SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act
of 1934
Date of Report (Date of Earliest Event Reported): DECEMBER 31, 1998
ENCORE COMPUTER CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
DELAWARE
(State of incorporation or organization)
0-13576 04-2789167
(Commission File Number) (I.R.S. Employer Identification No.)
7786 WILES ROAD, CORAL SPRINGS, FL 33067
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (954) 757-0166
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Item 2. ACQUISITION OR DISPOSITION OF ASSETS
As of December 31, 1998 (the "Closing"), pursuant to an Asset Purchase
Agreement dated as of June 1, 1998, as amended, (the "Agreement") by and among
the registrant, Encore Computer U.S., Inc., a Delaware corporation and a
wholly-owned subsidiary of the registrant ("Encore US"), Encore Computer
International, Inc., a Delaware corporation and a wholly-owned subsidiary of the
registrant ("Encore International") and, collectively with the registrant and
Encore US, ("Encore"), Gould Electronics Inc., an Ohio corporation ("Gould") and
Encore Acquisition Corp., a Delaware corporation and a subsidiary of Connection
Machines, Inc. one of the Gores Technology Group of companies ("Acquisition"
and, collectively with the registrant, and Encore US, Encore International and
Gould, the "Parties"), Encore sold substantially all of the assets and
liabilities associated with its real-time computer system and processing
business (the "Business") to Acquisition (the "Gores Transaction") for
$3,000,000 in cash (the "Purchase Price"). Pursuant to Amendment Number One to
Asset Purchase Agreement dated October 27, 1998, the Parties agreed to extend
the termination date of the Agreement to November 30, 1998. The Parties later
entered into Amendment Number Two to Asset Purchase Agreement dated as of
December 31, 1998 ("Amendment Two") and a reconciliation Agreement dated as of
December 31, 1998 (the "Reconciliation Agreement"). Amendment Two modified the
Gores Transaction so that Acquisition purchased the stock rather than the assets
of certain of the registrant's foreign subsidiaries and extended the termination
date of the Agreement to December 31, 1998. In addition, pursuant to the
Reconciliation Agreement, the Parties agreed to set-off $250,000 against the
Purchase Price in order to resolve a dispute under the Agreement relating to a
claim for breach of product warranty. The Parties also agreed to resolve certain
other open or disputed items in connection with the Gores Transaction shortly
after the Closing, including payment obligations under a Management Agreement
dated June 1, 1998 and a Revolving Loan Agreement dated June 1, 1998, certain
obligations relating to the expenses of the Business and other amounts payable
or receivable with respect to the Business, and the accuracy of certain
representations and warranties set forth in the Agreement. The purchase price
for the Gores Transaction was determined as a result of arms-length negotiations
between Encore and Gores.
Gores Technology Group ("Gores") consists of ten interrelated but
autonomous computer-related companies focused on hardware and/or software
development, distribution and support services. Much of Gores' growth in the
1990's to its current size of approximately $200 million in annual revenues has
been the result of acquiring and then expanding companies and technologies.
Gores in headquartered in Los Angeles, California.
The Agreement, the Amendments and the Reconciliation Agreement are
attached hereto as Exhibits and are incorporated herein by reference. The
foregoing description of the Gores Transaction is subject to, and qualified in
its entirety by reference to such Exhibits.
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Item 7. Financial Statements and Exhibits
(a) Pro Forma Financial Information
UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited Pro Forma Consolidated Financial Statements for the year
ended December 31, 1997 and the nine months ended September 27, 1998 give effect
to the terms of an agreement between the Company and Gould which was entered
into in connection with the sale of the Company's storage products business to
Sun Microsystems, Inc. for $185 million in 1997 (the "Sun Transaction"), payment
by the registrant to Gould for (I) the aggregate amount of outstanding principal
amount of indebtedness, and accrued interest thereon, owed by the registrant to
Gould and (II) the redemption of the registrant's outstanding preferred stock,
all of which was then owned by Gould and by its affiliate, EFI International
Inc.(collectively the "Gould Agreement"), and the Gores Transaction. The pro
forma adjustments are based on available information and upon certain
assumptions that the Company's management believes are reasonable under the
circumstances. The unaudited pro forma financial information should be read in
conjunction with the December 31, 1997 audited Consolidated Financial Statements
and the September 27, 1998 unaudited Consolidated Financial Statements of the
Company incorporated herein by reference.
The unaudited Pro Forma Consolidated Balance Sheet and Pro Forma Consolidated
Statements of Operations are necessarily based upon allocation, assumptions and
approximations and, therefore, do not reflect in precise numerical terms the
impact of the transaction on the historical financial statements. In addition,
such pro forma statements should not be used as a basis for forecasting the
future operation of the Company.
The pro forma adjustments made in the preparation of the unaudited Pro Forma
Consolidated Balance Sheet assume that the Gores Transaction had been
consummated on September 27, 1998. The pro forma adjustments related to the
unaudited Pro Forma Consolidated Statement of Operations assume that the Sun
Transaction, the Gould Agreement and the Gores Transaction had been consummated
as of January 1, 1997.
