounded up to the
nearest whole Director, and (B) the Corporation, Indian Creek and
Fisher (in his capacity as a stockholder, director and officer of
the Corporation) will in all other ways use its and his best
efforts to cause the persons designated by GEI to be elected to
the Board of Directors of the Corporation.
(c)At all times until both the Amended and Restated
Loan Agreement dated as of March 31, 1992 between Gould and the
Corporation as amended by an Amendment to Loan Agreement dated as
of April 11, 1994, (as further amended from time to time, the
"Revolving Loan Agreement") and the Amended and Restated
Committed Loan Agreement dated as of March 17, 1995 between the
Corporation and GEI (as amended from time to time, the "Committed
Loan Agreement" and, together with the Revolving Loan Agreement,
the "Loan Agreements") are terminated and all borrowings under
both Loan Agreements, as well as all other borrowings by the
Corporation or any of its subsidiaries from GEI or any of its
affiliates, are repaid (i) at each meeting of the stockholders of
the Corporation or other occasion on which there is an election
of directors of the Corporation, at GEI's request, Indian Creek
and Fisher each will vote all the stock of the Corporation owned
by it or him in favor of fixing the number of directors of the
Corporation at seven (7) and the election of persons designated
by GEI to three (3) of the positions on the entire Board of
Directors of the Corporation if no shares of the Corporation's
Series A Convertible Participating Preferred Stock (the "Series A
Stock") are outstanding, or one (1) position if any shares of
Series A Stock are outstanding, and (ii) the Corporation, Indian
Creek and Fisher (in his capacity as a stockholder, officer and
director of the Corporation) will in all other ways use its and
his best efforts to cause the number of directors of the
Corporation to be fixed at seven (7) and to cause the election of
persons or a person designated by GEI to three or one of the
positions on the Board of Directors of the Corporation, as the
case may be.
(d)The provisions of paragraphs 1(a) and (b) above
shall be of no force or effect so long as (i) any shares of
Series A Stock are outstanding, (ii) GEI has the right to elect a
majority of the members of the Board of Directors of the
Corporation or (iii) either of the Loan Agreements is in effect
or any borrowings under either of the Loan Agreements remain
unpaid.
(e)So long as any shares of Series A Stock are
outstanding, in any election of directors of the Corporation,
whether at a meeting of the stockholders of the Corporation or
otherwise, GEI will vote all shares of the Corporation's common
stock owned by GEI pro rata in accordance with the votes of the
other stockholders of the Corporation whose shares are voted.
2. Certificates (the "Certificates") evidencing the shares
of common stock of the Corporation owned by Indian Creek and
members of the Fisher family (the "Shares") are being held in
escrow with Rogers & Wells, as Escrow Agent, under an Escrow
Letter dated April 27, 1989 among the Escrow Agent, Fisher and
Gould, as amended and restated on January 28, 1991 (the "Escrow
Letter"). Those escrow arrangements shall remain in effect with
respect to the 4,208,801 shares currently owned of record by
Indian Creek and members of the Fisher family (as appropriately
adjusted for stock dividends, stock splits, combinations,
reorganizations, recapitalizations and other similar corporate
action, the "Shares"), except that the following additional
provisions shall govern the Shares:
(a)Permitted Transfers.
Indian Creek, Fisher and any other holders of escrowed
shares each may effect any of the following transactions: (i) a
pledge of Shares if there is neither a transfer of the legal
title thereto nor a transfer on the books of the Corporation into
the name of the pledgee or (ii) any transfer by gift or by
operation of law to Fisher's spouse, issue, parents, parents-in-
law, nephews, nieces, brothers, brothers-in-law, sisters, sisters-
in-law, children-in-law and grandchildren-in-law, a trust for the
benefit of any of the foregoing or the estate or legal
representatives of Fisher; provided,however, that any Shares
transferred pursuant to clauses (i) or (ii) above shall remain
subject to the escrow.
(b)Consent.
GEI may consent to any transfer which would violate the
provisions of this Section 2 by a written notice delivered to
Fisher and to the Escrow Agent. Any such consent to a transfer
shall not be deemed to be a waiver or consent by GEI of or to any
subsequent transfers by Indian Creek, Fisher and any other
holders of escrowed shares in violation of the provisions of this
Section 2.
(c)Termination.
