SCHEDULE 14A INFORMATION
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Exchange Act of 1934
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Registrant: __
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ENCORE COMPUTER CORPORATION
ENCORE COMPUTER CORPORATION
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ENCORE COMPUTER CORPORATION
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313-4499
Notice of Annual Meeting of Stockholders
To Be Held on June 25, 1996
The Annual Meeting of Stockholders of Encore Computer Corporation (the
"Company") will be held at Encore Computer Corporation, Building No. 7
Auditorium, 1800 N.W. 69th Avenue, Fort Lauderdale, Florida on Tuesday,
June 25, 1996, at 1:00 p.m. (local time) to consider and act on the
following matters.
1.To fix the number of directors at five (5) and to elect five (5)
directors to hold office for the ensuing year.
2.To approve the selection by the Board of Directors of Coopers &
Lybrand L.L.P. as the Company's independent auditors for the fiscal
year ending December 31, 1996.
3.To transact such other business as may properly come before the
meeting or any adjournment or postponements of the meeting.
Stockholders of record at the close of business on May 20, 1996 will be
entitled to notice of, and to vote at, the meeting. The stock transfer
books of the Company will remain open. All shareholders are cordially
invited to attend the meeting.
By order of the Board of Directors
KENNETH S. SILVERSTEIN
---------------------------------
Kenneth S. Silverstein, Secretary
May 24, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY AND MAIL IT PROMPTLY IN THE ENCLOSED
ENVELOPE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE
NEED BE AFFIXED IF MAILED IN THE UNITED STATES.
ENCORE COMPUTER CORPORATION
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313-4499
Proxy Statement for Annual Meeting of Stockholders
June 25, 1996
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of Encore Computer Corporation
(the "Company") for use at the Annual Meeting of Stockholders to be
held on June 25, 1996, at 1:00 p.m. (local time) and at any adjournment
or postponement of that meeting. All proxies will be voted in
accordance with the instructions contained in the proxy, and if no
choice is specified, the proxies will be voted in favor of the
proposals set forth in the Notice of Meeting. Any proxy may be revoked
by a shareholder at any time before it is exercised by filing a later
dated proxy or a written notice of revocation with Kenneth S.
Silverstein, Secretary of the Company, or by voting in person at the
meeting.
The Board of Directors has fixed May 20, 1996 as the record date for
determination of shareholders entitled to vote at the Annual Meeting.
At the close of business on May 17, 1996, there were outstanding and
entitled to vote 36,085,192 shares, $0.01 par value, of the Company's
Common Stock. Each share of Common Stock is entitled to one vote. The
election of three of the five directors at the meeting shall be
determined by a plurality of the votes cast in person or by proxy at
the meeting by the holders of the Common Stock. With respect to the
election of those three directors, the 3,935,900 outstanding shares of
Common Stock held by Gould Electronics Inc. ("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
Kenneth G. Fisher, the Company's Chairman. The holders of the Company's
Series A Convertible Participating Preferred Stock (the "Series A
Stock"), voting as a separate class, are entitled to elect the other
two directors. Gould holds all the outstanding shares of Series A Stock
and has indicated it will elect Mr. Ferguson and Dr. Fedor (see
"Election of Directors"). With respect to each other matter to be
submitted to the shareholders at the Annual Meeting, the affirmative
vote of the holders of a majority of the Common Stock present or
represented at the meeting and voting on such matter is required for
approval. Broker non-votes (a broker holding shares in "street name"
which has no authority to vote on a particular matter) and abstentions
on any matter are not included in the number of shares voted on that
matter. An automated system administered by the Company's transfer
agent tabulates the votes.
The Company's Annual Report for the year ended December 31, 1995 is
being mailed to shareholders at the same time as this Proxy Statement.
The date of mailing of this Proxy Statement and related proxy is
expected to be on or about May 24, 1996.
