UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to _______.
Commission File No. 0-13576
ENCORE COMPUTER CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 04-2789167
(State of Incorporation) (I.R.S. Employer Identification No.)
6901 West Sunrise Blvd.
Fort Lauderdale, Florida 33313
(Address of Principal Executive Offices) (Zip Code)
Telephone: 954-587-2900
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
Common Stock, par value $.01 per share
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days. X Yes No
The number of shares outstanding of the registrant's only class of
Common Stock as of August 16, 1996 was 37,008,660.
Encore Computer Corporation
Index
Page
Part I FINANCIAL INFORMATION
Item 1 Condensed Consolidated Financial Statements 3
Notes to Condensed Consolidated
Financial Statements 8
Item 2 Management's Discussion and Analysis of Financial
Condition and Results of Operations 14
Part II OTHER INFORMATION 19
0Signature Page 20
<PAGE>
ENCORE COMPUTER CORPORATION
Condensed Consolidated Statements of Operations
(Unaudited)
(in thousands except per share data)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
1996 1995 1996 1995
Net sales:
Equipment $ 6,551 $ 4,266 $ 13,122 $ 9,877
Service 5,048 7,365 10,191 14,989
11,599 11,631 23,313 24,866
Costs and expenses:
Cost of equipment sales (Note B) 5,075 20,172 10,954 26,108
Cost of service sales 4,113 5,334 9,074 11,087
Research and development 7,677 8,500 15,941 17,449
Sales, General and Admin 7,814 8,039 16,532 18,021
Restruct costs (Note B) 0 4,499 0 4,499
Total 24,679 46,544 52,501 77,164
Operating loss -13,080 -34,913 -29,188 -52,298
Int exp, princ related parties -548 -382 -1,238 -2,210
Interest income 35 46 76 80
Other (expense)/income, net -118 105 -258 175
Loss before income taxes -13,711 -35,144 -30,608 -54,253
Provision for income taxes 0 167 0 240
Net loss $ -13,711 $ -35,311 $ -30,608$-54,493
Net loss per common share (Note A):
Net loss attributable to common
shareholders $ -19,754 $ -39,715 $ -42,604$-62,990
Loss per common share $ - .45 $ - .94 $ - .97 $ - 1.51
Weighted average shares
of common stock 44,120 42,042 43,916 41,792
The accompanying notes are an integral part of the condensed
consolidated
financial statements.
<PAGE>
ENCORE COMPUTER CORPORATION
Condensed Consolidated Balance Sheets
(in thousands except share data)
Unaudited
Jun 30, Dec 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 2,816 $ 2,797
Accounts receivable, less allowance 14,172 13,723
Inventories (Note C) 24,850 15,796
Prepaid expenses and other current assets 1,209 1,353
Total current assets 43,047 33,669
Property and equipment, net 35,087 35,800
Capitalized software, net 1,139 2,258
Other assets 701 810
Total assets $ 79,974 $ 72,537
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Cur portion long term debt-relat parties(Note E) 41,329 0
Current portion of long term debt-other (Note E) 179 171
Accounts payable and accrued liabilities (Note D)31,476 28,008
Total current liabilities 72,984 28,179
Long term debt-related parties (Note E) 0 40,154
Long term debt-other (Note E) 566 658
Other liabilities 1,200 1,032
Total liabilities 74,750 70,023
Shareholders' equity (Notes E and F):
Preferred stock, $.01 par value; authorized 10,000,000 shares:
Series A Convertible Participating Preferred, issued
73,641 shares in 1996 and 1995 1 1
6% Cumulative Series B Convertible Preferred, issued
733,249 and 707,345 in 1996 and 1995, respectively,
with an aggregate liquidation preference of $73,324,900
and $70,734,500 in 1996 and 1995, respectively. 7 7
6% Cumulative Series D Convertible Preferred, issued
1,115,074 and 1,082,362 in 1996 and 1995, respectively,
with an aggregate liquidation preference of $111,507,400
and $108,236,200 in 1996 and 1995, respectively 11 11
6% Cumulative Series E Convertible Preferred, issued
1,139,782 and 1,106,343 in 1996 and 1995, with an
aggregate liquidation preference of $113,978,200 and
$110,634,300 in 1996 and 1995, respectively 11 11
6% Cumulative Series F Convertible Preferred, issued
533,333 and 517,687 in 1996 and 1995, respectively,
with an aggregate liquidation preference of $53,333,300
and $51,768,700 in 1996 and 1995, respectively. 5 5
6% Cumulative Series G Convertible Preferred, issued
572,289 and 555,500 in 1996 and 1995, respectively,
with an aggregate liquidation preference of $57,228,900
and $55,550,000 in 1996 and 1995, respectively. 6 6
6% Cumulative Series H Convertible Preferred, issued
350,000 in 1996 with an aggregate liquidation preference
of $35,000,000. 4 0
Common stock, $.01 par value; authorized 200,000,000 shares;
issued 37,003,085 and 36,067,792 in 1996 and 1995,
respectively. 370 361
Additional paid-in capital 446,181 412,876
Accumulated deficit -441,372 -410,764
Total shareholders' equity 5,224 2,514
Total liabilities and shareholders' equity $ 79,974 $ 72,537
The accompanying notes are an integral part of the condensed
consolidated
financial statements.
<PAGE>
ENCORE COMPUTER CORPORATION
Condensed Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
Six Mos Six Mos
Ended Ended
June 30, July 2,
1996 1995
Cash flows from operating activities:
Net loss $ -30,608 $ -54,493
Adjustments to arrive at net cash used in operating activities:
Depreciation and amortization 5,795 5,832
Non cash compensation (Note F) 0 1,425
Inventory obsolescence and writedown to lower of cost
or market 540 12,097
Bad debt provision/(credit) -153 2,987
Restructuring charges 0 4,499
Net changes in operating assets and liabilities:
Accounts receivable -296 5,868
Inventories -9,594 -1,732
Prepaid expenses and other current assets 144 139
Other assets 109 178
Accounts payable and accrued liabilities 713 -4,337
Other liabilities 168 370
Net cash used in operating activities -33,182 -27,167
Cash flows from investing activities:
Additions to property and equipment -3,963 -2,277
Capitalization of software costs 0 -1,163
Net cash used in investing activities -3,963 -3,440
Cash flows from financing activities:
Net borrowings under revolving loan agreement 36,175 30,439
Principal payments of long term debt -84 -105
Preferred stock dividends paid -2 -1
Issuance of common stock 1,075 1,034
Net cash provided by financing activities 37,164 31,367
Increase in cash and cash equivalents 19 760
Cash and cash equivalents, beginning 2,797 2,517
Cash and cash equivalents, ending $ 2,816 $ 3,277
The accompanying notes are an integral part of the condensed
consolidated
financial statements.
<PAGE>
ENCORE COMPUTER CORPORATION
Condensed Consolidated Statements of Cash Flows
Supplemental disclosure of cash flow information (in thousands):
Six Mos Six Mos
Ended Ended
June 30, July 2,
1996 1995
Cash paid during the period for interest $ 78 $ 1,704
Cash paid during the period for income taxes 34 326
Supplemental schedule of non-cash investing and financing activities:
On March 17, 1995, the Company exchanged $50,000,000 of indebtedness
for preferred stock.
On April 16, 1996, the Company exchanged $35,000,000 of indebtedness
for preferredstock. Refer to Note E of Notes to Condensed
Consolidated Financial Statements.
The accompanying notes are an integral part of the condensed
consolidated financial statements.
<PAGE>
ENCORE COMPUTER CORPORATION
Condensed Statements of Shareholders' Equity
(in thousands except share data)
Preferred Stock
Series A Series B Series D
Par Par Par
Shares Val Shares Val Shares Val
Bal Dec 31, 1995 73,641 1 707,345 7 1,082,362 11
Common stock options
exercised, $.69 to $2.00
per share 0 0 0 0 0 0
Shares issued through employee
stock purchase plan, at a price of
$1.9125 per share
Issuance of Series H Convertible
Preferred Stock (Note E)
Dividends issued to Preferred Stockholders
in shares of Series B, D, E, F
and G 0 0 25,904 0 32,712 0
Net loss
Bal Jun 30, '96 73,641$ 1 733,249 $ 7 1,115,074$ 11
The accompanying notes are an intergral part of the consolidated
financial statements.
Preferred Stock
Series E Series F Series G
Series H
Par Par Par
Par
Shares Val Shares Val Shares Val
Shares Val
Bal Dec 31, 1995 1,106,343 $11 517,687 $5 555,500 $6
0 $0
Common stock options exercised,
$.69 to $2.00 per share
Shares issued through employee stock purchase
plan, at a price of $1.9125 per share
Issuance of Series H Convertible
Preferred Stock (Note G)
Dividends issued to Preferred Stockholders
in shares of Series B, D, E, F
and G 33,439 0 15,646 0 16,789 0
0 0
Net loss
Bal Jun 30, 1996 1,139,782 $11 533,333 $5 572,289 $6
350,000 $4
Additional
Common Stock Paid-In Accumulated Shareholders
Shares Value Capital Deficit Equity
Bal Dec 31, 1995 36,067,792 $361 $412,876 $-410,764 $2,514
Common stock options exercised, $.69
to $2.00/shar 747,613 7 708 0 715
Shares issued through employee
stock purchase plan, at a price of
$1.9125/share 187,680 2 357 0 359
Issuance of Series H Convertible Preferred
Stock (Note G) 0 0 32,242 0 32,246
Dividends issued to Preferred
Stockholders in shares of Series
B, D, E, F and G 0 0 -2 0 -2
Net loss 0 0 0 -30,608 -30,608
Bal Jun 30, 1996 37,003,085 $370 $446,181 $-441,372 $5,224
Encore Computer Corporation
Notes to Condensed Consolidated Financial Statements
A. Summary of Significant Accounting Policies
Basis of Presentation and Other Matters
The accompanying condensed consolidated financial statements are
unaudited and have been prepared by Encore Computer Corporation
("Encore" or the "Company") in accordance with generally accepted
accounting principles. Certain information and footnote disclosures
normally included in the Company's annual consolidated financial
statements have been condensed or omitted. It is suggested that these
condensed consolidated financial statements be read in conjunction with
the audited consolidated financial statements for the year ended
December 31, 1995.
The condensed consolidated financial statements, in the opinion of the
Company, reflect all adjustments (including normal recurring accruals)
necessary for a fair statement of the results for the interim periods.
All adjustments made during the interim periods are normal recurring
adjustments. The year-end condensed balance sheet data is derived from
audited financial statements but does not include all disclosures
required by generally accepted accounting principles. Certain
reclassifications have been made to conform prior period data to current
period presentation.
The results of operations for the interim periods are not necessarily
indicative of the results of operations for the fiscal years.
The accompanying financial statements have been prepared on the basis of
accounting principles that presume the realization of assets and the
settlement of liabilities in the ordinary course of business. As
discussed more fully in Note E of Notes to Condensed Consolidated
Financial Statements, the principal source of financing for the Company
has been provided by Japan Energy Corporation ("Japan Energy"; a
Japanese Corporation) and certain of its wholly owned subsidiaries
including Gould Electronics Inc. ("Gould") and EFI International, Ltd.
("EFI") (collectively, the "Japan Energy Group"). The Company is
dependent on the continued long term financial support of the Japan
Energy Group. Based on the Company's cash flow projections, management
believes the amounts currently available under its credit agreement with
Gould should be sufficient to meet its needs through year end. However,
the possibility exists that additional funding may be required before
year end. Until and beyond that time, should the Japan Energy Group
withdraw its financial support at any time prior to the time the Company
returns to profitability by failing to provide additional credit as
needed, the Company anticipates it will not be able to secure financing
from other sources. In such a case, the Company would suffer a severe
liquidity crisis and it would have difficulty settling its liabilities
in the ordinary course of business.
Per Share Data
Per share data is calculated based upon the weighted average number of
shares of common stock and common stock equivalents outstanding. In
fiscal periods which report net losses, the calculation does not include
the effect of common stock equivalents such as stock options since the
effect on the amounts reported would be antidilutive. Series A
Convertible Participating Preferred Stock ("Series A") has been
considered common stock (on an assumed converted basis) for purposes of
all income (loss) per share calculations. All other series of preferred
stock 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.
Net loss per common share was determined by dividing the net loss, as
adjusted, by applicable shares outstanding. The loss was adjusted by
the aggregate amount of dividends on the Company's preferred stock.
Preferred stock dividends amounted to $6,042,800 and $11,996,300 for the
three and six month periods ended June 30, 1996, respectively. For the
three and six month periods ended July 2, 1995, preferred stock
dividends amounted to $4,404,100 and $8,496,800, respectively. As of
March 31, 1996, the Company reported a capital deficiency and was
precluded from paying dividends on its preferred stock outstanding.
Accordingly, the normal quarterly dividends payable April 15, 1996 for
the period January 15, 1996 to April 15, 1996 on the Series B, D, E, F
and G amounting to $6,042,800 were accumulated by the Company. On April
16, 1996, the Company completed an exchange of Series H Convertible
Preferred Stock ("Series H") for indebtedness owed. Following the
exchange, the Company had a capital surplus and therefore, was able to
pay the accumulated dividends on the preferred shares. Dividends
payable July 15, 1996 of $6,658,400 for the period April 15, 1996 to
July 15, 1996 have been accumulated.
B. Termination of Amdahl Reseller Agreement
During 1994, the Company and Amdahl Corporation ("Amdahl") entered into
a five year reseller agreement (the "Amdahl Reseller Agreement") which
granted Amdahl the exclusive right to distribute the Company's Infinity
Storage Products under the Amdahl brand. The Amdahl Reseller Agreement,
as amended, established procurement schedules, which if certain product
requirements were met, would have required Amdahl to purchase a
significant amount of product from the Company. Sales under the Amdahl
Reseller Agreement were anticipated to have significant sales volumes in
the first half of 1995. However, certain significant contractual issues
arose delaying the sale of products and on June 8, 1995, Encore
announced that the Amdahl Reseller Agreement had been terminated.
Due to the termination of the Amdahl Reseller Agreement, product sales
fell well short of expectations and all elements of the Company's
results of operations were adversely affected. As a result of these
events, during the second quarter of 1995, the Company charged
operations $19,241,000, consisting of $11,442,000 charged to cost of
sales to reduce inventory carrying amounts to estimated net realizable
value, as well as $2,800,000 charged to cost of sales for uncollected
Amdahl accounts receivable, $500,000 charged to research and development
to write down capitalized software projects in process, and a $4,499,000
charge to restructuring costs.