The escrow arrangements described in this Section 2
shall terminate and the Shares shall be released from the escrow
arrangements set forth in the Escrow Letter on and as of the
earliest of: (i) the date on which both Loan Agreements are
terminated and all borrowings under both Loan Agreements, as well
as all other borrowings by the Corporation or any of its
subsidiaries from GEI or any of its affiliates, are repaid, (ii)
Fisher's death or (iii) the termination for any reason of
Fisher's status as a principal officer of the corporation.
(d)Amendment to Escrow Letter.
The parties hereto hereby agree to amend the Escrow
Letter to effect the modifications to the escrow arrangements
provided for in this Section 2.
3. While GEI has the right to elect persons, or designate
persons for election, to the Board of Directors of the
Corporation, GEI will not, and GEI will take all steps in its
control to assure that no officer or employee of Gould or any of
its subsidiaries will, purchase or sell any securities of the
Corporation while in possession of material non-public
information about the Corporation or its subsidiaries, or
disclose any material non-public information about the
Corporation or its subsidiaries to any person under circumstances
in which it can reasonably be anticipated that the other person
may purchase, sell or hold securities of the Corporation on the
basis of the non-public information, whether that information was
obtained by persons designated by GEI for election to the Board
of Directors of the Corporation or was obtained in any other
manner.
4. This Agreement will be governed by and construed under
laws of the State of New York. Each of the parties to this
Agreement agrees that any action or proceeding under or relating
to this Agreement may be brought in any state or Federal court
sitting in the Borough of Manhattan, New York, New York (without
restricting the ability of any party to bring actions or
proceedings in other jurisdictions), and each of the parties to
this Agreement, (i) consents to the jurisdiction of any of those
courts in connection with any action or proceeding arising under
or relating to this Agreement, (ii) agrees that process in any
such action or proceeding may be served by registered mail, or in
any other manner permitted by the rules of the court in which the
action or proceeding is brought, and (iii) agrees not to seek to
remove any action or proceeding arising under or relating to this
Agreement from any state or Federal Court sitting in the Borough
of Manhattan, New York, New York, on the ground that it is an
inconvenient forum or on any other ground.
5. This document contains the entire Agreement of the
parties, and supersedes any prior agreements or understandings of
the parties, with regard to the subject matter of this Agreement.
6. No amendment or modification of this Agreement will be
effective against any of the parties unless it is in writing and
signed by all the parties.
7. This Agreement may be executed in counterparts, each of
which will constitute an original but all of which together will
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date shown on the first page.
INDIAN CREEK CAPITAL, LTD.
By: KENNETH G. FISHER
Title: GENERAL PARTNER
GOULD ELECTRONICS INC.
By: MICHAEL C, VEYSEY
Title: SENIOR VICE PRESIDENT
ENCORE COMPUTER CORPORATION
By: T. MARK MORLEY
Title: VICE PRESIDENT
EXHIBIT 3.1-C
GOVERNMENTAL FILINGS, AUTHORIZATIONS
APPROVALS OR CONSENTS OF ENCORE
Encore shall have obtained such approval of the United States
Defense Investigative Service as it deems necessary for the
consummation of the transactions contemplated by the Master
Purchase Agreement.
EXHIBIT 3.1-E
ISSUED OPTIONS, WARRANTS OR
CONVERTIBLE SECURITIES AND AGREEMENTS
Options issued under Encore's Employee Stock Option Plan.
Number of
Shares
Outstanding at December 31, 1994 10,111,972
Granted between December 31, 1994 and Closing -0-
Date
Exercised between December 31, 1994 and Closing (189,651)
Date
Cancelled between December 31, 1994 and Closing (19,512)
Date
Outstanding at Closing Date 9,902,809
EXHIBIT 3.1-G
SUBSIDIARIES
Name Jurisdiction Ownership
of Formation
Encore Computer U.S. Inc. Delaware Encore* 100%
Encore Computer Delaware Encore 100%
International Inc.
Encore Computer Limited Canada International* 100%
Encore Computer (UK) United International 100%
Limited Kingdom
Encore Computer Belgium Belgium International 100%
S.A.
Encore Computer GmbH West Germany International 100%
Encore Computer de Puerto Delaware Encore 100%
Rico Inc.
Encore Computer S.A. France International 100%
Encore Computer (Ireland) Ireland Encore Computer B.V. 99%
Limited
International 1%
Encore Computer Italia Italy International 100%
S.p.A.
