<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1995
------------------------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ------------------------
Commission file number 1-8988
----------------------------------------------------------
ECC INTERNATIONAL CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Delaware 23-1714658
- ----------------------------------------------------------------------------------------------------------
(State of other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)
175 Strafford Avenue, Suite 116, Wayne, Pennsylvania 19087
- ----------------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code (610) 687-2600
------------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
- ------------------- -----------------------------------------
None None
- ------------------- -----------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.10 Per Share
- --------------------------------------------------------------------------------
(Title of class)
Indicate by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. /X/ YES / / NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. /X/
As of August 9, 1995, the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was $78,346,205. (This figure
was computed on the basis of the closing price for the Registrant's Common
Stock on August 9, 1995 using the number of shares held on August 9, 1995 by
stockholders who are not officers, directors or record holders of 10% or more
of the Registrant's outstanding Common Stock. The characterization of such
officers, directors and 10% stockholders as affiliates is for purposes of the
computation only and should not be construed as an admission for any purpose
whatsoever that any of such persons are, in fact, affiliates of the
Registrant.)
As of August 9, 1995 there were 7,657,846 shares of the Registrant's Common
Stock, $0.10 par value per share, issued and outstanding.
Information with respect to directors in Item 10 and the information required
by Items 11-13 is incorporated by reference to the proxy material of the
Registrant in connection with its Annual Meeting of Shareholders scheduled for
the week of December 4, 1995.
The Exhibit Index is located on pages 40 through 43.
<PAGE> 2
PART I
Item 1. Business.
(a) General Development of Business.
(1) ECC International Corp., a Delaware corporation organized in
1969 (the "Company"), designs, manufactures, and markets computer-controlled
simulators used primarily for training personnel to perform maintenance and
operator procedures on military weapons systems. The Company's simulators
measure performance as a trainee operates the equipment, conducts equipment
tests, diagnoses programmed malfunctions, and takes corrective actions. The
Company's equipment is used by all four branches of the U.S. Armed Services as
well as numerous foreign governments for familiarization, operator training and
maintenance training for aircraft, missiles, submarines, surface ships, tanks,
combat vehicles, and radar systems.
The Company's systems also have application in industrial and
vocational training programs, such as control room simulators for power plants.
The Company also offers training and educational products to
purchasers of its simulators and to others. These products consist of the
development of training programs and curricula, development of multi media
programs and computer-based training, preparation of training handbooks, and
instruction on the use of the Company's simulators.
The Company designs and manufactures substantially all of the
components of its simulator systems, with the exception of certain equipment
such as commercially available computers, CRTs, disk drives and printers, which
it purchases. The Company is not dependent on any one supplier for raw
materials or computer related equipment used in or sold as part of its systems.
The Company's systems are marketed through a direct sales
force located in Wayne, Pennsylvania, and Sussex, England and by independent
international sales representatives located in 17 foreign countries.
In fiscal year 1992, the Company began to manufacture, under
license from Deutsche Wurlitzer GmbH, a frozen food product vending machine,
during which time orders for a limited number of units were received. First
deliveries of these units were made in December 1992 and a total of
approximately 500 machines were manufactured and sold during fiscal years 1993,
1994 and 1995. In the fiscal year ended June 30, 1995, the Company designed a
new frozen food/refrigerated vending machine, which it began manufacturing and
selling in June 1995.
The Company developed a glass front 54 selection bottle
vending machine and entered into a contract for 5,000 machines with Snapple
Beverage Corporation ("Snapple") in November, 1993. The contract included an
option to purchase 5,000 additional machines which Snapple exercised in March,
1994, and provided for an exclusivity period through March 31, 1995. Since
April 1, 1995, the Company has been marketing this machine to other beverage
companies and vending operators through its vending distributor network.
(2) Not applicable.
<PAGE> 3
(b) Financial Information about Industry Segments.
The Company designs and manufactures training simulators and develops
training and curricula. In addition, the Company manufactures frozen food and
bottle vending machines. See Note 10 to the Consolidated Financial Statements
for information concerning operations by business segment and sales by
geographic area and major customers.
(c) Narrative Description of Business.
(1) (i) Principal Products, Services and Revenue Sources.
See the information set forth above in Item 1(a) and
(b) and following in Item (c)(1)(iv).
(ii) New Products.
Vending Machines - See the information set forth
above in Item 1(a) and (b) and following in Item (c)(1)(iv).
(iii) Raw Materials.
The components being used in the assembly of vending
machines and training systems, as well as, the parts used to manufacture the
computers and devices used in the Company's systems are purchased from original
equipment manufacturers, electronics supply firms and others. The Company has
no reason to believe that it cannot continue to obtain such components, or
suitable substitutes, as it may require.
(iv) Patents, Trademarks, Licenses, Franchises and
Concessions.
On September 18, 1979, the Company received a patent
on the EC 3 system, a computer-controlled general purpose simulator developed
by the Company. This patent expires on September 18, 1996. The Company does
not consider the patent to be crucial to its operations. Competitors are using
general purpose computers in their simulation systems, although such computers
are not as efficient as the EC 3 in this specific application.
The Company has applied for a Design Patent and three
Utility Patents covering key elements of its bottle vending unit.
(v) Seasonality of Business.
The Company's business is not seasonal.
(vi) Working Capital Practices.
The Company's working capital practices are similar
to other government contractors.
<PAGE> 4
(vii) Dependence on Customer.
A substantial portion of the Company's training
business is government-related and channeled to the Company through the
Department of Defense. For the fiscal year ended June 30, 1995, 33.9% of sales
were made directly to the Department of Defense, while an additional 32.8% of
sales were made to various other contractors for ultimate use by the Department
of Defense. Within the Department of Defense, there are various agencies which
are "customers" of the Company, with the largest being the U.S. Air Force.
For the fiscal year ended June 30, 1995, several contracts with this "customer"
accounted for 21.4% of the Company's sales. The development portion of that
contract was completed in the first quarter of fiscal year 1994. Revenue
contributed by the Vending Division for the fiscal year ended June 30, 1995
accounted for 22.4% of the Company sales and was substantially all relating to
one customer. (Also see Note 10 to the Consolidated Financial Statements.)
(viii) Backlog.
At June 30, 1995, the Company's backlog (which
represents that portion of outstanding contracts not yet included in revenue)
was approximately $232,607,000, of which $6,021,000 related to the Company's
Vending Operation and $109,845,000 represented contract options, as compared to
approximately $213,593,000 (of which $28,213,000 related to the Company's
Vending Operation and $97,686,000 represented contract options) at June 30,
1994. It is anticipated that over 75% of the backlog, exclusive of contract
options at June 30, 1995, will be delivered during the fiscal year ending June
30, 1996.
(ix) Renegotiation or Termination of Contracts or
Subcontracts at Government's Election.
The Company's government contracts contain standard
terms permitting termination without cause at the option of the government. In
the event of termination of such contracts, the Company is entitled to receive
reimbursement on the basis of work completed (cost incurred plus a reasonable
profit).
(x) Competitive Conditions.
The Company is in competition with a large number of
firms. Many of the Company's competitors are substantially larger and have
greater financial resources. Competition is based upon both price and
performance considerations. Positive factors pertaining to the Company's
competitive position are that the Company has a large base of installed systems
and substantially more experience than its competitors in the
computer-controlled maintenance simulation field. Based upon the reduction in
the defense budget, the Company expects to see new competitors in its market,
which the Company believes is one of the defense segments which continues to
have growth potential.
ECC recently entered the vending machine
manufacturing business in two distinct areas. The first is the frozen food
vending area, where the company introduced its frozen food machine
approximately two years ago and the second is the beverage vending area where
the company recently introduced its large glass front vending machine which
displays and vends up to fifty-four (54) different selections of glass bottles.
Although there are a number of major manufacturers in the vending business, the
Company does not currently have any major competition for its machines.
However, the Company believes that one or more of the major manufacturers will
introduce new products to compete with the Company's vending machines in the
near future.
<PAGE> 5
(xi) Systems Development.
During the fiscal years ended June 30, 1995, 1994,
and 1993, approximately $1,239,000, $557,000 and $1,066,000, respectively, were
spent on Company-sponsored research activities, including manufacturing,
engineering and software development relating to the development of new
products and product enhancements. There have been no customer-sponsored
research activities within the last three years. During the fiscal year ended
June 30, 1995, the Company employed the equivalent of 20 full-time professional
employees whose prime responsibility is in research and development activities.
In addition to this full-time research and development staff, from time to time
the Company utilizes the specialized skills of many of its other employees and
contract personnel on a limited engagement basis.
(xii) Environment.
The Company has nothing to report under this caption.
(xiii) Number of Persons Employed.
As of June 30, 1995, the Company employed
approximately 951 persons.
(d) Financial Information about Foreign and Domestic Operations and Export
Sales.
Export sales in the fiscal year ended June 30, 1995 were immaterial to
the Company's gross sales. The amounts of export sales for the last three
fiscal years are shown in Note 10 to the Consolidated Financial Statements.
Management does not believe there are substantial risks involved in
the Company's foreign operations at this time, nor does management believe that
any material part of the business is dependent on any one foreign contract, the
loss of which would have a material adverse effect on the business.
Item 2. Properties.
The Company owns its simulation development and manufacturing
facilities which are situated on 27 acres in Orlando, Florida. The main plant
facility totals 398,086 square feet. Also located on the property is a 19,360
square foot metal storage facility and a 66,100 square foot mini-warehouse
operation. In March 1995, the entire vending operation was moved to a 72,500
square foot leased facility approximately five miles from the main plant.
In addition, the Company leases approximately 10,000 square feet of
office space in Wayne, Pennsylvania under a lease that expires on March 31,
1996. The Corporate Headquarters, the Company's Marketing Staff and the
Instructional Systems Design Group are resident at this location.
The Company's wholly owned subsidiary, ECC Simulation Limited, has a
twenty-five year lease, of which twenty years remain, for a 25,000 square foot
facility in Shoreham-by-Sea, Sussex, England. In addition, in July 1993 the
Company signed a 10 year lease for an additional 9,000 square feet of space in
a facility near its main location. ECC Simulation Limited is expected to
re-locate to a 52,000 square foot facility during the second quarter of fiscal
year 1996, in order to accommodate both current and future growth in business.
<PAGE> 6
Item 3. Legal Proceedings.
Since 1989, ECC had been litigating certain claims, initially before
the Armed Services Board of Contract Appeals (the "Board"), relating to three
United States Army "build-to-print" contracts for Pop-Up Tank Target
Assemblies. The claims sought to recover over $3 million in excess costs the
Company incurred as a result of defective Technical Data Packages provided by
the Army. On January 11, 1994, the Board issued a decision awarding ECC only
minimal damages on its claims, notwithstanding repeated findings that the
defective Technical Data Packages had caused substantial delay and disruption
under the three contracts. ECC management and counsel strongly believe that
the Board's decision to deny further damages was based on erroneous legal
conclusions and unsupported findings of fact. Prior to the issuance of the
Board's decision, the Department of Defense Inspector General (DoD IG), at the
request of Congress, initiated an investigation of the entire history of the
Government procurement activity's contracting for Pop-Up Tank Target
Assemblies, including ECC's three contracts. Official DoD IG findings to date
support ECC's claim as to the inadequacy of the Technical Data Packages and the
adverse performance consequences to contractors that resulted. The Company
appealed the Board's decision to the United State Court of Appeals for the
Federal Circuit and believed that the Court of Appeals would remand the case to
the Board and direct the Board to make appropriate quantum (damages) rulings
consistent with the Board's liability findings. The Court of Appeals denied
the Company's appeal during fiscal year 1995. Accordingly, the Company
recorded a one-time write-off of costs, included in inventory, related to these
claims amounting to $994,000 during the second quarter of fiscal year 1995.
As previously disclosed, the U.S. Army, under the auspices of the DoD
IG, investigated the Company's claims relative to the Pop-Up Tank Targets. The
Company was subsequently informed by the Assistant United States Attorney, with
responsibility for the investigation, that the investigation was concluded and
that no legal action would be taken against the Company, having concluded that
the claim submissions merited no further investigatory attention.
Item 4. Submissions of Matters to a Vote of Security Holders.
There was no vote of security holders during the fourth quarter of the
last fiscal year.
<PAGE> 7
Executive Officers and Key Management Employees of the Registrant
Each of the following executive officers and key management employees
of the Company has been elected by the Board of Directors and serves at the
discretion of the Board.
<TABLE>
<CAPTION>
Name Age Position with the Registrant Officer Since
---- --- ---------------------------- -------------
<S> <C> <C> <C>
George W. Murphy 59 President, Chief Executive 1970
Officer and Director
James B. Conyers, Jr. * 52 Vice President, Staff Operations 1987
Patrick M. Donohue 59 Vice President, Marketing 1986
James M. Ferguson 59 Vice President, New Business Development, 1980
Vending Products Division
Ajit W. Hirani 48 Vice President, General Manager Training 1986
Systems Division and Director
Jerome Pogorzelski * 54 Vice President, Product Assurance 1991
Jerry Robbins 45 Vice President, Manufacturing, Vending 1987
Products Division
Nicholas A. Siecko 57 Vice President, Instructional 1969
Systems Development
Richard F. Thompson 62 Vice President, Finance and 1974
Chief Financial Officer
and Secretary/Treasurer
Spencer C. Whitehead * 55 Vice President, Manufacturing, Training 1984
Systems Division
</TABLE>
* Key management employees who are not "officers" for purposes of
Section 16 of the Securities Exchange Act of 1934 and the rules and regulations
thereunder.
Mr. Hirani assumed his current position in January 1995 and was
elected a Director in March 1995. Messrs. Conyers, Ferguson, Pogorzelski and
Robbins assumed their current positions during 1994 and the remaining officers
have been in their positions for at least five years.
<PAGE> 8
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder
Matters.
(a) Market Information.
The price range of the Company's Common Stock during the last two
fiscal years was as follows:
<TABLE>
<CAPTION>
Quarter Ended High Low
------------- ---- ---
<S> <C> <C>
June 30, 1995 $13.25 $10.25
March 31, 1995 12.25 10.00
December 31, 1994 12.75 8.75
September 30, 1994 16.00 10.50
June 30, 1994 17.50 9.625
March 31, 1994 14.875 4.625
December 31, 1993 4.875 2.625
September 30, 1993 3.25 2.375
</TABLE>
Common Stock prices shown above are the last sales prices on the New
York Stock Exchange.
(b) Holders.
As of August 9, 1995 the Company had approximately 1,158 shareholders
of record of its Common Stock based on the transfer agent's listings. The
Company believes its shares are beneficially held by several thousand
additional shareholders based on broker dealer demand for proxy materials in
1994.
(c) Dividends.
Under the Company's current credit agreement (described in Note 6 to
the Consolidated Financial Statements) the Company is permitted to pay cash
dividends subject to certain financial covenants of the agreement. There were
no dividends declared or paid in fiscal year 1995. Under the Company's former
credit agreement, the Company was prohibited from paying any cash dividends.
<PAGE> 9
Item 6. Selected Financial Data.
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Fiscal Year Ended June 30
----------------------------------------------------------------------
Operating Data 1995 1994 1993 1992 1991
- -------------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Sales................................... $107,607 $63,301 $54,435 $58,777 $69,385
Operating Income/(Loss)..................... $ 11,734 $ 7,758 $ 1,298 $(2,608) $ 9,852
Net Income/(Loss)........................... $ 7,318 $ 3,929 $(1,043) $(2,979) $ 3,899
Per Share Data
- --------------
Weighted Average Number
of Common and Common Share
Equivalents Outstanding ................... 7,894 6,891 6,136 5,985 5,819
Weighted Average Number
of Common and Common Share
Equivalents Outstanding, assuming
full dilution *............................ 6,017
Earnings Per Common Share and
Common Share Equivalents:
Earnings/(Loss) Per Common Share
and Common Share Equivalents............... $ 0.93 $ 0.57 $ (0.17) $ (0.50) $ 0.67
======== ======= ======= ======= =======
Earnings Per Common Share and
Common Share Equivalents,
assuming full dilution *................... $ 0.65
=======
Cash Dividends Declared Per
Common Share .............................. $ -- $ -- $ -- $ 0.20 $ 0.20
</TABLE>
* Earnings per common share and common share equivalents assuming full
dilution was either anti-dilutive or not materially different from
earnings per common share in 1995, 1994, 1993 and 1992.
<TABLE>
<CAPTION>
As At June 30
----------------------------------------------------------------------
Balance Sheet Data 1995 1994 1993 1992 1991
- ------------------ ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total Assets................................ $89,739 $65,180 $58,433 $68,442 $84,325
Working Capital............................. $40,983 $28,154 $13,871 $ 1,021 $37,858
Long-Term Debt.............................. $16,250 $16,818 $13,068 $ -- $32,629
Stockholders' Equity........................ $49,039 $34,603 $26,225 $27,248 $30,694
</TABLE>
<PAGE> 10
Item 7. Management's Discussion and Analysis of Financial Conditions and
Results of Operations
(a) (1) and (2) Liquidity and Capital Resources.
During fiscal year 1995, the Company's principal sources of cash were
proceeds from its new loan facility and temporary credit facility, the exercise
of stock options, and the remaining proceeds from the private equity placement
on June 30, 1994. The principal uses of these funds were to repay the
Company's previous bank debt and to finance the increases in accounts
receivable, costs and estimated earnings in excess of billings on uncompleted
contracts ("costs and estimated earnings") as well as additions to property,
plant and equipment.
In fiscal year 1994, the Company's principal sources of cash were a
reduction in accounts receivable, increase in accrued expenses and proceeds
from the private equity placement. In fiscal year 1993, a reduction of costs
and estimated earnings was the principal source of cash. The primary uses of
these funds during both periods, were to reduce Company debt and finance
increases in inventories and property, plant and equipment. In addition, in
fiscal year 1994, these funds were used to finance the substantial increase in
costs and estimated earnings.
The increase in accounts receivable of approximately $5.6 million at
June 30, 1995 was primarily due to domestic operation progress payment and
delivery billings as well as vending operation billings in June for which
substantially all payments were received during the first quarter of fiscal
year 1996. The increase in accounts receivable in fiscal year 1993 and the
off-setting reduction in fiscal year 1994 was the result of a large number of
deliveries and milestone payments billed in June 1993 for which payments were
received in early fiscal year 1994.
Costs and estimated earnings increased during fiscal year 1995 and
1994 as a result of continued progress on major contracts and due to new
contracts for which work began in either late fiscal year 1993 or early 1994.
Costs and estimated earnings are expected to increase through the second
quarter of fiscal year 1996, although the increase will be partially offset by
deliveries on certain contracts during this time period.
Costs and estimated earnings decreased during fiscal year 1993 as
deliveries of trainers were made under several contracts and due to revisions
to certain contracts discussed in Results of Operations.
Raw material inventories increased during fiscal years 1995, 1994 and
1993 primarily due to progress in the Company's vending operation. Raw
material levels have increased in order to support production capacity and
delivery requirements under a large bottle vending contract, as well as, other
bottle and frozen vending orders. In addition, in fiscal year 1993, raw
material inventory increased to support manufacturing of trainers related to
the C-17A production contract.
Work in process inventory decreased during fiscal year 1995 primarily
as a result of the write-off of the Company's Pop-Up-Target claim. (See Note
3 to the Consolidated Financial Statements for further detail.) In addition,
frozen vending units in process as of June 30, 1994 were completed and sold
during early fiscal year 1995.
Prepaid expenses and other increased in fiscal year 1995 and 1994 due
to the recognition of additional deferred tax assets. (See the components of
the deferred tax asset in Note 7 to the Consolidated Financial Statements.)
The decrease in prepaid expenses and other in fiscal year 1993 was the result
of a tax refund received in early 1993.
<PAGE> 11
The increase in accounts payable of approximately $3.3 million at June
30, 1995 was primarily the result of increased material requirements in the
vending operation as well as raw material purchase requirements under one of
the Company's major contracts.