C. Inventories
Inventories consist of the following (in thousands):
June 30, December 31,
1996 1995
Purchased parts $ 7,609 $ 9,161
Work in process 10,303 4,570
Finished goods 6,824 1,799
Loaned computer equipment
and consignment inventory 114 266
$ 24,850 $ 15,796
Storage Product inventory amounted to $23,679,000 and $11,139,000 at
June 30, 1996 and December 31, 1995, respectively. The Company is
expanding its programs to market the Storage Product through various
channels, including direct, distributor and OEM sales and marketing
campaigns. The Company has acquired significant inventories, provided
customers with product on a trial basis and continues to improve the
product features and functionality. The Company continues to pursue a
major OEM agreement, involving significant product volumes, which is
expected to be finalized in the third quarter of 1996. In the event an
agreement does not materialize and other channels are not established to
significantly improve future Storage Product revenue, a write down of
inventories is probable. No estimate can be made of a range of amount
of loss that is reasonably possible should these programs not be
successful. Total inventory reserves were approximately $21,538,000 and
$21,937,000 at June 30, 1996 and July 2, 1995, respectively.
D. Accounts Payable and Accrued Liabilities;
Accounts payable and accrued liabilities consist of the following
(in thousands):
June 30, December 31,
1996 1995
Accounts payable $ 7,381 $ 7,339
Accrued salaries and benefits 4,454 4,261
Accrued restructuring costs 644 1,566
Accrued interest-related parties 9,534 5,921
Accrued taxes 3,502 4,045
Deferred income,
principally maintenance contracts 1,330 827
Other accrued expenses 4,631 4,049
$ 31,476 $ 28,008
The restructuring charge related to (i) the recognition of the permanent
impairment in value of $2,406,000 of certain long-lived assets, (ii)
severance and benefit pay of $1,335,000 as a result of a 95 person
reduction in workforce, and (iii) other expenses associated with the
termination of the Amdahl Reseller Agreement.
Accrued interest of $7,485,000 and $1,521,000 was payable to Gould
Electronics, Inc at June 30, 1996 and July 2, 1995, respectively. The
balance of the accrued interest is being amortized over the term of the
credit agreement.
E. Debt
Debt consists of the following (in thousands):;
June 30, December 31,
1996 1995
Debt to unrelated parties:
Mortgages payable $ 745 $ 829
Current portion of debt (179) (171)
Total long term debt
to unrelated parties $ 566 $ 658
Debt to related parties:
Credit Agreement with
Gould Electronics Inc. $ 41,329 $ 40,154
Current portion of debt (41,329) -
Total long term debt to
related parties $ - $ 40,154
The Japan Energy Group is a related party due to the significant
financial interests of Gould and EFI in the Company. Assuming full
conversion of preferred stock holdings as of June 30, 1996, the Japan
Energy Group beneficially owns 78% of the Company's common stock. Since
1989, Gould has provided the Company with its revolving line of credit,
entered into certain borrowing agreements and certain exchanges of debt
for equity.
On April 16, 1996, Gould as authorized by Japan Energy Corporation
canceled $35,000,000 of indebtedness pursuant to a Revolving Credit
Agreement ("Credit Agreement") which was scheduled to mature on that
date, in exchange for 350,000 shares of the Company's Series H
Convertible Preferred Stock ("Series H") as discussed in more detail in
Note F of Notes to Condensed Consolidated Financial Statements.
In addition to the exchange of indebtedness for Series H, Gould amended
the Credit Agreement in order to provide the Company with a committed
borrowing facility of $65,000,000. As of August 16, 1996, the Company
had remaining $14,328,000 under the Credit Agreement. Additionally, the
Company owes Gould interest of approximately $8,153,000 at August 16,
1996.
The credit facility bears interest at the prime rate plus 2% (10.25% at
June 30, 1996). As of December 31, 1995, the Company owed Gould
$40,154,000 under the Credit Agreement bearing interest at the prime
rate plus 2% (10.5% at December 31, 1995). In addition accrued interest
owed to Gould at December 31, 1995 was approximately $5,215,000.
Borrowings are collateralized by substantially all of the Company's
tangible and intangible assets and the agreement contains various
covenants including maintenance of cash flow, leverage and tangible net
worth ratios and limitations on capital expenditures, dividend payments
and additional indebtedness.
Gould extended 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. The Series B Convertible
Preferred Stock ("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 and the Company fails to pay cash
dividends for eight consecutive quarters. Gould has 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.
Certain of the Company's operations relate to classified U. S.
Government contracts. Accordingly, the United States Government has
previously reviewed 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 Corporation, a foreign corporation. In
connection with the various exchanges of indebtedness for preferred
stock, 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 the Japan Energy Group and the Company. The DIS has
not yet reviewed the effect this exchange of indebtedness for Series H
combined with the expansion of the credit facility has on the
relationship between the Company, Japan Energy Corporation and its
wholly owned subsidiaries (Gould and EFI).
Since 1989, the principal source of financing for the Company has been
provided by Japan Energy Group. The Company is dependent on the
continued long term financial support of the Japan Energy Group. Should
the Japan Energy Group withdraw its financial support at any time prior
to the time the Company returns to profitability by failing to provide
additional credit as needed, the Company anticipates it will be unable
to secure financing from other sources. In such a case, the Company
will suffer a severe liquidity crisis and will have difficulties
settling its liabilities in the normal course of business.
F. Shareholders' Equity
As discussed in more detail in Note E of Notes to Condensed Consolidated
Financial Statements, on April 16. 1996, Gould canceled $35,000,000 of
indebtedness in exchange for Series H with a liquidation preference of
$35,000,000. The Series H carries a 6% cumulative annual dividend
requirement payable quarterly which the Company can accumulate or pay in
additional shares of preferred stock (valued at its liquidation
preference) until the Company's shareholders' equity exceeds
$50,000,000. The Series H 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 Series H 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 Preferred Stock 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
Preferred Stock would be converted. The Series H is senior in
liquidation priority to all other classes of the Company's preferred and
common stock and is redeemable by the Company at any time for cash equal
to the liquidation preference plus accumulated dividends. Because of
the related party nature of the transaction, the difference between the
carrying amount of the indebtedness exchanged and the par 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 $35,000
Par value of shares issued (4)
Accrued estimated transaction costs (200)
Reversal of accrued interest on previous
recapitalization 111
Accrued interest on the remaining Gould indebtedness
for the remaining term of the agreement (2,665)
Increase in additional paid in capital $ 32,242
During the six months ended July 2, 1995, options granted to certain
officers and employees of the Company were scheduled to expire if not
exercised. However, at the time the options were scheduled to expire
the Company's policy on insider trading effectively prevented the
officers from exercising the options. Accordingly, the Board of
Directors approved an extension of the expiration date until September
7, 1996. The extension was treated as a cancellation of the old options
and a grant of new options in the same amount at the same exercise
price. A non-cash non-recurring compensation charge of $1,425,000 was
recorded in the six month period ended July 2, 1995, in connection with
the extension of the expiration date of the stock options.
Item 2
Management's Discussion and Analysis
of Financial Condition and Results of Operations
for the Three and Six Months Ended June 30, 1996
Compared to the
Three and Six Months Ended July 2, 1995
The following is management's discussion and analysis of the financial
condition and the results of operations of Encore Computer Corporation
("Encore" or the "Company") for the three and six month periods ended
June 30, 1996 compared to the three and six month periods ended July 2,
1995. The Company's net loss for the three and six months ended June
30, 1996 was $13,711,000 and $30,608,000, respectively, compared to the
net loss for the same periods of 1995 of $35,311,000 and $54,493,000,
respectively. As discussed in Note B of the Notes to Condensed
Consolidated Financial Statements, during the second quarter of 1995 the
Company recorded a charge to operations totaling $19,241,000 which
related to the termination of the reseller agreement between Encore and
Amdahl Corporation.
RESULTS OF OPERATIONS:
Total net sales for the three and six month periods of 1996 were
$11,599,000 and $23,313,000, respectively, compared to net sales for the
three and six month periods of 1995 of $11,631,000 and $24,866,000,
respectively. For the six month period ended June 30, 1996, domestic
sales of $11,497,000 decreased 3%, while international sales of
$11,816,000 decreased 9% from the same period in 1995.
The Company has continued its heavy investment in the research and
development of its open systems architecture. This effort has most
recently resulted in the announcement and delivery of products such as
the Infinity SP(TM) and the Infinity R/T(TM). The Company continues
to invest heavily in research and development of the Infinity SP(TM)
Universal Storage Processor with DataShare(TM) Facilities to establish
its presence in the multibillion dollar storage marketplace. Although
the storage marketplace is new to Encore, the Company expects the
Infinity SP(TM) product will increase its participation in the market.
From a storage perspective, the Infinity SP(TM) supports multiple
environments and cross platform data sharing between open systems and
mainframe applications and is built around Encore's patented Memory
Channel/Reflective Memory technology.
To market the new storage product, the Company continues its direct
distribution and OEM sales and marketing campaign. As part of this
campaign, the Company continues to recruit industry knowledgeable sales
people from leading storage vendors. Additionally, Encore continues to
seek out strategic distribution partners whose industry presence,
expertise and sales channels will allow it to more efficiently bring the
Company's leading edge open system and Storage Product offerings to
market. Examples of the Company's efforts were the signing of
distribution agreements with Memorex Telex companies located in Sweden,
Italy, Spain, and the United Kingdom. These distributors will sell the
Infinity SP products to mainframe, midrange, and open systems markets.
Equipment sales increased by $2,285,000 or 54% and $3,245,000 or 33%
during the three and six month periods ended June 30, 1996,
respectively, when compared to the prior year. Domestic equipment sales
increased 47% to $7,441,000 for the six months ended June 30, 1996 and
international equipment sales increased 18% to $5,681,000 compared to
the same period in 1995. Sales of the Company's Storage Product
accounted for $2,924,000 of this increase, while in the real-time
market, RSX sales continue to offset declines in other end-of-life
products.
The following table illustrates equipment cost of sales for the three
and six months ended June 30, 1996 and July 2, 1995:
THREE MONTHS ENDED SIX MONTHS ENDED
Jun-30 Jul-2 Jun-30 Jul-2
1996 1995 1996 1995
Equipment Sales $6,551 $4,266 $13,122 $9,877
Equipment Cost of 5,075 20,172 10,954 26,108
Sales
Restructuring (14,242) (14,242)
Adjusted Cost of $5,075 $5,930 $10,954 $11,866
Sales
Adjusted Cost as % 77% 139% 83% 120%
of Revenue
During the three month period ended July 2, 1995, the Company charged
equipment cost of sales $14,242,000 as a result of the termination of
the Amdahl Agreement, as discussed in Note B of the Notes to Condensed
Consolidated Financial Statements. Excluding this charge, cost of
equipment sales for the three and six month periods of 1996 decreased
from the comparable periods of 1995 by $855,000 or 14% and $912,000 or
8%, respectively, on higher revenues. As a percentage of net sales,
1996 cost of equipment sales in the three and six month periods
decreased 62 and 37 percentage points respectively, when compared to the
same periods in 1995. These decreases are attributed to an improvement
in efficiency and manufacturing variances due to the maturing of the
Storage Product manufacturing process and reduced warranty expenses
related to the Storage Product.
During the first six months of 1996, the Company has made a substantial
effort to expand programs to market the Storage Product through various
channels, including direct, distributor and OEM sales and marketing
campaigns. Sales of this product are increasing, however, to date have
not met management's expectations. The Company has acquired significant
inventories, provided product to customers on a trial basis, and
continues to improve product features and functionality. The Company
continues to pursue a major OEM agreement, involving significant product
volumes, expected to be finalized in the third quarter of 1996. In the
event an agreement does not materialize and other channels are not
established to significantly improve future Storage Product revenue, a
write down of inventories is probable. No estimate can be made of a
range of amount of loss that is reasonably possible should these
initiatives not be successful.
Service sales continue to decline. For the three and six month periods
ending June 30, 1996, service sales decreased $2,317,000 or 31% and
$4,798,000 or 32% compared to the same periods in 1995. For the six
month period, domestic service revenues declined 40% and international
service revenues declined 25%. Continued declining service revenues
reflect the effect on the service business of; (i) the Company's
prolonged decline in equipment sales, (ii) the price competitiveness of
the marketplace, (iii) the completion of long running government
programs and subsequent deinstallation of systems and (iv) longer
warranty periods for equipment sales required to compete in the storage
marketplace. The company expects this trend to continue.
The following table illustrates service gross margins for the three and
six month periods ended June 30, 1996 and July 2, 1995:
THREE MONTHS ENDED SIX MONTHS ENDED
Jun-30 Jul-2 Jun-30 Jul-2
1996 1995 1996 1995
Service Sales $5,048 $7,365 $10,191 $14,989
Service Cost 4,113 5,334 9,074 11,087
of Sales
Gross Margin $ 935 $2,031 $ 1,117 $ 3,902
Margin as a % 19% 28% 11% 26%
of Revenue
Cost of service sales for the three and six month periods ended June 30,
1996, decreased from the comparable periods of 1995 by $1,221,000 or 23%
and $2,013,000 or 18%, respectively. All service sales are derived from
installed real-time products and the cost structure within the service
department is highly variable due to the utilization of service
partners. Therefore, as revenues decline, costs decline as well.
Moreover, management continues to reduce fixed costs on an ongoing
basis. However, the Company continues its investment in various
programs and infrastructure necessary to support the Storage Product
line. For the three and six month periods ended June 30, 1996, the
Storage Product investment totaled $1,268,000 and $2,766,000
respectively, versus $927,000 and $1,876,000 for comparable periods in
1995. Excluding the cost associated with Storage Products, gross margin
as a percentage of customer service revenue was 44% and 38% during the
three and six month periods ended June 30, 1996, respectively, versus
40% and 39% in the same periods of 1995.
Research and development costs for the three and six month periods ended
June 30, 1996, decreased from the comparable periods of 1995 by $823,000
or 10% and $1,508,000 or 9%, respectively. However, during the second
quarter of 1995 the Company charged research and development $500,000
for the write down of capitalized software projects as discussed in Note
B of the Notes to Condensed Consolidated Financial Statements.
Excluding this charge, spending decreased $323,000 or 4% and $1,008,000
or 6% for the three and six month periods ended June 30, 1996,
respectively, when compared to 1995. This decrease is due to the
continued effect of headcount reductions taken in the second quarter of
1995. As a percentage of net sales, research and development expenses
ranged from 66% to 69% for the three and six month periods of 1995 and
1996 excluding the restructuring charge. The Company plans to continue
high levels of research and development expenditures in order to become
the market leader in the storage marketplace. The Company expects
research and development spending in the third quarter of 1996 to remain
relatively constant.