Japan Encore Computer Japan International/Japan 50%
Energy Corporation*** 50%
Encore Computer B.V. Netherlands International 100%
Encore Computer Nederlands Netherlands International 100%
B.V.
Encore Computer Espana Spain International 100%
S.A.
Encore Computer (Irish Ireland Encore Computer B.V. 50%
Partnership)
Encore Computer 50%
Ireland Ltd.
Lauderdale Computer A.B. Sweden International 100%
Asia Pacific Encore Malaysia Encore 20%
Computer
* Encore Computer Corporation
** Encore Computer International
*** Not an Encore subsidiary
EXHIBIT 3.1-H
MATERIAL ADVERSE CHANGES
Except for as disclosed in Form 10-Q filed with the Securities
and Exchange Commission by Encore in September 1993 and the
letter from Encore to Gould dated March 15, 1995 regarding the
Amdahl Corporation, there has been no material adverse change in
the consolidated financial condition, operations or business of
the Encore and its subsidiaries taken as a whole.
EXHIBIT 3.1-I
TAX RETURN INFORMATION
Returns Currently Under Audit Extension
Granted
Virginia Sales Tax Returns none
New York Sales Tax Returns none
Florida Intangible Returns none
Ohio Sales Tax none
Kansas Sales Tax none
Foreign Returns Currently Under Audit
NONE
EXHIBIT 3.1-K
ENVIRONMENTAL MATTERS
Reference is made to the reports dated May 1990 prepared for
Encore by Camp, Dresser & McKee, an environmental firm relating
to (i) certain asbestos-containing floor coverings at Encore's
corporate headquarters in Plantation, Florida and at the
Melbourne, Florida facilities and (ii) underground storage tanks
located at the Melbourne, Florida facilities. Copies of this
report have been provided to Gould Inc. Substantial work has
been done at the Melbourne facility to remove the tanks and clean
the area of remaining residuals. The site is currently in a
"Monitoring Only" status as assessed by the Florida Department of
Environmental Protection.
Reference is also made to the liabilities incurred in connection
with the property formerly leased by System Engineering
Laboratories, Inc. and located at 3000 S. Andrews Avenue, Fort
Lauderdale, Florida. These liabilities were assumed by Gould
Electronics Inc.
Reference is made to the possible liability as a party
potentially responsible for less that 1% of the waste at the
Seaboard Chemical Site located in North Carolina and as further
described in the September 19, 1991 memorandum from Schiff Hardin
& Waite. A copy of that memorandum and attachments has been
furnished to Gould Inc.
EXHIBIT 3.2-B
CONFLICTS OF GOULD
None.
EXHIBIT 3.2-C
GOVERNMENTAL FILINGS,
AUTHORIZATIONS, APPROVALS OR CONSENTS OF GOULD
None.
EXHIBIT 4.1-C
ISSUANCE OF STOCK
New shares of common stock may be issued as options previously
granted under Encore's Nonqualified Stock Option plan are
exercised.
EXHIBIT 5.2-D
[LETTERHEAD OF WEIL, GOTSHAL & MANGES]
March 17, 1995
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095-4001
Gentlemen:
We have acted as counsel to Encore Computer
Corporation, a Delaware corporation (the "Company"), in
connection with the preparation, authorization, execution and
delivery of, and the consummation of the transactions
contemplated by, the Master Purchase Agreement dated March 17,
1995 between Gould Electronics, Inc. ("Gould") and the Company
(the "Purchase Agreement"), the Fifth Amended and Restated
Registration Agreement dated as of March 17, 1995 among the
Company, Gould, EFI International, Inc. ("EFI") and Indian Creek
Capital, Ltd. ("Indian Creek") (the "Registration Agreement") and
the Second Amended and Restated Stockholders Agreement dated as
of March 17, 1995 among the Company, Gould, EFI and Indian Creek
(the "Stockholders Agreement Amendment" and, together with the
Purchase Agreement and the Registration Agreement, the
"Documents"). Terms defined in the Purchase Agreement and not
otherwise defined herein are used herein with the meanings as so
defined.
In so acting, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of the
Documents and such corporate records, agreements, documents and
other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the
Company, and have made such inquiries of such officers and
representatives as we have deemed relevant and necessary as a
basis for the opinions hereinafter set forth.