PRINCIPAL STOCKHOLDERS
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 1, 1996:
Percentage of
Shares Common Stock Percentage of
Name and Address Beneficially and Equivalents Common Stock
of Beneficial Owner Owned Outstanding (1) Outstanding
Gould Electronics Inc.(2) (5) 104,181,384 60.0% 10.9%
35129 Curtis Boulevard
Eastlake, OH 44095
EFI International Inc. (3) 30,047,262 17.0% 0.0%
12 East 49th Street, Suite 1710
N.Y., N.Y 10017
Japan Energy Corporation (2) (3) 134,228,646 77.0% 10.9%
10-1, Toranomon 2-chome, (5) (6)
Minato-ko, Tokyo, Japan
Kenneth G. Fisher(4) 7,073,441 4.0% 15.8%
6901 West Sunrise Blvd.
Fort Lauderdale, FL 33313-4499
(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 22,090,892 shares of Common Stock issuable upon
conversion of the outstanding shares of Series B Convertible
Preferred Stock ("Series B Stock"), the 33,802,954 shares of
Common Stock issuable upon conversion of the outstanding shares of
Series D Convertible Preferred Stock ("Series D Stock"), the
34,551,938 shares of Common Stock issuable upon conversion of the
outstanding shares of Series E Convertible Preferred Stock
("Series E Stock"), the 16,167,754 shares of Common Stock issuable
upon conversion of the outstanding shares of Series F Convertible
Preferred Stock ("Series F Stock") and the 17,348,677 shares of
Common Stock issuable upon conversion of the outstanding shares of
Series G Convertible Preferred Stock ("Series G Stock") have been
included as well as , in the case of Mr. Fisher, shares issuable
upon exercise of options exercisable within 60 days after March 1,
1996.
(2)Includes 100,245,484 shares of Common Stock issuable upon conversion
of the shares of Series A Stock, Series B Stock, Series D Stock,
Series E Stock, Series F Stock and Series G held by Gould. The
Series D, Series E, Series F, Series G 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)
2,138,738 shares which may be acquired by Mr. Fisher within 60
days after March 1, 1996 by exercise of stock options and (iii)
3,847,370 shares of Common Stock and 1,033,569 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.
ELECTION OF DIRECTORS
The persons named in the proxy will vote, as permitted by the By-Laws
of the Company, to fix the number of directors at five and to elect as
directors Messrs. Fisher, Anderson and Thomas unless authority to vote
for the election of directors is withheld by marking the proxy to that
effect or unless the proxy is marked with the names of directors as to
whom authority to vote is withheld. The proxy may not be voted for more
than three directors. Mr. Ferguson and Dr. Fedor, the other two
nominees named below, are expected to be elected by Gould as the holder
of all the outstanding Series A Stock pursuant to the terms of the
Series A Stock.
Each director will be elected to hold office until the next annual
meeting of shareholders and until his successor is elected and
qualified. If one of the three nominees to be elected by the holders of
Common Stock becomes unavailable, the person acting under the proxy may
vote the proxy for the election of a substitute. It is not presently
contemplated that any of the nominees will be unavailable.
The following table sets forth the name of each nominee and the
positions and offices held by him, his age, the year in which he became
a director of the Company, his principal occupation and business
experience for at least the last five years, the names of other
publicly-held companies in which he serves as a director, the number of
shares of Common Stock and equivalents of the Company, including shares
which may be acquired within sixty days after March 1, 1996 by exercise
of outstanding stock options, which he reported were beneficially owned
by him as of March 1, 1996, and the percentage of all outstanding
shares of Common Stock and equivalents owned by him on such date.
Common Stock Percentage of
Name, Age, Principal and Equivalents Common Stock
Occupation, Business Beneficially and Equivalents
Experience and Directorships Owned Outstanding(1)
Kenneth G. Fisher, age 65 7,073,441(2) 4.0%(2)
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.
Rowland H. Thomas, Jr., age 60 1,657,100(4) .9%(4)
Mr. Thomas has been a member of the Board of Directors since December
1987 and Chief Operating Officer since June 1989. He presently also
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.
Daniel O. Anderson, age 68 107,075(3) .6%(3)
Mr. Anderson 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.
Robert J. Fedor, age 55 10,000(5) *(5)
Dr. Fedor 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.
C. David Ferguson, age 54 12,304(5) *(5)
Mr. Ferguson 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.
______________
*Less than 0.1%.