Selling, general and administrative expenses decreased by $225,000 and
$1,489,000, respectively for the three and six month periods of 1996
when compared to 1995. The decrease is attributable to cost reduction
actions taken in the second quarter of 1995 to adjust expenses to levels
more consistent with the declining revenue base. As a percentage of net
sales, selling, general and administrative costs were 67% and 71%,
respectively, for the three and six months ended June 30, 1996 compared
to 69% and 72%, respectively, for the comparable three and six month
periods of 1995. An increase in sales, general and administrative
expenses is expected in the near term as the Company expands its sales
efforts for the Storage Product.
During the second quarter of 1995 management evaluated the Company's
latest financial projections, and concluded; (i) the termination of the
Amdahl contract resulted in a significant delay in the realization of
product revenues, (ii) the rate of decline in real-time equipment and
service revenues had exceeded its previous estimates and (iii) the rate
of worldwide sales growth anticipated in newer product lines remained
significantly below projected levels. In light of these conclusions,
management restructured its operations and recorded a charge to
operations of $4,499,000. The most significant of these restructuring
actions were; (i) a 95 person reduction in workforce primarily in
manufacturing and development, resulting in a severance charge of
$1,335,000, (ii) a write down of $782,000 in the carrying value of the
equipment used in the support of the Amdahl Agreement and (iii) the
write off of $1,123,000 of capitalized software assets relating to the
Company's UNIX based product lines.
Interest expense for the three month period ended June 30, 1996 was
$548,000 versus $382,000 for the same period in 1995. This was
primarily due to interest charges on accrued interest under the Gould
Credit Agreement. For the six month period ended June 30, 1996 interest
expense decreased $972,000 to $1,238,000 when compared to the six month
period ended July 2, 1995. This decrease is due to various exchanges of
indebtedness for preferred stock.
Other expense primarily consists of foreign exchange gain or loss. The
Company realized gains in 1995 and losses in 1996.
Income taxes for the three and six month periods of 1995 related to
profitable operations of certain foreign subsidiaries. For the
comparable three and six month periods of 1996 the Company has not
recorded a provision for income taxes as a result of losses incurred and
large net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES:
Since 1989, the primary source of financing for the Company has been
provided by Japan Energy Corporation and its wholly owned subsidiaries,
Gould Electronics, Inc. and EFI, Inc. (the "Japan Energy Group"). The
Japan Energy Group has provided the Company with its revolving credit
facility, loan guarantees, refinanced subordinated debentures and
entered into various exchanges of indebtedness for the Company's
preferred stock. As of June 30, 1996, assuming full conversion of its
holdings in the Company's preferred stock, the Japan Energy Group
beneficially owns 78% of the Company's common stock.
During the past five years, the Company has incurred significant
operating losses and has been unable to generate cash flows from
operating activities. Cash used in operating activities for the six
month period ended June 30, 1996 amounted to $33,182,000 compared to
$27,167,000 for the same period in 1995. Among the significant uses of
cash in the six months of 1996 were; (i) the net loss for the period of
$30,608,000 and (ii) increased inventory acquisition of $9,594,000,
primarily related to the Storage Product. These uses of cash were
partially offset by increased accounts payable and accrued liabilities
of $713,000 and non cash expenses, specifically, obsolescence of
$540,000 and depreciation/amortization of $5,795,000.
The Company continues to pursue a major OEM agreement, involving
significant product volumes, expected to be finalized in the third
quarter of 1996. In the event an agreement does not materialize and
other channels are not established to significantly improve future
Storage Product revenue, a write down of inventories is probable. No
estimate can be made of a range of amount of loss that is reasonably
possible should these initiatives not be successful.
During the six month periods ended June 30, 1996 and July 2, 1995,
expenditures for property and equipment were $3,963,000 and $2,277,000,
respectively while expenditures for capitalized software were $0 and
$1,163,000, respectively. Increased spending on property and equipment
in 1996 is primarily related to the ongoing development of Storage
Product functionality.
Cash provided by financing activities for the six month periods ended
June 30, 1996 and July 2, 1995 amounted to $37,164,000 and $31,367,000,
respectively. The principal source of financing has been through
various loan agreements provided by Japan Energy Group. On April 16,
1996 the Japan Energy Group continued its support as discussed in Note E
of the Notes to Condensed Consolidated Financial Statements by (i)
accepting Preferred Series "H" Stock in exchange for $35,000,000 of debt
and (ii) providing a $65,000,000 line of credit. As of August 16, 1996,
Encore had available to borrow $14,328,000 under the Gould Credit
Agreement. Encore owed to Gould $50,672,000 in debt, plus $8,153,000 in
accrued interest.
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.
Based on the Company's cash flow projections, management believes the
amounts currently available under its credit agreement with Gould should
be sufficient to meet its needs through year end. However, the
possibility exists that additional funding may be required before year
end. 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 funding 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.
<PAGE>
Part II - Other Information
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits required by Item 601 of Regulation S-K
Exhibit No. 3.1- Certificate of Designations, Powers rights and
Preferences of Series H Convertible Preferred Stock of Encore
Computer Corporation as filed with the Delaware Secretary of
State on May 24, 1996. See pages 1-20.
Exhibit No. 10.1- Third Amended And Restated Credit Agreement.
See pages 1-93.
Exhibit No. 10.2 - Certificate. See page 1.
Exhibit No. 11 - Statement re: computation of per share
earnings. See page 22.
Exhibit No. 27 - Financial Data Schedule. See page 23.
Exhibit No. 99 - Cautionary Statement for the Purposes of the
"Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995.
See pages 24 - 27.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter ended June 30, 1996.
<PAGE>
Encore Computer Corporation
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned.
Encore Computer Corporation
KENNETH G. FISHER KENNETH S. SILVERSTEIN
Date:August 19, 1996 Kenneth G. Fisher Kenneth S.Silverstein
Chairman of the Board Corporate Controller
and Chief Executive Officer Secretary
Chief Accounting Officer
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Stockholders of Encore Computer Corporation was
held at Encore Computer Corporation's Headquarters on Tuesday, June 25,
1996. The meeting agenda included: (1) the election of the Company's
directors and (2) the approval of the selection of the Company's
independent auditors. The results of the votes for each of these
proposals were as follows:
1. Election of Directors:
For Against
Kenneth G. Fisher 33,863,220 301,542
Daniel O. Anderson 33,860,380 304,482
Rowland H. Thomas 33,858,358 306,504
2. The shareholders approved Coopers & Lybrand L.L.P. as the
Company's independent auditors for the fiscal year ending December 31,
1996, by a vote of 33,941,041 in favor to 136,980 against with 86,841
abstentions.
ENCORE COMPUTER CORPORATION
Computation of Loss per Share
(unaudited)
(in thousands except per share data)
Three Months Ended Six Months Ended
June 30, July 2, June 30, July 2,
Primary 1996 1995 1996 1995
Net loss $ -13,711 $ -35,311 $ -30,608 $ -54,493
Series B, D, E and F Preferred
Stock Dividends -5,197 -4,404 -10,317 -8,497
Series G Preferred
Stock Dividends -846 0 -1,679 0
Net loss attributable to
common shareholders $ -19,754 $ -39,715 $ -42,604 $ -62,990
Weighted average common
shares outstanding 36,756 34,678 36,552 34,428
Series A assumed converted 7,364 7,364 7,364 7,364
Weighted avg shares outstand 44,120 42,042 43,916 41,792
Net loss per share $ 0 $ -1 $ -1 $ -2
Assuming Full Dilution
Net loss $ -13,711 $ -35,311 $ -30,608 $ -54,493
Wghtd avg common shares outstand 36,756 34,678 36,552 34,428
Series A assumed converted 7,364 7,364 7,364 7,364
Series B assumed converted 22,371 21,085 22,206 20,925
Series D assumed converted 34,232 32,263 33,979 32,019
Series E assumed converted 34,991 32,978 34,732 32,728
Series F assumed converted 16,373 15,451 16,252 9,113
Series G assumed converted 17,569 0 17,439 0
Series H assumed converted 8,994 0 4,497 0
Exercise of options reduced by
the number of shares purchased
with proceeds 4,353 3,411 4,292 4,267
183,003 147,230 177,313 140,844
Net loss per share $ -0.07 $ -0.24 $ -0.17 $ -0.39
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
ENCORE COMPUTER CORPORATION
Financial Data Schedule
(Unaudited)
(in thousands)
For the six months ended June 30, 1996
Cash and cash items 2,816
Marketable securities 0
Notes and accounts receivable-trade 15,053
Allowances for doubtful accounts -881
Inventory 24,850
Total current assets 43,047
Property, plant and equipment 94,000
Accumulated depreciation -58,913
Total assets 79,974
Total current liabilities 72,984
Bonds, mortgages and similar debt 745
Preferred stock mandatory redemption 0
Preferred stock no mandatory redemption 45
Common stock 370
Other stockholders' equity 4,809
Total liabilities & equity 79,974
Sales of tangible products 13,122
Total revenues 23,313
Cost of tangible goods sold 10,954
Total costs applicable to revenues 20,028
Other costs and expenses -258
Provision for doubtful accounts and notes -153
Interest and amortization of debt discount 1,162
Income before taxes and other items -30,608
Income tax expense 0
Income/loss from continuing operations -30,608
Discontinued operations 0
Extraordinary items 0
Cumulative effect of accounting changes 0
Net income or loss -30,608
Earnings per share-primary -.97
Earnings per share-fully diluted -.17
</TABLE>
CERTIFICATE OF DESIGNATIONS,
POWERS, RIGHTS AND PREFERENCES
OF SERIES H 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 April 16, 1996, duly adopted a resolution designating the
designations, powers, rights and preferences relating to its Series H
Convertible Preferred Stock as follows:
"RESOLVED, that the Board of Directors (the "Board") of Encore
Computer Corporation (the "Corporation") authorizes the issuance of a series
of preferred stock consisting of 1,000,000 shares and the Board fixes the
powers, designations, preferences and relative, participating, optional or
other rights, and the qualifications, limitations or restrictions thereof,
of the shares of that series as follows:
1. DESIGNATION AND AMOUNT. The designation of the series of
preferred stock authorized by this resolution will be the Series H
Convertible Preferred Stock (the "Series H Convertible Stock"). The total
number of shares of Series H 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 H 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 July 15, 1996 (each a "Dividend Payment
Date"), except that the annual cash dividend payable in 1996 will be $4.25
per share and the quarterly installment payable on July 15, 1996 will be
$1.50 per share. Dividends on the Series H Convertible Stock will be
cumulative from the date of initial issuance of shares of Series H
Convertible Stock. The Corporation will not, however, be required to pay a
cash dividend unless that cash dividend can be paid out of Stockholders
Equity in excess of $50,000,000. To the extent the Corporation does not
have sufficient Stockholders Equity to be able to pay a dividend on the
Series H 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 H
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 H
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 H 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 H 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 H Convertible Stock have been paid in cash or, to the extent
permitted by subparagraph 2(a), in shares of Series H 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 H 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 H Convertible Stock
rank prior. If the Series H 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 H Convertible Stock ranks prior to the other
class or series but not as to other matters. As used with regard to the
Series H Convertible Stock, the term "Parity Shares" means any class or series
of preferred stock which ranks on a parity with the shares of Series H
Convertible Stock. If the Series H 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 H Convertible Stock ranks on a parity
but
not as to other matters. At any time when there are accumulated dividends on
the Series H 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 H Convertible Stock constituting at least the same percentage of the
accumulated dividends on the Series H Convertible Stock that the dividend on
the Parity Stock is of the accumulated dividends on the Parity Stock.
3. RANKING. The shares of Series H 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 H Convertible Stock which are outstanding at the time the designation
is made (or such greater percentage of the outstanding shares of Series H
Convertible Stock as is required by law), as ranking prior to, or on a
parity with, the shares of Series H 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 H Convertible Stock rank prior to
the shares of Series B Convertible Preferred Stock, Series D Convertible
Preferred Stock, Series E Convertible Preferred Stock and Series F
Convertible Preferred Stock and Series G 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 H 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 H 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
H Convertible Stock and any Parity Shares are insufficient to pay in full
the preferential amount payable to the holders of shares of Series H
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
Convertible Stock and to the holders of such Parity Shares, will be
distributed to the holders of the Series H 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 H Convertible Stock are entitled, the holders of shares of Series
H 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 H 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 H 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 H Convertible Stock to be converted will
surrender the certificate representing that share to the conversion agent
for the Series H 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 H 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 H
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 H 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 H Convertible Stock on a dividend payment Record Date who
(or whose transferees) convert any of those shares on or after the
corresponding Dividend Payment Date will receive the dividend payable by the
Corporation on those shares of Series H 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 H 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 H 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
H 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+
(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 H 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 H 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 H
Convertible Stock. Any fractional interest in a share of Common Stock
resulting from conversion of shares of Series H 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 of Series H Convertible Stock 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 H Convertible Stock so surrendered.
(d) The "Conversion Price" per share of Series H 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 H 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
plus the number of additional shares of Common Stock issuable on exercise of
all the rights or warrants. The adjustment provided for in this
subparagraph 5(d)(ii) will be made successively whenever any rights or
warrants are issued, and will become effective immediately, except as
provided in subparagraph 5(d)(viii), after each record date. In determining
whether any rights or warrants entitle the holders of the Common Stock to
subscribe for or purchase shares of Common Stock at less than the Current
Market Price, and in determining the aggregate offering price of the shares
of Common Stock issuable 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 expire without being exercised, the
Commission Price in effect when fee rights or warrants expire 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 H Convertible Stock, the holder of the Series H
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 H 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,
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 H 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 H 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 H 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
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 H
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 H 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 H 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 H
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 H
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 H
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 H 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 H 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 H 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
(i) No holder of shares of Series H 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 H 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 H 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 H 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 H Convertible Stock to convert their
Series H 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 H Convertible Stock will be deemed to have surrendered the
certificates representing their shares of Series H 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 H 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 H 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 H Convertible Stock are entitled without requiring
the surrender of the certificates which formerly represented shares of
Series H Convertible Stock, or (B) set aside in trust for the respective
holders of certificates which formerly represented Series H 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 H Convertible Stock is entitled to receive,
without interest, when the former holder surrenders the certificates which
represented the Series H 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 H Convertible Stock will belong to
the Corporation.
(c) If the Corporation presents to the holders of the Series
H Convertible Stock a form of firm commitment underwriting agreement or
other purchase contract relating to a purchase by a buyer or group of buyers
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 H 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 H 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 H 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 H
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 H
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 H 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 H Convertible Stock, the shares of Series H 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 H
Convertible Stock.