In such examination, we have assumed the genuineness of
all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of documents
submitted to us as certified or photostatic copies and the
authenticity of the originals of such latter documents. As to
all questions of fact material to this opinion that have not been
independently established, we have relied upon certificates or
comparable documents of officers and representatives of the
Company and upon the representations and warranties of the
Company contained in the Documents. We have also assumed the due
incorporation and existence of, and the due authorization,
execution and delivery of the Documents by, the Company and that
the Company has the requisite corporate power and authority to
enter into the Documents and perform its obligations thereunder.
Based on the foregoing, and subject to the
qualifications stated herein, we are of the opinion that:
1. Each Document (assuming due authorization,
execution and delivery thereof by the parties thereto)
constitutes the legal, valid and binding obligation of the
Company, enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally, and subject, as to
enforceability, to general principles of equity, including
principles of commercial reasonableness, good faith and fair
dealing (regardless of whether enforcement is sought in a
proceeding at law or in equity) and except to the extent that
rights to indemnification thereunder may be limited by federal or
state securities laws or public policy relating thereto.
2. The issuance by the Company of shares of Series F
Convertible Preferred Stock pursuant to the Purchase Agreement
(the "Issued Shares") to Gould is exempt from the registration
requirements of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"). In this connection, we have
assumed that no offers or sales of securities have or will be
made by or on behalf of the Company that are of the same or of a
similar class as the Issued Shares. In addition, we have assumed
that (i) no general solicitation or general advertising by or on
behalf of the Company has occurred in connection with the
issuance of the Issued Shares and (ii) prior to the signing and
delivery of the Purchase Agreement, Gould was given an
opportunity to ask questions, receive answers and participate in
the negotiations concerning the terms and provisions of the
Purchase Agreement and the terms and provisions of the Issued
Shares and to obtain such additional information as necessary to
make an informed investment decision. Furthermore, we note that
the certificates evidencing the Issued Shares have been endorsed
with a legend to the effect that such shares have not been
registered under the Securities Act and, therefore, cannot be
resold or transferred unless they are so registered or unless an
exemption therefrom is available. Finally, in rendering the
opinion contained in this paragraph 2 we have relied upon a
certificate of Gould to the effect that Gould (i) is acquiring
the Issued Shares for its own account and for investment purposes
and not with a current view to their sale or distribution, and
(ii) is an "accredited Investor" within the meaning of Rule
501(a) under the Securities Act of 1933, as amended.
The opinions herein are limited to the laws of the
State of New York and the federal laws of the United States, and
we express no opinion as to the effect on the matters covered by
this opinion of the laws of any other jurisdiction.
This opinion is rendered solely for your benefit in
connection with the transactions described above. This opinion
may not be used or relied upon by any other person and may not be
disclosed, quoted, filed with a governmental agency or otherwise
referred to without our prior written consent.
Very truly yours,
WEIL, GOTSHAL & MANGES
EXHIBIT 5.2-E
[Letterhead of Mary F. Macomber]
March 17, 1995
Gould Electronics Inc.
35129 Curtis Boulevard
Eastlake, Ohio 44095
Gentlemen:
I am General Counsel of Encore Computer Corporation, a
Delaware corporation (the "Company"). I have acted as counsel
for the Company and certain of its subsidiaries in connection
with the preparation, authorization, execution and delivery of,
and the consummation of the transactions contemplated by, the
Master Purchase Agreement dated March 17, 1995 between Gould
Electronics Inc. ("Gould") and the Company (the "Purchase
Agreement"), the Fifth Amended and Restated Registration
Agreement dated as of the date hereof among the Company, Gould,
EFI International), Inc. ("EFI") and Indian Creek Capital, Ltd.
("Indian Creek") (the "Registration Agreement"), the Fourth
Amendment to the Amended and Restated Stockholders Agreement
dated as of the date hereof among the Company, Gould, EFI and
Indian Creek (the "Stockholders Agreement Amendment") and the
letter agreement dated the date hereof among the Company, Gould
and Encore Computer U.S., Inc. (together with the Purchase
Agreement, the Registration Agreement and the Stockholders
Agreement Amendment, the "Documents"). Terms defined in the
Purchase Agreement and not otherwise defined herein are used
herein with the meanings as so defined.
In so acting, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of the
Documents and such corporate records, agreements, documents and
other instruments, and such certificates or comparable documents
of public officials and of officers and representatives of the
Company, and have made such inquiries of such officers and
representatives as I have deemed relevant and necessary as a
basis for the opinions hereinafter set forth.