(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 22,090,892 shares of Common Stock issuable upon
conversion of the outstanding shares of Series B Convertible
Preferred Stock ("Series B Stock"), the 33,802,954 shares of
Common Stock issuable upon conversion of the outstanding shares of
Series D Convertible Preferred Stock ("Series D Stock"), the
34,551,938 shares of Common Stock issuable upon conversion of the
outstanding shares of Series E Convertible Preferred Stock
("Series E Stock") the 16,167,754 shares of Common Stock issuable
upon conversion of the outstanding shares of Series F Convertible
Preferred Stock ("Series F Stock") the 17,348,677 shares of Common
Stock issuable upon conversion of the outstanding shares of Series
G Convertible Preferred Stock ("Series G Stock") have been
included as well as shares issuable upon exercise of options
exercisable within 60 days after March 1, 1996 which the
executives' may own.
(2) Includes: (i) 53,764 shares owned by Mr. Fisher's wife, (ii)
2,138,738 shares which may be acquired by Mr. Fisher within 60
days after March 1, 1996 by exercise of stock options and (iii)
3,847,370 shares of Common Stock and 1,033,569 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 200 shares owned by Mr. Anderson's wife and 86,875 shares
which may be acquired by Mr. Anderson within 60 days after March
1, 1996, by exercise of stock options.
(4) Includes 500 shares owned by Mr. Thomas' wife and 1,562,350 shares
which may be acquired by Mr. Thomas within 60 days after March 1,
1996, by exercise of stock options.
(5) Mr. Ferguson is an officer and a director, and Dr. Fedor is an
officer, of Gould which beneficially owns 104,181,384 shares or
60.0% of the Company's outstanding Common Stock and equivalents.
During the fiscal year ended December 31, 1995, the Board of Directors
held four meetings. All Directors attended 100% of the meetings of the
Board of Directors and the committees of which they were members
except for Mr. Anderson who was present via telephone for one meeting.
The Board of Directors has a standing Audit Committee, the membership
of which currently consists of Mr. Anderson and Dr. Fedor. The
principal functions of the Audit Committee are to make recommendations
to the Board of Directors as to the selection of the Company's
independent auditors, to act as liaison between the Board of Directors
and the firm so selected and, on advice of such firm or otherwise, to
recommend institution or modification of accounting procedures employed
by the Company. The members of the Audit Committee are not employees of
the Company and are, in the opinion of the Board of Directors, free
from any relationship that would interfere with their exercise of
independent judgment as Audit Committee members. The Audit Committee
met on January 17, 1996 in connection with the Company's audit for the
fiscal year ended December 31, 1995. During the fiscal year ended
December 31, 1995, the Audit Committee held four meetings.
The Board of Directors also has a Compensation Committee, which
committee presently consists of Messrs. Fisher, Anderson and Ferguson.
The principal responsibilities of the Compensation Committee are to
(i) function as a stock option committee with respect to the Company's
stock option and stock purchase plans, except for the granting of
options to officers who are also Directors, which is administered by
the Directors Options Committee (presently consisting of Messrs.
Anderson and Ferguson), and (ii) make recommendations with respect to
implementation of present compensation programs and adoption of future
compensation programs.
The Board of Directors does not have a Nominating Committee.
Compensation Committee Interlocks and Insider Participation
As discussed above, Mr. Fisher, Mr. Anderson and Mr. Ferguson served as
members of the Compensation Committee during 1995. Mr. Fisher, in
addition to his position as Chairman of the Board, is the Company's
Chief Executive Officer. Mr. Ferguson, in addition to being a director
of the Company, is a director and President and Chief Executive Officer
of Gould, the beneficial owner of 60.0% of the Company's Common Stock
and equivalents. As described in more detail below under the caption
of "Certain Relationships and Related Transactions", since 1989 Gould
has provided the Company with its revolving line of credit and at times
has entered into exchanges of indebtedness owed to it by the Company
for various series of the Company's Preferred Stock.