8. VOTING RIGHTS. (a) The holders of shares of Series H
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 H 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 H 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 H 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 H
Convertible Stock, (iii) authorize any reclassification of the Series H
Convertible Stock or (iv) increase the number of shares of Series H
Convertible Stock the Corporation may issue. This subparagraph will not
prevent (u) the issuance of Series H Convertible Stock which is authorized
in Paragraph 1, (v) 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"), (w) 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"), (x) the issuance of Series E
Convertible Preferred Stock which is authorized in Paragraph 1 of the
Certificate of Designations, Powers, Rights and Preferences of Series E
Convertible Preferred Stock dated February 3, 1994 (the "Series E
Preferred Stock which is authorized in Paragraph 1 of the Certificate of
Designations, Powers, Rights and Preferences of Series F Convertible
Preferred Stock dated March 17, 1995 (the "Series F Certificate of
Designation") or (z) the issuance of Series G Convertible Preferred Stock
which is authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferences of Series G Convertible Preferred Stock dated
August 17, 1995 (the "Series G 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 H 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 H 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 H 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 H Convertible Stock.
(d) Except as may otherwise be required by law, the shares
of Series H 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
H 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 H Convertible Stock and (ii)
100% of the shares of Series H 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
_________________, this __th day of April, 1996.
ENCORE COMPUTER CORPORATION
By: KENNETH G. FISHER
Kenneth G. Fisher
Chief Executive Officer
THIRD AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of April 16, 1996
between
ENCORE COMPUTER CORPORATION
and
GOULD ELECTRONICS INC.
TABLE OF CONTENTS
PAGE
1. DEFINED TERMS ........................................... 2
1.01 Definitions ...................................... 2
2. UNCOMMITTED LOANS ....................................... 8
2.01 Conversion of Uncommitted Loans .................. 8
3. REVOLVING LOAN FACILITY ................................. 8
3.01 The Loans ........................................ 8
3.02 Manner of Borrowing .............................. 8
3.03 Notes ............................................ 9
4. PROVISIONS RELATING TO LOANS ............................ 9
4.01 Payment in Full .................................. 9
4.02 Payment of Interest .............................. 9
4.03 Prepayment ....................................... 10
4.04 Interest after Default ........................... 10
4.05 Payments ......................................... 10
4.06 Payment of Principal and Interest ................ 10
4.07 Use of Proceeds .................................. 11
5. REPRESENTATIONS AND WARRANTIES OF BORROWER .............. 11
5.01 Integrated Group ................................. 11
5.02 Corporate Existence .............................. 11
5.03 Security Documents ............................... 11
5.04 Corporate Authority; No Contravention ............ 11
5.05 Binding Effect ................................... 12
5.06 Financial Condition .............................. 12
5.07 Securities and Exchange Commission Filings ....... 12
5.08 Disclosure ....................................... 12
5.09 Taxes ............................................ 13
5.10 Litigation ....................................... 13
5.11 Title to Properties; Liens ....................... 13
5.12 Indebtedness ..................................... 14
5.13 No Default ....................................... 14
5.14 ERISA ............................................ 14
5.15 Investment Company Act ........................... 14
5.16 Subsidiaries ..................................... 14
5.17 Environmental Matters ............................ 14
6. AFFIRMATIVE COVENANTS ................................... 15
7. NEGATIVE COVENANTS ...................................... 15
8. CONDITIONS PRECEDENT .................................... 16
8.01 Effectiveness of Agreement; Initial Loans ........ 16
8.02 Additional Conditions to Loans ................... 17
9. EVENTS OF DEFAULT ....................................... 18
9.01 Events of Default ................................ 18
9.02 Default Remedies ................................. 20
10. GENERAL PROVISIONS ...................................... 20
10.01 Notices .......................................... 20
10.02 Amendment; Waiver ................................ 21
10.03 Integration ...................................... 21
10.04 Successors and Assigns ........................... 22
10.05 Expenses; Documentary Taxes; Indemnification ..... 22
10.06 Counterparts ..................................... 23
10.07 Headings ......................................... 23
10.08 GOVERNING LAW; SUBMISSION TO JURISDICTION ........ 23
10.09 WAIVER OF JURY TRIAL ............................. 23
EXHIBIT A-1 - Master Revolving Note
EXHIBIT A-2 - Monthly Master Term Note
EXHIBIT B - Form of Request for Loan
Agreement (Brevard)
EXHIBIT C-2 - Seventh Mortgage Modification and Security
Agreement (Broward)
EXHIBIT D-1 - Opinion of Special Counsel to Borrower
EXHIBIT D-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
THIRD AMENDED AND RESTATED CREDIT AGREEMENT, dated as of
16, 1996 between ENCORE COMPUTER CORPORATION, a Delaware corporation
("Borrower"), and GOULD ELECTRONICS INC., an Ohio corporation ("Lender"),
which amends and restates in its entirety the Second Amended and Restated
Credit Agreement dated as of August 17, 1995 between Borrower and Lender
(the Second Amended and Restated Credit Agreement").
W I T N E S S E T H:
WHEREAS, on the date hereof, the outstanding principal balance of
Revolving Loans under the Amended and Restated Credit Agreement is
$36,600,000; and
WHEREAS, the Maximum Amount of Revolving Loans under the Second
Amended and Restated Credit Agreement is $25,000,000; and
WHEREAS, the Lender has agreed to increase the Maximum Amount of
Revolving Loans to $65,000,000; and
WHEREAS, pursuant to the Master Purchase Agreement, dated the
date hereof (the "Master Purchase Agreement"), between Lender and Borrower,
an aggregate principal amount of $25,000,000 of Revolving Loans and an
aggregate principal amount of $10,000,000 in Uncommitted Loans, each
outstanding under the Second Amended and Restated Credit Agreement, dated
as of August 17, 1995, between the Borrower and Lender, as amended by the
First Amendment thereto, dated as of February 14, 1996 (as so amended, the
"Second Amended and Restated Credit Agreement") are being exchanged by
Lender for shares of Series H Convertible Preferred Stock of Borrower; and
WHEREAS, in connection with the execution of the Master Purchase
Agreement, and with the increase in the Maximum Amount of Revolving Loans,
Lender and Borrower have agreed to amend and restate the Second Amended and
Restated Credit Agreement to eliminate the $30,000,000 uncommitted loan
facility under the Second Amended and Restated Credit Agreement; and
WHEREAS, the total principal amount of the Uncommitted Loans
remaining outstanding after the exchange of $10,000,000 in Uncommitted
Loans for shares of Series H Preferred Stock is, upon execution of this
Loan Agreement, to be converted into a Revolving Loan under the Revolving
Credit Facility described in Section 3 and to be evidenced by a Revolving
Loan Note.
NOW, THEREFORE, Borrower and Lender hereby amend and restate the
Second Amended and Restated Credit Agreement in its entirety as follows:
1. DEFINED TERMS
01 DEFINITIONS.
(a) As used in this Agreement, the following terms have the
following meanings:
"AMENDED AND RESTATED CREDIT AGREEMENT" shall mean the Amended
and Restated Credit Agreement dated as of March 17, 1995 between Borrower
and Lender, as amended.
"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, 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.
"DEFERRED INTEREST AGREEMENT" shall mean the Deferred Interest
Agreement between Borrower and Lender, dated as of April 16, 1996.
"ENCORE CERTIFICATE OF DESIGNATIONS LETTER" shall mean the Encore
Certificate of Designations Letter, dated April 16, 1996, 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
Modification of Mortgage and Security Agreement, dated as of March 17,
1995, between Encore U.S. and Lender, relating to property in Brevard
County, Florida as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"FIFTH MORTGAGE MODIFICATION (BROWARD)" shall mean the Fifth
Modification of Mortgage and Security Agreement, dated as of March 17,
1995, between Encore U.S. and Lender, relating to property in Broward
County, Florida, as the same may be amended, modified, supplemented,
extended or renewed from time to time 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
Modification of Mortgage and Security Agreement, dated as of December 21,
1994, between Encore U.S. and Lender, relating to property in Brevard
County, Florida, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"FOURTH MORTGAGE MODIFICATION (BROWARD)" shall mean the Fourth
Modification of Mortgage and Security Agreement, dated as of December 21,
1994, between Encore U.S. and Lender, relating to property in Broward
County, Florida, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"GAAP" shall mean generally accepted accounting principles in the
United States of America in effect from time to time.
"IBJ" shall mean The Industrial Bank of Japan, Limited.
"INDEBTEDNESS" shall mean as to any Person at any date (without
duplication) (i) all obligations of such Person for borrowed money or
evidenced by bonds, debentures, notes or other similar instruments; (ii)
all obligations of such Person to pay the deferred purchase price of
property or services (other than wages), except trade accounts payable
under normal trade terms and which arise, and accrued expenses incurred, in
the ordinary course of business; (iii) all Capital Lease Obligations of
such Person; (iv) all Indebtedness of others secured by a Lien on any asset
of such Person, whether or not such Indebtedness is assumed by such Person;
(v) all obligations of such Person in respect of letters of credit or
similar instruments issued or accepted by banks or other financial
institutions for the account of such Person; and (vi) all Indebtedness of
others to the extent guaranteed by such Person.
"INTELLECTUAL PROPERTY LICENSE AGREEMENT" shall mean the
Intellectual Property License Agreement, dated as of January 28, 1991,
among Lender, Borrower and Encore U.S., as amended by the amendment
thereto, dated August 17, 1995, and as the same may be further amended,
modified, supplemented, extended or renewed from time to time.
"LIEN" shall mean, with respect to any asset, (i) any mortgage,
deed of trust, lien, pledge, charge, security interest or encumbrance of
any kind in respect of such asset or (ii) the interest of a vendor or
lessor under any conditional sale agreement, financing lease or other title
retention agreement relating to such asset.
"LOAN DOCUMENTS" shall mean this Agreement, the Master Revolving
Note, the Monthly Revolving Term Notes, the Master Purchase Agreement (and
other documents executed in connection therewith), the Security Agreement,
the Security Documents, the Standstill Agreement, the Fourth Mortgage
Modification (Brevard), the Fifth Mortgage Modification (Brevard), the
Sixth Mortgage Modification (Brevard), the Seventh Mortgage Modification
(Brevard), the Fourth Mortgage Modification (Broward), the Fifth Mortgage
Modification (Broward), the Sixth Mortgage Modification (Broward), the
Seventh Mortgage Modification (Broward), the Seventh Amended and Restated
Registration Agreement, the Encore Certificate of Designations Letter, the
Deferred Interest Agreement 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.
"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
"MASTER REVOLVING NOTE" shall mean the Master Revolving Note,
substantially in the form annexed hereto as Exhibit A-1, as the same may be
amended, modified, supplemented, extended or renewed from time to time.
"MASTER UNCOMMITTED LOAN NOTE" shall mean the Master Uncommitted
Loan Note, as defined under the Second Amended and Restated Credit
Agreement, as the same may be amended, modified, supplemented, extended or
renewed from time to time.
"MATURITY DATE" shall mean the earlier of (a) April 30, 1997 or
(b) the date, if any, upon which the Loans shall become due and payable
pursuant to subsection 4.01 or 9.02 hereof.
"MAXIMUM AMOUNT OF REVOLVING LOANS" shall mean $65,000,000.
"MONTHLY REVOLVING TERM NOTE" shall mean a Monthly Revolving Term
Note, substantially in the form annexed hereto as Exhibit A-2, as the same
may be amended, modified, supplemented, extended or renewed from time to
time (collectively, the "MONTHLY TERM NOTES").
"MONTHLY UNCOMMITTED LOAN NOTE" shall mean a Monthly Uncommitted
Loan Note, as defined under the Second Amended and Restated Credit
Agreement, as the same may be amended, modified, supplemented, extended or
renewed from time to time (collectively, the "Monthly Uncommitted Loan
Notes").
"NOTES" shall mean the collective reference to the Master
Revolving Note and the Monthly Revolving 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.
"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 mean the Amended and Restated
Loan Agreement dated as of March 31,1992 between Borrower and Lender, as
amended by an Amendment to Loan Agreement dated as of April 11, 1994.
"REVOLVING CREDIT FACILITY" shall mean the revolving credit
facility described in Section 3 hereunder.
"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.
"SECOND AMENDED AND RESTATED LOAN AGREEMENT" shall have the
"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.
"SEVENTH MODIFICATION OF MORTGAGE (BREVARD)" shall mean the
Seventh Modification of Mortgage and Security Agreement, dated as of the
date hereof, between Encore U.S. and Lender relating to property in Brevard
County, Florida, in the form annexed hereto as Exhibit C-1, as the same may
be amended, modified, supplemented, extended or renewed from time to time.
"SEVENTH MODIFICATION OF MORTGAGE (BROWARD)" shall mean the
Seventh Modification of Mortgage and Security Agreement, dated as of the
date hereof, between Encore U.S. and Lender relating to property in Broward
County, Florida, in the form annexed hereto as Exhibit C-2, as the same may
be amended, modified, supplemented, extended or renewed from time to time.
"SIXTH MODIFICATION OF MORTGAGE (BREVARD)" shall mean the Sixth
Modification of Mortgage and Security Agreement, dated as of August 17,
1995, between Encore U.S. and Lender relating to property in Brevard
County, Florida, or renewed from time to time.
"SIXTH MODIFICATION OF MORTGAGE (BROWARD)" shall mean the Sixth
Modification of Mortgage and Security Agreement, dated as of August 17,
1995, between Encore U.S. and Lender relating to property in Broward
County, Florida, as the same may be amended, modified, supplemented,
extended or renewed from time to time.
"STANDSTILL AGREEMENT" shall mean the Standstill Agreement, dated
as of December 21, 1994, between Lender and Borrower, as the same may be
amended, modified, supplemented, extended or renewed from time to time.
"SUBORDINATED INDEBTEDNESS" shall mean Indebtedness for which
Borrower is directly and primarily liable, in respect of which none of its
Subsidiaries is contingently or otherwise obligated and which is
subordinated to the obligations of Borrower to pay principal of and
interest on the Loans and the Notes hereunder on terms, and which contains
other terms (including interest, financial covenants and amortization
provisions), in form and substance satisfactory to, and approved in writing
by, Lender.
"SUBORDINATED LOAN AGREEMENT" shall mean the Subordinated Loan
Agreement dated as of March 23, 1990 between Borrower and IBJ as previously
amended and assigned to EFI, pursuant to an Assignment Agreement, dated as
of March 27, 1992 between IBJ and EFI, as the same may hereafter be
amended, modified, supplemented, extended or renewed.
"SUBSIDIARY" shall mean (i) a corporation of which Borrower owns,
directly or indirectly, more than 50% of the ordinary voting power for the
election of directors and (ii) any partnership, association, joint venture
or other entity in which Borrower and/or one or more subsidiaries of
Borrower has any general partnership interest or more than a 50% equity
interest at the time.