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
AS OF SEPTEMBER 27, 1998
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
-------------------------
GORES OTHER PRO
HISTORICAL TRANSACTION CHARGES FORMA
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 13,240 $ 2,750 (A) $ $ 15,990
Restricted cash 1,285 (1,000)(B) 285
Accounts receivable,
less allowance 6,514 (6,514)(A) 0
Due from Gores 466 (466)(A) 0
Inventories 823 (823)(A) 0
Prepaid expenses
and other current assets 854 (668)(A) 186
---------- ---------- ---------- ---------
Total current assets 23,182 (5,721) (1,000) 16,461
Property and equipment, net 670 (670)(A) 0
Other assets 470 (470)(A) 0
---------- ---------- ---------- ---------
Total assets $ 24,322 $ (6,861) $ (1,000) $ 16,461
========== ========== ========== =========
LIABILITIES AND SHAREHOLDERS'
EQUITY (CAPITAL DEFICIENCY)
Current liabilities
Accounts payable and
accrued liabilities $ 13,024 $ (6,307)(A) $ 1,000 (B) $ 12,817
5,100 (C)
Due to Gould Electronics 9,692 9,692
---------- ---------- ---------- ---------
Total current liabilities 22,716 (6,307) 6,100 22,509
Shareholders' Equity
(capital deficiency):
Preferred stock, $.01 par
value; authorized 10,000,000
shares:
6% Cumulative Series B
Convertible Preferred,
issued 64,905 in 1998 with
an aggregate liquidation
preference of $6,490,500 1 1
6% Cumulative Series D
Convertible Preferred,
issued 104,190 in 1998 with
an aggregate liquidation
preference of $10,419,000 1 1
6% Cumulative Series E
Convertible Preferred,
issued 106,501 in 1998 with
an aggregate liquidation
preference of $10,650,100 1 1
6% Cumulative Series F
Convertible Preferred,
issued 49,832 in 1998 with
an aggregate liquidation
preference of $4,983,200 - -
6% Cumulative Series G
Convertible Preferred,
issued 53,474 in 1998 with
an aggregate liquidation
preference of $5,347,400 1 1
6% Cumulative Series H
Convertible Preferred,
issued 32,702 in 1998 with
an aggregate liquidation
preference of $3,270,200 - -
6% Cumulative Series I
Convertible Preferred,
issued 15,180 in 1998 with
an aggregate liquidation
preference of $1,518,000 - -
Common stock, $.01 par value;
authorized 200,000,000
shares; issued 67,450,907 674 674
Additional paid-in capital 427,008 427,008
Accumulated deficit (426,080) (554)(A) (7,100)(C) (433,734)
---------- ---------- ---------- ---------
Total shareholders' equity
(capital deficiency) 1,606 (222) (6,100) (4,716)
---------- ---------- ---------- ---------
Total liabilities and
shareholders' equity
(capital deficiency) $ 24,322 $ (6,861) $ -0- $ 17,461
========== ========== ========== =========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Balance Sheet
4
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
----------------------------
SUN TRANSACTION/ GORES PRO
HISTORICAL GOULD AGREEMENT TRANSACTION FORMA
---------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales:
Equipment $ 14,163 $ (4,764)(a) $ (9,399)(j) $ 0
Service 15,323 (15,323)(j) 0
---------- ---------- --------- --------
Total 29,486 (4,764) (24,722) 0
---------- ---------- --------- --------
Costs and expenses:
Cost of equipment sales 21,411 (12,683)(a) (8,728)(j) 0
Cost of service sales 15,921 (5,965)(a) (9,956)(j) 0
Research and development 23,953 (16,288)(b) (3,070)(k) 4,595
Sales, general and
administrative 27,044 (9,124)(b) (12,881)(k) 5,039
Termination charge 17,685 (17,685)(c) 0
---------- ---------- --------- --------
Total 106,014 (61,745) (34,635) 9,634
---------- ---------- --------- --------
Operating loss (76,528) 56,981 9,913 (9,634)
Interest expense, related
parties (6,109) 6,109 (d) 0
Interest expense-
mortgages (58) 58 (e) 0
Interest expense-
other (51) (51)
Interest income 335 335
Other expense, net (1,412) 1,412 (m) 0
Gain on Sun Transaction 119,890 (119,890)(f) 0
---------- ---------- --------- --------
Income (loss) before income
taxes 36,067 (56,742) 11,325 (9,350)
Provision for income taxes 1,903 (1,500)(g) (403)(o) 0
---------- ---------- --------- --------
Net income (loss) $ 34,164 $ (55,242) $ 11,728 $ (9,350)
========== ========== ========= ========
Net income (loss) per
common share:
Net income (loss) $ 34,164 $ (55,242) $ 11,728 $ (9,350)
Preferred stock dividends (29,580) 29,580 (h)
---------- ---------- --------- --------
Net income (loss) attributable
to common shareholders $ 4,584 $ (25,662) $ 11,728 $ (9,350)
========== ========== ========= ========
Basic and diluted income
(loss) per common share $ 0.11 $ (0.14)
========== ========
Weighted average shares
of common stock 40,568 26,879 (i) 67,447
========== ========== ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations
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<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 27, 1998
(IN THOUSANDS, EXCEPT PER SHARE DATA)
PRO FORMA ADJUSTMENTS
INCREASE (DECREASE)
----------------------------
SUN TRANSACTION/ GORES PRO
HISTORICAL GOULD AGREEMENT TRANSACTION FORMA
---------- ---------------- ----------- --------
<S> <C> <C> <C> <C>
Net sales:
Equipment $ 5,690 $ $ (5,690)(j) $ 0
Service 8,886 (8,886)(j) 0
---------- ---------- --------- --------
Total 14,576 0 (14,576) 0
---------- ---------- --------- --------
Costs and expenses:
Cost of equipment sales 3,697 (3,697)(j) 0
Cost of service sales 5,961 (5,961)(j) 0
Research and development 969 (969)(k) 0
Sales, general and
administrative 6,557 (3,646)(k) 2,911
Termination charge 1,570 (744)(l) 826
---------- ---------- --------- --------
Total 18,754 0 (15,017) 3,737
---------- ---------- --------- --------
Operating loss (4,178) 0 441 (3,737)
Interest expense (154) (154)
Interest income 675 675
Other expense, net 89 (89)(m) 0
Gain on Sun Transaction 25,308 (25,308)(n) 0
---------- ---------- --------- --------
Loss before income taxes 21,740 (25,308) 352 (3,216)
Provision for income taxes 488 (488)(o) 0
---------- ---------- --------- --------
Net loss $ 21,252 $ (25,308) 840 $ (3,216)
========== ========== ========= ========
Net loss per common share:
Net loss attributable to common
shareholders $ 21,252 $ (25,308) $ 840 $ (3,216)
========== ========== ========= ========
Basic and diluted loss
per common share $ 0.32 $ (0.38) $ 0.01 $ (0.05)
========== ========== ========= ========
Weighted average shares
of common stock 67,449 67,449 67,449 67,449
========== ========== ========= ========
</TABLE>
See accompanying notes to Unaudited Pro Forma Consolidated Statement of
Operations.
Note: The results of operations for the nine months of Fiscal 1998 are not
necessarily indicative of the results to be expected for the full year.
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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
NOTES TO PRO FORMA CONSOLIDATED BALANCE SHEET
(A) Represents $2,750,000 cash payment from, Gores (purchase price net of
set off for customer dispute) at the date of closing for substantially
all of the net assets associated with the real-time business, excluding
the following:
Cash $ 15,990
Restricted cash 1,285
Prepaid rent for leases not assigned to Gores 186
----------
17,461
----------
Less:
Restructuring accrual 5,926
Interest on Sun set off 129
Payroll and vacation accrual for continuing employees 330
Due to Gould 9,692
----------
16,077
----------
Net excluded assets $ 1,384
==========
(B) Represents $1,000,000 contingency reserve.
(C) Represents an accrual for the total estimated wind-down costs to be
incurred by the Company as follows:
Salaries and benefits, including severance for those
employees not offered employment by Gores $ 1,258
Employee retention bonuses 300
Domestic services, professional fees and other
miscellaneous costs 2,234
International services, professional fees and other
miscellaneous costs 1,308
----------
$ 5,100
==========
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
(a) Represents the reversal of storage product revenue and all cost of
sales associated with the storage product including customer service
support which was provided to the customer at no charge under warranty
contracts.