The Company entered into a new loan facility ("Loan Facility") with a
bank on September 20, 1994 totaling $20.0 million. The agreement consists of a
$9.0 million term loan and an $11.0 million revolving credit facility of which
the equivalent of $2.0 million is available to ECC Simulation Limited. The
agreement was amended during the fourth quarter of fiscal year 1995 to provide
for a $2.0 million temporary increase (expiring September 30, 1995) in the
revolving credit facility. In addition, during the fourth quarter of fiscal
year 1995, ECC Simulation Limited entered into a separate $4.0 million
Temporary Credit Facility expiring on September 30, 1995. Proceeds from the
loan facility were used to pay-off the then existing credit agreement and for
working capital requirements. Proceeds from the amendment and temporary credit
facility were used to fund working capital requirements. The Company's current
debt agreements require principal payments of $6.1 million during fiscal year
1996. (See Note 6 to the Consolidated Financial Statements for further
detail.)
The Company is currently negotiating a permanent increase in the
revolving credit portion of its loan facility. Negotiations are expected to be
completed during the second quarter of fiscal year 1996.
The reduction in total debt of $5.0 million and $10.2 million in
fiscal year 1994 and 1993, respectively, was the result of payments under the
Company's Credit Agreement dated as of November 24, 1992. The Credit Agreement
consisted of a bank note and a private placement note with interest payable
monthly. As stated above, this Credit Agreement was paid off with proceeds
from the Company's loan facility entered into on September 20, 1994. (See Note
6 to the Consolidated Financial Statements for further detail.)
On June 30, 1994, the Company placed privately approximately $8.0
million of its $0.10 par value common stock through the sale of 687,000 shares
at $12.00 per share. The placement included an option for each purchaser to
acquire an equivalent number of shares within the next twelve months at $16.00
per share. No such options were exercised at June 30, 1995. Net proceeds from
the offering were approximately $7.9 million of which $2.9 million was received
in June of fiscal year 1994. The remaining $5.0 million proceeds were received
during fiscal year 1995.
The increase in capital in excess of par at June 30, 1995 was
primarily the result of the purchases of stock under Employee Stock Purchase
Plans, the exercise of employee stock options, as well as a tax benefit
received from the exercise of employee stock options under one of the Company's
Stock Option Plans. This increase was offset by the retirement of 50,000
shares of Treasury Stock during fiscal year 1995.
The Company anticipates spending approximately $3.5 million for new
machinery and equipment and to continue refurbishment of the older areas of the
Orlando facility during fiscal year 1996.
Other than as stated above, the Company has no other material
commitments for capital expenditures. Management believes that with the funds
received from its new loan facility, the anticipated increase in the revolving
credit facility and its projected cash flow the Company will have sufficient
resources to meet current and future operating commitments.
<PAGE> 12
(3) Results of Operations.
1995 Compared with 1994.
ECC had a net profit of $7.3 million in fiscal year 1995, an increase
of 86.3% versus fiscal year 1994 net profit of $3.9 million. This increase in
profitability reflects a 70% increase in sales over the prior year. The
increase in sales is primarily the result of increased volume Company wide.
Sales increased in fiscal year 1995 by $17.0 million, $21.8 million and $5.5
million in the domestic training, vending and U.K. training operations,
respectively. The sales increase of $21.8 million in the vending operation was
primarily the result of continued production of bottle vending machines under a
contract procured during late fiscal year 1994. The increase in U.K. operation
sales is the result of continued progress under an existing contract as well as
progress on a $19.5 million contract received in early fiscal year 1995.
Gross margin decreased as a percent of sales in fiscal year 1995 as
compared to fiscal year 1994. This decrease was due to gross margin
adjustments on certain contracts of the domestic training and U.K. training
operations as well as other factors. An adjustment was taken to a cost plus
incentive fee contract of the domestic training operation in fiscal year 1995
due to higher than originally anticipated costs. In addition, during fiscal
year 1995 there was an increase in volume on certain cost-type contracts which
typically yield lower gross margins than the Company's typical fixed price
contracts. The write-off of costs associated with the Company's Pop-Up-Target
claim as disclosed in Note 3 to the Consolidated Financial Statements further
reduced gross margin in the domestic training operation during fiscal year
1995.
Gross margin as a percent of sales of the U.K. training operation
decreased substantially in fiscal year 1995 versus fiscal year 1994. This
decrease was the result of additional training requirements being identified on
an existing contract, resulting in a reduction of contract gross margin. Also,
a contract received in fiscal year 1995 contains a substantial amount of
subcontract effort which results in a lower than normal gross margin.
These decreases in gross margin were partially offset by the gross
margin of the vending operation which improved from a loss in fiscal year 1994
to a gross margin contribution in fiscal year 1995. The Company recorded a
charge to Vending Cost of Sales of $891,000 during the fourth quarter of fiscal
year 1995, primarily the result of a standard cost revision and an inventory
book to physical adjustment. Vending operation margins are expected to
continue to improve as efficiencies are being gained and production costs come
further in line with management projections. With the expiration of the
exclusivity period in the Snapple contract on March 31, 1995, the Company has
been marketing its bottle vending machine to several beverage companies and
vending operators through its vending distributor network.
Selling, general and administrative costs of the Company increased
11.5% or $1.3 million in fiscal year 1995 as compared to fiscal year 1994. The
increase was primarily the result of higher salaries, technical support costs,
marketing rep commissions, consulting fees and outbound freight costs related
to the vending operation as well as an increase in selling, general and
administrative costs in the U.K. operation. These increases were partially
offset by a reduction in bid and proposal costs and legal expenses in the
domestic operation.
Systems development expense increased in fiscal year 1995 as a result
of development costs primarily associated with the frozen vending machine which
began production in late fiscal year 1995.
Interest income increased in fiscal year 1995 as a result of interest
due the Company based on the IRS look-back method of accounting for completed
contracts which was greater than the amount received in the previous year.
Interest expense decreased in fiscal year 1995 as a result of the
Company's new loan facility which was negotiated under more favorable terms.
<PAGE> 13
Other, net changed from an expense in fiscal year 1994 to income in
fiscal year 1995 primarily due to the absence, in fiscal year 1995, of IRS late
payment penalties relative to tax deposits as well as reduced bank fees.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for Post Employment
Benefits." SFAS No. 112 requires recognition of the cost of certain benefits
paid to former or inactive employees on an accrual basis and principally
affects the Company's accounting for disability benefits. The impact of
adopting SFAS No. 112 was immaterial.
1994 Compared with 1993.
ECC had a net profit of $3.9 million in fiscal year 1994 versus a net
loss of $1.0 million in fiscal year 1993. This return to profitability was due
to the increase in gross margin of the domestic operation partially offset by
the reduction of gross margin of the U.K. operation.
The 11.6% increase in gross margin as a percent of sales of the
domestic operation in fiscal year 1994 was due to the substantial completion in
fiscal year 1993 of the C-17A development contract which due to higher than
projected costs in fiscal year 1993 had substantially reduced fiscal year 1993
gross margin. However, fiscal year 1994 gross margin as a percent of sales was
not affected by the remaining effort required on the C-17A development contract
as the higher costs to complete this contract had been recognized in prior
fiscal years. In addition, the Company received several new contracts during
fiscal year 1994 for copies of trainers and training systems previously built
by ECC and these contracts are yielding slightly higher gross margins than
originally projected. Partially offsetting the increases in domestic gross
margins referred to above were higher completion costs and unanticipated late
charges on certain contracts which were substantially completed or completed in
fiscal year 1993.
In addition, the Company suffered a loss of gross margin on the new
bottle vending operation. This loss was the result of higher start-up costs
than had originally been projected.
The gross margin as a percent of sales of the U.K. operation decreased
8.8% in fiscal year 1994 versus fiscal year 1993. This decrease was the result
of the completion of a certain contract in fiscal year 1993 with an unusually
high gross margin. The fiscal year 1994 gross margin returned to more normal
Company levels.
The U.S. Army, under the auspices of the Department of Defense
Inspector General (DoD IG), investigated the Company's claims relative to the
Pop-Up Tank Targets. The Company was subsequently informed by the Assistant
United States Attorney, with responsibility for the investigation, that the
investigation was concluded and that no legal action would be taken against the
Company, having concluded that the claim submissions merited no further
investigatory attention.
<PAGE> 14
ECC filed claims for additional costs the Company incurred for work
performed on three "build-to-print" Pop-Up Target contracts for the U.S. Army.
ECC's claims sought over $3.0 million, based on deficient technical packages
provided to ECC as conceded by the Army. (See Results of Operations 1995
compared with 1994.)
Selling, general and administrative costs of the Company in fiscal
year 1994 increased by $1.5 million or 15% as compared to fiscal year 1993.
This increase was primarily the result of higher salaries, management
incentive, profit sharing and marketing rep fees. The increase in management
incentive and profit sharing are due to the fact that these expenses were not
incurred in fiscal year 1993 due to the loss the Company sustained. The
Company continued to expand its foreign marketing efforts which, therefore,
increased marketing rep fees. These increases were partially offset by
reductions in bid and proposal costs and the selling, general and
administrative costs of the U.K. operation.
Systems development expense decreased by $0.5 million or 48% from
fiscal year 1993. This substantial decrease was the result of systems
development personnel being assigned to production and engineering requirements
in other areas.
Interest payable to the Company in fiscal year 1994 on the IRS
look-back method of accounting for completed contracts was greater than the
amount payable in fiscal year 1993. As a result, interest income in fiscal
year 1994 increased versus interest income in fiscal year 1993.
Interest expense decreased by $0.7 million in fiscal year 1994 due
primarily to the reduction of the Company's overall debt, however, interest
rates did increase slightly offsetting a portion of the overall decrease in
interest expense.
Other net, expense in fiscal year 1994 decreased $0.3 million versus
fiscal year 1993. This reduction was due to fewer intercompany transactions
between the U.K. operation and the domestic operation and a more stable U.S.
dollar to pound sterling exchange rate during fiscal year 1994. In addition,
in fiscal year 1993 the bank agreement required the elimination of the U.K.
pound denominated line of credit which subjected certain borrowings to the
exchange fluctuation which were very dramatic and costly during fiscal year
1993. This reduction in cost was partially offset by IRS late payment
penalties relative to tax deposits.
1993 Compared with 1992.
ECC had a net loss of $1.0 million in fiscal year 1993 versus a net
loss of $3.0 million in fiscal year 1992. The reduction of loss was primarily
due to an increase in the gross margin of both the domestic and the U.K.
operation as a percent of sales. Although the C-17A development contract and
the C-17A production contract had a decrease in sales and gross margin, these
reductions were substantially less than the decrease in sales and gross margin
made in fiscal year 1992 on the C-17A development and two other domestic
contracts. Therefore, gross margin as a percent of sales was higher than
fiscal year 1992. Refer to discussion of the C-17A Development Contract below
for additional information. Also, the gross margin of the U.K. operation was
higher in fiscal year 1993 versus fiscal year 1992 as a result of a certain
contract with an unusually high gross margin which was completed in fiscal year
1993.
<PAGE> 15
Revisions were made to increase the estimated costs to complete in the
second, third and fourth quarters as a result of the periodic review of
estimated costs at completion (see Note 11 to the Consolidated Financial
Statements and discussion of C-17A contract below). The C-17A development
contract was completed in the first quarter of fiscal year 1994. The C-17A
production contract was completed in the third quarter of fiscal year 1994.
As previously discussed, the U.S. Army was investigating the Company's
claims relative to the Pop-Up Targets. The Company was subsequently informed
by the Assistant United States Attorney, with responsibility for the
investigation, that the investigation was concluded and that no action would be
taken against the Company. (See Results of Operations 1994 compared with
1993).
ECC has filed claims for additional costs the Company incurred for
work performed on three "build-to-print" Pop-Up Target contracts for the U.S.
Army. ECC's claims seek over $3.0 million, based on deficient technical
packages provided to ECC as conceded by the Army. (See Results of Operations
1995 Compared with 1994).
Selling, general and administrative cost in fiscal year 1993 decreased
3.6% from fiscal year 1992. This decrease was primarily the result of lower
travel, technical support and demonstration and bid and proposal costs. These
reductions were partially offset by increases in salaries, legal fees and
selling, general and administrative costs of the U.K. operation. The increase
in selling, general and administrative cost of the U.K. operation was the
result of increased bid & proposal costs incurred in order to meet increased
business opportunities.
Systems development expense increased 22.5% as a result of systems
development personnel having returned to their regular duties as their
assignment to production and engineering requirements on certain contracts have
been completed.
Interest income decreased in fiscal year 1993 versus fiscal year 1992.
This decrease is the result of interest paid to the Company in fiscal year 1993
on the IRS look-back method of accounting being substantially less than the
amount paid in fiscal year 1992.
Interest expense decreased in fiscal year 1993 due to the reduction of
the Company's overall debt.
Other net, expense in fiscal year 1993 versus income in fiscal year
1992 is the result of foreign exchange losses this year versus foreign exchange
gains the previous year. The U.K. operation has repaid the dollar denominated
line of credit and has reduced intercompany transactions, both of which had
greatly reduced the risk of foreign exchange fluctuation.
In February 1992, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) 109, Accounting for
Income Taxes, which utilizes the asset and liability method for computing
deferred income taxes. The Company adopted SFAS 109 effective July 1, 1993.
The impact of adopting the new standard was immaterial to the Company's 1994
Results of Operations. With respect to the new tax law, the increase in the
corporate income tax rate to 35% from 34% is expected to be immaterial.
<PAGE> 16
C-17A Development Contract
During fiscal year 1990 sales and gross margin related to this
contract were $16,706,000 and $5,857,000 respectively and the gross margin
percentage was 35.0%. The sales and gross margin related to this contract
represented 29.9% and 34.3% of the Company's total sales and gross margins
respectively for fiscal year 1990.
During fiscal year 1991 sales and gross margin related to this
contract were $28,838,000 and $9,934,000, respectively, which yielded a gross
margin percentage of 34.4%. These sales and gross margin amounts represented
41.5% and 45.0%, respectively, of the total Company's sales and gross margin
for fiscal year 1991.
1992 Compared with 1991.
During fiscal year 1992 sales and gross margin related to this
contract were $23,818,000 and $826,000, respectively, which yielded a gross
margin percentage of 3.5%. In this year, the sales and gross margin as a
percentage of the Company's total sales and gross margin were 40.5% and 9.8%,
respectively. The decrease in the gross margin percentage in this contract
between fiscal year 1991 and fiscal year 1992 was 30.9%. This contract was
received in May 1989 and the fiscal years 1990 and 1991 were primarily the
design phase of eleven three-dimensional replicas of the C-17A aircraft.
During this development phase, the C-17A Aircraft itself was the focus of
controversy with design problems and schedule delays which impacted
subcontractors such as ECC International Corp. In both years, the Company
achieved contract milestones on/or ahead of schedule and below cost
projections. In fiscal year 1992, the Company entered the manufacturing stage
of the contract. Many of these simulators contain hundreds of sub-assemblies,
as well as, purchased and manufactured parts. The assembly process began on
the first trainers (the simplest of the group) which went well and only the
normal problems that one could expect with such a development were anticipated.
However, when the more complex trainer assembly began it was discovered that
some of these sub-assemblies and/or parts did not fit and/or function properly
necessitating redesign and remanufacture.
A portion of this rework was a result of the efforts of contract labor
and a limited number of new employees which the Company was obliged to hire in
order to meet contract delivery schedules. The performance of some of these
individuals, it was found later, did not meet the Company's normal standards,
which caused a substantial portion of the problems referred to above. This
problem was also increased due to limited C-17A experience on the part of the
U.S. Air Force C-17A contract team and mistakes and omissions in C-17A Aircraft
data provided to the Company.
As the Company recognized these problems it revised its estimate to
complete for this contract. The results of these adjustments to the estimate
to complete for fiscal year 1992 was to reduce gross margin by $8.1 million and
net income by $5.2 million.
<PAGE> 17
1993 Compared with 1992.
During fiscal year 1993 sales and a negative gross margin related to
this contract were $6,228,000 and ($4,430,000), respectively, and the gross
margin percentage was a negative 71.1%. As a percentage of the Company's total
sales this contract represented 11.4% in fiscal year 1993. The variance in
gross margin between fiscal years 1992 and 1993 was the result of additional
problems the Company encountered which had not been anticipated. While changes
to the gross margin were made in June 1992 to cover the projected additional
costs of these trainers, these changes proved to be insufficient to cover the
additional problems encountered in 1993.
The C-17A changes in Fiscal year 1993 related to the completion of the
remaining trainers. These trainers were the most complex and required the
redesign and remanufacture of the hydraulics systems used in several of these
simulators. In addition, changes in Air Force Program Management, problems
with the C-17A Aircraft Program and the unrealistic and out-of-scope
requirements by the Air Force user all contributed to cost overruns.
During fiscal year 1993 revisions to the estimate to complete totaled
$5.8 million which reduced the gross margin and resulted in a $3.7 million
negative effect on net income.
The Company's cash flows were substantially impacted by the cost
overruns on this contract in both fiscal years 1992 and 1993 however, this
impact was partially offset by the following items; the use of a tax loss
carryback for fiscal year 1992 which yielded a $1.3 million cash influx in
fiscal year 1993 and a reduction in the estimated taxes paid in fiscal year
1993. In addition, the Company negotiated with the Air Force to change the
acceptance of certain of the trainers from an "on-site acceptance" to an
"in-plant acceptance". This permitted the Company to receive cash payments
sooner than would have been originally permitted under the contract.
There was no material effect on capital expenditures during the life
of this contract.
The C-17A contract was substantially completed during fiscal year
1993. The remaining effort required to complete this project during fiscal
year 1994 did no affect the Company's overall gross margin as a percentage of
sales.
<PAGE> 18
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements Page(s)
-------
<S> <C>
Report of Independent Accountants 19
Consolidated Statements of Operations for the Fiscal Years
Ended June 30, 1995, 1994 and 1993 20
Consolidated Balance Sheets, June 30, 1995 and 1994 21
Consolidated Statements of Changes in Stockholders' Equity
for the Fiscal Years Ended June 30, 1995, 1994 and 1993 22
Consolidated Statements of Cash Flows for the Fiscal Years
Ended June 30, 1995, 1994 and 1993 23-24
Notes to Consolidated Financial Statements 25-39
</TABLE>
<PAGE> 19
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and
the Board of Directors of
ECC International Corp.
We have audited the consolidated financial statements of ECC International
Corp. and Subsidiaries listed in the index on Page 18 of this Form 10-K. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of ECC International
Corp. and Subsidiaries as of June 30, 1995 and 1994, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1995 in conformity with generally accepted accounting
principles.
/s/ Coopers & Lybrand L.L.P.
COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
August 9, 1995
<PAGE> 20
ECC International Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended June 30, 1995, 1994 and 1993
- --------------------------------------------------------------------------------
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Net Sales............................................... $107,607 $63,301 $54,435
Cost of Sales........................................... 82,060 43,711 42,265
-------- ------- -------
Gross Profit............................................ 25,547 19,590 12,170
-------- ------- -------
Expenses:
Selling, General & Administrative................... 12,574 11,275 9,806
Systems Development................................. 1,239 557 1,066
-------- ------- -------
Total Expenses................................. 13,813 11,832 10,872
-------- ------- -------
Operating Income........................................ 11,734 7,758 1,298
-------- ------- -------
Other Income (Expense):
Interest Income..................................... 877 346 197
Interest Expense.................................... (1,487) (1,720) (2,417)
Other - Net......................................... 47 (534) (819)
-------- ------- -------
Total Other (Expense).......................... (563) (1,908) (3,039)
-------- ------- -------
Income/(Loss) Before Income Taxes....................... 11,171 5,850 (1,741)
Provision/(Benefit) for Income Taxes.................... 3,853 1,921 (698)
-------- ------- -------
Net Income/(Loss)....................................... $ 7,318 $ 3,929 $(1,043)
======== ======= =======
Earnings/(Loss) Per Common Share and
Common Share Equivalents............................... $ 0.93 $ 0.57 $ (0.17)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 21
ECC International Corp. and Subsidiaries
CONSOLIDATED BALANCE SHEETS as of June 30, 1995 and 1994
- -------------------------------------------------------------------------------
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
ASSETS
Current:
Cash.................................................................. $ 3,535 $ 2,600
Accounts Receivable, Net.............................................. 8,778 3,185
Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts................................................ 39,752 22,921
Inventories........................................................... 10,035 9,858
Prepaid Expenses and Other............................................ 1,764 1,714
------- -------
Total Current Assets.............................................. 63,864 40,278
Property, Plant and Equipment, Net......................................... 24,007 23,117
Other Assets............................................................... 1,868 1,785
------- -------
Total Assets...................................................... $89,739 $65,180
======= =======
LIABILITIES
Current:
Temporary Credit Facility............................................. $ 2,534 $ --
Current Portion of Long-Term Debt..................................... 3,600 750
Accounts Payable...................................................... 7,197 3,871
Advances on Long-Term Contracts....................................... 1,395 85
Accrued Expenses...................................................... 8,155 7,418
------- -------
Total Current Liabilities......................................... 22,881 12,124
------- -------
Deferred Income Taxes...................................................... 1,569 1,635
------- -------
Long-Term Debt............................................................. 16,250 16,818
------- -------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common Stock, $0.10 par; authorized, 20,000,000 shares;
issued and outstanding, 1995 and 1994,
7,657,846 and 7,537,385 shares, respectively............................. 766 754
Preferred Stock, $0.10 par; authorized, 1,000,000
shares; none issued and outstanding in 1995 and 1994..................... -- --
Stock Subscription Receivable.............................................. -- (5,012)
Capital in Excess of Par................................................... 21,822 20,203
Retained Earnings.......................................................... 26,406 19,088
Cumulative Translation Adjustment.......................................... 45 (27)
------- -------
49,039 35,006
Treasury Stock, at cost, -0- and 50,000 shares in 1995 and 1994,
respectively............................................................. -- (403)
------- -------
Total Stockholders' Equity........................................ 49,039 34,603
------- -------
Total Liabilities and Stockholders' Equity........................ $89,739 $65,180
======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 22
ECC International Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
For the Fiscal Years Ended June 30, 1995, 1994 and 1993
- ------------------------------------------------------------------------------
(In Thousands, Except Share and Per Share Data)
<TABLE>
<CAPTION>
Capital Stock Cumulative Total
Common In Excess Retained Subscription Translation Treasury Stockholders'
Stock of Par Earnings Receivable Adjustment Stock Equity
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, June 30, 1992 $ 608 $10,628 $16,202 $ -- $ 213 $ (403) $27,248
Net (Loss) -- -- (1,043) -- -- -- (1,043)
Stock Issued:
Employee Stock Purchase
Plan - 151,546 Shares 15 307 -- -- -- -- 322
Translation Adjustment -- -- -- -- (302) -- (302)
----- ------- ------- ------- ----- ------ -------
Balance, June 30, 1993 623 10,935 15,159 -- (89) (403) 26,225
Net Income -- -- 3,929 -- -- -- 3,929
Stock Issued:
Employee Stock Purchase
Plan - 107,587 Shares 11 316 -- -- -- -- 327
Exercise of Options -
514,206 Shares 51 1,085 -- -- -- -- 1,136
Private Placement
687,000 shares 69 7,867 -- (5,012) -- -- 2,924
Translation Adjustment -- -- -- -- 62 -- 62
----- ------- ------- ------- ----- ------ -------
Balance, June 30, 1994 754 20,203 19,088 (5,012) (27) (403) 34,603
Net Income -- -- 7,318 -- -- -- 7,318
Stock Issued:
Employee Stock Purchase
Plan - 53,713 Shares 6 505 -- -- -- -- 511
Exercise of Options -
116,748 Shares 11 256 -- -- -- -- 267
Private Placement
687,000 shares -- -- -- 5,012 -- -- 5,012
Stock Retired:
Treasury Stock
50,000 Shares (5) (398) -- -- -- 403 --
Income Tax Reduction
Relating to Stock Options -- 1,256 -- -- -- -- 1,256
Translation Adjustment -- -- -- -- 72 -- 72
----- ------- ------- ------- ----- ------ -------
Balance, June 30, 1995 $ 766 $21,822 $26,406 $ -- $ 45 $ -- $49,039
===== ======= ======= ======= ===== ====== =======
</TABLE>
Common shares issued and outstanding at June 30, 1992 and 1993 were 6,077,046
and 6,228,592 shares, respectively.
See accompanying notes to the consolidated financial statements.
<PAGE> 23
ECC International Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended June 30, 1995, 1994 and 1993
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Income/(Loss) ................................................................. $ 7,318 $ 3,929 $(1,043)
Items Not Requiring Cash:
Depreciation.......................................................... 3,420 3,350 2,943
Provision for Doubtful Accounts....................................... 51 -- --
Deferred Income Taxes................................................. (79) (110) 90
Changes in Certain Assets and Liabilities:
Accounts Receivable............................................. (5,644) 3,477 (3,798)
Refundable Federal and State Income Taxes....................... -- -- 2,138
Costs and Estimated Earnings in Excess of Billings on
Uncompleted Contracts.......................................... (16,831) (7,222) 12,765
Inventories..................................................... (164) (1,877) (1,525)
Prepaid Expenses and Other...................................... (50) 214 156
Accounts Payable................................................ 3,326 750 80
Advances on Long-Term Contracts................................. 1,310 (1,781) 1,275
Accrued Expenses................................................ 737 3,514 (256)
-------- -------- -------
Net Cash (Used In)/Provided By Operating Activities..................... (6,606) 4,244 12,825
-------- -------- -------
Cash Flows From Investing Activities:
Additions to Property, Plant and Equipment ............................. (4,310) (2,109) (1,865)
Other................................................................... (11) 90 (704)
-------- -------- -------
Net Cash Used In Investing Activities................................... (4,321) (2,019) (2,569)
-------- -------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock, Options
Exercised and Warrants, Including Related Tax Benefit................. 7,046 4,387 322
New Borrowings Under Term Loan.......................................... 9,000 -- --
Repayments Under Term Loan.............................................. (750) -- --
New Borrowings Under Revolving Credit Facilities, Net................... 14,134 -- --
Repayments Under Revolving Credit Agreement
and Notes Payable..................................................... (17,568) (5,000) (10,175)
-------- -------- -------
Net Cash Provided By/(Used In) Financing Activities..................... 11,862 (613) (9,853)
-------- -------- -------
Net Increase in Cash........................................................... 935 1,612 403
Cash at Beginning of the Period................................................ 2,600 988 585
-------- -------- -------
Cash at End of the Period...................................................... $ 3,535 $ 2,600 $ 988
======== ======== =======
</TABLE>
<PAGE> 24
ECC International Corp. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS (continued)
For the Years Ended June 30, 1995, 1994 and 1993
- ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest............................................................. $ 1,189 $ 1,701 $ 2,728
Income Taxes......................................................... $ 2,839 $ 1,223 $ 125
Supplemental Schedule of Noncash Investing and Financing Activities:
Retirement of Treasury Stock.......................................... 403 -- --
Common Stock issued in exchange for Stock
Subscription Receivable............................................. -- 5,012 --
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ECC International Corp. and Subsidiaries
1. Significant Accounting Policies.
Consolidation.
The consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. Intercompany transactions have been
eliminated in consolidation.
Revenue and Cost Recognition.
Defense.
Contract sales and costs are recognized using the percentage of
completion method, measured by the ratio of costs incurred to date to
estimated total costs.
Contract costs include all direct labor and material costs and those
indirect costs related to contract performance, such as indirect
labor, supplies and depreciation.
Costs incurred for specific anticipated contracts are deferred and
included in contract sales and costs when the contract award is
assured. Provisions for estimated losses on uncompleted contracts are
made in the period in which such losses are determined. Claims are
considered in the estimated contract performance at such time as the
amount to be recognized is reasonably determinable and probable.
The asset, costs and estimated earnings in excess of billings on
uncompleted contracts, consists principally of contract revenue for
which billings have not been presented, as such amounts were not
billable at the balance sheet date. Substantially all of these
amounts will be billed in the following fiscal year.
Vending.
Sales and average cost of units produced under a contract are
recognized as deliveries are made.
Advertising.
The costs of advertising, promotion and marketing programs are charged to
operations in the year incurred. Advertising expense was $51,000, $67,000
and $31,000 for fiscal years 1995, 1994 and 1993, respectively.
Inventories.
Work in process and finished goods inventory are valued using the specific
identification cost method, but not in excess of net realizable value. Raw
materials and vending division inventories are valued at lower of average
cost or market.
<PAGE> 26
Property and Depreciation.
Property, plant and equipment is stated at cost. Depreciation is provided
on the straight-line method over the estimated useful lives of the
respective assets as follows: buildings 15 to 30 years; machinery and
equipment 3 to 10 years; and demonstration and test equipment 5 years.
Applicable asset and accumulated depreciation accounts are reduced for the
sale or other disposition of property and the resulting gain or loss is
included in income.
Income Taxes.
The Company adopted Statement of Financial Accounting Standards (SFAS) No.
109 "Accounting for Income Taxes," effective July 1, 1993. Under SFAS No.
109, deferred income taxes are recognized by applying enacted statutory tax
rates, applicable to future years, to temporary differences between the tax
bases and financial statement carrying values of the Company's assets and
liabilities. The impact of the adoption of SFAS No. 109 was immaterial to
the Company's 1994 results of operations. The Company had previously been
accounting for income taxes under SFAS No. 96.
Earnings Per Share.
Earnings per common share is computed by dividing net income/(loss) by the
weighted average number of common shares outstanding during the year. The
exercise of outstanding stock options has not been assumed for 1993 because
the result is anti-dilutive.
Earnings per common share assuming full dilution is determined by dividing
net income/(loss) by the weighted average number of common shares
outstanding during the year after giving effect to the exercise of
outstanding stock options assumed converted to common stock. The
calculation of earnings per common share and common share equivalents
assuming full dilution was either anti-dilutive or not materially different
from earnings per common share in 1995, 1994 and 1993. The weighted
average number of common and common stock equivalents outstanding during
1995, 1994 and 1993 were 7,894,181, 6,891,033 and 6,135,526, respectively.
Employee Benefit Plans.
The Company has a profit sharing plan which covers all employees who work
in excess of 1,000 hours per year. Minimum contributions are based on
income before income taxes, subject to limitations based on employee
compensation and certain other restrictions defined in the plan document.
Contributions of $3,124,112 and $1,929,004 were accrued in the years ended
June 30, 1995 and 1994, respectively of which $2,451,940 and $649,047 were
paid during the respective fiscal year. No employer contribution was
accrued or paid for the year ended June 30, 1993.
The Company also has a savings and investment plan which covers all
employees. Employer contributions are based on a percentage of employee
contributions and certain other restrictions defined in the plan document.
Employer contributions of $552,394, $514,101 and $506,956 were accrued and
paid in the fiscal years ended June 30, 1995, 1994 and 1993, respectively.
The Company's policy is to fund amounts accrued.
<PAGE> 27
Post Employment Benefits.
Effective July 1, 1994, the Company adopted Statement of Financial
Accounting Standards (SFAS) No. 112 "Employers' Accounting for Post
Employment Benefits." SFAS 112 requires recognition of the cost of certain
benefits paid to former or inactive employees on an accrual basis and
principally affects the Company's accounting for disability benefits. The
impact of adopting SFAS No. 112 was immaterial.
2. Accounts Receivable.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Contract Receivables, Billed Amounts..................................... $ 5,876 $ 1,872
Commercial Vending Receivables........................................... $ 2,211 $ 960
Other.................................................................... 742 353
Allowance for Doubtful Accounts.......................................... (51) --
------- -------
Total............................................................... $ 8,778 $ 3,185
======= =======
</TABLE>
Contract receivables include amounts under long-term contracts and
subcontracts principally with the U.S. Government, or its' contractors, and
the United Kingdom Ministry of Defense or its' contractors. Commercial
vending receivables consist, primarily of amounts due from a large vending
customer. The Company generally does not require collateral or other
security to support these receivables.
The provision for doubtful accounts, related to the vending operation,
included in Selling, General and Administrative expense was $50,800 in
fiscal year 1995. There was no provision for doubtful accounts for fiscal
years 1994 or 1993.
3. Inventories.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Finished Goods........................................................... $ 1,140 $ 1,032
Work in Process.......................................................... 1,998 4,419
Raw Materials............................................................ 6,897 4,407
------- -------
Total............................................................... $10,035 $ 9,858
======= =======
</TABLE>
The Company filed claims against the U.S. Government for additional costs
incurred on three "build-to-print" Pop-Up Target contracts seeking over
$3.0 million, of which $994,000 remained in inventory at June 30, 1994.
The Company's initial claim was filed in June 1986 and had been in
litigation before the Armed Services Board of Contract Appeals since June
1989. The claim was based on deficient technical packages provided to ECC
as conceded by the U.S. Army. During fiscal year 1994, the Board issued a
decision awarding the Company minimal damages on its claim. The Company
appealed the Board's decision to the United States Court of Appeals for the
Federal Circuit which denied the Company's appeal during fiscal year 1995.
Accordingly, the Company recorded a one time write-off of costs included in
inventory amounting to $994,000 in the second quarter of fiscal year 1995.
<PAGE> 28
The Company had also submitted or intended to submit requests for equitable
adjustments for additional costs incurred on various contracts seeking
approximately $1.0 million, of which $0.7 million was deferred in inventory
at June 30, 1993. During fiscal year 1994 due to various facts and
circumstances the Company elected not to pursue those equitable adjustments
and accordingly wrote off the $0.7 million which was deferred in inventory
as of June 30, 1993.
4. Property, Plant and Equipment.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Land................................................................... $ 2,411 $ 2,411
Buildings.............................................................. 19,940 19,070
Machinery and Equipment................................................ 20,350 17,923
Demonstration and Test Equipment....................................... 8,765 7,752
------- -------
Total............................................................. 51,466 47,156
Less Accumulated Depreciation.......................................... 27,459 24,039
------- -------
Total............................................................. $24,007 $23,117
======= =======
</TABLE>
Repairs and maintenance expense for the fiscal years ended June 30, 1995,
1994 and 1993 were $760,000, $569,000 and $489,000, respectively.
5. Accrued Expenses.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Compensation............................................................... $ 2,669 $ 2,047
Accrued Vacation........................................................... 1,424 1,175
Profit Sharing Contribution................................................ 672 1,264
Federal/State Income Tax Payable........................................... 930 1,087
Other...................................................................... 2,460 1,845
------- -------
Total................................................................. $ 8,155 $ 7,418
======= =======
</TABLE>
6. Temporary Credit Facility and Long-Term Debt.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
<S> <C> <C>
Revolving Credit Facility (Bank)........................................... $19,850 $17,568
Less Current Portion....................................................... 3,600 750
------- -------
Total................................................................. $16,250 $16,818
======= =======
</TABLE>
<PAGE> 29
During fiscal year 1993, the Company entered into a credit facility, with
its primary lender, acting as agent, and five other financial institutions.
The credit agreement consisted of a bank note and a private placement note
with interest payable monthly at prime + 1 1/4 percentage points and 9.98%,
respectively.
The credit facility included certain covenants related to, among other
things, minimum tangible net worth requirements, the prohibition on the
payment of cash dividends, and various other financial ratios. In
addition, substantially all of the assets of the Company were pledged as
collateral and all existing bank accounts were assigned to the agent until
the revolver was paid in full.
On September 20, 1994, the Company entered into a new loan facility ("Loan
Facility") with a bank, expiring on October 1, 1997, totaling $20.0
million. The loan facility consists of a $9.0 million term loan, and an
$11.0 million revolving credit facility which includes $2.0 million of
revolving credit available in the British Sterling equivalent for the
Company's wholly owned subsidiary, ECC Simulation Limited. Proceeds from
the loan facility were used to pay the outstanding balance under the
Company's revolving credit facility with its primary lender at June 30,
1994. As a result of this agreement, the Company reclassified its debt at
June 30, 1994.
Interest is payable quarterly in arrears at a rate defined in the
agreement. The Company is required to pay certain fees on an annual basis
as calculated by the bank. The revolving credit commitment fee is equal to
.25% per annum on the total outstanding balance. A Standby Letter of
Credit fee is equal to 1% per annum plus issuance costs.
The loan facility includes certain covenants related to, among other
things, maintaining a minimum fixed charge coverage ratio, debt to equity
ratio and current ratio. In addition, substantially all of the assets of
the Company are pledged as collateral for the loan facility.
On April 6, 1995, the Company executed an Amendment to its loan facility
providing for a temporary increase in its line of credit. The Amendment
allows the Company to borrow up to $13 million under the revolving credit
portion of the loan facility. The terms of the amendment require that
borrowings under the increased line ($2.0 million) be repaid on, the
earlier of, the date of the Company's receipt of a certain contract
delivery payment or September 30, 1995. Thereafter, the original terms of
the loan facility will be in effect. Borrowings under the amended portion
of the loan facility were $600,000 at June 30, 1995.
Concurrent with the Amendment to the loan facility, the Company's wholly
owned subsidiary, ECC Simulation Limited executed a separate Temporary
Credit Facility ("Temporary Facility") totalling $4.0 million available in
the British Sterling equivalent and expiring on September 30, 1995.
Outstanding amounts under the Temporary Facility are due on demand.
Interest is payable monthly at a rate defined in the agreement. Total
borrowings under the Temporary Facility were $2.5 million at June 30, 1995.
All covenants of the Company's loan facility are applicable to the
Temporary Facility.
<PAGE> 30
Aggregate maturities under the Revolving Credit Facility and Term Loan are
as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1996 3,600
1997 16,250
-------
Total $19,850
</TABLE> =======
7. Income Taxes.
The domestic and foreign components of income/(loss) before income taxes
are presented below:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Domestic.......................... $10,761 $ 5,217 $(1,925)
Foreign........................... 410 633 184
------- ------- -------
Total......................... $11,171 $ 5,850 $(1,741)
======= ======= =======
</TABLE>
The components of the provision/(benefit) for income taxes are as follows:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Current:
Federal............................. $ 3,641 $ 1,969 $ 444
State............................... 261 62 4
Foreign............................. 30 -- --
------- ------- -------
Subtotal....................... 3,932 2,031 448
------- ------- -------
Deferred:
Federal............................. $ (45) $ (144) $(1,087)
State............................... (34) 34 (59)
------- ------- -------
Subtotal....................... (79) (110) (1,146)
------- ------- -------
Provision/(Benefit) for Income Taxes.... $ 3,853 $ 1,921 $ (698)
======= ======= =======
</TABLE>
The Company has utilized $951,000 and $1.9 million Florida net operating
loss carryforwards to reduce fiscal year 1995 and fiscal year 1994 Florida
income taxes payable, respectively.
<PAGE> 31
The tax effects of the primary temporary differences giving rise to the
Company's deferred tax assets and liabilities are as follows for the years
ended June 30:
<TABLE>
<CAPTION>
(In Thousands)
1995 1994
---- ----
Asset Liability Asset Liability
----- --------- ----- ---------
<S> <C> <C> <C> <C>
Revenue Recognized on Completed
Contract for Tax Return and on
Percentage of Completion for
Financial Reporting....................... $ 436 $ - $ 574 $ -
Foreign Net Operating Loss.................. 116 - 252 -
Difference between Book and
Tax Depreciation.......................... - 1,469 - 1,635
Capitalized Bid and Proposal Expense ....... 134 - 172 -
Accruals Not Currently Deductible........... 440 100 250 -
------- ------- ------- -------
Subtotal............................... 1,126 1,569 1,248 1,635
Valuation Allowance......................... (116) - (252) -
------- ------- ------- -------
Total.................................. $ 1,010 $ 1,569 $ 996 $ 1,635
======= ======= ======= =======
</TABLE>
These deferred tax assets and liabilities are included in/or classified as
follows on the balance sheet at June 30:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Prepaid Expenses and Other............................... $ 1,010 $ 996
Non-current deferred income tax liabilities.............. 1,569 1,635
</TABLE>
The provision for deferred taxes reflects temporary differences with
respect to the following in fiscal year 1993:
<TABLE>
<CAPTION>
(In Thousands)
1993
----
<S> <C>
Revenue Recognized on Completed Contract Basis
for Tax Return and on Percentage of Completion
for Financial Reporting................................ $(1,252)
Difference between Book and Tax Depreciation............ (29)
Capitalized Bid and Proposal Expense.................... 221
Other................................................... (86)
---------
Total............................................... $(1,146)
=========
</TABLE>
<PAGE> 32
Differences between the statutory U.S. Federal Income Tax rate and the
effective income tax rate reported in the financial statements are as
follows at June 30:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Federal Statutory Rates............................ 34.0 % 34.0 % (34.0)%
Increase/(Decrease) in Taxes Resulting From:
State Income Taxes (after deducting
federal income tax benefit)................... 1.5 % 0.7 % (2.1)%
Foreign Net Operating Loss Carryforward........ (2.2)% (3.7)% (3.6)%
Other.......................................... 1.2 % 1.8 % (0.4)%
------ ------ ------
Total Provision/(Benefit) for Income Taxes......... 34.5 % 32.8 % (40.1)%
====== ====== ======
</TABLE>
The Company realized an income tax benefit of $1,256,000 during fiscal year
1995 related to the exercise of certain employee stock options which are
recognized as employee compensation for tax purposes, however, not for
financial reporting purposes. This tax benefit was credited to Capital in
Excess of Par.