In such examination, I have assumed the genuineness of
all signatures (other than those of officers of the Company and
its subsidiaries), the authenticity of all documents submitted to
me as originals, the conformity to original documents of
documents submitted to me as certified or photostatic copies and
the authenticity of the originals of.such latter documents. As
to all questions of fact material to this opinion that have not
been independently established, I have relied upon certificates
or comparable documents of officers and representatives of the
Company and upon the representations and warranties of the
Company contained in the Documents.
Based on the foregoing, and subject to the
qualifications stated herein, I am of the opinion that:
1. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State
of Delaware and the Company has all requisite corporate power and
authority to own, lease and operate its properties and to carry
on its business as now being conducted. The Company is duly
qualified to transact business and is in good standing as a
foreign corporation in each jurisdiction where the character of
its activities requires such qualification, except where the
failure of the Company to be so qualified would not have a
material adverse effect on the business, operations or financial
condition of the Company and its subsidiaries considered as a
whole.
2. The Company has all requisite corporate power and
authority to execute and deliver the Documents to which it is a
party, and to perform its obligations thereunder. The execution,
delivery and performance of the Documents by the Company and the
consummation by the Company of the transactions contemplated
thereby have been duly authorized by all necessary corporate
action on the part of the Company. The Documents have been duly
and validly executed and delivered by the Company.
3. The execution and delivery of the Documents, the
consummation of the transactions contemplated thereby and
compliance by the Company with any of the provisions thereof will
not conflict with, constitute a default under or violate (i) any
of the terms, conditions or provisions of any document, agreement
or other instrument to which the Company is a party or by which
it is bound of which I am aware, or (ii) any order or ruling of
any court or governmental authority binding on the Company of
which I am aware.
4. No consent, approval, waiver, license or
authorization or other action by or filing with any Florida,
Delaware corporate or federal governmental authority is required
in connection with the execution and delivery by the Company of
the Documents or the consummation by the Company of the
transactions contemplated thereby, other than those which have
already been obtained.
5. To my knowledge, there is no litigation, proceeding
or governmental investigation pending or overtly threatened
against the Company that relates to any of the transactions
contemplated by the Documents or which, if adversely determined,
would have a material adverse effect on the business, assets or
financial condition of the Company.
6. The authorized capital stock of the Company
consists of 150,000,000 shares of common stock, par value $.01
per share, and 10,000,000 shares of preferred stock, par value
$.01 per share. As of March 17, 1995, there were 34,255,299
shares of common stock, 73,641 shares of Series A Convertible
Participating Preferred Stock, 666,453 shares of Series B
Convertible Preferred Stock, 1,019, 787 shares of Series D
Convertible Preferred Stock and 1,042,381 shares of Series E
Convertible Preferred Stock issued and outstanding. All of such
outstanding shares of the Company's capital stock are duly
authorized, validly issued, fully paid and non-assessable.
7. The shares of Series F Preferred Stock to be issued
pursuant to the Purchase Agreement have been duly authorized and,
when issued as contemplated by the Purchase Agreement, will be
validly issued, fully paid and nonassessable and free of
preemptive rights.
The opinions herein are limited to the laws of the
State of Florida, the corporate laws of the State of Delaware and
the federal laws of the United States, and I express no opinion
as to the effect on the matters covered by this opinion of the
laws of any other jurisdiction.
This opinion is rendered solely for your benefit in
connection with the transactions described above. This opinion
may not be used or relied upon by any other person and may not be
disclosed, quoted, filed with a governmental agency or otherwise
referred to without my prior written consent, except that this
opinion may be disclosed or quoted to, or filed with, a bank or
insurance regulatory authority.