(b) Represents the estimated portion of operating expenses incurred for the
development and sale of the storage product line, based on the number
of employees transferred to Sun. Sun hired or contracted 147
development employees, or 68% of those employed by the Company, as well
as 65 storage product sales and marketing personnel, or 45% of those
employed by the Company. Development spending and sales and marketing
spending were reduced by these percentages. No amounts have been
deducted for general and administrative expenses as none relate
directly to the assets sold.
(c) Represents termination charge in conjunction with the Sun Transaction
and subsequent reorganization of the Company related to: (I) severance
and benefit pay
7
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of $6,323,000 as a result of a 542 person reduction in workforce,
including severance for employees contracted by Sun, as the Company
agreed to pay the difference between the completion bonus offered to
contractors by Sun at the end of their contract and the amount of
severance they were entitled to had they been terminated by the
Company, (ii) $4,722,000 of retention payments pursuant to agreements
between the Company and each of approximately 49 employees, (iii)
$1,000,000 of incentive bonuses to certain key employees, (iv)
$3,390,000 relating to the termination of European facility and
automobile leases, and $350,000 relating to a domestic equipment lease,
(v) an estimated $500,000 for leasehold improvements to be made at the
Company's Fort Lauderdale facility which is leased from Sun, (vi)
$1,150,000 in estimated legal and other fees associated with the Sun
Transaction, and (vii) $250,000 accrued for legal fees in connection
with the shareholders suit.
(d) Represents interest expense on the Gould Debt which was retired as part
of the Gould Agreement.
(e) Represents interest expense on mortgages which were retired as part of
the Sun Transaction.
(f) Represents $151,168,000 cash payment from Sun at the date of closing in
consideration for substantially all of the assets associated with the
Storage Products business.
(g) Represents estimated Alternative Minimum Tax payable relating to the
Sun Transaction.
(h) Represents the reversal of dividends on preferred stock retired or
converted to common stock as part of the Gould Agreement.
(i) Represents the weighted average shares of common stock issued in the
conversion of Series A and B preferred stock as part of the Gould
Agreement.
(j) Represents real-time revenue and all cost of sales associated with the
real-time business.
(k) Represents the estimated portion of operating expenses incurred for
development and selling activities of the real-time product line, based
partially on the estimated number of employees to be transferred to
Gores as well as an estimate of spending and expenses relating to the
remaining Encore employees.
(l) Represents a termination charge of $743,000 related to severance and
benefit pay as a result of a 13 person reduction in workforce
associated with the Board of Directors decision not to pursue and NT
opportunity.
(m) Represents losses on disposals of fixed assets and foreign exchange
losses incurred by Encore which would have been incurred by Gores if it
owned all plant, property and equipment and all assets and liabilities
of the foreign subsidiaries.
(n) Represents $35,000,000 cash payment from Sun at July 1, 1998 net of
$9,692,000 set off.
(o) Represents taxes incurred by certain profitable foreign subsidiaries.
8
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INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
/bullet/ the Company's Proxy Statement for Special Meeting in Lieu of Annual
Meeting of Stockholders to be held on September 11, 1998.
(b) Exhibits
Exhibit 1 Asset Purchase Agreement dated as of June 1, 1998 among the
registrant, Encore Computer U.S., Inc., Encore Computer
International, Inc., Gould Electronics Inc. and Encore
Acquisition Corp. (incorporated herein by reference to the
Company's Proxy Statement dated August 10, 1998).
Exhibit 2 Amendment Number One to Asset Purchase Agreement dated October
27, 1998 among the registrant, Encore Computer U.S., Inc.,
Encore Computer International, Inc., Gould Electronics Inc.
and Encore Acquisition Corp.
Exhibit 3 Amendment Number Two to Asset Purchase Agreement dated as of
December 31, 1998 among the registrant, Encore Computer U.S.,
Inc., Encore Computer International, Inc., Gould Electronics
Inc. and Encore Acquisition Corp.
Exhibit 4 Reconciliation Agreement dated as of December 31, 1998 among
the registrant, Encore Computer U.S., Inc., Encore Computer
International, Inc., Gould Electronics Inc. and Encore
Acquisition Corp.
9
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SIGNATURE
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 hereunto duly authorized.
Date: January 19, 1999 By: MARY MACOMER
President
Chief Executive Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
Exhibit 2 Amendment Number One to Asset Purchase Agreement dated October
27, 1998 among the registrant, Encore Computer U.S., Inc.,
Encore Computer International, Inc., Gould Electronics Inc.
and Encore Acquisition Corp.
Exhibit 3 Amendment Number Two to Asset Purchase Agreement dated as of
December 31, 1998 among the registrant, Encore Computer U.S.,
Inc., Encore Computer International, Inc., Gould Electronics
Inc. and Encore Acquisition Corp.
Exhibit 4 Reconciliation Agreement dated as of December 31, 1998 among
the registrant, Encore Computer U.S., Inc., Encore Computer
International, Inc., Gould Electronics Inc. and Encore
Acquisition Corp.
EXHIBIT 2
AMENDMENT NUMBER ONE TO
ASSET PURCHASE AGREEMENT
This AMENDMENT NUMBER ONE TO ASSET PURCHASE AGREEMENT (the "AMENDMENT")
is entered into as of October 27, 1998 by and among Encore Computer Corporation,
a Delaware corporation, Encore Computer International, Inc., a Delaware
corporation, Encore Computer U.S., Inc., a Delaware corporation, Gould
Electronics, Inc., an Ohio corporation and Encore Real Time Computing, Inc., a
Delaware corporation (formerly Encore Acquisition Corp.)
INTRODUCTION
The parties hereto entered into that certain Asset Purchase Agreement
dated as of June 1, 1998 (the "AGREEMENT") with respect to the purchase of
certain assets and the assumption of certain liabilities of Encore Computer
Corporation and its affiliates. The parties hereto desire to amend the Agreement
as hereinafter provided.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Agreement.
2. TERMINATION OF AGREEMENT. Section 7.1(f) of the Agreement is hereby
amended to read in full as follows:
(f) by either the Buyer or the Company if the Closing
has not occurred by the earliest of (i) November 30, 1998, or
(ii) such other date, if any, as the Buyer and the Company may
agree in writing and the terminating party is not at such time
in breach of a representation or warranty or in violation of a
covenant or agreement contained herein.
3. FULL FORCE AND EFFECT. Except as provided in this Amendment, all of
the terms and provisions of the Agreement shall remain unmodified and in full
force and effect and are hereby ratified and confirmed.
4. GOVERNING LAW. The internal laws of the State of Delaware shall
govern and be used to construe this Amendment without giving regard to
principles of conflict of laws thereof.
5. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed as of the date first above written.
ENCORE REAL TIME COMPUTING, INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER CORPORATION
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER U.S., INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
GOULD ELECTRONICS INC.
By:
-----------------------------------
Name:
Title:
EXHIBIT 3
AMENDMENT NUMBER TWO TO
ASSET PURCHASE AGREEMENT
This AMENDMENT NUMBER TWO TO ASSET PURCHASE AGREEMENT (the "AMENDMENT")
is entered into as of December 31, 1998 by and among Encore Computer
Corporation, a Delaware corporation, Encore Computer International, Inc., a
Delaware corporation, Encore Computer U.S., Inc., a Delaware corporation, Gould
Electronics, Inc., an Ohio corporation and Encore Real Time Computing, Inc., a
Delaware corporation (formerly Encore Acquisition Corp.)
INTRODUCTION
The parties hereto entered into that certain Asset Purchase Agreement
dated as of June 1, 1998, with respect to the purchase of certain assets and the
assumption of certain liabilities of Encore Computer Corporation and its
affiliates, and entered into that certain Amendment Number One to Asset Purchase
Agreement dated as of October 27, 1998, with respect thereto (as so amended, the
"AGREEMENT"). The parties hereto desire to amend the Agreement as hereinafter
provided to reflect, among other things, the acquisition by the Buyer of the
shares of certain European subsidiaries of the Company rather than certain
assets and certain liabilities of such subsidiaries as contemplated by the
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Agreement.
2. ADDITIONAL DEFINITIONS. The following terms are hereby defined, for
purposes of the Agreement and this Amendment, as follows:
"ENCORE BELGIUM" shall mean Encore Real Time Computing Belgium S.A.,
formerly known as Encore Computer S.A., a corporation organized under the laws
of Belgium.
"ENCORE CANADA" shall mean Encore Computer Limited, a corporation
organized under the laws of Canada.
"ENCORE FRANCE" shall mean Encore Real Time Computing S.A., formerly
known as Encore Informatique, S.A., a corporation organized under the laws of
France.
"ENCORE GERMANY" shall mean Encore Real Time Computing GmbH,
formerly known as Encore Computer GmbH, a corporation organized under the laws
of Germany.
"ENCORE ITALY" shall mean Encore Computer Sp.A, a corporation
organized under the laws of Italy.
<PAGE>
"ENCORE SPAIN" shall mean Encore Real Time Computing Espana S.A.,
formerly known as Encore Computer Espana, a corporation organized under the laws
of Spain.
"ENCORE U.K." shall mean Encore Real Time Computing Limited,
formerly known as Encore Computer (U.K.) Limited, a corporation organized under
the laws of the United Kingdom.
3. MODIFICATION REGARDING PURCHASED ASSETS. The first 134 words of
Section 1.1 of the Agreement (commencing with "Except as otherwise . . ." and
concluding with ". . . and the Asset Subsidiaries") are hereby amended to read
in full as follows:
Except as otherwise provided below and subject to the
terms and conditions of this Agreement, the Company and the
Direct Subsidiaries, acting directly and through those direct
and indirect subsidiaries of the Company listed on SCHEDULE
1.1(A) (the "ASSET SUBSIDIARIES," with the Asset Subsidiaries,
the Company and the Direct Subsidiaries being referred to
herein collectively as the "SELLER") shall sell, convey,
transfer, assign and deliver to the Buyer at the Closing (as
hereinafter defined), but effective as of the Effective Date
(as hereinafter defined), free and clear of all liens,
security interests, mortgages, encumbrances and restrictions,
except for the Permitted Liens (as hereinafter defined), all
of their respective assets and properties of every kind,
nature and description (all of such assets of the Company, the
Direct Subsidiaries and the Asset Subsidiaries being referred
to herein collectively as the "PURCHASED ASSETS"), including
without limitation the following assets of the Company, the
Direct Subsidiaries and the Asset Subsidiaries (as hereinafter
defined):
4. MODIFICATION OF SCHEDULE. Schedule 1.1(a) to the Agreement is hereby
amended to refer to Encore Canada only, and to no other entity.
5. MODIFICATION REGARDING STOCK SUBSIDIARIES. Section 1.1(k) of the
Agreement is hereby amended to read in full as follows:
(k) All right, title and interest in, to or under any
capital stock or other equity interest in or any receivable,
note or other amount owed by Encore France (together with
Encore Belgium, Encore Germany, Encore Italy, Encore Spain and
Encore U.K., collectively, the "STOCK SUBSIDIARIES" and,
together with the Asset Subsidiaries, the "SUBSIDIARIES").
6. DELETION OF SCHEDULE. The Agreement is hereby amended by the
deletion from the Agreement of Schedule 1.1(k) in its entirety.
-2-
<PAGE>
7. MODIFICATIONS REGARDING EXCLUDED ASSETS. Section 1.2 of the
Agreement is hereby amended to read in full as follows:
SECTION 1.2 EXCLUDED ASSETS. Notwithstanding the
foregoing, the Company and the Asset Subsidiaries shall not
transfer to the Buyer, and the Purchased Assets shall not
include: (i) the minute books of the Company, the Direct
Subsidiaries and the Asset Subsidiaries; (ii) the rights under
this Agreement of the Company, the Direct Subsidiaries or the
Asset Subsidiaries; (iii) any right, title or interest in or
to any capital stock or other equity interest in, or any asset
of, any of the direct or indirect subsidiaries of the Company
listed on SCHEDULE 1.2(A) or Lauderdale Computers, a
corporation organized under the laws of Sweden (collectively,
the "EXCLUDED SUBSIDIARIES"); or (iv) any of the assets listed
on SCHEDULE 1.2(B) (the assets described in clauses (i)
through (iv) being, collectively, the "EXCLUDED ASSETS").
8. MODIFICATIONS REGARDING ASSET SUBSIDIARIES. The Agreement is hereby
amended by: (a) inserting the words "the Direct Subsidiaries and" immediately
before the words "the Asset Subsidiaries" in the second sentence of Section 1.3;
(b) replacing the word "Asset" with the words "each Direct Subsidiary and each
Asset" each time the word "Asset" appears in (i) the first sentence of Section
2.2, (ii) the second sentence of Section 2.2, and (iii) the fourth sentence of
Section 2.2 (two times); (c) inserting the words "or any Direct Subsidiary"
immediately before the words "or any Asset Subsidiary" in the third sentence of
Section 2.2; (d) replacing the words "Company or any Asset Subsidiary" with the
word "Seller" each time the words "Company or any Asset Subsidiary" appear in
Section 1.4(b) (two times) and Sections 1.4(b)(i), 1.4(b)(ii), 1.4(b)(iii) and
1.4(b)(xiv); and (e) replacing the words "Asset Subsidiaries" each time they
appear in Sections 2.7(a), 2.7(b), and 2.7(d) with the words "each other
Seller;" and (f) replacing the words "Asset Subsidiary" in Section 4.11(a) with
the word "Seller."