8. Other Net
Other income and expense includes $36,000, $(8,000) and $(596,000) in
foreign currency transaction gain/(losses) for the fiscal years ended June
30, 1995, 1994 and 1993, respectively.
<PAGE> 33
9. Stockholders' Equity.
Under the Company's Qualified Stock Option Plans, directors, officers and
certain key employees may purchase the Company's Common Stock at 100% of
the fair market value of the shares on the date of grant. Options are
exercisable up to 10 years from the date granted.
A summary of transactions for the fiscal years ended June 30, 1995, 1994
and 1993 are as follows:
<TABLE>
<CAPTION>
Shares Shares Average
Available Under Option Price
For Option Option Per Share
---------- ------ ---------
<S> <C> <C> <C>
Balance at June 30, 1992................... 15,625 286,750 $ 6.92
Expired.................................... 2,500 (2,500) $ 7.40
------- ------- -------
Balance at June 30, 1993................... 18,125 284,250 $ 6.91
Terminated................................. 6,250 (6,250) $ 7.24
Exchange Program
Terminated............................ 278,024 (278,024) $ 6.91
Reissued.............................. (139,012) 139,012 $ 2.375
Exercised.................................. -- (110,178) $ 2.375
------- ------- -------
Balance at June 30, 1994................... 163,387 28,810 $ 2.375
Granted.................................... (10,000) 10,000 $11.50
Exercised.................................. -- (28,810) $ 2.375
Expired.................................... (105,572) -- $ --
------- ------- -------
Balance at June 30, 1995................... 47,815 10,000 $11.50
======= ======= =======
</TABLE>
Under the Company's Non-Qualified Stock Option Plan, directors, officers,
and key employees may purchase the Company's Common Stock at 100% of fair
market value of the shares on the date of grant. Except as otherwise
determined by the Board of Directors, no options granted under the Plan
will be immediately exercisable, but, rather, will be exercisable as to
twenty percent of the shares covered thereby after one year from the date
the option is granted and will be exercisable as to an additional twenty
percent each year thereafter. All options will expire upon the earlier of
10 years and 30 days from date of grant or, with respect to shares covered
by such options, five years from the date the option first became
exercisable with respect to such shares.
<PAGE> 34
A summary of transactions for the fiscal years ended June 30, 1995, 1994 and
1993 are as follows:
<TABLE>
<CAPTION>
Shares Shares Average
Available Under Option Price
For Option Option Per Share
---------- --------- ------------
<S> <C> <C> <C>
Balance at June 30, 1992........................... 10,612 1,109,438 $ 5.03
(Option Shares Exercisable 812,438)
Expired............................................ 146,430 (146,430) $ 5.03
------- --------- -------
Balance at June 30, 1993........................... 157,042 963,008 $ 5.03
(Option Shares Exercisable 774,208)
Terminated......................................... 20,500 (20,500) $ 5.12
Exchange Program
Terminated.................................... 942,508 (942,508) $ 5.03
Reissued...................................... (471,250) 471,250 $ 2.125
Exercised.......................................... -- (248,938) $ 2.125
Granted............................................ (32,000) 32,000 $ 2.625
Terminated......................................... 3,000 (3,000) $ 2.125
Expired............................................ 58,579 (58,579) $ 2.125
------- --------- -------
Balance at June 30, 1994........................... 678,379 192,733 $ 2.21
(Option Shares Exercisable 115,933)
Terminated......................................... 600 (600) $ 2.125
Exercised.......................................... -- (70,313) $ 2.156
Granted............................................ (672,000) 672,000 $11.46
------- --------- -------
Balance at June 30, 1995........................... 6,979 793,820 $10.014
(Option Shares Exercisable 87,220) ======= ========= =======
</TABLE>
On September 24, 1990, The Board of Directors authorized new stock options
with an exercise price of $5.00 per share in substitution and replacement
of unexercised portions of the Non-Statutory Stock Options granted on or
before September 24, 1990.
During fiscal year 1991, the Board of Directors adopted the 1991 Stock
Option Plan. Under the 1991 Stock Option Plan, directors other than
committee members, officers and certain key employees are eligible to
receive options to purchase the Company's Common Stock at 100% of fair
market value of the shares on the date of grant. Options expire up to 10
years from date of grant and are all presently exercisable. The shares
reserved for issuance and covered by options granted under the 1991 Stock
Option Plan are set forth in the following table.
<PAGE> 35
<TABLE>
<CAPTION>
Shares Shares Average
Available Under Option Price
For Option Option Per Share
---------- ------ ---------
<S> <C> <C> <C>
Balance June 30, 1992....................... 53,000 197,000 $ 5.48
Additional Authorized....................... 60,770 -- --
Granted..................................... (105,875) 105,875 $ 2.13
------- ------- ------
Balance June 30, 1993....................... 7,895 302,875 $ 4.30
Additional Authorized....................... 62,286 -- --
Terminated.................................. 35,000 (35,000) $ 5.39
Exchange Program
Terminated............................. 122,000 (122,000) $ 5.50
Reissue................................ (61,000) 61,000 $ 2.125
Granted..................................... (93,954) 93,954 $ 2.625
Exercised................................... -- (155,090) $ 2.34
------- ------- --------
Balance June 30, 1994....................... 72,227 145,739 $ 3.26
Additional Authorized....................... 75,373 -- --
Granted..................................... (112,000) 112,000 $11.50
Exercised................................... -- (17,625) $ 2.533
------- ------- -------
Balance June 30, 1995....................... 35,600 240,114 $ 7.155
======= ======= =======
</TABLE>
On February 11, 1988, the Company granted each of its then four outside
directors an option to purchase 12,500 shares of the Company's Common Stock
at a price of $7.20 per share (the market value on that day) and reserved
50,000 shares of its Treasury Stock to cover the exercise of these options.
The Treasury Stock referred to above were retired in fiscal year 1995 at
their aggregate cost and a like number of authorized but unissued shares
were reserved to cover these options. None of these options were exercised
as of June 30, 1995.
During fiscal year 1993, the Board of Directors approved a Stock Option
Exchange Program. This program permits all employees to cancel all (but
only all) of their existing options which have an exercise price higher
than $2.125 per share in return for a new option (for a number of shares
equal to one-half of the number of shares as their existing options) which
will have an exercise price equal to $2.125 per share (in the case of
non-statutory options) and an exercise price equal to $2.375 per share (in
the case of incentive stock options). The Stock Option Exchange Program
also covered the Director's options previously granted to Messrs. Jesse
Krasnow and Herbert Krasnow. Messrs. Martin Kaplan and Thomas McGrath, who
comprise the Stock Option Committee, are not eligible to participate in the
Stock Option Exchange Program.
During fiscal year 1990, the shareholders approved the 1990 Employee Stock
Purchase Plan. The Plan was intended to provide eligible employees with an
opportunity to purchase the Company's common stock through payroll
deductions at eighty-five percent of the market price on specified dates.
Common stock reserved for issuance under the Plan was 360,000 shares. All
shares were issued under the Plan as of June 30, 1993.
During fiscal year 1994, the Shareholders approved the 1993 Employee Stock
Purchase Plan. The Plan is the same in all aspects as the 1990 Plan
including the number of shares reserved, 360,000 shares. There were 53,713
and 107,587 shares issued under this Plan during the years ended June 30,
1995 and 1994, respectively.
<PAGE> 36
The Companys' Stock Option Plan Committee, which is comprised of Messrs.
Kaplan and McGrath, administer all the stock option plans of the Company.
The Company has available 1,000,000 authorized and unissued shares of $0.10
par value Preferred Stock. Shares may be issued from time to time in one
or more series, each series having such special rights, privileges and
preferences as may be determined by the Board of Directors at time of
issuance.
On June 30, 1994 the Company issued 687,000 shares of its $0.10 par value
common stock in a private offering at a price of $12 per share. The
offering included an option for each purchaser to acquire an equivalent
number of shares within the next 12 months at $16 per share. No such
options were exercised at June 30, 1995.
Net proceeds from the private offering were $7,936,400 of which $5,011,400
were not received as of June 30, 1994. This amount was included as a
separate component of Stockholders Equity in the Consolidated Balance Sheet
under the caption "Stock Subscription Receivable" at June 30, 1994. The
$5,011,400 remaining proceeds were received during fiscal year 1995.
10. Business Segment Information.
The Company designs and manufactures training simulators as well as, frozen
food and bottle vending machines.
The Company's operations by business segment, were as follows:
<TABLE>
<CAPTION>
(In Thousands)
Training Vending
Operation Operation Corporate Consolidated
<S> <C> <C> <C> <C>
Revenues
1995 $83,534 $24,073 -- $107,607
1994 61,069 2,232 -- 63,301
1993 53,798 637 -- 54,435
Operating Income
1995 11,741 (7) -- 11,734
1994 9,671 (1,913) -- 7,758
1993 2,273 (975) -- 1,298
Identifiable Assets
1995 77,798 8,585 3,356 89,739
1994 56,622 6,290 2,268 65,180
1993 56,752 842 839 58,433
Depreciation
1995 3,098 322 -- 3,420
1994 3,230 120 -- 3,350
1993 2,930 13 -- 2,943
Capital Expenditures
1995 2,080 2,230 -- 4,310
1994 1,275 834 -- 2,109
1993 1,457 408 -- 1,865
</TABLE>
<PAGE> 37
Intersegment sales are not material. Identifiable assets are those assets
employed in each segment's operation. Corporate assets consist primarily
of cash.
Sales by Class of Customer.
<TABLE>
<CAPTION>
(In Thousands)
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
U.S. Government
Direct......................................... $ 36,476 $40,125 $34,711
Subcontract.................................... 35,309 14,715 5,634
-------- ------- -------
Total U.S. Government.................. 71,785 54,840 40,345
-------- ------- -------
Foreign Governments................................. 11,697 5,203 12,645
Foreign Commercial.................................. 21 1,021 136
Other............................................... 31 5 672
-------- ------- -------
Total Training......................... 83,534 61,069 53,798
-------- ------- -------
Vending (substantially one customer)................ 24,073 2,232 637
-------- ------- -------
Total Sales............................ $107,607 $63,301 $54,435
======== ======= =======
</TABLE>
Export Sales from the U.S. were $6,000, $4,000 and $5,100,000 in the fiscal
years ended June 30, 1995, 1994 and 1993, respectively. These amounts do
not include Foreign Military Sales through U.S. Government agencies and
prime contractors of $27,582,000, $27,797,000 and $2,800,000 in the fiscal
years ended June 30, 1995, 1994, and 1993, respectively.
Sales by Geographic Area.
<TABLE>
<CAPTION>
(In Thousands)
United Europe and
States Middle East Other Consolidated
<S> <C> <C> <C> <C>
Revenues
1995 $95,883 $11,724 -- $107,607
1994 57,077 6,224 -- 63,301
1993 41,654 7,695 5,086 54,435
Operating Income
1995 11,161 573 -- 11,734
1994 7,095 663 -- 7,758
1993 416 894 (12) 1,298
Identifiable Assets
1995 79,483 10,256 -- 89,739
1994 61,579 3,601 -- 65,180
1993 54,159 4,274 -- 58,433
</TABLE>
<PAGE> 38
11. Summary of Quarterly Results (Unaudited).
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
September December March June
1995 30 31 31 30
-- -- -- --
<S> <C> <C> <C> <C>
Net Sales................................ $20,656 $22,676 $28,832 $35,443
Gross Profit............................. $ 5,733 $ 5,412 $ 6,024 $ 8,378
Operating Income......................... $ 2,341 $ 1,935 $ 2,819 $ 4,639
Income Before Income Taxes............... $ 1,996 $ 1,651 $ 3,131 $ 4,393
Net Income............................... $ 1,336 $ 1,189 $ 1,871 $ 2,922
Earnings Per Common Share
and Common Share Equivalent ............ $ 0.17 $ 0.15 $ 0.24 $ 0.37
</TABLE>
As disclosed in Note 3, the Company recorded a one time write-off, during
the second quarter of fiscal year 1995, of $994,000 (pre-tax) relating to
the Pop-Up Target claim previously included in inventory.
The Company recorded a charge to Vending Cost of Sales of $891,000 during
the fourth quarter of fiscal year 1995, primarily the result of a standard
cost revision and an inventory book to physical adjustment.
For interim reporting purposes, the Company had previously allocated S,G&A
costs to contracts utilizing an annualized estimated rate to absorb such
costs. Effective July 1, 1994, the Company conformed its method of
accounting for S,G&A costs on an interim basis to the method used for
annual reporting purposes, that is, charged to operations as incurred.
<TABLE>
<CAPTION>
(In Thousands, Except Per Share Data)
September December March June
1994 30 31 31 30
-- -- -- --
<S> <C> <C> <C> <C>
Net Sales................................ $15,407 $14,817 $15,767 $17,310
Gross Profit............................. $ 4,669 $ 3,939 $ 4,856 $ 6,126
Operating Income......................... $ 1,713 $ 876 $ 1,984 $ 3,185
Income Before Income Taxes............... $ 1,181 $ 404 $ 1,648 $ 2,617
Net Income............................... $ 783 $ 358 $ 1,104 $ 1,684
Earnings Per Common Share
and Common Share Equivalent............. $ 0.13 $ 0.05 $ 0.15 $ 0.24
</TABLE>
The periodic review of estimated cost at completion of the C-17A production
contract in the second quarter resulted in a reduction in gross margin of
approximately $0.4 million. However, lower than anticipated costs in the
fourth quarter resulted in the gross margin on this contract returning to
its pre-adjusted level.
<PAGE> 39
The increase in gross margin in the fourth quarter of fiscal year 1994 as
compared to the prior quarters is primarily related to the fourth quarter
review of estimated costs at completion reflecting among other items a
reduction in manufacturing overhead. The reduction in overhead related
primarily to the Company's profit sharing expense which during the first
three quarters was accrued for in anticipation of a 100% contribution.
However, due to the Company's profitability for the year, the actual profit
sharing contribution was reduced to a 75% contribution. Two factors
partially offset the increase in gross margin in the fourth quarter. The
first relates to the loss of gross margin on the vending operation primarily
the result of start-up costs incurred in connection with the glass bottle
vending machine. The second was associated with one contract on which the
Company had costs deferred in inventory in anticipation of submitting a
request for equitable adjustment. However, due to various facts and
circumstances, the Company elected not to pursue the request for equitable
adjustment and charged these deferred costs to cost of sales in June 1994.
The higher than anticipated start-up costs on the glass bottle vending
machine and the write-off of deferred costs referred to above, both of
which occurred in the fourth quarter, contributed to the reduction of the
profit sharing from the anticipated 100% contribution to a 75%
contribution.
12. Commitments and Contingencies.
The Company and its subsidiaries lease certain office facilities and
equipment under operating leases. Future minimum lease payments under all
noncancellable operating leases as of June 30, 1995 are as follows:
<TABLE>
<CAPTION>
(In Thousands)
<S> <C>
1996 ............................. $ 1,045
1997 ............................. 812
1998 ............................. 684
1999 ............................. 551
Remaining Years .................. 3,770
--------
Total Minimum Lease Payments...... $ 6,862
========
</TABLE>
Rent expense under all operating leases was approximately $1,024,540,
$826,011 and $883,321 for the fiscal years ended June 30, 1995, 1994 and
1993, respectively.
Item 9. Disagreements on Accounting and Financial Disclosures
The Company has nothing to report under this item.
<PAGE> 40
PART III
Pursuant to Instruction G(3) to Form 10-K, the information required in
Items 10 - 13 (except for the information set forth at the end of Part I with
respect to Executive Officers of the Company) is incorporated by reference from
the Company's definitive proxy statement which is expected to be filed pursuant
to Regulation 14A on or before October 16, 1995.
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K.
(a) (1) and (2) Financial Statements
The financial statements filed as part of this Annual Report
are listed in the Index to Consolidated Financial Statements on page 18.
Schedules other than those so listed are omitted for the reason that they are
either not applicable or not required or because the information required is
contained in the consolidated financial statements or notes thereto.
(3) Exhibits
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page
- ----------- ----------- ----
<S> <C> <C>
3.1 Certificate of Incorporation (5)
3.2 By-Laws (2)
4.1 Form of Common Stock Certificate (5)
10.1 Educational Computer Corporation
1981 Incentive Stock Option Plan (5)
10.2 Educational Computer Corporation
1986 Incentive Stock Option Plan (5)
10.3 Educational Computer Corporation
1986 Non-Qualified Stock Option Plan (5)
10.4 ECC International Corp. 1991 Option Plan (3)
10.5 Credit Agreement dated as of November 24, 1992 by and
among ECC International Corp. and ECC Simulation
Limited and the Financial Institutions listed
herein and Mellon Bank, N.A. as Agent and as
Issuing Bank. (5)
</TABLE>
<PAGE> 41
<TABLE>
<S> <C>
10.6 First Amendment dated as of March 1, 1993 to the
Credit Agreement dated as of November 24, 1992 by and
among ECC International Corp. and ECC Simulation
Limited and the Financial Institutions listed
herein and Mellon Bank, N.A. as Agent and as
Issuing Bank. (5)
10.7 Second Amendment dated as of March 31, 1993 to the
Credit Agreement dated as of November 24, 1992 by and
among ECC International Corp. and ECC Simulation
Limited and the Financial Institutions listed
herein and Mellon Bank, N.A. as Agent and as
Issuing Bank as heretofore amended by amendment
dated March 1, 1993. (4)
10.8 Second Amendment dated as of December 31, 1993 to the
Credit Agreement dated as of November 24, 1992 by and
among ECC International Corp. and ECC Simulation
Limited and the Financial Institutions listed
herein and Mellon Bank, N.A. as Agent and as
Issuing Bank as heretofore amended by amendments
dated March 1, and March 31, 1993. (6)
10.9 Form of Stock Option Agreement for outside directors (7)
10.10 Rights Agreement dated July 28, 1986 between Educational
Computer Corporation and Mellon Bank (East), N.A. (7)
10.11 Amendment to Rights Agreement dated February 21, 1989
between ECC International Corp. and Mellon Bank
(East), N.A. (1)
10.12 Form of Subscription Agreement dated June 30, 1994 related
to Private Placement. (7)
10.13 Form of Option Agreement dated June 30, 1994 related
to Private Placement. (7)
10.14 Term Loan and Revolving Credit Agreement dated as of
September 20, 1994 by and among First Fidelity Bank,
National Association and ECC International Corp. (7)
10.15 Guaranty and Surety Agreement dated as of
September 20, 1994 to induce First Fidelity Bank,
N.A. to make loans or other financial accommodations
to ECC Simulation Limited. (7)
</TABLE>
<PAGE> 42
<TABLE>
<S> <C>
10.16 First Amendment dated as of April 6, 1995 to the
Term and Revolving Credit Agreement dated
as of September 20, 1994 by and among
First Fidelity Bank, National Association and
ECC International Corp.
10.17 Overdraft Facility dated as of April 3, 1995 by and
among ECC Simulation Limited and First Fidelity Bank,
N.A. London Branch.