Very truly yours,
MARY MACOMBER
<TABLE>
<S> <C> <C> <C>
ENCORE COMPUTER CORPORATION
Computation of Loss per Share Exhibit 11
(in thousands except per share data)
Primary 1994 1993 1992
----------- ------------- -------------
Net loss $ (54,556) $ (69,565) $ (32,522)
Accumulated Series B and D
Preferred Stock Dividends - (9,185) -
Series B, D and E Preferred
Stock Dividends (13,987) - (4,471)
----------- ------------- -------------
Net loss attributable to
common shareholders $ (68,543) $ (78,750) $ (36,993)
============ ============= =============
Weighted average common
shares outstanding 33,391 31,909 30,535
Series A assumed converted 7,364 7,364 7,364
----------- ------------- -------------
Weighted average shares outstanding 40,755 39,273 37,899
Loss per common share $ (1.68) $ (2.01) $ (0.98)
============ ============= =============
Assuming Full Dilution
Net loss $ (54,556) $ (69,565) $ (32,522)
Weighted average common
shares outstanding 33,391 31,909 30,535
Series A assumed converted 7,364 7,364 7,364
Series B assumed converted 20,014 19,321 17,706
Series D assumed converted 30,624 29,564 8,532
Series E assumed converted 28,481
Exercise of options reduced by
the number of shares purchased
with proceeds 6,302 7,412 1,109
----------- ------------- -------------
Weighted average shares
outstanding 26,176 95,570 65,246
=========== ============= ==============
Loss per common share: $ (0.43) $ (0.73) $ (0.50)
=========== ============= ==============
</TABLE>
EXHIBIT 22
Subsidiaries of Encore Computer Corporation
- ------------------------------------------------------------------------
Name Jurisdiction Ownership
- --------------------------- ------------ -----------------------
Encore Computer U.S., Inc. Delaware 100%
Encore Computer International, Delaware 100%
Inc.
Encore Computer Limited Canada 100%
Encore Computer (U.K.) Limited United 100%
Kingdom
Encore Computer Belgium S.A. Belgium 100%
Encore Computer GmbH West 100%
Germany
Encore Computer de Puerto Delaware 100%
Rico, Inc.
Encore Computer S.A. France 100%
Encore Computer (Ireland) Ireland 100%
Limited
Encore Computer Italia S.p.A. Italy 100%
Japan Encore Computer Japan 50%
Encore Computer B.V. Netherlands 100%
Encore Computer Nederlands, Netherlands 100%
B.V.
Encore Computer Espana S.A. Spain 100%
Encore Computer (Irish Ireland 50%
Partnership) 50%
Lauderdale Computer A.B. Sweden 100%
Exhibit 24.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statement of Encore Computer Corporation on Forms S-8 (Registration
Statement Nos. 33-10225, 33-33907, 33-34171 and 33-72458) and on
Forms S-3 (Registration Statement Nos. 33-121, 33-33907 and
33-34171) of our reports dated February 17, 1995 except for Note
L as to which the date is March 27, 1995, on our audits of the
consolidated financial statements and financial statement
schedule of Encore Computer Corporation as of December 31, 1994
and 1993 and for the years ended December 31, 1994, 1993 and 1992,
which report is included in this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Miami, Florida
March 27, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000764037
<NAME> ENCORE COMPUTER CORPORATION
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<PERIOD-END> DEC-31-1994 DEC-31-1993 DEC-31-1992
<CASH> 2,517 3,751 4,806
<SECURITIES> 0 0 0
<RECEIVABLES> 24,872 18,705 31,263
<ALLOWANCES> 5,017 2,150 2,441
<INVENTORY> 27,555 17,764 15,813
<CURRENT-ASSETS> 51,790 41,117 50,956
<PP&E> 86,808 81,935 92,108
<DEPRECIATION> 45,887 44,332 45,793
<TOTAL-ASSETS> 98,762 84,070 105,686
<CURRENT-LIABILITIES> 31,553 37,618 36,686
<BONDS> 0 0 0
<COMMON> 341 327 312
0 0 0
28 16 16
<OTHER-SE> (22,409) (66,903) 180
<TOTAL-LIABILITY-AND-EQUITY> 98,762 84,070 105,686
<SALES> 38,412 43,622 67,840
<TOTAL-REVENUES> 76,550 93,532 130,893
<CGS> 60,907 65,831 79,040
<TOTAL-COSTS> 127,398 155,617 153,437
<OTHER-EXPENSES> (70) 780 2,077
<LOSS-PROVISION> 2,928 203 283
<INTEREST-EXPENSE> 3,235 6,246 7,162
<INCOME-PRETAX> (54,013) (69,111) (31,783)
<INCOME-TAX> 543 454 739
<INCOME-CONTINUING> (54,556) (69,565) (32,522)
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (54,556) (69,565) (32,522)
<EPS-PRIMARY> (1.68) (2.01) (0.98)
<EPS-DILUTED> (0.43) (0.73) (0.50)
</TABLE>