9. ADDITIONAL EXCLUDED LIABILITIES. In addition to the liabilities
constituting the Excluded Liabilities pursuant to Section 1.4 of the Agreement,
those liabilities of the Subsidiaries listed on Schedule I to this Amendment
shall also constitute Excluded Liabilities (the liabilities listed on Schedule I
together with the liabilities described in Section 1.4 of the Agreement being,
collectively, the "EXCLUDED LIABILITIES" for purposes of the Agreement and this
Amendment).
10. MODIFICATION OF EXCLUDED LIABILITIES. Section 1.4(b)(v) is hereby
amended to read in full as follows: "(v) which is a note or inter-company
payable of the Company or any subsidiary, division or other business segment of
the Company to Gould;".
11. ADJUSTMENT TO ALLOCATION. The total amount of the Purchase Price
and the Assumed Liabilities shall be allocated among the Purchased Assets and
the noncompetition covenant of the
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<PAGE>
Seller in Section 4.9 of the Agreement as set forth on a schedule to be
determined in accordance with the Reconciliation Agreement, which supersedes and
replaces in full Schedule 1.5 to the Agreement.
12. MODIFICATIONS TO REPRESENTATIONS. The Agreement is hereby amended
by: (a) replacing the word "Subsidiaries" with the words "Direct Subsidiaries"
in the first sentence of Section 2.1; (b) replacing the word "Subsidiary" with
the words "Direct Subsidiary and each Asset Subsidiary" in the second sentence
of Section 2.1; (c) replacing the words "Stock Subsidiary" with the words
"Direct Subsidiary and each Asset Subsidiary" in the fourth sentence of Section
2.1; and (d) replacing the words "state and local" with the words "state, local
and foreign" in the definition of Environmental Laws in Section 2.22. In
addition: (x) each representation and warranty set forth in Section 2.7 (except
Section 2.7(c) and Section 2.7(e)), in Sections 2.8 through 2.24 and in Section
2.27 shall be deemed to have been made by the Seller as though each reference to
the Seller is also a reference to each of the Subsidiaries and each reference to
assets of the Seller is also a reference to the assets of each of the
Subsidiaries; (y) each covenant of the Seller to be performed prior to the
Closing shall be deemed to be covenants to be performed by each of the
Subsidiaries prior to the Closing, to the extent applicable; and (z) the
indemnification provisions of Article VI of the Agreement shall also apply to
the representations, warranties and covenants deemed made pursuant to this
sentence.
13. ADDITIONAL REPRESENTATIONS AND WARRANTIES. The Agreement is hereby
amended by adding new Sections 2.28 and 2.29 to follow immediately after Section
2.27 and to read in full as follows:
SECTION 2.28 ORGANIZATION, AUTHORITY AND CAPITALIZATION OF
STOCK SUBSIDIARIES. Each Stock Subsidiary is a company duly organized
and validly existing under the laws of the jurisdiction indicated below
the name of such Subsidiary on SECTION 2.28 OF THE DISCLOSURE SCHEDULE,
with all requisite corporate power and authority to own its assets and
properties and to carry on the business in which it is engaged. True
and complete copies of the charter, the bylaws and the corporate
records of each Stock Subsidiary, as amended to the Closing Date, have
been furnished or made available to the Buyer prior to the Closing
Date. None of the Stock Subsidiaries has breached any of the terms of
its respective corporate charter or bylaws. The authorized capital of
each Stock Subsidiary consists of the shares indicated below the name
of such Subsidiary on SECTION 2.28 OF THE DISCLOSURE SCHEDULE. Upon the
Closing, no Stock Subsidiary shall have any shares issued or
outstanding other than shares owned beneficially and of record by the
Buyer or by Encore France (the "Shares") except the directors'
qualifying shares indicated below the name of such Subsidiary on
SECTION 2.28 OF THE DISCLOSURE SCHEDULE. All of the issued and
outstanding shares of each Stock Subsidiary are validly issued, fully
paid and non-assessable. Immediately prior to the Closing, the Seller
(with respect to Encore France) or Encore France (with respect to
Encore Belgium, Encore Germany, Encore Italy, Encore Spain and Encore
U.K.) is the owner of all of the Shares of such respective Stock
Subsidiaries, free and clear of all pledges, liens, charges, security
interests or encumbrances of any kind ("Liens"), and there are no
restrictions on or with respect to the transferability of such
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<PAGE>
Shares to the Buyer or to Encore France, as the case may be. There are
no authorized or outstanding subscriptions, options, warrants,
contracts, commitments, convertible securities or other agreements or
arrangements of any character or nature whatsoever under which either
the Seller or any Stock Subsidiary is or may become obligated to issue,
assign or transfer any shares of capital of such Subsidiary. Upon the
Closing, provided that the Purchase Price has been paid in the manner
required by this Agreement, the Buyer will, directly or indirectly
through Encore France, be the lawful owner of, and have good and
marketable title to, all of the then issued and outstanding shares of
the capital of each Stock Subsidiary, except for directors' qualifying
shares, free and clear of all Liens. The bylaws of each Stock
Subsidiary are complete and correct and the minute books of each Stock
Subsidiary are complete and accurately reflect actions taken prior to
the Closing by its board of directors and shareholders. No Stock
Subsidiary has any obligation to pay any dividends (whether in cash,
shares or in any other manner) or any obligation to make any other
distributions in respect of any shares now or in the future. No Stock
Subsidiary has any subsidiary or any direct equity interest in any
person, except that Encore France owns all of the outstanding shares
(except directors' qualifying shares) of each of the other Stock
Subsidiaries and no Stock Subsidiary has agreed to acquire any such
interest or to become a member of any joint venture or partnership.
SECTION 2.29 ASSETS AND LIABILITIES OF THE SUBSIDIARIES. All
intercompany receivables, notes and other amounts owed to any Seller by
any Subsidiary of the Company, and all intercompany receivables, notes
and other amounts owed to any Subsidiary of the Company by any Seller,
as of the Closing are set forth on the Intercompany Account Schedule
(as defined in Section 5.1(i)).
14. ADDITION OF SCHEDULE 2.28. The Agreement is amended by adding a new
SECTION 2.28 OF THE DISCLOSURE SCHEDULE, to read in full as set forth on
Schedule II to this Amendment.