"TOTAL UNCOMMITTED LOANS" shall mean the aggregate principal
amount of all outstanding Uncommitted Loans as of the date hereof, as set
000 shares of preferred stock, par value $.01 per share. As of
April __, 1996, there were shares of common stock, shares
of Series A Convertible Participating Preferred Stock, shares of
Series B Convertible Preferred Stock, shares of Series D
Convertible Preferred Stock, shares of Series F Convertible
Preferred Stock and shares of Series G Convertible Preferred Stock
issued and outstanding (Series B, C, D, E, F and G together being
"Preferred Stock"). 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 H 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.
8. The shares of Common Stock issuable on conversion of all the
shares of Series A Convertible Participating Preferred Stock and of the
Preferred Stock outstanding on the date of this opinion or being issued
pursuant to the Purchase Agreement have been, and the shares of Common
Stock issuable on conversion of all the Preferred Stock which may be issued
within one year after the date of this letter as dividends on outstanding
the Preferred Stock will be, duly authorized and when issued on conversion
of those shares of Series A Convertible Participating Preferred Stock and
the Preferred Stock will be validly issued, fully paid and non-assessable
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,
SUBSIDIARIES
<TABLE>
<CAPTION>
OWNERSHIP OF
Jurisdiction FORMATION
<S> <C> <C> <C>
Encore Computer U.S. Inc. Delaware Encore{*} 100%
Encore Computer International Inc. Delaware Encore 100%
Encore Computer Limited Canada International{*} 100%
Encore Computer (UK) Limited United Kingdom International 100%
Encore Computer Belgium S.A. Belgium International 100%
Encore Computer GmbH West Germany International 100%
Encore Computer de Puerto Rico Inc. Delaware Encore 100%
Encore Computer S.A. France International 100%
Encore Computer (Ireland) Limited Ireland Encore Computer B.V.99%
International 1%
Encore Computer Italia S.p.A. Italy International 100%
Japan Encore Computer Japan International/Japan 50%
Energy Corporation{***} 50%
Encore Computer B.V. Netherlands International 100%
Encore Computer Nederlands B.V. Netherlands International 100%
Encore Computer Espana S.A. Spain International 100%
Encore Computer (Irish Partnership) Ireland Encore Computer B.V.50%
Encore Computer Ireland Ltd. 50%
Lauderdale Computer A.B. Sweden International 100%
<FN>
<F1>{* }Encore Computer Corporation
<F2>{** }Encore Computer International
<F3>{*** }Not an Encore subsidiary
</FN>
</TABLE>
SCHEDULE 5.09
TAX RETURN INFORMATION
<TABLE>
<CAPTION>
RETURNS CURRENTLY UNDER AUDIT EXTENSION GRANTED
<S> <C>
Federal Income Tax Return 1992, 1993 and 1994 None
Virginia Sales Tax Returns In Appeals
California Sales and Use Tax None
Texas Sales and Use Taxes None
FOREIGN INCOME TAX RETURNS UNDER AUDIT
NONE
</TABLE>
NB91196.7
SCHEDULE 5.17
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 Electronics, 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 than 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 Electronics, Inc.
NB91196.7
EXECUTION COPY
TO SECOND
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Second Amendment to the Second Amended and Restated
Stockholders Agreement ("SECOND AMENDMENT") dated as of April 16, 1996
among Indian Creek Capital, Ltd. a Texas limited partnership ("Indian
Creek"), as assignee of Kenneth G. Fisher ("Fisher"), Gould Electronics
Inc., an Ohio corporation ("Gould"), for itself as assignee of Gould Inc.,
EFI International Inc. ("EFI"), a Delaware corporation and Encore Computer
Corporation (the "CORPORATION"), a Delaware corporation, amends the Second
Amended and Restated Stockholders Agreement dated as of March 17, 1995
among Indian Creek, Gould, and the Corporation, as amended by the First
Amendment to the Second Amended and Restated Stockholders Agreement, dated
August 17, 1995 (as so amended, the "ORIGINAL STOCKHOLDERS AGREEMENT").
Indian Creek, Gould, EFI and the Corporation agree as follows:
1. AMENDMENT TO ORIGINAL STOCKHOLDERS AGREEMENT. Paragraph
1(c) of the Original Stockholders Agreement is hereby amended by
(i) deleting the word "and" appearing immediately after the words "the
Second Amended and Restated Credit Agreement"; and (ii) adding the words
"the First Amendment to the Second Amended and Restated Credit Agreement,
dated February 14, 1996" and "the Third Amended and Restated Credit
Agreement dated as of April 16, 1996" immediately after the words, "the
Second Amended and Restated Credit Agreement".
2. RATIFICATION. Except as amended by this Second Amendment,
the Original Stockholders Agreement is hereby ratified and confirmed in all
respects.
3. DELIVERY. Indian Creek, Gould, EFI and the Corporation each
agrees to execute and deliver such other documents or instruments which are
necessary or desirable to evidence the matters referred to in this Second
Amendment.
4. COUNTERPARTS. This Second Amendment may be executed in
counterparts, each of which will constitute an original but which together
will constitute one and the same Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second
Amendment as of the date shown on the first page.
assignee of Kenneth G. Fisher
By: KENNETH G. FISHER
Kenneth G. Fisher,
a General Partner
GOULD ELECTRONICS, INC., as
assignee of Gould Inc.
By:
Title:
ENCORE COMPUTER CORPORATION
By:
Title:
EFI INTERNATIONAL INC.
By:
Title
Exhibit No.99
Cautionary Statement For Purposes Of The"Safe Harbor"
Provisions
Of The Private Securities Litigation Reform Act of 1995
Encore Computer Corporation (the "Company") is filing this
Exhibit in order to take advantage of the new "safe harbor"
provisions of the Private Securities Litigation Reform Act
of 1995 by setting forth in a readily available document
certain significant risks and uncertainties that are
important considerations to be taken into account in
conjunction with consideration and review of the Company's
reports, registration statements, information statements,
press releases, and other publicly-disseminated documents
and statements that include forward-looking information.
Forward-Looking Statements; Cautionary Statement
When used anywhere in filings by the Company with the
Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an
authorized executive officer of the Company, the words or
phrases "will likely result", "are expected to", "will
continue", "is anticipated", "estimated", "project", or
"outlook" or similar expressions (including confirmations by
an authorized executive officer of the Company of any such
expressions made by a third party with respect to the
Company) are intended to identify "forward-looking
statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. The Company wishes to
caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date
made. Such statements are subject to certain risks and
uncertainties that could cause actual results to differ
materially from historical earnings and those presently
anticipated or projected. These risk factors are described
below. The Company specifically declines any obligation to
publicly release the result of any revisions which may be
made to any forward-looking statements to reflect
anticipated or unanticipated events or circumstances
occurring after the date of such statements.
Risk Factors
Losses and Acquisitions of Gould/CSD. In 1989 the Company
acquired the computer systems business of Gould Inc.
("Gould/CSD"), a significantly larger business, and has
subsequently invested heavily in research and development
activities to integrate both businesses' technologies into a
single, high performance open system architecture. Since
the acquisition, the Company has had significant losses in
each of its fiscal years. The losses in 1989 were due in
part to the absorption of acquisition related costs. Since
that time, losses have been due to (i) the termination of a
reseller agreement between the Company and Amdahl
Corporation, (ii) a slower than anticipated acceptance of
the Company's new open system technology products in the
information systems marketplace, (iii) continued heavy
investment in research and development of its open systems
architecture, and (iv) declining equipment sales as certain
of the Company's traditional real-time products have reached
the end of their product life cycle. New product offerings
are available for shipment, however, to date net sales of
such new products have not offset declines realized in other
product offerings. Accordingly, the Company has continued
to experience rapidly declining product and customer service
revenues. Encore plans to return to profitability in the
future, but management is unable to predict when that may
occur. There is no assurance that such plans to return to
profitability can be accomplished.
Product and Market Development. For several years the
Company has been transitioning its product line from a
proprietary to an open systems architecture and its market
focus from its traditional real-time niches to development
of products to compete in the multibillion dollar storage
marketplace. This effort has most recently resulted in the
announcement and delivery of products such as the InfinitySP
and R/T(TM). The Company has invested heavily in research
and development of the Infinity SP(TM) Universal Storage
Processor with DataShare(TM) Facilities. Currently, these
products are available for sale in this marketplace,
however, at this time demand for such products has not
achieved anticipated levels. The Company's success will
depend on its ability to effectively penetrate storage
products markets presently led by established companies such
as International Business Machines Corporation ("IBM"), EMC
Corporation ("EMC") and Hitachi Data Systems. Many of the
Company's competitors have substantially greater financial,
technical, and marketing resources than the Company. These
established companies command more name recognition among
potential customers, a larger installed base and have
available to them substantially more financial resources
with which to compete.
The Company's ability to increase sales and improve
operating results for future periods is dependent upon the
acceptance of its storage products in the marketplace, and
the timely and successful introduction of additional
functions and features for these products. The Company
continues to seek out strategic distribution partners whose
industry presence, expertise and sales channels will allow
it to more efficiently bring the Company's open system and
storage product offerings to market. There can be no
assurance that the Company's products, which are in the
early stage of market introduction will achieve or sustain
market acceptance or successfully compete against the
products of other larger, better known companies.
Competition. The computer industry is intensely
competitive. The Company's principal competitors within the
storage products marketplace are companies such as IBM, EMC,
Hitachi Data Systems and Storage Technology. The primary
competitors in the Company's real-time markets are also
established companies, such as Silicon Graphics and Harris
Corporation. Competitors in the information processing
market include established companies like Digital Equipment
Corporation, IBM, Hewlett Packard Company and Sequent
Computer Systems, all of which have substantially greater
financial, technical, manufacturing and marketing resources
than the Company. The development and introduction by
competitors of products with superior performance or
substantially lower prices would materially and adversely
affect the Company's business. There can be no assurance
that the Company will be able to compete effectively in the
future.
Financing Requirements. Since 1989, the principal source
of both debt and equity financing for the Company has been
provided by Gould Electronics Inc. ("Gould") and EFI
International Inc., wholly owned subsidiaries of Japan
Energy Corporation ("Japan Energy") (collectively, the
"Japan Energy Group"). The Japan Energy Group has provided
the Company with a credit facility and loan guarantees,
refinanced subordinated debentures of the Company and
entered into various exchanges of indebtedness for the
Company's preferred stock. As of June 30, 1996, the Japan
Energy Group beneficially owned 78% of the common stock
assuming the full conversion of all shares of its preferred
stock. Cash used in operating activities is currently
funded by borrowing under the Company's credit agreement
with Gould. As of August 16, 1996, the Company had
$50,672,000 in debt to Gould outstanding under the credit
agreement and $14,328,000 in available credit thereunder.
Until it returns to a state of sustained profitability, it
is unlikely that the Company will be able to secure
additional funding from unrelated parties or be able to
generate the levels of cash through operations necessary to
meet the on-going need of the business. Accordingly, the
Company is and will remain dependent on the continued
financial support of the Japan Energy Group. Should the
Company be unsuccessful in securing additional future
financing from the Japan Energy Group as is required, it is
likely that the Company will experience a severe liquidity
crisis and accordingly be unable to settle its liabilities
in the ordinary course of business.
Intellectual Property License. In connection with an
exchange of preferred stock for indebtedness, 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 but Gould can, at its option, exercise its
rights to use or otherwise sublicense others to use the
Company's intellectual property. The licensed technology is
being held in escrow and is now subject to release to Gould
upon its request to enable it to exercise its rights. In
accordance with prior agreements made with the United States
Defense Investigative Services ("DIS"), Gould must provide
ninety days notice to DIS in the event it elects to take
possession of the intellectual property. If Gould should
take possession of the intellectual property, the Company
would continue to have the right to use that property, but
such action by Gould would have a material adverse effect on
the Company's business.
Quarterly Performance Fluctuation. Many of the Company's
sales are made to customers who typically place orders for
computer systems on an as required basis. The Company
generally ships products to its customers as promptly as
practicable upon receipt of customer orders. Additionally,
a substantial amount of the Company's sales relate to long
term customer programs with irregular delivery schedules.
As is the case with many companies in the computer business,
a significant portion of the Company's shipments has
typically occurred in the last month of a fiscal quarter.
As a result, revenues and net income can fluctuate
significantly from quarter to quarter, based on customer
requirements and the timing of orders and shipments.
U.S. Government and Foreign Sales. In the fiscal year
ended December 31, 1995, approximately 24% of the Company's
revenues were derived through sales to various United States
government agencies (primarily, the Department of Defense).
Despite the Company's best efforts to comply with all
appropriate regulations and legislation regarding government
contracting, no assurance can be given that the Company's
method of pricing United States government contracts will
not be challenged in the future. 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. In
May 1989, the Company was notified by DIS that its primary
facility security clearances had been suspended pending
resolution of certain foreign interest and control issues
related to Japan Energy's ownership of the Company's shares.
In August 1989, based upon satisfactory actions taken by the
Company, DIS reinstated the aforementioned security
clearances. Since that time the Company and the Japan
Energy Group have worked to comply with all U.S.
requirements. In particular, 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 most
recent recapitalization transactions with Japan Energy Group
occurring in the second quarter of 1996, the Company
requested the United States Defense Investigative Service to
review the relationship between the Company, and Japan
Energy Group, under government requirements relating to
foreign ownership, control or influence. DIS has not yet
had an opportunity to report to the Company on its review of
these transactions. At this time, the Company is not aware
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. The Company and the Japan
Energy Group have worked with DIS to ensure the Company's
continued compliance with U.S. regulations relating to
foreign ownership of U.S. companies. There can be no
assurance, however, that other foreign ownership and control
issues may not arise and adversely impact the Company's
business in the future.
In fiscal 1995, sales to international customers accounted
for approximately 51% of the Company's total revenues.
There can be no assurance that foreign currency exchange
fluctuations will not have an adverse effect on the
Company's future revenues and profits.
Dependence on Key Vendors and Subcontractors. The
Company's business is dependent on the continued, timely and
reliable supply of microprocessors, integrated circuits,
parts, components and certain subassemblies from several key
vendors. 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 attractiveness of employing the latest technology in its
product line, the Company does utilize several single source
vendors for certain critical components in its various
product lines. Delays in delivery of any such single source
component could cause unplanned delays in the shipment of
certain products. Failure to obtain sole source components
in adequate quantities on a timely basis could delay
shipments and would have a material adverse effect on the
Company's business and financial results.
In order to minimize its development cycle, development
efforts of the Company may at times be subcontracted to
third parties with particular required technological
expertise. Although the Company takes every reasonable step
to minimize risks associated with this practice, this
increases the Company's reliance on the performance of
others and could result in unplanned delays in the product
development process.