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, 1995 was as follows:
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) Option Compensation(2)
Kenneth G. Fisher 1995 $340,000 $0 $0 196,900 $ 0
Chairman of the 1994 340,001 0 0 103,300 1,234
Board and Chief 1993 341,963 0 0 0 0
Executive Officer
Rowland H. Thomas 1995 $265,000 $26,850 $0 113,600 $ 0
President and 1994 264,617 36,833 0 59,600 728
Chief Operating 1993 256,167 33,250 0 0 0
Officer
Robert A. DiNanno 1995 $175,000 $25,075 $ 0 46,300 0
Vice President and 1994 175,000 39,644 0 20,000 676
General Manager, 1993 175,535 29,865 0 0 0
Real-Time
Operations
Charles S. Namias 1995 $150,000 $19,825 $ 4800 46,300 $ 0
Vice President, 1994 136,154 70,844 4800 105,000 608
Corporate Alliances 1993 102,429 50,000 4800 40,000 0
Ziya Aral 1995 $150,000 $19,700 $ 0 46,300 0
Vice President, Chief 1994 149,229 35,145 0 290,000 0
Technical Officer 1993 121,604 11,750 0 50,000 0
(1) 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.
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 1, 1996 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 1, 1996 along with the
percentage of all outstanding shares of Common Stock and equivalents
owned by each executive officer and director on such date.
As required by the rules of the Securities and Exchange Commission,
potential values are stated based on the prescribed assumption that the
common stock of the Company will appreciate in value from the date of
grant to the end of the option term at rates (compounded annually) of
5% and 10%, respectively, and therefore do not reflect past results and
are not intended to forecast possible future appreciation, if any, in
the price of the common stock.
Common Stock Percentage of
and Equivalents Common Stock
Beneficiallyand Equivalents
Name Owned Outstanding(1)
Kenneth G. Fisher 7,073,441(2) 4.0%
Chairman of the Board and
Chief Executive Officer
Rowland H. Thomas 1,657,100(3) .9%
President and
Chief Operating Officer
Robert A. DiNanno 598,080(4) .3%
Vice President and General Manager
Real-Time Operations
Charles S. Namias 246,853(5) .1%
Vice President
Corporate Alliances
Ziya Aral 393,794(6) .2%
Vice President and
Chief Technical Officer
Total directors and executive officers as
a group (11 people) 11,102,184(7) 6.2%
(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 22,090,892 shares of Common Stock issuable upon
conversion of the outstanding shares of Series B Convertible
Preferred Stock ("Series B Stock"), the 33,802,954 shares of Common
Stock issuable upon conversion of the outstanding shares of Series
D Convertible Preferred Stock ("Series D Stock"), the 34,551,938
shares of Common Stock issuable upon conversion of the outstanding
shares of Series E Convertible Preferred Stock ("Series E Stock")
and the 16,167,754 shares of Common Stock issuable upon conversion
of the outstanding shares of Series F Convertible Preferred Stock
("Series F Stock") the 17,348,677 shares of Common Stock issuable
upon conversion of the outstanding shares of Series G Convertible
Preferred Stock ("Series G Stock") have been included and, as to
each executive officer, shares issuable upon exercise of options
exercisable within 60 days after March 1, 1996 which may be
beneficially owned.
(2) Includes: (i) 53,764 shares owned by Mr. Fisher's wife,
(ii) 2,138,738 shares which maybe acquired by Mr. Fisher within 60
days after March 1, 1996 by exercise of stock options and (iii)
3,847,370 shares of Common Stock and 1,033,569 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 1,562,350 shares
which may be acquired by Mr. Thomas within 60 days after March 1,
1996, by exercise of stock options.
(4) Includes 595,490 shares which may be acquired within 60 days after
March 1, 1996, by exercise of stock options.
(5) Includes 198,375 shares which may be acquired within 60 days after
March 1, 1996, by exercise of stock options.
(6) Includes 360,000 shares which may be acquired within 60 days after
March 1, 1996, by exercise of stock options.
(7) Includes 5,901,203 shares which may be acquired within 60 days after
March 1, 1996, by exercise of stock options and 1,033,569 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
Company's Long-Term Performance Plan during fiscal 1995, and the
potential realizable value of those shares assuming certain annual
rates of appreciation in the price of the Company's stock.