15. CONTINUING EMPLOYEES. Section 4.6 of the Agreement is hereby
amended by adding a new sentence to the end of Section 4.6, to read in full as
follows: The Continuing Employees shall be those employees listed on Schedule
4.2 as employees of the Buyer, except for the employees listed on Schedule III
to this Amendment.
16. CONTRIBUTION OF STOCK SUBSIDIARIES AND EXTINGUISHMENT OF
INTERCOMPANY ACCOUNTS. The Agreement is hereby amended by adding a new Section
4.13 to follow immediately after Section 4.12 and to read in full as follows:
SECTION 4.13. REORGANIZATION. Prior to the Closing,
Seller shall assign, transfer and convey all of the
outstanding capital stock (except for directors' qualifying
shares outstanding as of the Effective Date) and other equity
interests in, and any receivable, note or other amount owed to
the Seller by, each of Encore Italy, Encore U.K., Encore
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<PAGE>
Germany, Encore Belgium and Encore Spain to Encore France as
of the Effective Date, on terms consistent with the provisions
of this Agreement. Each of the statements made in Section 2.2
shall be true and correct with respect to Encore International
and each such assignment, transfer and conveyance and each
agreement or other document providing for or evidencing such
assignment, transfer or conveyance as of the date thereof, and
such statements, in such respects, shall constitute
representations and warranties pursuant to Article II for
purposes of the Closing. The Company shall take, or cause to
be taken, such actions as shall be necessary to ensure that,
upon the Closing, no Subsidiary is owed any intercompany
receivable or other amount by the Company, the Direct
Subsidiaries or any other Subsidiary, and no Subsidiary owes
any note or intercompany payable to the Company, the Direct
Subsidiaries or any other Subsidiary, except as set forth on
the Intercompany Account Schedule (as defined in Section
5.1(i) below).
17. REVISION OF SUBSIDIARY ACQUISITIONS. Section 5.1(h) of the
Agreement is hereby amended to read in full as follows:
(h) SUBSIDIARY ACQUISITIONS. Each of Encore Italy,
Encore U.K., Encore Germany, Encore Belgium and Encore Spain
shall have entered into purchase agreements with Encore
International, as seller, and Encore France, as buyer,
pursuant to which, prior to the transfer of the outstanding
capital stock of Encore France pursuant to the following
sentence of this Section 5.1(h) and in accordance with Section
4.14, Encore International shall have transferred, or caused
to be transferred, to Encore France all of the outstanding
capital stock of Encore Italy, Encore U.K., Encore Germany,
Encore Belgium and Encore Spain, respectively, with the same
effect as though each such Subsidiary had been a Stock
Subsidiary pursuant to this Agreement as of the date hereof,
and all intercompany obligations owed by any Subsidiary to any
other Subsidiary, any Direct Subsidiary or the Company shall
have been satisfied and discharged in full, for no
consideration from the Buyer in addition to that set forth in
Section 1.3 above, each such agreement or transaction to be on
terms consistent with the provisions of this Agreement and
acceptable to the Buyer. Encore France shall have entered into
a purchase agreement with Encore International, as seller, and
the Buyer, as buyer, pursuant to which, on the Closing Date,
Encore International transfers, or causes to be transferred,
to the Buyer all of the outstanding capital stock of Encore
France as of the Effective Date, with the same effect as
though such Subsidiary had been a Stock Subsidiary pursuant to
-6-
<PAGE>
this Agreement as of the date hereof, for no consideration in
addition to that set forth in Section 1.3 above, such
agreement to be on terms consistent with the provisions of
this Agreement and acceptable to the Buyer.
18. INTERCOMPANY ACCOUNT SCHEDULE. The Intercompany Account Schedule is
attached hereto as Schedule IV.
19. INDEMNIFICATION OF SUBSIDIARIES. Section 6.2 of the Agreement is
hereby amended (i) by replacing the word "Buyer" with the words "Buyer and Stock
Subsidiaries" in the heading to Section 6.2 and (ii) by replacing the words
"Buyer and hold it" with the words "Buyer and each Stock Subsidiary and hold
each of them" in the first sentence of Section 6.2.
20. TRANSITION TEAM ASSETS. Those assets of the Seller that would have
constituted Purchased Assets pursuant to the Agreement but that remained with
the Seller pursuant to Section 2.7(c) of the Disclosure Schedule for use by
certain employees of the Company in connection with the transition of the
Company after the Effective Date shall be Purchased Assets, and shall be
transferred and conveyed to the Seller pursuant to the terms of the Agreement,
promptly upon completion of such transition of the Company.
21. ADDITIONAL CONDITIONS PRECEDENT TO BUYER'S OBLIGATIONS. The
Agreement is hereby amended by adding new clause (k) to follow immediately after
Section 5.1(j) and to read in full as follows:
(k) SUBSIDIARY DOCUMENTS. The Buyer shall have received,
with respect to Encore France, and Encore France
shall have received, with respect to each of the
remaining Stock Subsidiaries, a stock certificate or
certificates representing all of the Shares of such
Subsidiary, if any, together with a duly executed
assignment thereof to the Buyer or Encore France, as
appropriate, the corporate seal, if any, corporate
records and stock transfer records of such
Subsidiary, and the resignations, effective as of the
Closing, of each of the directors and officers of
such Subsidiary other than those designated by the
Buyer prior to the Closing.
22. MODIFICATION TO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. Section
6.1 of the Agreement is hereby amended by replacing clause (a) thereof with the
following clause: "(a) the representations and warranties set forth in Section
2.7(d) and (e) (title), Section 2.22 (environmental) and Section 2.28
(subsidiaries) shall be unlimited as to duration."
23. RESOLUTION OF PAYMENTS. The payment of the expenses of the Business
and of other obligations and amounts payable or receivable with respect to the
Business or the transactions contemplated by this Agreement, as set forth in
that certain Reconciliation Agreement dated
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<PAGE>
December 31, 1998 (the "Reconciliation") among the parties hereto, shall be
resolved in accordance with the terms of the Reconciliation.
24. TAX BENEFIT. The Company shall pay to the Buyer fifty percent (50%)
of the amount of any Tax benefit (including any interest thereon or change in
withholding in respect thereof) realized by the Company or any affiliate of the
Company as a result of or arising from the reorganization of the European
Subsidiaries and the settlement of intercompany accounts receivable or payable
(on the basis set forth in Section 2.29 of the Agreement) as contemplated by
Section 4.13 of the Agreement. The Company shall make such payment to the Buyer
in accordance with the terms of the Reconciliation.