Key Personnel. The success of the Company is dependent
upon the continued employment of its executive officers and
key employees and its ability to attract new employees. The
competition for sales, marketing, engineering and other
personnel in the computer industry is intense. In
particular, there is currently great demand within the
computer industry for qualified personnel with experience in
the areas of parallel and multiprocessing technology. The
Company's inability to retain key employees or to attract
new employees could have a material adverse effect on the
Company's business
MASTER PURCHASE AGREEMENT
DATED
April 16, 1996
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
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 to Gould 13
5.2 Conditions Precedent to Obligations of Gould to Encore 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..................................... 18
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
EXHIBITS
Exhibit 1.1 Certificate of Designations of Series H 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 Choate, Hall & Stewart
Exhibit 5.2-E Form of opinion In-House Counsel to Encore
This is an Agreement dated April 16, 1996 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 H
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 350,000 shares of Series H Convertible
Preferred Stock of Encore with the powers, rights and preferences set forth
on EXHIBIT 1.1 (the "SERIES H CONVERTIBLE STOCK").
1.2 CONSIDERATION FOR SHARES. The consideration to be paid by
Gould for the shares of Series H 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 (a) the $25,000,000 of revolving credit loans outstanding under the
Amended and Restated Credit Agreement dated as of March 17, 1995, as
amended (the "LOAN AGREEMENT") between Encore and Gould; and (b)
$10,000,000 in uncommitted loans outstanding under the Loan Agreement and
evidenced by a Master Uncommitted Loan Note, made by Encore for the benefit
of Gould, dated February 14, 1996.
ARTICLE II
THE CLOSING
2.1 TIME AND PLACE OF CLOSING. The closing (the "CLOSING") of
the issuance of the shares of Series H 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 April 30,
1996, 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 H
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
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 Seventh 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
Amendment to 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 Seventh Amended and Restated 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 H 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 Second Amendment to the Amended and Restated
Stockholders Agreement, executed by Gould and EFI.
(e) Written consents executed by Gould, in its capacities as the
holder of 684,363 shares of Series B Convertible Preferred Stock of Encore,
122,060 shares of Series D Convertible Preferred Stock of Encore, 1,122,938
shares of Series E Convertible Preferred Stock of Encore, 525,452 shares of
Series F Convertible Preferred Stock and 563,832 shares of Series G
Convertible Preferred Stock, and a written consent executed by EFI, in its
capacity as the holder of 976,536 shares of Series D Convertible Preferred
Stock of Encore, each approving the creation and designation of the Series
H Convertible Stock and the issuance of the Series H Convertible Stock
pursuant to Paragraph 1.1 of this Agreement.
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 governmental
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
(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 200,000,000 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, 1,000,000 shares
of Series F Convertible Preferred Stock 1,000,000 shares of Series G
Convertible Preferred Stock and 700,000 shares of Series H Convertible
Preferred Stock. At the date of this Agreement, the only outstanding stock
of Encore is not more than 36,700,000 shares of common stock, 73,641 shares
of Encore Series A Convertible Participating Preferred Stock, 717,954
shares of Series B Convertible Preferred Stock, 1,098,596 shares of Series
D Convertible Preferred Stock, 1,122,938 shares of Series E Convertible
Preferred Stock, 525,452 shares of Series F Convertible Preferred Stock and
563,832 shares of Series G Convertible Preferred Stock. Except as
disclosed in Encore's Annual Report on Form 10-K for the year ended
December 31, 1995 (the "1995 10-K") 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 H 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 H
Convertible Stock. When issued, the shares of common stock issuable on
conversion of such shares of Series H Convertible Stock will be duly
authorized, validly issued, fully paid and nonassessable. When Gould
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 1995 10-K all were, and the financial information in the
September 10-Q was derived from financial statements which were, prepared
in accordance with generally accepted accounting principles, consistently
applied, and present fairly the consolidated 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, 1995, 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, 1995
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 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
or net income. As a result of the transactions contemplated by this
Agreement, following the Closing, Encore, as a separate entity, and Encore
and its subsidiaries as a consolidated 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 reported and for
which there are adequate reserves on the consolidated 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 contested 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 regulations. 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
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 applicable 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 filings, authorizations, approvals or
consents, or other governmental action, are required to permit Gould to
fulfill 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 H 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 warranty
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 the other party against, and
will hold the other party harmless from, all liabilities, costs and
expenses, including 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 applicable taxes resulting from the
indemnification payments, the indemnified 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
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
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 governmental 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 Choate, Hall &
Stewart, counsel to Encore, substantially in the form of EXHIBIT 5.2-D
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.
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 attorneys' fees) in connection with any claim by anyone for
compensation as a broker, a finder or in any similar capacity by reason of
services allegedly rendered to the indemnifying party in connection 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,
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, warranties, understandings or agreements concerning the
transactions which are the subject of this Agreement and those other
documents, 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 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 Encore:
Encore Computer Corporation
6901 West Sunrise Boulevard
Fort Lauderdale, Florida 33313
Attention: Kenneth G. Fisher
Facsimile no.: (305) 797-5719
with a copy to:
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Attention: Cameron Read, Esq.
Facsimile No.: (617) 284-4000
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.+
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 bya 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: By:
Name: Name:
Title: Title:
NC104157.5
EXHIBITS
Exhibit 1.1 Certificate of Designations of Series H
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 Choate, Hall & Stewart
Exhibit 5.2-E Form of opinion of In-House Counsel to Encore
NC104157.5
CERTIFICATE OF DESIGNATIONS,
POWERS, RIGHTS AND PREFERENCES
OF SERIES H 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 April 16, 1996, duly adopted a resolution designating the
designations, powers, rights and preferences relating to its Series H
Convertible Preferred Stock as follows:
"RESOLVED, that the Board of Directors (the "Board") of Encore
Computer Corporation (the "Corporation") authorizes the issuance of a
series of preferred stock consisting of 1,000,000 shares and the Board
fixes the powers, designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or
restrictions thereof, of the shares of that series as follows:
1. DESIGNATION AND AMOUNT. The designation of the series of
preferred stock authorized by this resolution will be the Series H
Convertible Preferred Stock (the "Series H Convertible Stock"). The total
number of shares of Series H 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 H 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 July 15, 1996 (each a "Dividend Payment
Date"), except that the annual cash dividend payable in 1996 will be $4.25
per share and the quarterly installment payable on July 15, 1996 will be
$1.50 per share. Dividends on the Series H Convertible Stock will be
cumulative from the date of initial issuance of shares of Series H
Convertible Stock. The Corporation will not, however, be required to pay a
cash dividend unless that cash dividend can be paid out of Stockholders
Equity in excess of $50,000,000. To the extent the Corporation does not
have sufficient Stockholders Equity to be able to pay a dividend on the
Series H 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 H
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
H 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 H 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 H 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
adopted.
(b) Unless and until all accumulated dividends on the
Series H Convertible Stock have been paid in cash or, to the extent
permitted by subparagraph 2(a), in shares of Series H 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 H 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 H Convertible Stock rank prior. If the Series H 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 H
Convertible Stock ranks prior to the other class or series but not as to
other matters. As used with regard to the Series H Convertible Stock, the
term "Parity Shares" means any class or series of preferred stock which
ranks on a parity with the shares of Series H Convertible Stock. If the
Series H 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 H Convertible Stock ranks on a parity but not as to other
matters. At any time when there are accumulated dividends on the Series H
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 H Convertible Stock constituting at least the same percentage
of the accumulated dividends on the Series H Convertible Stock that the
dividend on the Parity Stock is of the accumulated dividends on the Parity
Stock.
3. RANKING. The shares of Series H 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 H Convertible Stock which are outstanding at the time the
designation is made (or such greater percentage of the outstanding shares
of Series H Convertible Stock as is required by law), as ranking prior to,
or on a parity with, the shares of Series H 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 H Convertible Stock rank
prior to the shares of Series B Convertible Preferred Stock, Series D
Convertible Preferred Stock, Series E Convertible Preferred Stock and
Series F Convertible Preferred Stock and Series G 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 H 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 H
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
are insufficient to pay in full the preferential amount payable to the
holders of shares of Series H 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 H Convertible Stock and to the holders of such
Parity Shares, will be distributed to the holders of the Series H
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 H Convertible Stock are
entitled, the holders of shares of Series H 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 H 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 H 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 H Convertible Stock to be converted will
surrender the certificate representing that share to the conversion agent
for the Series H 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 H 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 H
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 H 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 H Convertible Stock on a
dividend payment Record Date who (or whose transferees) convert any of
those shares on or after the corresponding Dividend Payment Date will
receive the dividend payable by the Corporation on those shares of Series H
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 H
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.
+
a holder of certificates for shares of Series H 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 H 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 H 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 H 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
H Convertible Stock. Any fractional interest in a share of Common Stock
resulting from conversion of shares of Series H 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 of Series H Convertible Stock 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 H Convertible Stock so
surrendered.
(d) The "Conversion Price" per share of Series H
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 H 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
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
whenever any rights or warrants are issued, and will become effective
immediately, except as provided in subparagraph 5(d)(viii), after each
record date. In determining whether any rights or warrants entitle the
holders of the Common Stock to subscribe for or purchase shares of Common
Stock at less than the Current Market Price, and in determining the
aggregate offering price of the shares of Common Stock issuable 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 expire without being exercised, the Commission Price in effect when
fee rights or warrants expire 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 H Convertible Stock, the holder of the Series H
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 H 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.
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 H
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 H
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 H 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
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 H 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 H 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 H 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 H 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 H
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 H
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 H
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 H 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 H 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
(h) If at any time the issuance of Common Stock on
conversion of the Series H 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 H 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 H 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 H 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 H 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 H Convertible
Stock to convert their Series H 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 H Convertible Stock will be deemed to have surrendered the
certificates representing their shares of Series H 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 H 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 H 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 H Convertible Stock are entitled without
requiring the surrender of the certificates which formerly represented
shares of Series H Convertible Stock, or (B) set aside in trust for the
respective holders of certificates which formerly represented Series H
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 H Convertible Stock is entitled
certificates which represented the Series H 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 H Convertible Stock
will belong to the Corporation.
(c) If the Corporation presents to the holders of the
Series H 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 H 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 H 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 H 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 H 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 H 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 H 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 H Convertible Stock, the shares of Series H 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 H
Convertible Stock.
8. VOTING RIGHTS. (a) The holders of shares of Series H
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 H 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 H 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 H 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 H Convertible Stock, (iii) authorize any reclassification of the
Series H Convertible Stock or (iv) increase the number of shares of Series
H Convertible Stock the Corporation may issue. This subparagraph will not
prevent (u) the issuance of Series H Convertible Stock which is authorized
in Paragraph 1, (v) the issuance of Series B Convertible Preferred Stock
which is authorized in Paragraph 1 of the Certificate of Designations,
dated January 28, 1991 (the "Series B Certificate of Designation"), (w) 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"), (x) the issuance of
Series E Convertible Preferred Stock which is authorized in Paragraph 1 of
the Certificate of Designations, Powers, Rights and Preferences of Series E
Convertible Preferred Stock dated February 3, 1994 (the "Series E
Certificate of Designation"), (y) the issuance of Series F Convertible
Preferred Stock which is authorized in Paragraph 1 of the Certificate of
Designations, Powers, Rights and Preferences of Series F Convertible
Preferred Stock dated March 17, 1995 (the "Series F Certificate of
Designation") or (z) the issuance of Series G Convertible Preferred Stock
which is authorized in Paragraph 1 of the Certificate of Designations,
Powers, Rights and Preferences of Series G Convertible Preferred Stock
dated August 17, 1995 (the "Series G 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 H 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 H 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 H 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 H Convertible Stock.
(d) Except as may otherwise be required by law, the shares
of Series H 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
H 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 H Convertible Stock and
(ii) 100% of the shares of Series H 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
_________________, this 16th day of April, 1996.
ENCORE COMPUTER CORPORATION
By:KENNETH G. FISHER
Kenneth G. Fisher
Chief Executive Officer
Attest:
NC104157.5
EXHIBIT 2.2-B
SEVENTH AMENDED AND RESTATED
REGISTRATION AGREEMENT
This Seventh Amended and Restated Registration Agreement dated as
of April 16, 1996, among Gould Electronics Inc. ("Gould"), an Ohio
corporation, for itself and 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 Sixth
Amended and Restated Registration Agreement dated as of August 17, 1995
among Gould, EFI, Encore and Indian Creek.
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 ("Series A Stock"), 684,363 shares of Encore Series B Convertible
Preferred Stock ("Series B Stock"), 122,060 shares of Encore Series D
Convertible Preferred Stock ("Series D Stock"), 1,122,938 shares of Encore
Series E Convertible Preferred Stock ("Series E Stock"), 525,452 shares of
Encore Series F Convertible Preferred Stock ("Series F Stock"), 563,832
shares of Encore Series G Convertible Preferred Stock ("Series G Stock")
and 350,000 shares of Encore Series H Convertible Preferred Stock ("Series
H Stock"), and EFI currently owns 976,536 shares of Series D Stock (the
Series A Stock, Series B Stock, Series D Stock, Series E Stock Series F
Stock, Series G Stock and Series H Stock, together, being "Encore Preferred
Stock"). The Encore Preferred Stock collectively is convertible into an
additional 141,061,977 shares of Encore Common Stock;
WHEREAS, the Management Stockholders currently own shares of
Series B Stock which are convertible into 1,033,569 shares of Encore Common
Stock; and
WHEREAS, Encore, Gould, EFI and the Management Stockholders wish
to set forth certain registration rights which Gould, EFI and the
Management Stockholders have with respect to shares of Encore Common Stock.
NOW, THEREFORE, in consideration of the mutual covenants and
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 (as hereinafter defined) with a reasonably estimated
public offering price of $10,000,000 or more 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
(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, Series B Stock, Series D Stock, Series E Stock, Series F Stock,
Series G Stock and Series H Stock currently held by Gould or EFI, as the
case may be, or issued as a dividend with regard to those shares, (iii) any
conversion of any shares of Series A Stock, Series B Stock, Series D Stock,
Series E Stock, Series F Stock, Series G Stock or Series H 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
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.+
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 which are not borne by Encore,
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 the sale or distribution which is
the subject of the registration statement, 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 or 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
Shares were registered under the Act pursuant to Paragraph 1 or 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
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+
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:
Cameron Read, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Facsimile No.: (617) 248-4000
Telephone No.: (617) 248-5045
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
Kenneth G. Fisher, a Title:
General Partner
GOULD ELECTRONICS INC.,
By:
Title:
EFI INTERNATIONAL INC.