11 Schedules of Computation of Earnings Per Share
21 Subsidiaries of Registrant
23 Consent of Coopers & Lybrand L.L.P.
27 Financial Data Schedule
</TABLE>
1 Incorporated by reference to Exhibit 2 to the Registrant's Current
Report on Form 8-K dated February 22, 1989. (Commision File No.
1-8988)
2 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1989. (Commision File No. 1-8988)
3 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1991. (Commision File No. 1-8988)
4 Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993.
(Commision File No. 1-8988)
5 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1993. (Commision File No. 1-8988)
6 Incorporated by reference to Exhibit 10.1 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended December 31, 1993.
(Commision File No. 1-8988)
7 Incorporated by reference to the Registrant's Annual Report on Form
10-K for the year ended June 30, 1994. (Commision File No. 1-8988)
<PAGE> 43
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June 30,
1995.
<PAGE> 44
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ECC INTERNATIONAL CORP.
By /s/ Richard F. Thompson
---------------------------
Richard F. Thompson
Vice President, Finance
Date: September 19, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated, by a majority of
the Board of Directors.
/s/ George W. Murphy )
- ---------------------------------- )
George W. Murphy, Director )
and Principal Executive Officer )
)
/s/ Richard F. Thompson )
- ---------------------------------- )
Richard F. Thompson, Principal )
Financial and Accounting Officer )
)
/s/ Ajit W. Hirani )
- ---------------------------------- )
Ajit W. Hirani, Director )
)
/s/ Julian Demora ) September 19, 1995
- ---------------------------------- )
Julian Demora, Director )
)
/s/ Max M. Kampelman )
- ---------------------------------- )
Max M. Kampelman, Director )
)
/s/ Martin S. Kaplan )
- ---------------------------------- )
Martin S. Kaplan, Director )
)
/s/ Herbert S. Krasnow )
- ---------------------------------- )
Herbert S. Krasnow, Director )
)
/s/ Jesse Krasnow )
- ---------------------------------- )
Jesse Krasnow, Director )
)
/s/ Thomas E. McGrath )
- ---------------------------------- )
Thomas E. McGrath, Director )
<PAGE> 1
EXHIBIT 10.16
FIRST AMENDMENT TO TERM LOAN AND REVOLVING CREDIT AGREEMENT
THIS AMENDMENT ("Amendment") made as of April 6, 1995,
between ECC INTERNATIONAL CORP. ("Borrower") and FIRST FIDELITY
BANK, NATIONAL ASSOCIATION ("Bank").
Background
----------
Bank and Borrower entered into a certain Term Loan and
Revolving Credit Agreement dated as of September 20, 1994 (as
amended to date, the "Credit Agreement") relative to a Term Loan
and a Revolver, as more fully set forth therein, the terms of
which are incorporated herein by reference, and desire to amend
the same in the manner hereinafter provided. Capitalized terms
used herein which are not defined hereby shall have the meaning
given thereto in the Credit Agreement.
NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND,
agree that the Credit Agreement be and is hereby amended as
follows:
1. MAXIMUM PRINCIPAL AMOUNT OF REVOLVER. Notwithstanding
Section A.2.b. of the Credit Agreement to the contrary, the
maximum aggregate principal amount of advances, including the face
amount of Letters of Credit, to be outstanding at any time under
the Revolver shall be an amount which, when taken together with
the principal amount of cash advances outstanding under the
Simulation Credit, is not greater than:
a. for the period commencing on the date hereof
through but not including the earlier of September 30, 1995 or the
Contract Payment Date (hereinafter defined), the lesser of
$13,000,000 or the Borrowing Base (hereinafter defined), and
b. thereafter, the lesser of $11,000,000 or the
Borrowing Base.
For purposes hereof, the following terms have the following
meanings:
a. "BORROWING BASE" means, as of any date, the sum of
80% of the net outstanding amount of Qualified Billed Receivables
(hereinafter defined) plus 40% of the net outstanding amount of
Qualified Unbilled Receivables (hereinafter defined), in each case
after deducting therefrom all payments, adjustments and credits
applicable thereto;
b. "CONTRACT PAYMENT DATE" means the date on which
payment in an amount not less than $6,000,000 is received by
<PAGE> 2
Borrower on account of amounts presently owing to Borrower
pursuant to the Saudi Contract (hereinafter defined);
c. "SAUDI CONTRACT" means Borrower's contract with
Naval Warfare Training Center, Contract No. N61339-94C0084;
d. "QUALIFIED BILLED RECEIVABLE" means amounts due to
and invoiced by Borrower or Simulation under and in accordance
with the payment and other terms of an enforceable contract for
goods sold or services performed entered into by Borrower or
Simulation in the ordinary course of business and with respect to
which all of the following requirements have been met:
(1) The amount shown on the invoice is owing to
Borrower or Simulation and no partial payment has been received
thereon;
(2) The amount invoiced is a valid and enforceable
account receivable, representing an undisputed indebtedness of an
account debtor to Borrower or Simulation, is not subject to any
claim or reduction, counterclaim, set-off, recoupment, or any
claim for credits, allowances or adjustments by the account debtor
because of returned, inferior or damaged goods or unsatisfactory
services, or for any other reason, except for discounts
customarily allowed by Borrower or Simulation in the ordinary
course of its business for prompt payment;
(3) The invoice has been outstanding not more than
90 days from the invoice date;
(4) Borrower or Simulation has received no notice
of the dissolution, termination of existence, insolvency, business
failure or cessation, appointment of a receiver for all or any
part of the property of, assignment for the benefit of creditors
by, or the filing of a petition in bankruptcy or the commencement
of any proceeding under any bankruptcy or insolvency laws, now or
hereafter enacted, by or against the account debtor; and
(5) The account debtor is not an affiliate of
Borrower or Simulation.
Amounts invoiced which are at any time a Qualified
Billed Receivable, but which subsequently fail to meet any of the
foregoing requirements, shall forthwith cease to be a Qualified
Billed Receivable.
e. "QUALIFIED UNBILLED RECEIVABLE" means amounts
earned by and owing to Borrower or Simulation under an enforceable
contract for goods sold or services performed entered into by
Borrower or Simulation in the ordinary course of business but
-2-
<PAGE> 3
which under the payment and other terms of such contract are not
yet due or billable and which are carried on Borrower's or
Simulation's books consistent with past and present practice as
"costs and estimated earnings in excess of billings on uncompleted
contracts" and with respect to which all of the following
requirements have been met:
(1) Such amounts are not subject to any claim or
reduction, counterclaim, set-off, recoupment, or any claim for
credits, allowances or adjustments by the other party to the
contract because of returned, inferior or damaged goods or
unsatisfactory services, or for any other reason;
(2) Borrower or Simulation has received no notice
of the dissolution, termination of existence, insolvency, business
failure or cessation, appointment of a receiver for all or any
part of the property of, assignment for the benefit of creditors
by, or the filing of a petition in bankruptcy or the commencement
of any proceeding under any bankruptcy or insolvency laws, now or
hereafter enacted, by or against the other party to the contract;
and
(3) The other party to the contract is not an
affiliate of Borrower or Simulation.
Amounts which are at any time a Qualified Unbilled
Receivable, but which subsequently fail to meet any of the
foregoing requirements, shall forthwith cease to be a Qualified
Unbilled Receivable.
2. REPRESENTATIONS RE: SAUDI CONTRACT. Borrower
represents to Bank with respect to the Saudi Contract that
Borrower has fully earned and reasonably expects to receive,
without set-off, counterclaim, defense or adjustment of any
nature, not less than $6,000,000 on account of the Saudi Contract,
and reasonably expects to receive the same on or before August 31,
1995.
3. ADDITIONAL COVENANTS. In addition to the covenants set
forth in the Credit Agreement, Borrower covenants and agrees, so
long as there are any outstanding Liabilities or the Bank shall
have any obligation under the Credit Agreement, as amended hereby,
that Borrower will furnish to Bank, not later than 10 days after
the end of each calendar month, a Borrowing Base certificate with
respect to Qualified Billed Receivables, and not later than
25 days after the end of each calendar month, a Borrowing Base
certificate with respect to Qualified Unbilled Receivables, in
each case in form acceptable to the Bank, detailing all
information necessary to calculate the Borrowing Base as of the
-3-
<PAGE> 4
last day of the immediately preceding month, certified to be true,
correct and complete by Borrower's chief financial officer.
4. MORTGAGE. Reference is hereby made to Section Q.2. of
the Credit Agreement. Notwithstanding anything to the contrary
contained in said Section Q.2., Borrower and Bank have agreed to
presently record the Mortgage and, in connection with the
recordation thereof, Borrower shall pay to Bank, for use by Bank
for the payment of, all documentary stamp taxes and intangibles
taxes and filing fees. Accordingly, said Section Q.2. is hereby
deleted in its entirety.
5. WAIVER. Borrower has advised Bank that Borrower has
made loans to Simulation in excess of $1,500,000 and, accordingly,
is not in compliance with the terms of Section P.1. of the Credit
Agreement limiting loans from Borrower to Simulation to $1,500,000
in the aggregate. At Borrower's request, Bank hereby waives
compliance with said intercompany loan limitation for the period
March 15, 1995 through and including September 30, 1995, as well
as any Event of Default occurring by reason of such noncompliance.
On October 1, 1995, Borrower shall be in compliance with the
intercompany loan limitation as presently set forth in said
Section P.1.
6. CONDITIONS. The obligation of Bank to increase the
Maximum Principal Amount of the Revolver as set forth in Section 1
hereof is subject to the following conditions precedent:
a. Borrower shall, concurrently herewith, execute and
deliver to Bank an amended and restated Revolving Credit Note in
the face amount of $13,000,000, which amended and restated
Revolving Credit Note, together with any attachments thereto and
amendments, modifications or restatements thereof or thereto,
shall constitute the "Revolving Credit Note" for all purposes of
the Credit Agreement and other Loan Documents;
b. Borrower shall, concurrently herewith, execute and
deliver to Bank the Mortgage, and provide to Bank cash in the
amount of all documentary stamp taxes and intangibles taxes and
filing fees required to record the same;
c. Borrower shall, concurrently herewith, pay to Bank
an amendment fee in the amount of $32,500;
d. Borrower shall, concurrently herewith, deliver to
Bank certified resolutions of the Board of Directors of the
Borrower authorizing the Borrower to execute, deliver and perform
this Amendment and any documents required to be executed in
connection herewith;
-4-
<PAGE> 5
e. Borrower shall deliver to Bank such other
documents, instruments and agreements as Bank may reasonably
request.
7. REAFFIRMATION. Except as specifically modified by this
Amendment, the Credit Agreement and all other Loan Documents shall
remain unchanged and in full force and effect, and this Amendment
shall be construed as supplemental thereto, and Borrower hereby
reaffirms all of its Liabilities thereunder and agrees that the
same are owing to Bank in accordance with the terms thereof
without off-set, counterclaim or defense of any nature. Borrower
further reaffirms all liens and security interests heretofore
granted by Borrower to Bank pursuant to the Loan Documents,
including without limitation the liens and security interests
granted pursuant to the Security Agreement dated September 20,
1994 among Bank, Borrower, ECC International, Inc. and Educational
Computer Corporation International ("Security Agreement"), and
agrees that the Revolver, as the Maximum Principal Amount thereof
is amended pursuant to Section 1 hereof, constitutes a "Liability"
for all purposes thereof.
8. ADDITIONAL SIMULATION FACILITY. Borrower acknowledges
that Bank has on or about the date hereof entered into a certain
Agreement with Simulation providing for a discretionary Facility
as referred to and defined therein, the terms of which are
incorporated herein by reference, and agrees that all amounts from
time to time owing by Simulation to Bank thereunder shall
constitute a "Liability" for all purposes of (i) that certain
Guaranty and Surety Agreement dated September 20, 1994 executed
and delivered by Borrower, Educational Computer Corporation
International and ECC International, Inc. to Bank, and (ii) the
Security Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment
as of the date first above written.
ECC INTERNATIONAL CORP.
By: /s/ Richard F. Thompson
-----------------------------
Name: Richard F. Thompson
Title: Vice President/Finance
-5-
<PAGE> 6
FIRST FIDELITY BANK
NATIONAL ASSOCIATION
By: /s/ Edward J. Rodgers
-------------------------------
Name: Edward J. Rodgers
Title: Executive Vice President
-6-
<PAGE> 7
JOINDER
-------
Each of the undersigned consents to the foregoing Amendment,
the terms of which are incorporated herein by reference, and
agrees with Bank as follows:
1. Each of the undersigned reaffirms all guaranties, liens
and security interests heretofore executed and delivered or
granted by the undersigned to Bank pursuant to the Loan Documents,
including without limitation the liens and security interests
granted pursuant to the Security Agreement, and agrees that the
Revolver, as the Maximum Principal Amount thereof is amended
pursuant to Section 1 of the within Amendment, constitutes (i) a
"Liability" for all purposes of (A) that certain Guaranty and
Surety Agreement dated September 20, 1994 executed and delivered
by Educational Computer Corporation International and ECC
International, Inc. to Bank, and (B) the Security Agreement, and
(ii) a "Secured Liability" for all purposes of that certain
Guarantee and Debenture dated September 20, 1994 executed and
delivered by ECC Simulation Limited to Bank.
2. Each of the undersigned acknowledges that Bank has on or
about the date hereof entered into a certain Agreement with ECC
Simulation Limited providing for a discretionary Facility as
referred to and defined therein, the terms of which are
incorporated herein by reference, and agrees that all amounts from
time to time owing by ECC Simulation Limited to Bank thereunder
shall constitute (i) a "Liability" for all purposes of (A) that
certain Guaranty and Surety Agreement dated September 20, 1994
executed and delivered by Borrower, Educational Computer
Corporation International and ECC International, Inc. to Bank, and
(B) the Security Agreement, and (ii) a "Secured Liability" for all
purposes of that certain Guarantee and Debenture dated
September 20, 1994 executed and delivered by ECC Simulation
Limited to Bank.
IN WITNESS WHEREOF, the undersigned have executed this
Joinder this 6hth day of April 1995.
ECC SIMULATION LIMITED
By: /s/ Richard F. Thompson
--------------------------
Name: Richard F. Thompson
Title: Secretary
-7-
<PAGE> 8
ECC INTERNATIONAL, INC.
By: /s/ Richard F. Thompson
-----------------------------
Name: Richard F. Thompson
Title: Vice President/Finance
EDUCATIONAL COMPUTER CORPORATION
INTERNATIONAL
By: /s/ Richard F. Thompson
-----------------------------
Name: Richard F. Thompson
Title: Secretary/Treasurer
-8-
<PAGE> 9
REVOLVING CREDIT NOTE
Obligation #______________
April 6, 1995
Philadelphia, Pennsylvania
$13,000,000
FOR VALUE RECEIVED, and intending to be legally bound hereby, the
undersigned Borrower, ECC International Corp., unconditionally
promises to pay to the order of FIRST FIDELITY BANK, NATIONAL
ASSOCIATION (the "Bank"), the principal amount of all advances
that are now or may hereafter be made hereunder and that are then
outstanding, together with accrued, unpaid interest thereon and
any unpaid costs and expenses payable hereunder, on September 19,
1997.
A. Terms of Note.
-------------
1. INTEREST PAYMENTS. Interest on the principal balance
hereof shall, except as provided in subpart A.8 below,
accrue at such rates and be payable in accordance with
Section A.2 of that certain Term Loan and Revolving
Credit Agreement dated September 20, 1994 between the
Bank and the Borrower, as amended by Amendment of even
date herewith (together with any exhibits thereto and
amendments and modifications thereto in effect from time
to time, the "Loan Agreement").
2. COMPUTATION OF INTEREST. Interest hereunder shall be
computed daily on the basis of a year of 360 days for
the actual number of days elapsed. All payments
hereunder shall be made in lawful currency of the United
States of America and in immediately available funds at
the Bank's address set forth in the Loan Agreement or at
such other address as the Bank shall notify the Borrower
of in writing.
3. INCORPORATION BY REFERENCE. This Note is the Revolving
Credit Note referred to in the Loan Agreement and is
subject to the terms and conditions thereof, which terms
and conditions are incorporated herein, including,
without limitation, terms pertaining to definitions,
representations, warranties, covenants, events of
default and remedies. Any capitalized term used herein
without definition shall have the definition contained
in the Loan Agreement.
<PAGE> 10
4. BORROWING REQUESTS; CREDITING OF ACCOUNT. Any request
for borrowing pursuant to this Note shall be made by the
Borrower in writing in the form of a "Notice of
Borrowing Under Revolving Credit" attached hereto as
Exhibit A and in accordance with the terms of the Loan
Agreement. Unless otherwise requested by the Borrower
in writing at least one (1) Business Day prior to the
date of a requested advance, each advance hereunder
shall be made by crediting the Account as defined in the
Loan Agreement with the amount of the advance. All
advances made by crediting the Account or any other
account of the Borrower at the Bank shall be
conclusively presumed to have been properly authorized
by the Borrower.
5. BANK RECORDS OF ADVANCE. The Bank may enter in its
business records the date and the amount of each
advance, each conversion from one interest rate basis to
another and each payment made pursuant to this Note and
the Loan Agreement. The Bank's records of such advance,
conversion or payment shall, in the absence of manifest
error, be conclusively binding upon the Borrower. In
the event the Bank gives notice or renders a statement
by mailing such notice or statement to the Borrower,
concerning any such advance, conversion or payment, or
the amount of principal and interest due on this Note,
the Borrower agrees that, unless the Bank receives a
written notification of exceptions to this statement
within forty-five (45) calendar days after such
statement or notice is mailed, the statement or notice
shall be an account stated, correct and acceptable and
binding upon the Borrower.
6. ADVANCE REQUESTS EXCEEDING MAXIMUM PRINCIPAL AMOUNT.
The Borrower shall not request the Bank to make any
advances under this Note or the Loan Agreement which
exceeds the Maximum Principal Amount set forth in
Section A.2.b. of the Loan Agreement. In the event that
the principal balance outstanding under this Note
exceeds at any time the Maximum Principal Amount, the
Borrower shall immediately, and without demand from the
Bank, pay to the Bank the amount in excess thereof, and
the Borrower agrees that until such excess is paid to
the Bank, this Note shall evidence and be enforceable
with respect to any and all amounts outstanding
hereunder including such excess.
7. APPLICATION OF PAYMENTS. All payments received on this
Note shall be applied first to the Bank's fees, costs
and expenses which the Borrower is obligated to pay
-2-
<PAGE> 11
pursuant to the terms hereof and under any other Loan
Document, then to accrued and unpaid interest and then
to principal or such payments may be applied in such
other order as the Bank in its sole discretion shall
determine.
8. DEFAULT RATE. At the Bank's option, interest will be
assessed on any principal which remains unpaid at the
maturity of this Note, whether by acceleration or
otherwise, or upon and following any Event of Default,
at a rate which is four percent (4%) higher than the
rate otherwise charged hereunder (the "Default Rate")
provided that at no time shall the Default Rate exceed
the highest rate of interest allowed by law. Such
Default Rate of interest shall also be charged on the
amounts owed by the Borrower to the Bank pursuant to any
judgments entered in favor of Bank in respect of this
Note or any other Loan Document.
9. PREPAYMENT. Prepayment of principal may be made subject
to payment of all amounts required to be paid in
connection with such prepayment as provided in the Loan
Agreement.
B. Remedies.
--------
1. GENERALLY. Upon and following an Event of Default, the
Bank, at its option, may exercise any and all rights and
remedies it has under this Note, the Loan Agreement
and/or the other Loan Documents and under applicable
law, including, without limitation, the right to charge
and collect interest on the principal portion of the
amounts outstanding hereunder at the Default Rate. Upon
and following an Event of Default, the Bank may proceed
to protect and enforce the Bank's rights under any Loan
Document and/or under applicable law by action at law,
in equity, or other appropriate proceeding, including,
without limitation, an action for specific performance
to enforce or aid in the enforcement of any provision
contained herein or in any other Loan Document.