Option Grants for the year ended December 31, 1995
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
Options in fiscal Exercise Expiration
Name Granted year price/share Date 5% 10%
Kenneth G. Fisher 196,900 11.6% $1.5625 6/26/2005 $193,483 $490,325
Rowland H. Thomas 113,600 6.7% 1.5625 6/26/2005 111,623 282,887
Robert A. DiNanno 46,300 2.7% 1.5625 6/26/2005 45,494 115,296
Charles S. Namias 46,300 2.7% 1.5625 6/26/2005 45,494 115,296
Ziya Aral 46,300 2.7% 1.5625 6/26/2005 45,494 115,296
As required by the rules of the Securities and Exchange Commission,
potential values are stated based on the prescribed assumption that the
common stock of the Company will appreciate in value from the date of
grant to the end of the option term at rates (compounded annually) of
5% and 10%, respectively, and therefore do not reflect past results and
are not intended to forecast possible future appreciation, if any, in
the price of the common stock.
The following table provides information on option exercises in 1995 by
the named executive officers and the value of such officers'
unexercised options as of December 31, 1995.
Aggregated Option Exercises in the year ended December 31, 1995
and Option Values as of December 31, 1995
Number of Value of
Shares Underlying Unexercised
Unexercised In-the-Money
Options at Options at
Number of 12/31/95 12/31/95
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise Realized Unexercisable Unexercisable
Kenneth G. Fisher 0 $ 0 2,138,738/ $1,300,000/
261,462 73,838
Rowland H. Thomas 197,000 219,128 1,562,350/ 1,543,438/
150,850 42,600
Robert A. DiNanno 0 0 595,490/ 618,771/
58,800 17,363
Charles S. Namias 0 0 185,375/ 135,188/
146,925 42,676
Ziya Aral 0 0 313,125/ 181,875/
268,175 37,988
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 tech and
computer products sectors from an independent compensation consultant.
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.
1995 executive base salaries were in accord with the above policy.
None of the named executives' base salaries or incentive bonus targets
were increased in 1995
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 1995 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 1995 reflect the attainment of
individual functional and teamwork goals.
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 1995 the Board granted 449,400 options
to the named executives in accord with the pre-established guidelines.
The Committee feels that executives act in the best interests of
shareholders when they have a significant personal investment 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 April, 1997, 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 1995 the CEO had far exceeded his ownership
requirement, and three of the other named executives have met the
requirement.
Compensation for Mr. Fisher
Mr. Fisher's base salary was not increased in 1995. Mr. Fisher's base
salary is positioned slightly below 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. No incentive payments were made to Mr. Fisher in 1995.
The Committee granted 196,900 stock options to Mr. Fisher in 1995 in
accord with the Board's established annual guidelines. Mr. Fisher
continues to have a significant personal investment 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 shareholders at the
1995 annual meeting is, as its name suggests, a performance-based plan,
and therefore, any gains on stock options will not be subject to the $1
million dollar limit. The Committee believes this action adequately
protects the deduction for executive compensation at the current time.
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 attractive
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
The following chart depicts the Company's performance for the five year
period ending December 31, 1995, 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.
Comparison of Five Year Cumulative Total Shareholder Return Among
Encore Computer Corporation, the S&P 500 Index and
the S&P Computer Systems Index
!Note: In the Company's printed version of the Proxy, a graph is
! included in this space portraying the Company's common stock
! performance versus the performance of the S&P 500 and the S&P
! Computer Systems Index. The graph is based on the following
! data points:
* 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, 1990. See table below:
Year 1990 1991 1992 1993 1994 1995
Encore $100 $133 $214 $592 $510 $316
S&P 500 Index $100 $126 $132 $141 $139 $187
S & P Computer Systems $100 $86 $60 $61 $79 $104
Index
The Report of the Compensation Committee on Executive Compensation and
Comparison of Five Year Cumulative Total Shareholder Return above shall
not be deemed to be "soliciting material" or incorporated by reference
into any of the Company's filings with the Securities and Exchange
Commission.
Directors' Compensation
The Board of Directors has fixed the compensation of non-officer
directors at $2,500 per regular board meeting attended. No
compensation is paid for special meetings held by telephone conference.
A total of $10,000 was paid to Mr. Anderson for meetings attended
during fiscal 1995. 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.
Certain Relationships and Related Transactions
Financing by Gould
During 1995, the Company recorded significant quarterly operating
losses. 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.