25. INDEMNITY. The Seller and the Buyer acknowledge that, as a result
of the modifications to the Agreement effected by this Amendment, certain
liabilities and assets may arise and/or be transferred to the Buyer that would
not have arisen or been transferred to the Buyer if the parties had not entered
into this Amendment. Accordingly, in addition to the provisions of Article VI,
the Company, the Direct Subsidiaries and Gould jointly and severally agree to
indemnify the Buyer and each Stock Subsidiary and hold each of them harmless
against and in respect of Losses which arise or result from: (a) any liability,
whether known or unknown, contingent or otherwise, of any Subsidiary if such
liability would not have constituted an Assumed Liability pursuant to the
Agreement if the Agreement were not amended hereby (including without limitation
any leases that are not Assumed Liabilities but that are not transferred by the
respective Subsidiary to, and assumed by, the Company or a Direct Subsidiary
prior to the Closing); (b) any Tax, including any withholding obligation in
respect of any Tax, imposed or arising as a result of or in connection with (i)
the assignment, transfer and conveyance of the capital stock of the Stock
Subsidiaries, (ii) the satisfaction and discharge of intercompany obligations,
or (iii) the assignment, transfer or delegation of Excluded Assets or Excluded
Liabilities by the Stock Subsidiaries to the Company or the Direct Subsidiaries;
and (c) any liability or obligation imposed upon the Buyer or any Stock
Subsidiary pursuant to or as a result of any term or provision of the
assignment, transfer and conveyance of the capital stock of the Stock
Subsidiaries or any agreement or other document providing for or evidencing such
assignment, transfer and conveyance, except to the extent that such liability or
obligation is imposed on the Buyer or such Subsidiary, as the case may be,
pursuant to the Agreement as amended hereby. Any and all assets that would have
constituted Excluded Assets pursuant to the terms of the Agreement but which are
transferred to Buyer (whether directly, or indirectly by means of the transfer
of the Stock Subsidiaries) as a result of this Amendment shall be transferred
back to the Seller promptly after notice from the Seller to the Buyer
identifying such asset.
26. TERMINATION DATE. The date set forth in clause (ii) of Section
7.1(f) of the Agreement is hereby modified to December 31, 1998.
27. AGREEMENT GOVERNS. Notwithstanding any conflicting, contrary,
different or additional term or provision of the assignment, transfer and
conveyance of the capital stock of any Subsidiary or any agreement or other
document providing for or evidencing any such assignment, transfer and
conveyance, and notwithstanding that such assignment, transfer, conveyance,
agreement or other
-8-
<PAGE>
document may occur or be executed subsequent to the Agreement or this Amendment,
the terms and provisions of the Agreement, as amended by this Amendment, and the
Reconciliation shall exclusively govern and control the transactions
contemplated by the Agreement and this Amendment unless further amended pursuant
to a document executed by each of the parties hereto and expressly providing for
the amendment of the Agreement.
28. FULL FORCE AND EFFECT. Except as provided in this Amendment, all of
the terms and provisions of the Agreement shall remain unmodified and in full
force and effect and are hereby ratified and confirmed.
29. GOVERNING LAW. The internal laws of the State of Delaware shall
govern and be used to construe this Amendment without giving regard to
principles of conflict of laws thereof.
30. COUNTERPARTS. This Amendment may be executed in counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same instrument.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Amendment to be
executed as of the date first above written.
ENCORE REAL TIME COMPUTING, INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER CORPORATION
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER U.S., INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
GOULD ELECTRONICS INC.
By:
-----------------------------------
Name:
Title:
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<PAGE>
SCHEDULE I
ADDITIONAL EXCLUDED LIABILITIES
1. All liabilities of the types described in Section 1.4(b) of the Agreement.
-11-
<PAGE>
SCHEDULE II
SECTION 2.28 OF THE DISCLOSURE SCHEDULE
Encore Computer S.A.
Jurisdiction of Organization: Belgium
Authorized Capital Stock:
Capital Stock Owned by Seller: 20,000 (100% of outstanding)
Directors' Qualifying Shares: None
Encore Computer Limited
Jurisdiction of Organization: Canada
Authorized Capital Stock:
Capital Stock Owned by Seller: 100 (100% of outstanding)
Directors' Qualifying Shares: None
Encore Informatique, S.A.
Jurisdiction of Organization: France
Authorized Capital Stock: 40,000
Capital Stock Owned by Seller: 39,999
Directors' Qualifying Shares: 1
Encore Computer GmbH
Jurisdiction of Organization: Germany
Authorized Capital Stock:
Capital Stock Owned by Seller: 100% of outstanding
Directors' Qualifying Shares: None
Encore Computer Sp.A
Jurisdiction of Organization: Italy
Authorized Capital Stock:
Capital Stock Owned by Seller: 90,000 (100% of outstanding)
Directors' Qualifying Shares: None
Encore Computer Espana
Jurisdiction of Organization: Spain
Authorized Capital Stock:
Capital Stock Owned by Seller: 1,000 (100% of outstanding)
Directors' Qualifying Shares: None
Encore Computer Limited
Jurisdiction of Organization: United Kingdom
Authorized Capital Stock:
Capital Stock Owned by Seller: 5,000 (100% of outstanding)
Directors' Qualifying Shares: None
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<PAGE>
SCHEDULE III
DELETIONS FROM CONTINUING EMPLOYEES
Mindy Binkley
Anne Desantis
Lenette Diaz
Paul Ruepp
Jane Schachtman
Velda Wright
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<PAGE>
SCHEDULE IV
INTERCOMPANY ACCOUNTS
None
-14-
EXHIBIT 4
RECONCILIATION AGREEMENT
This RECONCILIATION AGREEMENT (this "AGREEMENT") is entered into as of
December 31, 1998 by and among Encore Computer Corporation, a Delaware
corporation, Encore Computer International, Inc., a Delaware corporation, Encore
Computer U.S., Inc., a Delaware corporation, Gould Electronics, Inc., an Ohio
corporation, and Encore Real Time Computing, Inc., a Delaware corporation
(formerly Encore Acquisition Corp.)
INTRODUCTION
The parties hereto entered into that certain Asset Purchase Agreement
dated as of June 1, 1998, with respect to the purchase of certain assets and the
assumption of certain liabilities of Encore Computer Corporation and its
affiliates (as amended to the date hereof, the "PURCHASE AGREEMENT"). The
parties are unable to collect all of the requisite data prior to Closing with
respect to their respective payment obligations under the Management Agreement,
the Loan Agreement, the Note and the Guaranty or relating to the expenses of the
Business and other obligations and amounts payable or receivable with respect to
the Business (collectively, the "OBLIGATIONS"). In addition, a dispute has
arisen between the parties with respect to the accuracy of certain
representations and warranties set forth in the Purchase Agreement. Also, as a
result of that certain Amendment Number Two to the Purchase Agreement dated as
of the date hereof (the "AMENDMENT"), certain items in the Disclosure Schedule
may need to be modified. The parties desire that the Closing occur and to
provide for the reconciliation and satisfaction of the Obligations and for the
resolution of such disputes and any other disputes that may arise as a result of
the modification of the Disclosure Schedule on the terms set forth in this
Agreement.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings assigned to such terms in the Purchase
Agreement.