2. REMEDIES CUMULATIVE; NO WAIVER. The remedies hereunder
and under the other Loan Documents are cumulative and
concurrent, and are not exclusive of any other remedies
available to the Bank. No failure or delay on the part
of the Bank in the exercise of any right, power, remedy
or privilege shall operate as a waiver thereof, nor
shall any single or partial exercise of any right,
power, remedy or privilege preclude any other or further
-3-
<PAGE> 12
exercise thereof, or the exercise of any other right,
power, remedy or privilege.
C. Miscellaneous.
-------------
1. GOVERNING LAW. This Note shall be construed in
accordance with and governed by the substantive laws of
the Commonwealth of Pennsylvania without reference to
conflict of laws principles.
2. INTEGRATION. This Note and the other Loan Documents
constitute the sole agreement of the parties with
respect to the subject matter hereof and thereof and
supersede all oral negotiations and prior writings with
respect to the subject matter hereof and thereof.
3. AMENDMENT; WAIVER. No amendment of this Note, and no
waiver of any one or more of the provisions hereof shall
be effective unless set forth in writing and signed by
the parties hereto.
4. SUCCESSORS AND ASSIGNS. This Note (i) shall be binding
upon the Borrower and the Bank and their respective
successors and permitted assigns, and (ii) shall inure
to the benefit of the Borrower and the Bank and their
respective successors and permitted assigns; provided,
however, that the Borrower may not assign its rights or
obligations hereunder or any interest herein without the
prior written consent of the Bank, and any such
assignment or attempted assignment by the Borrower shall
be void and of no effect with respect to the Bank.
5. SEVERABILITY. The illegality or unenforceability of any
provision of this Note or any instrument or agreement
required hereunder shall not in any way affect or impair
the legality or enforceability of the remaining
provisions of this Note or any instrument or agreement
required hereunder. In lieu of any illegal or
unenforceable provision in this Note, there shall be
added automatically as part of this Note a legal and
enforceable provision as similar in terms to such
illegal or unenforceable provision as may be possible.
6. INCONSISTENCIES. The Loan Documents are intended to be
consistent. However, in the event of any
inconsistencies among any of the Loan Documents, such
inconsistency shall not affect the validity or
enforceability of each Loan Document. The Borrower
agrees that in the event of any inconsistency or
ambiguity in any of the Loan Documents, the Loan
-4-
<PAGE> 13
Documents shall not be construed against any one party
but shall be interpreted consistent with the Bank's
policies and procedures.
7. HEADINGS. The headings of sections and paragraphs have
been included herein for convenience only and shall not
be considered in interpreting this Note.
8. SCHEDULES. If a Schedule and/or an Exhibit is attached
hereto, the provisions thereof are incorporated herein.
9. JUDICIAL PROCEEDING; WAIVERS.
a. THE BORROWER AGREES THAT ANY SUIT, ACTION OR
PROCEEDING, WHETHER CLAIM OR COUNTERCLAIM, BROUGHT
OR INSTITUTED BY THE BANK OR THE BORROWER OR ANY
SUCCESSOR OR ASSIGN OF THE BANK OR THE BORROWER, ON
OR WITH RESPECT TO THIS NOTE OR ANY OTHER LOAN
DOCUMENT OR THE DEALINGS OF THE PARTIES WITH
RESPECT HERETO, OR THERETO, SHALL BE TRIED ONLY BY
A COURT AND NOT BY A JURY.
b. THE BANK AND THE BORROWER EACH HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHT TO A
TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR
PROCEEDING. FURTHER, THE BORROWER WAIVES ANY RIGHT
IT MAY HAVE TO CLAIM OR RECOVER, IN ANY SUCH SUIT,
ACTION OR PROCEEDING, ANY SPECIAL, EXEMPLARY,
PUNITIVE OR CONSEQUENTIAL DAMAGES OR ANY DAMAGES
OTHER THAN, OR IN ADDITION TO, ACTUAL DAMAGES.
c. THE BORROWER ACKNOWLEDGES AND AGREES THAT THIS
SECTION IS A SPECIFIC AND MATERIAL ASPECT OF THIS
NOTE AND THAT THE BANK WOULD NOT EXTEND CREDIT TO
THE BORROWER IF THE WAIVERS SET FORTH IN THIS
SECTION WERE NOT A PART OF THIS NOTE.
IN WITNESS WHEREOF, the Borrower has duly executed and delivered
to the Bank this Note as of the date first above written.
ATTEST: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand /s/ Richard F. Thompson
--------------------------- ---------------------------
Name: Relland Winand Name: Richard F. Thompson
Title: Corporate Controller Title: Vice President/Finance
Address: 175 Stafford Avenue
Wayne, PA 19087
Telecopier No. (610) 254-9268
-5-
<PAGE> 14
EXHIBIT A
Notice of Borrowing Under Revolving Credit
Date of Borrowing:________________________
Date of Note:_____________________________
Amount Requested: $_______________________
Interest Rate Basis:______________________
Interet Period (if applicable):___________
The Borrower hereby notifies the Bank that it requires a
borrowing ("Borrowing") under the Term Loan and Revolving Credit
Agreement, dated September 20, 1994, as amended by Amendment dated
__________, 1995 (together with any amendments or modifications
thereto in effect from time to time, the "Loan Agreement")
established for the Borrower in the amount set forth above. The
Borrowing will be deposited in the Borrower's Account No.
__________________. In order to induce the Bank to fund such
Borrowing, the Borrower hereby affirms the following:
1. The representations and warranties of the Borrower
contained in the Loan Agreement are correct on and as of
the date of this Notice of Borrowing Under Revolving
Credit.
2. No Event of Default (as defined in the Loan Agreement)
has occurred and is continuing.
3. There has been no change in the Borrower's or any
Obligor's condition, financial or otherwise, since the
date of the Loan Agreement, which would have a Material
Adverse Effect (as defined in the Loan Agreement).
4. All of the Loan Documents (as defined in the Loan
Agreement) remain in full force and effect, without
modification.
-6-
<PAGE> 15
5. Use of Borrowing will be to: __________________________
___________________________.
Date: ________________, 19__ ECC INTERNATIONAL CORP.
By:____________________________
Name:
Title:
-7-
<PAGE> 16
MORTGAGE, ASSIGNMENT OF RENTS AND SECURITY AGREEMENT
----------------------------------------------------
THIS MORTGAGE, made as of the 6th day of April, 1995, by ECC
INTERNATIONAL CORP., a Delaware corporation (formerly known as
Educational Computer Corporation), having an address at 175
Strafford Avenue, Wayne, PA 19087 (hereinafter called
"Mortgagor"), to FIRST FIDELITY BANK, NATIONAL ASSOCIATION, a
national banking association (hereinafter called "Mortgagee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Mortgagor is justly indebted to Mortgagee under and
as more fully set forth in (A) a certain Term Loan and Revolving
Credit Agreement dated September 20, 1994 among Mortgagor and
Mortgagee, as amended by First Amendment of even date herewith (as
amended, modified, restated or supplemented from time to time, the
"Credit Agreement") in connection with certain Revolving Credit
Loans, various Letters of Credit and Reimbursement Obligations and
a Term Loan in the aggregate principal amount of $22,000,000 as
evidenced in part by certain promissory notes delivered pursuant
thereto (such Credit Agreement and promissory notes being
hereinafter referred to as the "Credit Documents"), and (B) that
certain Guaranty and Suretyship Agreement dated September 20, 1994
among Mortgagor, Mortgagee and the other "Guarantors" as set forth
therein issued to Mortgagee as security for all present and future
indebtedness and obligations of ECC Simulation Limited
("Simulation") to Mortgagee, including indebtedness and
obligations of Simulation in connection with a revolving credit
facility established by Mortgagee for Simulation in the amount of
$2,000,000 and in connection with a line of credit facility
established by Mortgagee for Simulation in the amount of
$4,000,000 (such Guaranty and Surety Agreement, as amended,
modified, restated or Supplemented from time to time, the
"Guaranty," and, together with the Credit Documents, the "Loan
Documents"). All capitalized terms used herein and not otherwise
defined herein shall have the meaning assigned thereto in the
Credit Agreement.
THIS INSTRUMENT PREPARED BY:
Matthew J. Comisky, Esquire
Blank, Rome, Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, Pennsylvania 19103
THE ESTIMATED CURRENT VALUE OF THE LAND AND ALL BUILDINGS AND
IMPROVEMENTS THEREON IN FLORIDA WHICH IS SECURED BY THIS MORTGAGE
DOES NOT EXCEED THE SUM OF $9,700,000. AS A RESULT, DOCUMENTARY
EXCISE TAXES OF $33,950 AND INTANGIBLE PERSONAL PROPERTY FEES OF
<PAGE> 17
$19,400 are due and are being paid with the recordation of this
document.
ARTICLE I -- GRANT CLAUSE
-------------------------
NOW THIS INDENTURE WITNESSETH, that Mortgagor in
consideration of the indebtedness and to secure the payment to
Mortgagee of the principal with interest, and all other sums
provided for in the Loan Documents and in this Mortgage,
including, but not limited to, any future advances that may be
made by Mortgagee to Mortgagor in accordance with Article IV,
Section 21 hereof, and for performance of the agreements,
conditions, covenants, provisions and stipulations contained
herein and therein, has granted, bargained, sold and conveyed and
by these presents does grant, bargain, sell and convey unto
Mortgagee, those certain tracts or parcels of land lying and being
in the County of Orange and State of Florida, more particularly
described and set forth in Exhibit "A" attached hereto and made
part hereof (hereinafter the "Land").
TOGETHER with all and singular the tenements, hereditaments,
easements, appurtenances, passages, waters, water courses,
riparian rights, other rights, liberties and privileges thereof or
in any way now or hereafter appertaining, including any other
claim at law or in equity as well as any after acquired title,
franchise or license and the reversion and reversions and
remainder and remainders thereof; and
TOGETHER with all buildings and improvements of every kind
and description now or hereafter erected or placed thereon and all
materials intended for construction, reconstruction, alteration
and repairs of such improvements now or hereafter erected thereon,
all of which materials shall be deemed to be included within the
mortgaged premises immediately upon the delivery thereof to such
mortgaged premises, and all fixtures and articles of personal
property now or hereafter owned by Mortgagor and attached to or
contained in and used in connection with said premises, including
but not limited to all apparatus, machinery, motors, elevators,
fittings, radiators, gas ranges, ice boxes, mechanical
refrigerators, awnings, shades, screens, venetian blinds, office
equipment and other furnishings, all plumbing, heating, lighting,
cooking, laundry, ventilating, refrigerating, incinerating,
air-conditioning, hot water heating and sprinkler equipment and
fixtures and appurtenances thereto and all built-in equipment and
built-in furniture; and all renewals or replacements thereof or
articles in substitution therefor, whether or not the same are or
shall be attached to said land or building or buildings in any
manner; it being mutually agreed that all the aforesaid property
owned by Mortgagor and placed by it on said premises shall, so far
-2-
<PAGE> 18
as permitted by law, be deemed to be affixed to the realty and
covered by this Mortgage; and
TOGETHER with all income, rents, issues, profits, revenues,
regulations and proceeds (including without limitation proceeds of
insurance and condemnation awards) arising out of or to the use
and operation of the mortgaged premises and other property covered
by this Mortgage; and
TOGETHER with all rights, licenses, sewer and potable water
capacity and permits, relating to the development or use of the
premises, all deposits made with or other security given to
utility companies with respect to the mortgaged premises; all gas,
oil, water and mineral rights, now or hereafter derived from,
appurtenant to, or pertaining to the mortgaged premises.
All of the foregoing shall be deemed to be and shall remain a
part of the property encumbered by this Mortgage and is
hereinafter sometimes referred to as "Mortgaged Property."
TO HAVE AND TO HOLD the above-granted and described Mortgaged
Property unto Mortgagee, its successors and assigns, in fee
simple, forever.
PROVIDED ALWAYS, and these presents are upon the express
condition that if Mortgagor or the successors or assigns of
Mortgagor shall pay unto Mortgagee, its successors or assigns, the
sums of money secured hereby, and any renewals or extensions
thereof in whatever form, and the interest thereon as it shall
become due, according to the true intent and meaning thereof,
together with all advances hereunder, costs, charges and expenses,
including reasonable attorneys' fees (whether or not suit is
brought and whether or not incurred at trial, upon rehearing or
retrial or in any bankruptcy or appellate proceeding) which
Mortgagee may incur or be put to in collecting the same by
foreclosure or otherwise; and shall duly, promptly and fully
perform, discharge, execute, effect, complete, comply with and
abide by each and every of the stipulations, agreements,
conditions and covenants of this Mortgage, and of the Loan
Documents and other documents or instruments given by Mortgagor to
Mortgagee in connection herewith, then this Mortgage and the
estate hereby created shall cease and be NULL AND VOID and this
instrument shall be released by Mortgagee, at the cost and expense
of Mortgagor.
ARTICLE II -- SECURITY CLAUSE
-----------------------------
This Mortgage is given for the purpose of securing the
payment of indebtedness under the Loan Documents and due, prompt
and complete observance, performance and discharge of each and
-3-
<PAGE> 19
every condition, obligation, covenant and agreement contained in
each of the Loan Documents (the "Obligations"). This Mortgage (as
provided in Article IV, Section 9 below) also constitutes a
security agreement under the Uniform Commercial Code and creates a
security interest in the personal property included in the
Mortgaged Property.
ARTICLE III -- ASSIGNMENT OF RENTS, LEASES AND PROFITS
------------------------------------------------------
1. The parties hereto acknowledge that this Agreement shall
also constitute an assignment of rents, leases and profits, and
Mortgagor, by execution of this Agreement, absolutely and
unconditionally hereby grants, assigns, bargains, sells, conveys
and sets over unto Mortgagee all of the existing and future leases
affecting the Mortgaged Property, including without limitation,
all the rights of occupancy, licenses or written or oral
agreements, pertaining to the Mortgaged Property now or hereafter
existing (the "Leases"). The foregoing assignment includes,
without limitation, all of the rents, royalties, issues, profits,
revenue, income and proceeds, and all benefits of the Mortgaged
Property arising from the Leases including any security deposits
of tenants or occupants thereunder, now due or to become due and
derived from such property (hereinafter collectively referred to
as the "Rents").
2. (a) Until an Event of Default shall have occurred as
hereinafter provided in this Mortgage, Mortgagee hereby grants
Mortgagor a license permitting Mortgagor to continue to collect
the rents, issues, profits and proceeds from the operation of the
Mortgaged Property. Upon occurrence of any such Event of Default,
Mortgagor shall deliver to Mortgagee all leases of the Mortgaged
Property, or any portion thereof, such license shall be null and
void, and Mortgagee may exercise all of its rights permitted by
law, including without limitation those rights Permitted under
Section 697.07, Florida Statutes. This assignment shall be an
assignment of all such leases to Mortgagee and Mortgagor will
execute any further assignments necessary to perfect the transfer
of such leases to Mortgagee.
(b) Mortgagor hereby authorizes and directs the tenants
under the Leases to pay Rents to Mortgagee upon written demand by
Mortgagee made after the occurrence of an Event of Default without
further consent of Mortgagor, and the tenants may rely upon any
written statement delivered by Mortgagee to the tenants. Any
payments by tenants to Mortgagee pursuant to such a notice from
Mortgagee shall constitute payment to Mortgagor under the leases
and, any such payment may be applied on account of the
indebtedness hereby secured.
-4-
<PAGE> 20
(c) The acceptance by Mortgagee of the assignment
granted herein, or the granting of any other right, power,
privilege or authority in this Mortgage, or the exercise of any of
the aforesaid, shall not be deemed to constitute Mortgagee as
"mortgagee in possession" prior to the actual taking of physical
possession, operation and control of the Mortgaged Property by
Mortgagee, and at any time after Mortgagee's possession, Mortgagee
shall not be obligated (i) to appear in or defend any action or
proceeding relating to the Leases, the Rents or the remainder of
the Mortgaged Property, or (ii) to perform any obligations of
Mortgagor under any of the Leases or to take any action under the
Leases; or (iii) to expend any money or incur any expense or
obligation with respect to any tenant or any Leases, or (iv) to
assume any obligation or responsibility for any security deposits
which are not actually delivered to Mortgagee, and Mortgagee shall
not be liable for any injury or damage to any person or property
in or about the Mortgaged Property.
3. Mortgagor covenants and agrees that Mortgagor has not
previously sold, assigned, transferred, mortgaged or pledged the
Leases or the Rents, and that no Lease and no Rents under any
Lease issuing from the Mortgaged Property shall hereafter be sold,
assigned, transferred, mortgaged, pledged or otherwise disposed of
or encumbered, and that any attempt to do so shall be null and
void. Mortgagor represents and warrants that there are no
existing Leases and that there are no tenants presently in the
Mortgaged Property.
4. All sums collected and received by Mortgagee out of the
rents, issues, profits and proceeds of the Mortgaged Property
shall first be applied by it to the payment of: the costs of
collection thereof; the costs of management, repairs and upkeep of
the Mortgaged Property, including the purchase of such additional
furniture, fixtures, and equipment as the Mortgagee in its sole
discretion deems necessary for the maintenance of the rental value
of the Mortgaged Property; all taxes, assessments, premiums for
public liability insurance and insurance premiums payable by
Mortgagor and any necessary for the maintenance of a proper rental
value of the Mortgaged Property; all taxes, assessments, premiums
for public liability insurance and insurance premiums payable by
Mortgagor and any taxes imposed upon or collectible by Mortgagee
under any Federal or State law or any law or ordinance enacted by
any political subdivision thereof, or any supplements or
amendments thereto; provided, however, that such tax shall be
based upon the employment by Mortgagee of persons necessary to the
operation of the property under this assignment. Second, the
balance, if any, which shall be known as "the net income," shall
be applied toward the reduction of the Obligations and interest
accrued thereon; provided, however, that no credit shall be given
by Mortgagee for any sum or sums received from the rents, issues
-5-
<PAGE> 21
and profits of the property until the money collected is actually
received at Mortgagee's home office and no credits shall be given
for any uncollected rents or other uncollected amounts or bills,
nor shall credit on the mortgage indebtedness be given for any
rents, issues and profits derived from the Mortgaged Property
after Mortgagee shall obtain possession of the Mortgaged Property
under order of Court or by operation of law.
5. Mortgagee may, after occurrence of an Event of Default
as above provided, from time to time appoint and dismiss such
agents or employees as shall be necessary for the collection of
the rents, issues and profits and for the proper care and
operation of the property and Mortgagor hereby grants to such
agents or employees so appointed full and irrevocable authority
for Mortgagor's benefit to manage the Mortgaged Property and to do
all acts relating to such management, including among other
things, the making of new Leases in the name of the owner or
otherwise, the alteration or amendment of existing leases, the
authorization of repairs or replacements to maintain the building
or buildings and chattels situate upon the Mortgaged Property in
good and tenantable condition and the making of such alterations
or improvements as, in the judgment of the Mortgagee, may be
necessary to maintain or increase the income from the Mortgaged
Property. Mortgagee shall have the sole control of such agents or
employees whose remuneration shall be paid out of the rents,
issues, profits and proceeds as hereinbefore provided at the rate
of compensation accepted in the community wherein the Mortgaged
Property is situated unless otherwise specified, and Mortgagor
hereby expressly releases Mortgagee of any liability to Mortgagor
for the acts of such agents and agrees that Mortgagee shall not be
liable for its neglect or for monies that may come into its hands
unless actually received by Mortgagee at its home office.
6. Mortgagor agrees that the collection and application of
the rents, issues, profits and proceeds to the Obligations or as
otherwise above provided shall not constitute waiver of any
default which might at the time of application or thereafter exist
under this Mortgage, and the payment of the indebtedness secured
hereby may be accelerated in accordance with its terms,
notwithstanding such application.
7. Mortgagor shall perform in all material respects the
landlord's covenants under any existing or future Leases affecting
the Mortgaged Property or any part thereof and Mortgagor shall not
do, neglect to do, or permit to be done or left undone, anything
which may cause the modification or termination (except as a
result of a default of any tenant thereunder) of any Lease or the
obligations of any tenant or any person claiming through such
tenant, or which may diminish or impair the value of any Lease, or
the Rents provided for therein, or the interest of the landlord or
-6-
<PAGE> 22
the Mortgagee in such Lease, Mortgagor will give Mortgagee prompt
notice of any notice of all monetary defaults and any material
non-monetary defaults by Mortgagor to any tenant or from any
tenant to Mortgagor, including without limitation (i) those the
nature of which would permit cancellation or termination of any
Lease, (ii) any notice or cancellation received from any tenant,
whether or not pursuant to an alleged default, and (iii) any
notice from a tenant to Mortgagor that the tenant intends to or is
entitled to cease, offset, or reduce payments of the rent required
to be paid under the Lease.