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 J 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
Amended and Restated Credit Agreement provide the Company with an
additional committed borrowing facility of $25,000,000, and increased
the maximum committed borrowing limit under the revoving loan facility
from $55,000,000 to $80,000,000. As of March 17, 1995 the Company had
incurred borrowings under the Agreement of $55,000,000 and had
available a committed, unused credit facility of $25,000,000.
On August 17, 1995, Gould agreed to cancel $55,000,000 of indebtedness
owed to it by the Company under the Amended and Restated Credit
Agreement in exchange for 550,000 shares of the Company's Series G
Convertible Preferred Stock with a liquidation preference of
$55,000,000. The principal terms of the Series G are similar to the
terms of the Series B, D, E and F, except that Series G is senior in
liquidation preference.
In addition to the exchange of indebtedness for Series G, the Company
and Gould also agreed to amend and restate their Amended and Restated
Credit Agreement. As so amended, the Agreement provided the Company
with an additional uncommitted borrowing facility of $20,000,000 and
reduced the committed borrowing facility from $80,000,000 to
$25,000,000 to reflect the cancellation of debt for Series G Preferred
Stock
On February 14, 1996 Gould agreed to increase the uncommitted facility
from $20,000,000 to $30,000,000.
On April 16, 1996, Gould, has agreed to cancel $35,000,000 of
indebtedness owed to it by the Company under the loan facility in
exchange for 350,000 shares of the Company's Series H Convertible
Preferred Stock ("Series H") with a liquidation preference of
$35,000,000. The principal terms of the Series H are similiar to the
Series D,E,F and G except the Series H is senior in liquidation
preference to all other classes of the Company's preferred and common
stock. Upon completion of the transaction, the Japan Energy Group's
beneficial ownership interest, assuming the full conversion of
Preferred Stock holdings increased from 77% to 78.0%.
In addition to the exchange of indebtedness for Series H, Gould has
agreed to amend the loan facility in order to increase the committed
borrowing facility from $25,000,000 to $65,000,000. As of April 16,
1996, the Company had $38,400,000 of credit available under the
committed borrowing facility..
Gould, agreed to extend the maturity date of the Credit Agreement, to
April 30, 1997, and waived compliance with certain financial covenants
contained in the agreement until January 1, 1997. Gould also agreed it
would not vote its shares of the Series B or take any other action as a
holder of the Series B to elect a majority of the directors of the
Company until at least December 31, 1996.
In connection with its recapitalization in January 1991, the Company
licensed substantially all of its intellectual property to Gould on a
royalty free basis. However, under the terms of the agreement, and in
combination with certain extensions granted by Gould, Encore retained
the exclusive use of the intellectual property through December 31,
1995. Those extensions have expired and effective January 1, 1996,
both Gould and Encore have the option to use the Encore intellectual
property. The Company maintains the right to terminate the Gould
license if all Gould borrowings are repaid (or cancelled) and the
commitment under any Gould Revolving credit agreements are terminated
and one of the following four conditions is met: (i) the 6% Cumulative
Series B Convertible Preferred Stock ("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; or (iv) the Company pays Gould a fixed dollar
amount equal to $46,540,000 plus 9% per annum interest compounded
annually for the period from January 28, 1996, through the date of
payment. While the Company maintains the legal right to terminate the
Gould license under certain conditions, the Company does not currently
have the financial capability to do so. Gould has stated it has no
immediate plans to utilize the technology to compete with the Company,
in which it has a very substantial investment.
The following tables display the beneficial ownership of Japan Energy
Corporation through its wholly owned subsidiaries Gould and EFI in the
Company before the April 16, 1996 transaction as of December 31, 1995
and on a pro forma basis after the transaction as of December 31, 1995:
Before the Exchange of Indebtedness for Series H
as of December 31, 1995
Debt (1) Beneficial Ownership (2)
($000's) % of total Shares % of total
Gould $ 40,154 98.0% 104,181,384 59.7%
EFI(3) - - 30,047,262 17.2
Other 829 2.0 40,241,350 23.1
Total $ 40,983 100.0% 174,469,996 100.0%
After the Exchange of Indebtedness for Series H
Pro Forma as of December 31, 1995
Debt (1) Beneficial Ownership (4)
($000's) % of total Shares % of total
Gould $ 5,154 86.1% 115,556,384 62.2%
EFI(3) - - 30,047,262 16.1
Other 829 13.9 40,241,350 21.7
Total $ 5,983 100.0% 185,844,996 100.0%
(1) Includes both current and long-term portion of debt.