2. RECONCILIATION OF OBLIGATIONS. Within thirty (30) days following the
Closing, the Company shall prepare a schedule showing, as of the Closing Date:
(a) all amounts payable pursuant to the Management Agreement; (b) all amounts
payable pursuant to the Loan Agreement, the Note and the Guaranty; (c) all
expenses that are allocable (pursuant to the Purchase Agreement) to one party
hereto (or an affiliate thereof) but which have been paid or otherwise satisfied
by another party hereto (or an affiliate thereof) and for which the paying party
has not been reimbursed; (d) all other obligations or amounts payable that are
allocable (pursuant to the Purchase Agreement) to one party hereto (or an
affiliate thereof) but which have been paid or otherwise satisfied by another
party hereto (or an affiliate thereof) and for which the paying party has not
been reimbursed; (e) all revenues or other amounts receivable that are allocable
<PAGE>
(pursuant to the Purchase Agreement) to one party hereto (or an affiliate
thereof) but which have been collected or received by another Party hereto (or
an affiliate thereof) and which have not been remitted to the party to which
such amount is allocable; (f) any adjustments as the result of the modification
of the Disclosure Schedule by the Seller; (g) any adjustments in connection with
that certain account receivable heretofore owed to the Seller by CLG
Incorporated and included by the Seller among the receivables to be transferred
pursuant to the Purchase Agreement; (h) all amounts payable to the Buyer with
respect to tax benefits pursuant to Section 24 of the Amendment; and (i) the net
amount payable after setting the foregoing amounts off against each other (the
"PAYMENT BALANCE") together with a statement as to the party which owes such
amount, the party to which such amount is owed, and the origin or nature of such
obligation. The Company shall provide a copy of such schedule, and any
modification of the Disclosure Schedule, to the Buyer no later than thirty (30)
days after the Closing Date. The Buyer shall have the right to review the books
and records of the Company for a period of thirty (30) days after receiving the
Payment Balance, to verify and confirm the accuracy thereof. If, after such
review, the Buyer agrees with the Payment Balance, the Buyer shall promptly (and
in any event within thirty (30) days after receiving the Payment Balance) notify
the Company and, if the Payment Balance is negative, the Company shall pay such
amount to the Buyer and, if the Payment Balance is positive, the Buyer shall pay
such amount to the Company, in either event together with interest on such
amount from the date of this Agreement to the date of payment at the rate of ten
percent (10%) per annum. Any such payment shall be made by wire transfer of
immediately available funds, to an account designated by the payee, within five
(5) days of the delivery of the Buyer's notice to the Company. If, after such
review, the Buyer objects to the Payment Balance, the Buyer shall promptly
provide to the Company a detailed statement indicating the basis for the Buyer's
objections, and the Buyer and the Company shall meet and confer in an effort to
resolve such disagreement in good faith and, whether or not there is such a
disagreement, the Buyer shall propose an allocation of the Purchase Price and
the Assumed Liabilities among the Purchased Assets and the noncompetition
covenant of the Seller in Section 4.9 of the Purchase Agreement. In the event
that the Buyer and the Company are unable to resolve a disagreement as to the
Payment Balance or the allocation within thirty (30) days (or such longer period
as the Buyer and the Company may agree), the Payment Balance or the allocation,
as the case may be, shall be determined by such accounting firm or arbitrator as
the Buyer and the Company may agree upon and the decision of such accounting
firm or arbitrator shall be final and binding upon the parties. The expense of
retaining such accounting firm shall be borne equally by the parties. Within
five (5) days after the determination of the Payment Balance pursuant to either
of the two immediately preceding sentences, the Company shall pay to the Buyer
the amount by which the Payment Balance is negative or the Buyer shall pay to
the Company the amount by which the Payment Balance is positive as the case may
be, by wire transfer of immediately available funds to an account designated by
the payee. In the event that fifty percent (50%) of the amount of the tax
benefit actually realized with respect to Section 24 of the Purchase Agreement
is greater or less than the amount determined by the parties with respect to
Section 2(h) above, the Seller shall pay to the Buyer, or the Buyer shall pay to
the Seller, respectively, the amount of such excess or deficit in such party's
share of the tax benefits promptly upon the determination of such difference.
2
<PAGE>
3. RAYTHEON DISPUTE. The issues regarding the claims set forth by
Raytheon Corporation pursuant to its letter dated June 1, 1998 (the "RAYTHEON
CLAIM") have been resolved in accordance with the terms of that certain letter
agreement among the Seller, the Buyer and Raytheon Corporation dated June ___,
1998.
4. RELEASE. To the extent that the resolution of the Raytheon Claim
pursuant to Paragraph 3 above results in or causes a breach or inaccuracy of a
representation or warranty, or a failure to perform any covenant or agreement,
contained in the Purchase Agreement, each party hereto irrevocably releases and
forever discharges each other party hereto from any Losses which arise or result
from such breach, inaccuracy or failure to perform.
5. COMPENSATION. As compensation in respect of the Raytheon Claim, and
the release with respect thereto set forth in Section 4 above, the Company shall
pay to the Buyer Two Hundred Fifty Thousand Dollars ($250,000) in immediately
available funds at the Closing. The Buyer may in its discretion credit the
amount of such compensation against the Purchase Price payable at the Closing,
and remit the net amount to the Company in satisfaction of the Purchase
Agreement.
6. SEVERABILITY. If any term or other provision of this Agreement is
invalid, illegal or incapable of being enforced by any law, rule, regulation or
public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible to the fullest
extent permitted by applicable law in an acceptable manner to the end that the
transactions contemplated hereby are fulfilled to the extent possible.
7. AMENDMENTS. This Agreement may not be amended except by an
instrument in writing signed by each of the parties hereto.
8. FULL FORCE AND EFFECT. Except as provided in this Agreement, all of
the terms and provisions of the Purchase Agreement shall remain unmodified and
in full force and effect and are hereby ratified and confirmed.
9. GOVERNING LAW. The internal laws of the State of Delaware shall
govern and be used to construe this Agreement without giving regard to
principles of conflict of laws thereof.
10. COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which shall constitute one and
the same instrument.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date first above written.
ENCORE REAL TIME COMPUTING, INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER CORPORATION
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER U.S., INC.
By:
-----------------------------------
Name:
Title:
ENCORE COMPUTER INTERNATIONAL, INC.
By:
-----------------------------------
Name:
Title:
GOULD ELECTRONICS INC.
By:
-----------------------------------
Name:
Title:
4