8. Mortgagor shall indemnify, defend and hold Mortgagee
harmless from and against any and all liability, loss, cost,
damage or expense which Mortgagee may incur under or by reason of
this assignment, or for any action taken by Mortgagee hereunder
(or by reason of or in defense of any and all claims and demands
whatsoever which may be asserted against Mortgagee arising out of
the Leases. In the event Mortgagee incurs any such liability,
loss, cost, damage or expense, the amount thereof together with
attorneys' fees shall be payable by Mortgagor to Mortgagee within
five (5) days after written notice from Mortgagee to Mortgagor at
the Default Rate (as defined in the Loan Documents).
ARTICLE IV -- COVENANTS AND WARRANTIES
--------------------------------------
MORTGAGOR COVENANTS AND AGREES to and with Mortgagee that
until the Obligations secured hereby are fully repaid and
performed:
1. TITLE AND WARRANTIES. Mortgagor is and will be
indefeasibly seized of the Mortgaged Property in fee simple; that
Mortgagor has full power and lawful right to convey the same in
fee simple as aforesaid; that it shall be lawful for Mortgagee at
all times peaceably and quietly to enter upon, hold, occupy and
enjoy the Mortgaged Property and every part thereof; that the
Mortgaged Property is free from all liens and encumbrances, that
all property, fixtures and equipment described herein will be
fully paid for and free from all liens, encumbrances, title
retaining contracts and security interests when delivered and/or
installed upon the Mortgaged Property (except for real estate
taxes which are not yet due and payable); that such property,
fixtures and equipment shall be deemed to be realty and a part of
the freehold; that Mortgagor will make such further assurances to
prove the fee simple title to all and singular the Mortgaged
Property in Mortgagee and to prove the lien and priority of this
Mortgage, as may be reasonably required, and that Mortgagor does
hereby and will forever fully warrant and defend the lien and
priority of this Mortgage and the title to the Mortgaged Property
and every part thereof against the lawful claims and demands of
all persons whomsoever.
-7-
<PAGE> 23
2. PAYMENT AND PERFORMANCE: Mortgagor shall pay to
Mortgagee, in accordance with the terms of this Mortgage and the
Loan Documents, the principal and interest, and other sums therein
set forth; and shall perform and comply with all the agreements,
conditions, covenants, provisions and stipulations of this
Mortgage and the Loan Documents, the terms of which are
incorporated herein by reference.
3. INTEREST RATE: Notwithstanding any provision contained
in this Mortgage or in the Loan Documents, the total liability for
payment of interest, or in the nature of interest, shall not
exceed the limits now imposed by the applicable usury law,
including the applicable choice of law rules. In the event of the
acceleration of the notes or any other Obligations hereby secured,
the total charges for interest and in the nature of interest shall
not exceed the maximum amount allowed by law, and any excess
portion of such charges that may have been prepaid shall be
refunded to the maker thereof. Such refund may be made by
application of the amount involved against the sums then due
hereunder, but such crediting shall not cure or waive the default
occasioning acceleration. Nothing herein contained nor in any
transaction related hereto shall be construed or shall so operate
either presently or prospectively to require Mortgagor to make any
payment or do any act contrary to law, but if any clause and
provision herein contained shall otherwise so operate to
invalidate this Mortgage, in whole or in part, then such clauses
and provisions only shall be held for naught as though not herein
contained and the remainder of this Mortgage shall remain
operative and in full force and effect.
4. MAINTENANCE OF MORTGAGED PROPERTY: Mortgagor shall
abstain from and shall not permit the commission of waste,
impairment or deterioration in or about the Mortgaged Property;
and shall not remove or demolish, or alter the structural
character of, any building erected at any time on the Mortgaged
Property, without the prior written consent of Mortgagee; shall
not permit the Mortgaged Property to become vacant, deserted or
unguarded; and shall maintain the Mortgaged Property in good
condition and repair, reasonable wear and tear excepted.
5. INSURANCE: Mortgagor shall keep the Mortgaged Property
continuously insured as set forth in the Credit Agreement.
Mortgagee shall have the right to retain and apply the proceeds of
any such insurance to reduction of the obligations secured hereby
in any order as Mortgagee may determine, unless Mortgagor requests
in writing to Mortgagee within 15 days of the receipt of the
insurance proceeds that it requests such proceeds to be applied to
restoration, repair or replacement of the damaged property, in
which case Mortgagee shall honor such request provided that no
Event of Default has occurred, and provided further that if the
-8-
<PAGE> 24
cost of restoration, repair or replacement is less than or equal
to $750,000 Bank shall turn over to Mortgagor any insurance
proceeds so received by Bank for use by Mortgagor in making such
repair, restoration or replacement, and if such cost is more than
$750,000 such proceeds shall be deposited with Mortgagee and
advanced for the payment of such repairing, restoring or replacing
of the damaged property upon fulfillment, to the sole satisfaction
of Mortgagee, of the following conditions:
(i) Mortgagee shall have first approved the final
plans and specifications for the repair, restoration or
replacement of the damaged property, the contract
therefor and the contractor who will perform such
repair, or restoration or replacement;
(ii) Mortgagor shall have executed and delivered to
Mortgagee an assignment of the aforementioned contract,
which assignment shall be in form and substance
acceptable to Mortgagee;
(iii) Mortgagee shall be satisfied, in its
reasonable discretion, that the insurance proceeds and
such other funds to be made available by Mortgagor
therefor are sufficient to repair, restore or replace
the damaged property in accordance with the
aforementioned final plans and specifications; and
(iv) Prior to any disbursement, Mortgagor shall
have satisfied Mortgagee, in Mortgagee's reasonable
discretion, that the contractor is entitled to such
disbursement for completed work done in accordance with
the aforementioned plans and specifications and such
work was performed in a workmanlike manner under the
terms of the Mortgagor's contract with the contractor
(or that Mortgagor has paid such contractor for
completed work done in accordance with the plans and
specifications and in a workmanlike manner under the
terms of the Mortgagor's contract with the contractor
and is entitled to reimbursement therefor) and that all
persons furnishing labor or materials for such work have
been paid, and that arrangements satisfactory to
Mortgagee, in its sole discretion, have been made for
their payment.
Notwithstanding anything contained herein to the contrary,
Mortgagee may require Mortgagor to enter into a separate written
agreement which shall include the aforementioned requirements and
such other provisions as shall be required by Mortgagee in its
sole discretion, before Mortgagee disburses any insurance proceeds
for repair, restoration or replacement.
-9-
<PAGE> 25
6. TAXES AND OTHER CHARGES: Mortgagor shall pay when due
and payable and before interest or penalties are due thereon,
without any deduction, defalcation or abatement, all taxes,
assessments, levies, liabilities, obligations, encumbrances, water
and sewer rents and all other charges or claims of every nature
and kind which may be imposed, suffered, placed, assessed, levied,
or filed at any time against Mortgagor, the Mortgaged Property or
any part thereof or against the interest of Mortgagee therein, or
which by any present or future law may have priority over the
indebtedness secured hereby either in lien or in distribution out
of the proceeds of any judicial sale, without regard to any law
heretofore or hereafter to be enacted imposing payment of the
whole or of any part upon Mortgagee; and insofar as any such tax,
assessment, levy, liability, obligation or encumbrance is of
record, the same shall be promptly satisfied and discharged of
record and the original official document (such as, for instance,
the tax receipt or the satisfaction paper officially endorsed or
certified) shall be placed in the hands of Mortgagee not later
than such dates. Provided, however, that if, pursuant to the Loan
Documents or otherwise, Mortgagor shall have deposited with
Mortgagee before the due date thereof sums sufficient to pay any
such taxes, assessments, levies, water and sewer rents, charges or
claims, and Mortgagor is not otherwise in default, they shall be
paid by Mortgagee; and provided further, that if Mortgagor in good
faith and by appropriate legal action shall contest the validity
of any such item or the amount thereof, and shall have established
on its books a reasonable reserve for the payment thereof, then
Mortgagor shall not be required to pay the item or to produce the
required receipts: (a) while the reserve is maintained; and
(b) so long as the contest operates to prevent collection, is
maintained and prosecuted with diligence, and shall not have been
terminated or discontinued adversely to Mortgagor.
7. INTERNAL REVENUE STAMPS: If at any time the United
States or any department or bureau thereof shall require Internal
Revenue stamps on the notes or other Loan Documents secured
hereby, Mortgagor on demand shall pay for them with any interest
or penalties payable thereon.
8. FUTURE TAXES: If hereafter any law or ordinance shall
be adopted imposing a tax directly or indirectly on Mortgagee with
respect to the Mortgaged Property, the value of Mortgagor's equity
therein, or the indebtedness evidenced by the Loan Documents and
secured by this Mortgage (other than State or Federal income taxes
imposed on Mortgagee), Mortgagor shall, on Mortgagee's demand, pay
such tax to the extent reasonably determined by Mortgagee to be
attributable or allocable to the Mortgaged Property, the value of
Mortgagor's equity thereon or the indebtedness secured hereby, and
agrees to pay such tax to the foregoing extent whenever it becomes
-10-
<PAGE> 26
due and payable thereafter, which agreement shall then constitute
a part of this Mortgage.
9. SECURITY AGREEMENT: This Mortgage constitutes a
security agreement under the Uniform Commercial Code and creates
for the benefit of Mortgagee, who is hereby granted by Mortgagor,
a security interest in the personal property included in the
Mortgaged Property. Mortgagor shall execute, deliver, file and
refile any financing statements or other security agreements
Mortgagee may require from time to time to confirm the lien of
this Mortgage with respect to such property. Without limiting the
foregoing, Mortgagor hereby irrevocably appoints Mortgagee
attorney-in-fact for Mortgagor to execute, deliver and file such
instruments for and on behalf of Mortgagor.
10. INSPECTION: Mortgagee and any persons authorized by
Mortgagee shall have the right at any time, upon reasonable notice
to Mortgagor, to enter the Mortgaged Property at a reasonable hour
to inspect and photograph its condition and state of repair.
11. REQUIRED NOTICES: Mortgagor shall notify Mortgagee
promptly of the occurrence of any of the following:
(a) a fire or other casualty causing damage to the
Mortgaged Property;
(b) receipt of notice of condemnation of the Mortgaged
Property;
(c) receipt of notice from any governmental authority
relating to the structure, use or occupancy of the Mortgaged
Property;
(d) substantial change in the occupancy of the
Mortgaged Property; or
(e) commencement of any litigation affecting the
Mortgaged Property.
12. Condemnation:
------------
(a) In the event of any condemnation or taking of any
part of the Mortgaged Property by eminent domain, alteration of
the grade of any street, or other injury to or decrease in the
value of the Mortgaged Property by any public or quasi-public
authority or corporation all proceeds (that is, the award or
agreed compensation for the damages sustained) allocable to
Mortgagor shall be applicable first to payment of the indebtedness
secured hereby. No settlement for the damages sustained shall be
made by Mortgagor without Mortgagee's prior written approval which
-11-
<PAGE> 27
shall not be unreasonably withheld. All the proceeds shall be
applied in the order and in the amounts that Mortgagee, in
Mortgagee's sole discretion, may elect, to the payment of
principal (whether or not then due and payable), interest or any
sums secured by this Mortgage, or toward payment to Mortgagor, on
such reasonable terms as Mortgagee may specify, to be used for the
sole purpose of altering, restoring or rebuilding any part of the
Mortgaged Property which may have been altered, damaged or
destroyed as a result of the taking, alteration of grade or other
injury to the Mortgaged Property. If applied to principal of the
Revolving Credit Loans, the same will constitute a permanent
reduction of Mortgagee's Revolving Credit commitments.
(b) If prior to the receipt of the proceeds by
Mortgagee the Mortgaged Property shall have been sold on
foreclosure of this Mortgage, Mortgagee shall have the right to
receive the proceeds to the extent of:
(i) any deficiency found to be due to Mortgagee in
connection with the foreclosure sale, with legal interest thereon,
and
(ii) reasonable counsel fees, costs and
disbursements incurred by Mortgagee in connection with collection
of the proceeds and the proceedings to establish the deficiency.
(c) If the amount of the initial award of damages for
the condemnation is insufficient to pay in full the indebtedness
secured hereby with interest and other appropriate charges,
Mortgagee shall have the right to prosecute to final determination
or settlement an appeal or other appropriate proceedings in the
name of Mortgagee or Mortgagor, for which Mortgagee is hereby
appointed irrevocably as attorney-in-fact for Mortgagor, which
appointment, being for security, is irrevocable. In that event,
the expenses of the proceedings, including reasonable counsel
fees, shall be paid first out of the proceeds, and only the
excess, if any, paid to the Mortgagee shall be credited against
the amounts due under this Mortgage.
(d) Nothing herein shall limit the rights otherwise
available to Mortgagee, at law or in equity, including the right
to intervene as a party to any condemnation proceeding.
13. NO LEASES OR PURCHASE AGREEMENTS: Mortgagor hereby
represents that there are no leases, agreements to lease, purchase
agreements or agreements to sell all or any part of the Mortgaged
Property now in effect.
14. CONVEYANCE: Without the prior written consent of
Mortgagee, Mortgagor will abstain from and will not cause or
-12-
<PAGE> 28
permit any sale, exchange, transfer or conveyance of the Mortgaged
Property or any part thereof, voluntarily or by operation of law
or any transfer of partnership interests in Mortgagor, whether by
sale, exchange, conveyance, merger, consolidation or otherwise,
except as may be specifically permitted by the Credit Agreement.
Any violation of the foregoing limitations, at the option of
Mortgagee, shall be deemed an Event of Default hereunder.
15. RIGHT TO REMEDY DEFAULTS: If Mortgagor should fail to
pay when due and payable real estate or other taxes, assessments,
water and sewer rents, charges and claims, sums due under any
prior lien or insurance premiums, or fail to make necessary
repairs, or permit waste, Mortgagee, at its election and without
notice to Mortgagor, shall have the right to make any payment or
expenditure and to take any action which Mortgagor should have
made or taken, or which Mortgagee deems advisable to protect the
security of this Mortgage or the Mortgaged Property, without
prejudice to any of Mortgagee's rights or remedies available
hereunder or otherwise, at law or in equity. All such sums, as
well as costs, advanced by Mortgagee pursuant to this Mortgage
shall be due immediately from Mortgagor to Mortgagee, shall bear
interest at the Default Rate as defined in the Loan Documents
until paid in full and shall be secured hereby.
16. EVENTS OF DEFAULT: The occurrence of any Event of
Default under and as provided in the Credit Agreement shall
constitute an Event of Default hereunder.
17. Remedies:
--------
(a) Upon the happening of any Event of Default, the
entire unpaid balance of the principal, the accrued interest and
all other sums secured by this Mortgage shall become immediately
due and payable in accordance with the provisions of the Credit
Agreement.
(b) When the entire indebtedness shall become due and
payable, either because of maturity or because of the occurrence
of any Event of Default, or otherwise, then forthwith:
(i) FORECLOSURE: Mortgagee may institute an
action to foreclose this Mortgage against the Mortgaged Property,
or take such other action at law or in equity for the enforcement
of this Mortgage and realization on the mortgage security or any
other security herein or elsewhere provided for, as the law may
allow, and may proceed therein to final judgment and execution for
the entire unpaid balance of the principal debt, with interest at
the Default Rate stipulated in the Loan Documents to the date of
entry of said final judgment, together with all other sums due by
Mortgagor in accordance with the provisions of the Loan Documents
-13-
<PAGE> 29
and this Mortgage, including all sums which may have been loaned
by Mortgagee to Mortgagor after the date of this Mortgage, and all
sums which may have been advanced by Mortgagee for taxes, water or
sewer rents, charges or claims, payments on prior liens, insurance
or repairs to the Mortgaged Property, all costs of suit, together
with interest at such rate on any judgment obtained by Mortgagee
from and after the date of such judgment until actual payment is
made of the full amount due Mortgagee, and reasonable attorney and
paralegal fees through litigation and appeal thereof; and if
Mortgagee agrees to take the Mortgaged Property pursuant to a deed
in lieu of foreclosure, the Mortgagor will pay all fees in
connection therewith including but not limited to documentary
stamp and reasonable attorney's and paralegal's fees; or
(ii) POSSESSION: Mortgagee may enter into
possession of the Mortgaged Property, with or without legal
action, and collect therefrom all rentals (which term shall also
include sums payable for use and occupation) and, after deducting
all costs of collection and administration expense, apply the net
rentals to any or all of the following in such order and amounts
as Mortgagee, in Mortgagee's sole discretion, may elect: the
payment of taxes, water and sewer rents, charges and claims,
insurance premiums and all other carrying charges, and to the
maintenance, repair or restoration of the Mortgaged Property, and
on account and in reduction of the principal or interest, or both,
hereby secured; in and for that purpose Mortgagor hereby assigns
to Mortgagee all rentals due and to become due under any lease or
leases or rights to use and occupation of the Mortgaged Property
hereafter created, as well as all rights and remedies provided in
such lease or leases or at law or in equity for the collection of
the rentals. Mortgagee shall be entitled to the appointment of a
receiver of all the rents, issues and profits, as a matter of
strict right, regardless of the value of the Mortgaged Property
and the solvency or insolvency of Mortgagor and other persons
liable to pay such indebtedness. Mortgagor hereby specifically
waives the right to object to the appointment of a receiver as
aforesaid and hereby expressly consents that such appointment
shall be made as an admitted equity and that the same may be done
without notice to Mortgagor.
(c) Mortgagee shall have the right, from time to time,
to bring an appropriate action to recover any sums required to be
paid by Mortgagor under the terms of this Mortgage, as they become
due, without regard to whether or not the principal indebtedness
or any other sums evidenced by the Loan Documents and secured by
this Mortgage shall be due, and without prejudice to the right of
Mortgagee thereafter to bring an action to foreclose this
Mortgage, or any other action, for any default by Mortgagor
existing at the time the earlier action was commenced.
-14-
<PAGE> 30
(d) Any real estate sold pursuant to any action to
foreclose this Mortgage or pursuant to any other judicial
proceedings under this Mortgage or the Loan Documents, may be sold
in one parcel as an entirety or in such parcels or condominium
units, and in such manner or order as Mortgagee, in its sole
discretion, may elect.
18. Rights and Remedies Cumulative:
------------------------------
(a) The rights and remedies of Mortgagee as provided in
the Loan Documents and in this Mortgage, shall be cumulative and
concurrent; may be pursued separately, successively or together
against Mortgagor or against the Mortgaged Property, or both, at
the sole discretion of Mortgagee, and may be exercised as often as
occasion therefor shall arise. The failure to exercise any such
right or remedy shall in no event be construed as a waiver or
release thereof.
(b) Any failure by Mortgagee to insist upon strict
performance by Mortgagor of any of the terms and provisions of
this Mortgage or the Loan Documents shall not be deemed to be a
waiver of any of the terms or provisions thereof, and Mortgagee
shall have the right thereafter to insist upon strict performance
by Mortgagor of any and all of them.
(c) Neither Mortgagor nor any other person now or
hereafter obligated for payment of all or any part of the sums now
or hereafter secured by this Mortgage shall be relieved of such
obligation by reason of the failure of Mortgagee to comply with
any request of Mortgagor or of any other person so obligated to
take action to foreclose on this Mortgage or otherwise enforce any
provisions of this Mortgage or the Loan Documents, or by reason of
the release, regardless of consideration, of all or any part of
the security held for the indebtedness secured by this Mortgage,
or by reason of any agreement or stipulation between any
subsequent owner of the Mortgaged Property and Mortgagee extending
the time of payment or modifying the terms of the Mortgage or the
Loan Documents without first having obtained the consent of
Mortgagor or such other person; and in the latter event Mortgagor
and all such other persons shall continue to be liable to make
payments according to the terms of any such extension or
modification agreement, unless expressly released and discharged
in writing by Mortgagee.