(2) Includes 138,402,204 shares of Common Stock issuable upon full
conversion of all outstanding Series A Stock, Series B Stock,
Series D Stock, Series E Stock ,Series F Stock and Series G Stock
after payment of all dividends payable through January 15, 1996
as well as shares which may be acquired within sixty days after
December 31, 1995 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 149,777,204 shares of Common Stock issuable upon full
conversion of all outstanding Series A Stock, Series B Stock,
Series D Stock, Series E Stock, Series F Stock and Series G Stock
and Series H Stock as well as shares which may be acquired within
sixty days after December 31, 1995 by exercise of outstanding stock
options. The Series D Stock, Series E Stock, Series F Stock,
Series G Stock and Series H 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 Series B,D,E, F and
G Stock by Gould, the United States Defense Investigative Service
("DIS") has not indicated an objection to the relationships under the
United States government requirements relating to foreign ownership,
control or influence between the Company, Japan Energy Group (a
Japanese corporation) and its wholly owned subsidiaries (EFI and
Gould). On April 16, 1996, Gould, as authorized by Japan Energy
Corporation has agreed to cancel $35,000,000 of indebtedness owed to it
by the Company under the Credit Agreement for 350,000 shares of the
Company's Series H Convertible Preferred Stock ("Series H") with a
liquidation preference of $35,000,000.. The United States Defense
Investigative Service ("DIS") has not yet reviewed this transaction.
Since 1989, Japan Energy Group 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 Group 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 Group 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.
APPROVAL OF AUDITORS
The Board of Directors has selected the firm of Coopers & Lybrand
L.L.P., independent public accountants, as auditors of the Company for
the year ending December 31, 1996, and is submitting the selection to
the shareholders for approval. The Board of Directors recommends a vote
"FOR" this proposal. It is intended that the shares represented by the
enclosed proxy will be voted (unless the proxy indicates to the
contrary) to approve such selection.
Representatives of Coopers & Lybrand L.L.P. are expected to be present
at the Annual Meeting of Stockholders. They will have an opportunity to
make a statement if they desire to do so and will also be available to
respond to appropriate questions from shareholders.
OTHER MATTERS
The Board of Directors does not know of any other matters that may come
before the meeting. However, if any other matters are properly
presented at the meeting, it is the intention of the persons named in
the accompanying proxy to vote, or otherwise to act, in accordance with
their judgment on such matters.
All costs of solicitation of proxies will be borne by the Company. In
addition to solicitations by mail, the Company's directors, officers
and regular employees, without additional remuneration, may solicit
proxies by telephone and personal interviews. Brokers, custodians and
fiduciaries will be required to forward proxy soliciting material to
the owners of stock held in their names, and the Company will reimburse
them for their out-of-pocket expenses in this regard.
PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of shareholders intended to be presented at the 1997 Annual
Meeting of Stockholders must be received by the Company at its
principal office in Fort Lauderdale, Florida, Attention: Kenneth S.
Silverstein, Secretary, not later than February 25, 1997, for inclusion
in the proxy statement for that meeting.
By order of the Board of Directors
KENNETH S. SILVERSTEIN
______________________
Kenneth S. Silverstein,
Secretary
May 24, 1996
THE BOARD OF DIRECTORS HOPES THAT STOCKHOLDERS WILL ATTEND THE MEETING.
WHETHER OR NOT YOU PLAN TO ATTEND, YOU ARE URGED TO COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY IN THE ACCOMPANYING ENVELOPE. PROMPT
RESPONSE WILL GREATLY FACILITATE ARRANGEMENTS FOR THE MEETING, AND YOUR
COOPERATION WILL BE APPRECIATED. STOCKHOLDERS WHO ATTEND THE MEETING
MAY VOTE THEIR STOCK PERSONALLY EVEN THOUGH THEY HAVE RETURNED THEIR
PROXIES.