By:
Title:
NC104157.5
EXHIBIT 2.2-C
SECOND AMENDMENT
TO SECOND
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
This Second Amendment to the Second Amended and Restated
Stockholders Agreement ("SECOND AMENDMENT") dated as of April 16, 1996
among Indian Creek Capital, Ltd. a Texas limited partnership ("Indian
Creek"), as assignee of Kenneth G. Fisher ("Fisher"), Gould Electronics
Inc., an Ohio corporation ("Gould"), for itself as assignee of Gould Inc.,
EFI International Inc. ("EFI"), a Delaware corporation and Encore Computer
Corporation (the "CORPORATION"), a Delaware corporation, amends the Second
Amended and Restated Stockholders Agreement dated as of March 17, 1995
among Indian Creek, Gould, and the Corporation, as amended by the First
Amendment to the Second Amended and Restated Stockholders Agreement, dated
August 17, 1995 (as so amended, the "ORIGINAL STOCKHOLDERS AGREEMENT").
Indian Creek, Gould, EFI and the Corporation agree as follows:
1. AMENDMENT TO ORIGINAL STOCKHOLDERS AGREEMENT. Paragraph
1(c) of the Original Stockholders Agreement is hereby amended by
(i) deleting the word "and" appearing immediately after the words "the
Second Amended and Restated Credit Agreement"; and (ii) adding the words
"the First Amendment to the Second Amended and Restated Credit Agreement,
dated February 14, 1996" and "the Third Amended and Restated Credit
Agreement dated as of April 16, 1996" immediately after the words, "the
Second Amended and Restated Credit Agreement".
2. RATIFICATION. Except as amended by this Second Amendment,
the Original Stockholders Agreement is hereby ratified and confirmed in all
respects.
3. DELIVERY. Indian Creek, Gould, EFI and the Corporation each
agrees to execute and deliver such other documents or instruments which are
necessary or desirable to evidence the matters referred to in this Second
Amendment.
4. COUNTERPARTS. This Second Amendment may be executed in
counterparts, each of which will constitute an original but which together
will constitute one and the same Second Amendment.
IN WITNESS WHEREOF, the parties have executed this Second
INDIAN CREEK CAPITAL, LTD., as
assignee of Kenneth G. Fisher
By: KENNETH G. FISHER
Kenneth G. Fisher,
a General Partner
GOULD ELECTRONICS, INC., as
assignee of Gould Inc.
By:
Title:
ENCORE COMPUTER CORPORATION
By:
Title:
EFI INTERNATIONAL INC.
By:
Title
NC104157.5
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.
NC104157.5
MASTER REVOLVING NOTE
$65,000,000 New York, New York
April 16, 1996
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 Third
Amended and Restated Credit Agreement, dated as of April 16, 1996, 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) SIXTY-FIVE
MILLION DOLLARS ($65,000,000), or, if less, (b) the aggregate unpaid
principal amount of all Loans not evidenced by Monthly Revolving Term
Notes, all in accordance with the Loan Agreement.
Borrower promises to pay interest on the unpaid principal amount
hereof from time to time outstanding, at the rates and times and in all
cases in accordance with the terms of the Loan Agreement. All interest
hereunder shall be computed on the actual number of days elapsed over a
year comprised of 360 days.
In case an Event of Default shall occur, the entire unpaid
principal amount of this Note and all accrued but unpaid interest hereon
may become or may be declared to be due and payable in the manner and with
the effect provided in the Loan Agreement.
All payments of principal and interest hereunder shall be made in
lawful money of the United States of America and in immediately available
funds not later than 12:00 (noon), New York City time, to Lender at its
account at National City Bank (Cleveland, Ohio) (Account No. 2530806,
Attention: Gould Electronics Inc.) or to such other account as Lender may
from time to time designate.
The date and amount of each Revolving Loan, each prepayment of
principal thereof by Borrower and each transfer between this Note and a
Monthly Revolving Term Note shall be endorsed by Lender on the Schedule of
Loans attached hereto, or on a continuation of such schedule attached to
and made part hereof, provided that the failure to make any such
endorsement on such schedule shall not limit or extinguish the obligation
of Borrower to repay all Revolving Loans hereunder.
This Note is a continuation, extension and replacement of the
Master Revolving Note, dated August 17, 1995, made by Borrower in favor of
Lender in the aggregate principal amount of $25,000,000.
All payments to be made hereunder shall be made free and clear of
all present and future taxes, levies, imposts, deductions, charges or
withholdings imposed by any governmental authority and shall be made
without offset, deduction or counterclaim.
This Note is subject to prepayment, and its maturity is subject
to acceleration, pursuant to the terms provided in the Loan Agreement.
This Note shall be entitled to the benefit of all of the terms and
conditions and the security of all security interests, liens and rights,
mortgages and deeds of trust granted by Borrower and its Subsidiaries to
Lender under and pursuant to the Security Agreement and all other Security
Documents including, without limitation, a Mortgage and Security Agreement
dated as of April 27, 1989 and recorded in Official Records Book 16399,
page 799 of the public records of Broward County, Florida and in Official
Records Book 3051, page 3289 of the public records of Brevard County,
Florida, as amended.
Borrower and all other parties who, at any time, may be liable
hereon in any capacity hereby waive presentment, demand for payment,
protest or notice of any kind in connection with this Note. This Note may
not be changed orally, but only by an agreement in writing which is signed
by the party against whom enforcement of any waiver, change, modification
or discharge is sought.
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.
NB96580.1
SCHEDULE OF LOANS
<TABLE>
<CAPTION>
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<S> <C> <C> <C>
</TABLE>
NB96580.1
MONTHLY REVOLVING TERM NOTE
April, 1996
$26,600,000 New York, New York
April 16, 1996
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 Third
Amended and Restated Credit Agreement, dated as of April 16, 1996, 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 TWENTY SIX MILLION
AND SIX HUNDRED THOUSAND DOLLARS ($26,600,000), 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
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.
NB96580.1
SCHEDULE OF LOANS
<TABLE>
<CAPTION>
Date of Principal Prepayment Outstanding
Loan Amount of of Principal Balance
Loan
<S> <C> <C> <C>
</TABLE>
NB96580.1
NB96580.1
SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
THIS SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT (this
"Agreement") dated as of the 16th day of April, 1996, 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, 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 3469, Page 4251 of the Public Records of
Brevard County, Florida and as further modified by that certain Fifth
Modification of Mortgage and Security Agreement, recorded in Official Records
Book 23330, Page 811 of the Public Records of Broward County, Florida and in
the Official Records Book 3502, Page 4014 of the Public Records of Brevard
County, Florida and as further modified by that certain Sixth Modification of
Mortgage and Security Agreement recorded in Official Records Book 23879, Page
269 of the Public Records of Broward County, Florida and in the Official
Records Book 3502, Page 4038 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 3462,
Page 3166 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;
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 principal 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 partially replaced and substituted for by the following Monthly Term
Notes (each a "Monthly Term Note") as provided by the terms of the Uncommitted
Loan Agreement: (i) Monthly Term Note, dated December 21, 1994, in the
principal amount of $9,479,679.47, (ii) Monthly Term Note, dated December 21,
1994, in the principal amount of $9,879,978.83, (iii) Monthly Term Note, dated
December 21, 1994, in the principal amount of $10,166,254.35, (iv) Monthly Term
Note, dated December 21, 1994, in the principal amount of $8,262,450.24, (v)
Monthly Term Note, dated December 31, 1994, in the principal amount of
$632,340.27, (vi) Monthly Term Note, dated January 31, 1995, in the principal
amount of $7,632,619.45 and (vii) Monthly Term Note, dated February 28, 1995,
in the principal amount of $5,607,778.78.
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Master Purchase Agreement dated as of March 17, 1995, 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 heretofore entered into that
certain Amended and Restated Credit Agreement (the "March '95 Credit
Agreement"), dated as of March 17, 1995, whereby Mortgagee 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 were
originally evidenced by a Master Revolving Note, dated March 17, 1995, in the
principal amount of $25,000,000 (the "Master March '95 Revolving Note"), which
Master March '95 Revolving Note was partially replaced and substituted for by
the following Monthly Revolving Term Notes (each a "Monthly March '95 Revolving
Term Note") as provided by the terms of the March '95 Credit Agreement: (i)
Monthly Revolving Term Note, dated April 1, 1995 in the principal amount of
$902,250.00, (ii) Monthly Revolving Term Note, dated May 1, 1995 in the
principal amount of $4,322,722.22, (iii) Monthly Revolving Term Note, dated
June 1, 1995, in the principal amount of $4,222,222.23, (iv) Monthly Revolving
Term Note, dated July 1, 1995, in the principal amount of $4,413,277.78 and (v)
Monthly Revolving Term Note, dated August 1, 1995, in the principal amount of
$5,318,850.00;
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Master Purchase Agreement, dated as of August 17, 1995, whereby the
entire indebtedness evidenced by the Master Note and each of the Monthly Term
Notes, in the principal aggregate amount of $55,000,000, was exchanged by
Mortgagee for shares of Series G Convertible Preferred Stock of ECC;
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Second Amended and Restated Credit Agreement, dated as of August 17,
1995 (the "August '95 Credit Agreement"), whereby Mortgagee and ECC have agreed
to amend and restate the March '95 Credit Agreement in its entirety. Pursuant
to the terms of the August '95 Credit Agreement (i) Mortgagee shall remain
obligated to provide ECC with up to a $25,000,000 revolving line of credit
("August '95 Revolving Loan"), and (ii) Mortgagee shall have no obligation to,
but may, in its absolute and sole discretion, loan up to $20,000,000 to ECC to
provide funds which ECC may use for general corporate purposes (the
"Uncommitted Loan"). To the extent Mortgagee elects to advance any funds to
ECC upon ECC's request under the Uncommitted Loan, such obligations shall be
evidenced by a Master Uncommitted Loan Note (as such term is defined in the
August '95 Credit Agreement) and certain Monthly Uncommitted Loan Notes (as
such term is defined in the August '95 Credit Agreement). Further pursuant to+
Note shall be replaced by a certain Master Revolving Note, dated August 17,
1995 (the "Master August '95 Revolving Note") in the principal amount of
$25,000,000, and each Monthly March '95 Revolving Term Notes shall be replaced
by the following five (5) Notes: Monthly Revolving Term Note, dated as of
April 1, 1995 in the principal amount of $902,250.00, Monthly Revolving Term
Note, dated as of May 1, 1995 in the principal amount of $4,322,722.22, Monthly
Revolving Term Note, dated as of June 1, 1995 in the principal amount of
$4,222,222.23, Monthly Revolving Term Note, dated as of July 1, 1995 in the
principal amount of $4,413,277.78, and Monthly Revolving Term Note, dated as of
August 1, 1995 in the principal amount of $5,318,850.00 (each a "Monthly August
'95 Revolving Term Note").
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Amendment No. 1 to the August '95 Credit Agreement, dated as of
February 14, 1996, whereby the Mortgagee increased the amount available under
the Uncommitted Loan to $30,000,000;
WHEREAS, ECC and Mortgagee have entered into as of the date hereof
a certain Master Purchase Agreement whereby the entire indebtedness evidenced
by the Master August '95 Revolving Note, each Monthly Revolving Term Notes and
$10,000,000 of the amount outstanding under the Master Uncommitted Loan Note
was exchanged by Mortgagee for shares of Series H Convertible Preferred Stock
of ECC. Immediately following the exchange approximately $ remained
outstanding under the August '95 Credit Agreement;
WHEREAS, ECC and Mortgagee have entered into as of the date hereof
that certain Third Amended and Restated Credit Agreement (the "April '96 Credit
Agreement"), whereby Mortgagee and ECC have agreed to amend and restate the
August '95 Credit Agreement in its entirety. Pursuant to the terms of the
April '96 Credit Agreement (i) Mortgagee agreed to increase the maximum amount
available under the August '95 Revolving Loan to $65,000,000, (ii) the Master
August '95 Revolving Note shall be replaced by a certain Master Revolving Note,
dated April 16, 1996 (the "Master April '96 Revolving Note"), in the principal
amount of $65,000,000, and each Monthly August '95 Revolving Term Note shall be
replaced by certain Monthly Revolving Term Notes to be delivered by ECC to
Mortgagee pursuant to the terms of the April '96 Credit Agreement (the "Monthly
April '96 Revolving Term Notes") and (iii) ECC and Mortgagee have agreed to
eliminate the $30,000,000 Uncommitted Loan facility:
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 March '95 Credit
Agreement, the August '95 Credit Agreement, the Subsidiary Guaranty and the
Security Documents (as such terms are defined in the Mortgage), the Master Note
and each of the Monthly Term Notes, the Master March '95 Revolving Notes, each
of the Monthly March '95 Revolving Term Notes, the Master August '95 Revolving
Notes, each of the Monthly August '95 Revolving Term Notes and all Obligations
and Indebtedness (as such terms are defined in the August '95 Credit
Agreement), arising or becoming due under the August '95 Credit Agreement;
WHEREAS, Mortgagor and Mortgagee now desire to additionally secure
(i) all Obligations and Indebtedness (as such terms are defined in the April
'96 Credit Agreement) arising or becoming due under the April '96 Credit
Agreement, (ii) the Master April '96 Revolving Note, and (iii) each Monthly
April '96 Revolving Term Note; 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 March '95 Revolving Note, each
Monthly March '95 Revolving Term Note, the Master August '95 Revolving Note,
each Monthly August '95 Revolving Term Note, the Master Uncommitted Loan Note+
each Monthly April '96 Revolving Term Note 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, the March '95 Credit Agreement,
the August '95 Credit Agreement, the April '96 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 March '95 Revolving Note, each Monthly March '95 Revolving
Term Note, the Master August '95 Revolving Note, each Monthly August '95
Revolving Term Note, the Master Uncommitted Loan Note, the Monthly Uncommitted
Loan Notes, the Master April '96 Revolving Note, each Monthly April '96
Revolving Term Note, 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 August '95 Credit Agreement, the April '96 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, the August '95
Credit Agreement, the April '96 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 April '96 Revolving Note and each
Monthly April '96 Revolving Term 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, if any, up to a total indebtedness of
$65,000,000, with respect to the Master April '96 Revolving Note and the
Monthly April '96 Revolving Term Notes, 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 April
'96 Credit Agreement. Any reference to the Master April '96 Revolving Note and
the Monthly April '96 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 has no counterclaims, defenses or offsets to (i) the April'96
Credit
Agreement, the August '95 Credit Agreement, the March '95 Credit Agreement,the
Uncommitted Loan Agreement, the Amended and Restated Loan Agreement or the
Second 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: By:
Name:
Title:
Name:
(corp. seal)
Name:
GOULD ELECTRONICS INC.
By:
Name:
Title:
Name:
(corp. seal)
Name:
NB95905.2
STATE OF FLORIDA )
) ss.:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this ____ day of
April, 1996 by ROBERT P. WATSON, as Vice President 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:
NB95905.2
STATE OF OHIO )
) ss.:
COUNTY OF LAKE )
The foregoing instrument was acknowledged before me this _____ day of
April, 1996 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 ___ (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:
NB95905.2
THIS INSTRUMENT PREPARED BY:
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
ATT'N: CRAIG M. LIEBERMAN, ESQ.
SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
BETWEEN
ENCORE COMPUTER U.S., INC.,
Mortgagor
AND
GOULD ELECTRONICS INC.,
Mortgagee
Dated: as of April 16, 1996
BROWARD COUNTY, FLORIDA
NOTES TO TAX EXAMINER
THIS SEVENTH 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, 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 3469, PAGE 4251
OF THE PUBLIC RECORDS OF BREVARD COUNTY, FLORIDA AND AS FURTHER MODIFIED BY
THAT CERTAIN FIFTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT, RECORDED IN
OFFICIAL RECORDS BOOK 23330, PAGE 811 OF THE PUBLIC RECORDS OF BROWARD COUNTY,
FLORIDA AND IN THE OFFICIAL RECORDS BOOK 3502, PAGE 4014 OF THE PUBLIC RECORDS
OF BREVARD COUNTY, FLORIDA AND AS FURTHER MODIFIED BY THAT CERTAIN SIXTH
MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT RECORDED IN THE OFFICIAL
RECORDS BOOK 23879, PAGE 269 OF THE PUBLIC RECORDS OF BROWARD COUNTY, FLORIDA
AND IN THE OFFICIAL RECORDS BOOK 3502, PAGE 4038 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 3462, PAGE 3166 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 AND SECURITY AGREEMENT 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 OR BREVARD COUNTY, FLORIDA.
NB95905.2
SEVENTH AMENDED AND RESTATED
REGISTRATION AGREEMENT
This Seventh Amended and Restated Registration Agreement dated as
of April 16, 1996, among Gould Electronics Inc. ("Gould"), an Ohio
corporation, for itself and 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 Sixth
Amended and Restated Registration Agreement dated as of August 17, 1995
among Gould, EFI, Encore and Indian Creek.
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 ("Series A Stock"), 684,363 shares of Encore Series B Convertible
Preferred Stock ("Series B Stock"), 122,060 shares of Encore Series D
Convertible Preferred Stock ("Series D Stock"), 1,122,938 shares of Encore
Series E Convertible Preferred Stock ("Series E Stock"), 525,452 shares of
Encore Series F Convertible Preferred Stock ("Series F Stock"), 563,832
shares of Encore Series G Convertible Preferred Stock ("Series G Stock")
and 350,000 shares of Encore Series H Convertible Preferred Stock ("Series
H Stock"), and EFI currently owns 976,536 shares of Series D Stock (the
Series A Stock, Series B Stock, Series D Stock, Series E Stock Series F
Stock, Series G Stock and Series H Stock, together, being "Encore Preferred
Stock"). The Encore Preferred Stock collectively is convertible into an
additional 141,061,977 shares of Encore Common Stock;
WHEREAS, the Management Stockholders currently own shares of
Series B Stock which are convertible into 1,033,569 shares of Encore Common
Stock; and
WHEREAS, Encore, Gould, EFI and the Management Stockholders wish
to set forth certain registration rights which Gould, EFI and the
Management Stockholders have with respect to 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
sell Gould Shares (as hereinafter defined) with a reasonably estimated
public offering price of $10,000,000 or more 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
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, Series B Stock, Series D Stock, Series E Stock, Series F Stock,
Series G Stock and Series H 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, Series F Stock, Series G Stock or Series H Stock currently
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
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
the costs and expenses of such registration which are not borne by Encore,
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 the sale or distribution which is
the subject of the registration statement, 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 or 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 Gould
Shares were registered under the Act pursuant to Paragraph 1 or 2, any
prospectus or preliminary prospectus contained therein (provided, in the
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
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:
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:
Cameron Read, Esq.
Choate, Hall & Stewart
Exchange Place
53 State Street
Boston, Massachusetts 02109
Facsimile No.: (617) 248-4000
Telephone No.: (617) 248-5045
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:KENNETH G. FISHER By:
Kenneth G. Fisher, a Title:
General Partner
GOULD ELECTRONICS INC.,
+
By:
Title:
EFI INTERNATIONAL INC.
By:
Title:
ND148269.2
SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
THIS SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT (this
"Agreement") dated as of the 16th day of April, 1996, 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, 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, as further modified by that
certain Fourth Modification of Mortgage and Security Agreement recorded in
Official Records Book 3452, Page 4683 of the Public Records of Brevard County,
Florida and in the Official Records Book 23342, Page 713 of the Public Records
of Broward County, Florida, as further modified by that certain Fifth
Modification of Mortgage and Security Agreement recorded in Official Records
Book 3469, Page 1604 of the Public Records of Brevard County, Florida and in
the Official Records Book 23,879, Page 258 of the Public Records of Broward
County, Florida and as further modified by that certain Sixth Modification of
Mortgage and Security Agreement recorded in Official Records Book 3502, Page
4025 of the Public Records of Brevard County, Florida and in the Official
Records Book 23,879, Page 282 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, recorded in Official Records Book 3452, Page 4680 of the
Public Records of Brevard County, Florida and in Official Records Book 23238,
Page 406 of the Public Records of Broward 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;+
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 principal 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 partially replaced and substituted for by the following Monthly Term
Notes (each a "Monthly Term Note") as provided by the terms of the Uncommitted
Loan Agreement: (i) Monthly Term Note, dated December 21, 1994, in the
principal amount of $9,479,679.47, (ii) Monthly Term Note, dated December 21,
1994, in the principal amount of $9,879,978.83, (iii) Monthly Term Note, dated
December 21, 1994, in the principal amount of $10,166,254.35, (iv) Monthly Term
Note, dated December 21, 1994, in the principal amount of $8,262,450.24, (v)
Monthly Term Note, dated December 31, 1994, in the principal amount of
$632,340.27, (vi) Monthly Term Note, dated January 31, 1995, in the principal
amount of $7,632,619.45 and (vii) Monthly Term Note, dated February 28, 1995,
in the principal amount of $5,607,778.78;
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Master Purchase Agreement dated as of March 17, 1995, 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 heretofore entered into that
certain Amended and Restated Credit Agreement (the "March '95 Credit
Agreement"), dated as of March 17, 1995, whereby Mortgagee 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 were
originally evidenced by a Master Revolving Note, dated March 17, 1995, in the
principal amount of $25,000,000 (the "Master March '95 Revolving Note"), which
Master March '95 Revolving Note was partially replaced and substituted for by
the following Monthly Revolving Term Notes (each a "Monthly March '95 Revolving
Term Note") as provided by the terms of the March '95 Credit Agreement: (i)
Monthly Revolving Term Note, dated April 1, 1995 in the principal amount of
$902,250.00, (ii) Monthly Revolving Term Note, dated May 1, 1995 in the
principal amount of $4,322,722.22, (iii) Monthly Revolving Term Note, dated
June 1, 1995, in the principal amount of $4,222,222.23, (iv) Monthly Revolving
Term Note, dated July 1, 1995, in the principal amount of $4,413,277.78 and (v)
Monthly Revolving Term Note, dated August 1, 1995, in the principal amount of
$5,318,850.00;
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Master Purchase Agreement, dated as of August 17, 1995, whereby the
entire indebtedness evidenced by the Master Note and each of the Monthly Term
Notes, in the principal aggregate amount of $55,000,000, was exchanged by
Mortgagee for shares of Series G Convertible Preferred Stock of ECC;
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Second Amended and Restated Credit Agreement, dated as of August 17,
1995 (the "August '95 Credit Agreement"), whereby Mortgagee and ECC have agreed
to amend and restate the March '95 Credit Agreement in its entirety. Pursuant
to the terms of the August '95 Credit Agreement (i) Mortgagee shall remain
obligated to provide ECC with up to a $25,000,000 revolving line of credit
("August '95 Revolving Loan"), and (ii) Mortgagee shall have no obligation to,
but may, in its absolute and sole discretion, loan up to $20,000,000 to ECC to
provide funds which ECC may use for general corporate purposes (the
"Uncommitted Loan"). To the extent Mortgagee elects to advance any funds to
ECC upon ECC's request under the Uncommitted Loan, such obligations shall be
evidenced by a Master Uncommitted Loan Note (as such term is defined in the
August '95 Credit Agreement) and certain Monthly Uncommitted Loan Notes (as
such term is defined in the August '95 Credit Agreement). Further pursuant to+
Note shall be replaced by a certain Master Revolving Note, dated August 17,
1995 (the "Master August '95 Revolving Note") in the principal amount of
$25,000,000, and each Monthly March '95 Revolving Term Notes shall be replaced
by the following five (5) Notes: Monthly Revolving Term Note, dated as of
April 1, 1995 in the principal amount of $902,250.00, Monthly Revolving Term
Note, dated as of May 1, 1995 in the principal amount of $4,322,722.22, Monthly
Revolving Term Note, dated as of June 1, 1995 in the principal amount of
$4,222,222.23, Monthly Revolving Term Note, dated as of July 1, 1995 in the
principal amount of $4,413,277.78, and Monthly Revolving Term Note, dated as of
August 1, 1995 in the principal amount of $5,318,850.00 (each a "Monthly August
'95 Revolving Term Note");
WHEREAS, ECC and Mortgagee have heretofore entered into that
certain Amendment No. 1 to the August '95 Credit Agreement, dated as of
February 14, 1996, whereby the Mortgagee increased the amount available under
the Uncommitted Loan to $30,000,000;
WHEREAS, ECC and Mortgagee have entered into as of the date hereof
a certain Master Purchase Agreement whereby the entire indebtedness evidenced
by the Master August '95 Revolving Note, each Monthly Revolving Term Notes and
$10,000,000 of the amount outstanding under the Master Uncommitted Loan Note
was exchanged by Mortgagee for shares of Series H Convertible Preferred Stock
of ECC. Immediately following the exchange approximately $ remained
outstanding under the August '95 Credit Agreement;
WHEREAS, ECC and Mortgagee have entered into as of the date hereof
that certain Third Amended and Restated Credit Agreement (the "April '96 Credit
Agreement"), whereby Mortgagee and ECC have agreed to amend and restate the
August '95 Credit Agreement in its entirety. Pursuant to the terms of the
April '96 Credit Agreement (i) Mortgagee agreed to increase the maximum amount
available under the August '95 Revolving Loan to $65,000,000, (ii) the Master
August '95 Revolving Note shall be replaced by a certain Master Revolving Note,
dated April 16, 1996 (the "Master April '96 Revolving Note"), in the principal
amount of $65,000,000, and each Monthly August '95 Revolving Term Note shall be
replaced by certain Monthly Revolving Term Notes to be delivered by ECC to
Mortgagee pursuant to the terms of the April '96 Credit Agreement (the "Monthly
April '96 Revolving Term Notes") and (iii) ECC and Mortgagee have agreed to
eliminate the $30,000,000 Uncommitted Loan facility;
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 March '95 Credit
Agreement, the August '95 Credit Agreement, the Subsidiary Guaranty and the
Security Documents (as such terms are defined in the Mortgage), the Master Note
and each of the Monthly Term Notes, the Master March '95 Revolving Notes, each
of the Monthly March '95 Revolving Term Notes, the Master August '95 Revolving
Notes, each of the Monthly August '95 Revolving Term Notes and all Obligations
and Indebtedness (as such terms are defined in the August '95 Credit
Agreement), arising or becoming due under the August '95 Credit Agreement;
WHEREAS, Mortgagor and Mortgagee now desire to additionally secure
(i) all Obligations and Indebtedness (as such terms are defined in the April
'96 Credit Agreement) arising or becoming due under the April '96 Credit
Agreement, (ii) the Master April '96 Revolving Note, and (iii) each Monthly
April '96 Revolving Term Note; 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 March '95 Revolving Note, each
Monthly March '95 Revolving Term Note, the Master August '95 Revolving Note,
each Monthly August '95 Revolving Term Note, the Master Uncommitted Loan Note,+
Monthly April '96 Revolving Term Note 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, the March '95 Credit Agreement,
the August '95 Credit Agreement, the April '96 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 March '95 Revolving Note, each Monthly March '95 Revolving
Term Note, the Master August '95 Revolving Note, each Monthly August '95
Revolving Term Note, the Master Uncommitted Loan Note, the Monthly Uncommitted
Loan Notes, the Master April '96 Revolving Note, each Monthly April '96
Revolving Term Note, 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 August '95 Credit Agreement, the April '96 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, the August '95
Credit Agreement, the April '96 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 $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 Master April '96 Revolving Note and each
Monthly April '96 Revolving Term 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, if any, up to a total indebtedness of
$65,000,000, with respect to the Master April '96 Revolving Note and the
Monthly April '96 Revolving Term Notes, 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 April
'96 Credit Agreement. Any reference to the Master April '96 Revolving Note and
the Monthly April '96 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 has no counterclaims, defenses or offsets to(i) the April'96
Agreement, the August '95 Credit Agreement, the March '95 Credit Agreement, the
Uncommitted Loan Agreement, the Amended and Restated Loan Agreement or the
Second Amended and Restated Loan Agreement or (ii) the Mortgage, as modified by
this Agreement.
NC108082.3
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: By:
Name:
Title:
Name:
(corp. seal)
Name:
GOULD ELECTRONICS INC.
By:
Name:
Title:
Name:
(corp. seal)
Name:
NC108082.3
STATE OF FLORIDA )
) ss.:
COUNTY OF BROWARD )
The foregoing instrument was acknowledged before me this ______ day of
April, 1996 by ROBERT P. WATSON, as President 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:
NC108082.3
STATE OF OHIO )
) ss.:
COUNTY OF LAKE )
The foregoing instrument was acknowledged before me this ______ day of
April, 1996 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 ___ (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:
NC108082.3
THIS INSTRUMENT PREPARED BY:
ROGERS & WELLS
200 PARK AVENUE
NEW YORK, NEW YORK 10166
ATT'N: CRAIG M. LIEBERMAN, ESQ.
SEVENTH MODIFICATION OF MORTGAGE AND SECURITY AGREEMENT
BETWEEN
ENCORE COMPUTER U.S., INC.,
Mortgagor
AND
GOULD ELECTRONICS INC.,
Mortgagee
Dated: as of April 16, 1996
BREVARD COUNTY, FLORIDA
NOTES TO TAX EXAMINER
THIS SEVENTH 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, AS FURTHER MODIFIED BY THAT CERTAIN THIRD MODIFICATION OF
MORTGAGE AND SECURITY AGREEMENT,