(d) Mortgagee may release, regardless of consideration,
any part of the security held for the indebtedness secured by this
Mortgage without, as to the remainder of the security, in any way
impairing or affecting the lien of this Mortgage or its priority
over any subordinate lien.
-15-
<PAGE> 31
(e) For payment of the indebtedness secured hereby
Mortgagee may resort to any other security therefor held by
Mortgagee in such order and manner as Mortgagee may elect.
19. MORTGAGOR'S WAIVERS: Mortgagor hereby waives and
releases:
(a) all errors, defects and imperfections in any
proceeding instituted by Mortgagee under the Loan Documents or
this Mortgage or all of them;
(b) all benefit that might accrue to Mortgagor by
virtue of any present or future law exempting the Mortgaged
Property, or any part of the proceeds arising from any sale
thereof, from attachment, levy or sale on execution, or providing
for any stay of execution, exemption from civil process or
extension of time for payment; and
(c) unless specifically required herein or in the
Credit Agreement, all notices of Mortgagor's default or of
Mortgagee's election to exercise, or Mortgagee's actual exercise
of any option under the Loan Documents or this Mortgage.
20. COUNSEL FEES: If Mortgagee becomes a party to any suit
or proceeding affecting the Mortgaged Property or title thereto,
the lien created by this Mortgage or Mortgagee's interest therein,
or if Mortgagee engages counsel to collect any of the indebtedness
or to enforce performance of the agreements, conditions,
covenants, provisions or stipulations of this Mortgage or the Loan
Documents, Mortgagee's costs, expenses and reasonable counsel
fees, whether or not suit is instituted and whether incurred at
trial, upon rehearing or retrial or in any bankruptcy or appellate
proceeding, shall be paid to Mortgagee by Mortgagor, on demand,
with interest at the Default Rate set forth in the Loan Documents,
and until paid they shall be deemed to be part of the indebtedness
evidenced by the Loan Documents and secured by this Mortgage.
21. ADDITIONAL ADVANCES; FUTURE INDEBTEDNESS. Without
limiting any other provisions of this Mortgage, Mortgagee may make
future advances, and this Mortgage shall secure payment of such
advances and the interest thereon, for the payment of taxes,
assessments, maintenance charges, insurance premiums, or costs
similar or dissimilar incurred for the protection of the Mortgaged
Property or for the lien of this Mortgage. This Mortgage shall
further constitute security for any and all present and future
loans and advances that may be made by Mortgagee to Mortgagor or
to Simulation at any time or times hereafter whether or not any
reference is made to this Mortgage at the time that such loans or
advances are made.
-16-
<PAGE> 32
22. AMENDMENT: This Mortgage cannot be changed or amended
except by agreement in writing signed by the party against whom
enforcement of the change is sought.
23. CONSTRUCTION: Whenever used in this Mortgage, unless
the context clearly indicates a contrary intent:
(a) The word "Mortgagor" shall mean the person who
executes this Mortgage and any subsequent owner of the Mortgaged
Property and its respective heirs, executors, administrators,
successors and assigns;
(b) The word "Mortgagee" shall mean the person
specifically named herein as "Mortgagee" or any subsequent holder
of this Mortgage;
(c) The word "person" shall mean individual,
corporation, partnership or unincorporated association;
(d) The use of any gender shall include all genders;
(e) The singular number shall include the plural and
the plural and the singular as the context may require;
(f) If the Mortgagor be more than one person, all
agreements, conditions, covenants, provisions, stipulations,
warrants of attorney, authorizations, waivers, releases, options,
undertakings, rights and benefits made or given by Mortgagor shall
be joint and several, and shall bind and affect all persons who
are defined as "Mortgagor" as fully as though all of them were
specifically named herein wherever the word "Mortgagor" is used.
24. CAPTIONS: The captions preceding the text of the
paragraphs or subparagraphs of this Mortgage are inserted only for
convenience of reference and shall not constitute a part of this
Mortgage, nor shall they in any way affect its meaning,
construction or effect.
25. CHOICE OF LAW. This Mortgage shall be governed by, and
construed and enforced in accordance with, the internal
substantive laws of the Commonwealth of Pennsylvania (without
reference to conflict of laws principles), except to the extent
that Florida and/or Federal laws preempt the laws of the
Commonwealth of Pennsylvania. In addition, the parties hereto
acknowledge that all promissory notes evidencing the indebtedness
secured hereby are governed by, and construed and enforced in
accordance with, the internal substantive laws of the Commonwealth
of Pennsylvania (without reference to conflict of laws
principles), except to the extent that Federal laws preempt the
laws of the Commonwealth of Pennsylvania.
-17-
<PAGE> 33
26. PARTIAL INVALIDITY. If any promise or covenant of this
Mortgage or the Note is void or ineffective under the law, this
Mortgage and the Note shall remain in force and effect as if such
promise or covenant had not been entered into.
27. LIMITATION OF LIABILITY. NOTWITHSTANDING ANYTHING TO
THE CONTRARY CONTAINED IN THIS MORTGAGE, MORTGAGEE AGREES THAT
RECOURSE AGAINST THE LAND AND ALL BUILDINGS AND IMPROVEMENTS NOW
OR HEREAFTER ERECTED OR PLACED THEREON SHALL BE LIMITED TO
$9,700,000, PROVIDED, THAT NOTHING IN THIS SECTION 27 SHALL
OTHERWISE LIMIT MORTGAGEE'S RECOURSE AGAINST MORTGAGOR PERSONALLY
OR AGAINST ANY OTHER PERSON OR ENTITY OR ANY OTHER PROPERTY NOW OR
HEREAFTER OWNED BY IT OR THEM, INCLUDING WITHOUT LIMITATION, ANY
OTHER PROPERTY IN WHICH A SECURITY INTEREST IS GRANTED BY THE
TERMS HEREOF, FOR RECOVERY OF ALL INDEBTEDNESS UNDER THE LOAN
DOCUMENTS. DOCUMENTARY STAMP TAX AND INTANGIBLE TAX PAYABLE UPON
RECORDATION OF THIS MORTGAGE HAS BEEN CALCULATED BASED UPON THE
FOREGOING LIMITATION.
IN WITNESS WHEREOF, the Mortgagor has caused this Mortgage to
be duly executed as of the day and year first above written.
WITNESSES: ECC INTERNATIONAL CORP., a
Delaware Corporation (formerly
known as Educational Computer
Corporation)
/s/ M. Salome Lanas By: /s/ Richard F. Thompson
- ------------------------------ ------------------------------
Name:
(Vice) President
/s/ Melissa a. Stephens Attest: /s/ Relland Winand
- ------------------------------ --------------------------
[Corporate Seal]
-18-
<PAGE> 34
COMMONWEALTH OF PENNSYLVANIA :
: ss
COUNTY OF DELAWARE :
I HEREBY CERTIFY that before me, a notary public, appeared
Richard F. Thompson, the (Vice) President of ECC INTERNATIONAL
CORP., a Delaware corporation, who is either personally known to
me or who produced ___________________ as identification, and who
acknowledged to me that he executed the foregoing instrument as an
officer of said corporation, for the uses and purposes therein
expressed, that he is authorized by said corporation to execute
said instrument, that the said instrument is the act and deed of
said corporation, and that he affixed the corporate seal of said
corporation to said instrument, on behalf of, and as the act and
deed of the corporation.
WITNESS my hand and official seal at Wayne, in the County and
State last aforesaid this 5th day of April, 1995.
/s/ Margery Green
--------------------------
Notary Public
My Commission Expires: 1/31/98 [Notary Seal]
Notary Commission No.:
-19-
<PAGE> 35
EXHIBIT "A"
Legal Description
-----------------
PARCEL 1
- --------
The South one half (S 1/2) of Lots 35, and 36, (LESS the North 25
feet of the S 1/2 of Lots 35 and 36, and the East 50 Feet of Lot
36) Plan of Block One, Prosper Colony, being in Section 22,
Township 23 South, Range 29 East, according to the Plat thereof as
recorded in Plat Book "D," page 109, of the Public Records of
Orange County, Florida.
PARCEL 2
- --------
The North 1/2 of Lots 35 and 36, (LESS the East 50.00 feet of Lot
36), Plan of Block One, Prosper Colony, according to the Plat
thereof as recorded in Plat Book "D," page 109, of the Public
Records of Orange County, Florida.
PARCEL 3
- --------
The East 50.00 feet of Lots 61 and 36, (LESS the South 30.00 feet
of Lot 61 for road right-of-way purposes), AND the North 25.00
feet of the South 1/2 of Lots 35 and 36, Plan of Block One,
Prosper Colony, according to the Plat thereof as recorded in Plat
Book "D," page 109, of the Public Records of Orange County,
Florida.
PARCEL 4
- --------
Lot 60, Plan of Block One, Prosper Colony, according to the Plat
thereof as recorded in Plat Book "D," page 109, of the Public
Records of Orange County, Florida, LESS any part thereof lying
within Oak Ridge Road.
PARCEL 5
- --------
The South one half (S 1/2) of Lots 37 and 38, Plan of Block One,
Prosper Colony, according to the Plat thereof, as recorded in Plat
Book "D," page 109, of the Public Records of Orange County,
Florida.
PARCEL 6
- --------
The East 183.3 feet of Lots 52, Plan of Block One, Prosper Colony,
according to the Plat thereof, as recorded in Plat Book "D," page
<PAGE> 36
109, of the Public Records of Orange County, Florida, LESS AND
EXCEPT the East 62.0 feet thereof.
PARCEL 7
- --------
The North 1/2 of Lot 38, Plan of Block One, Prosper Colony,
according to the Plat thereof, as recorded in Plat Book "D," page
109, of the Public Records of Orange County, Florida.
PARCEL 8
- --------
The West 75 feet of the East 162.29 feet of the North 1/2 of Lot
37, Plan of Block One, Prosper Colony, according to the Plat
thereof, as recorded in Plat Book "D," page 109, of the Public
Records of Orange County, Florida.
PARCEL 9
- --------
Lot 61, (LESS the South 30 feet, and the East 50 feet), AND, Lot
62 (LESS the South 30 feet), Plan of Block One, Prosper Colony,
according to the Plat thereof, as recorded in Plat Book "D," page
109, of the Public Records of Orange County, Florida.
PARCEL 10
- --------
That certain 40.00 foot right-of-way, known as Tampa Avenue, as
shown on the Plat of "Plan of Block One, Prosper Colony" as
recorded in Plat Book "D," page 109, of the Public Records of
Orange County, Florida, lying adjacent to and continuous with the
south 1/2 of Lot 37, Block One and Lot 60, Block One, LESS the
right-of-way on the South for Oak Ridge Road.
<PAGE> 1
EXHIBIT 10.17
ECC SIMULATION LTD
Kingston Wharf, Brighton Road,
Shoreham-by-Sea
West Sussex, BN43 6RN, England
Tel: (44) 273 870486
Fax: (44) 273 592122
Ref: RAM/ALL/013/95
3 April 1995
To: FIRST FIDELITY BANK NA
London Branch
1 Bishopsgate
London EC2N 3AB
(thereinafter referred to as "the Bank")
I/WE
of ECC SIMULATION LIMITED
(hereinafter called "we") in consideration of your from time to
time granting or continuing to make available credit or other
banking facilities and accommodation to us (the "Facility") hereby
undertake and agree with you as follows:
Unless otherwise agreed in writing between us in respect of any
other specific facility:
1. In respect of any overdraft or part thereof made available
pursuant to the Facility, you shall be entitled in your sole
discretion to call in amounts outstanding under the Facility
and/or to cancel the Facility (or any part thereof) and/or to
issue legal proceedings in respect of the Facility without
first having made demand on us.
2. You shall be entitled to your sole discretion and as
conclusively determined by you at any time from time to time
increase or decrease the Facility limit (including multiple
currency facility limits).
3. We will pay to you interest on the amount from time to time
outstanding under the Facility for the relevant interest
period as determined by you at the rate determined by you
being the aggregate of:
Page 1
<PAGE> 2
A margin of 1.5% per annum above the rate (as conclusively
determined by you in accordance with your normal procedures)
at which the Bank is offered deposits in currency of the
Facility at or about 11.00am London time on the relevant
dealing day on or before the commencement of the relevant
interest period (as determined by you) by banks in the London
interbank market for deposits in the currency of the Facility
of similar amount and for a similar interest period as that
of the Facility; or at your option
AND
the rate reflecting the cost to you (as determined by you) of
complying with the existing requirements of the Bank of
England or other regulatory authority affecting mandatory
liquid assets, special deposits, reserve, capital adequacy or
other requirements of whatever nature and attributable to the
Facility including any reduction in the rate of return on
your capital resources. A certificate by you as to the
amount of such costs shall be conclusive in the absence of
manifest error.
All interest payable shall accrue from day to day and shall
be calculated on the basis of a 365 day year for the actual
number of days elapsed and shall be paid in the currency of
the Facility. Interest shall be due and payable and debited
to our account on a monthly basis.
4. We will pay to you interest on any amount due hereunder which
is not paid on the due date for payment therefore for the
period from such due date up to the date of actual receipt by
you (as well after judgment as before) on demand at the rate
of 3% per annum above the aggregate interest rate and cost to
you referred to in Clause 3 above (as conclusively determined
by you) for such periods as you may select. Upon expiry of
each such period such rate shall be recalculated on the same
basis save that unpaid interest accrued during the previous
periods shall be added to the amount in respect of which we
are in default.
5. We agree to indemnify you upon demand for all costs, charges
and expenses (including legal fees) incurred by you in
connection with the drafting, preparation, negotiation and
execution of this Agreement and any documents relative
thereto and of any amendment, variation or extension thereof
or the granting of any waiver or consent under this Agreement
and the presentation and enforcement or attempted enforcement
of your rights and powers under this Agreement.
Page 2
<PAGE> 3
6. The terms and conditions of this Agreement are in addition to
and not in substitution for any other agreements between us
and you.
7. All sums payable by us hereunder shall be paid in the
currency of the Facility or such other currency as you may
from time to time direct in immediately available funds to
the account maintained in respect of the Facility or such
other account at such bank as you may from time to time
specify and without any set-off or counterclaim whatsoever
and without any deduction of withholding for or on account of
any present or future taxes, levies, imposts, duties, charges
or withholdings of any nature whatsoever. We shall pay all
present or future taxes or similar charges due with respect
to such payments which may be imposed by any competent fiscal
authority, except taxes on your overall income. If any such
deduction or withholding has to be made by law from any such
payment we will pay to you an increased amount so that after
any deduction or withholding you receive and retain a net
amount equal to the amount which you would have received and
retained had no such deduction or withholding been made.
8. We hereby irrevocably authorise (but without obligation on
your part) in the event of non-payment of any amounts when
due hereunder at any time without demand and without further
notice to set off any credit balance in any currency standing
upon any of our account with you or at any of your branches
or any of your subsidiary, holding or associated companies or
any of the subsidiaries of First Fidelity Bancorporation in
or towards payment or any amount due to you hereunder and in
our name to do all such acts and to sign all such documents
as may be required to effect such application. Where such
set-off requires the conversion of one currency into another,
such conversion shall be calculated at the spot rate as
conclusively determined by your for purchasing one currency
with the other.
9. Statements of account shall be issued on written application
or by arrangement with the Bank. Failure by us to object to
a statement of account within thirty days after receipt
thereof shall be deemed approval of all entries contained
therein and in the absence of any such objections the
statement of account shall be final and binding on us.
10. The certificate signed by one of your duly authorised
officers as to any of the matters referred to in this
Agreement including the balance of an account or the amount
owing by us to you shall save for manifest arithmetical
error, be conclusive and binding on us.
Page 3
<PAGE> 4
11. We hereby irrevocably appoint the following as our agent to
accept service of all legal process issued out of the High
Court of Justice in London in any legal action or proceedings
against us/our assets arising out of or in connection with
any transaction or dealing between us and you:
Name: Thomas Eggar Verrall Bowles
Address: Arundel House, 1 Liverpool Gardens, WORTHING,
West Sussex
Attention of: Mrs M Whitehurst
Telex: ............................. Fax: 01903 207566
("the Service Agent")
We agree that any notice demand or other legal communication
to be given hereunder and any legal process shall be
sufficiently served if delivered to the Service Agent at its
address stated in this Agreement or such other address in
England as we may have notified to you for such purpose.
This Agreement is to be governed by and construed in accordance
with the laws of England and we hereby submit to the non-exclusive
jurisdiction of the English courts.
EXECUTION by Company
EXECUTED as a deed and delivered
by the Customer pursuant to a resolution
of its board of directors duly passed
dated 3 April 1995
by: Director /s/ R. A. McIntosh
.....................
(Signature)
R.A. McIntosh
(Print name of person signing)
Director or
Secretary /s/ G. W. Murphy
.....................
(Signature)
G.W. Murphy
(Print name of person signing)
Page 4
<PAGE> 5
EXECUTION by individual
EXECUTED as a deed and delivered
by the Customer
in the presence of:- ...............................
(Signature of Customer)
Witness: ................................
Address: ................................
................................
Occupation: ................................
Page 5
<PAGE> 6
[LOGO] [LONDON BRANCH LETTERHEAD]
FIRST FIDELITY BANK NA
- --------------------------------------------------------------------------------
RM/mo 6 April, 1995
The Directors,
ECC Simulation Ltd.
Kingston Wharf,
Brighton Road,
Shoreham by Sea,
West Sussex BN43 6RN
Dear Sirs,
I am writing to confirm that First Fidelity Bank N.A. ("FFB") is willing to
provide ECC Simulation Ltd with an overdraft facility of US Dollars 4,000,000
(United States Dollars Four Million), or the [POUND] Sterling equivalent. The
terms and conditions thereof are contained in the Agreement dated 3 April 1995,
and this letter should be read in conjunction with that Agreement.
Notwithstanding the above, this Facility is subject to all existing terms and
conditions attached to all facilities provided to ECC Simulation Ltd by FFB.
This Facility expires on 30 September 1995 although I must remind you that the
Facility reamins repayable on demand at all times.
Please sign and return the attached copy as your acceptance of the contents of
this letter.
Yours faithfully,
Accepted
--------
/s/ R.N.H. Murphy
R.N.H. Murphy /s/ G.W. Murphy
Vice President ---------------
Deputy General Manager G.W. Murphy
Director
/s/ R.A. McIntosh
-----------------
R.A. McIntosh
Director
<PAGE> 1
Exhibit 11
SCHEDULE OF COMPUTATION OF EARNINGS PER SHARE
(In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Fiscal Years Ended June 30
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Primary
- -------
Net Income/(Loss).......................... $ 7,318 $ 3,929 $ (1,043)
========== ========== ==========
Weighted Average Shares Outstanding........ 7,616,437 6,387,763 6,135,526
Incremental Shares from Assumed
Exercise of Stock Options................ 277,744 503,270 0
---------- ---------- ----------
Total Shares............................... 7,894,181 6,891,033 6,135,526
========== ========== ==========
Primary Per Share Amounts
- -------------------------
Net Income/(Loss).......................... 0.93 0.57 (0.17)
========== ========== ==========
Fully Diluted *
- ---------------
Net Income/(Loss).......................... 7,318 3,929 (1,043)
========== ========== ==========
Weighted Average Shares Outstanding........ 7,616,437 6,387,763 6,135,526
Incremental Shares from Assumed
Exercise of Stock Options................ 277,744 634,580 0
---------- ---------- ----------
Total Shares............................... 7,894,181 7,022,343 6,135,526
========== ========== ==========
Fully Diluted Per Share Amounts
- -------------------------------
Net Income/(Loss).......................... $ 0.93 $ 0.56 $ (0.17)
========== ========== ==========
</TABLE>
* Fully diluted earnings per share calculation is presented in accordance
with Regulation S-K item 601(b)(11) although not required by footnote 2 to
paragraph 14 of Accounting Principles Board Opinion No. 15 because it
results in dilution of less than 3%.
<PAGE> 1
Exhibit 21
SUBSIDIARIES OF REGISTRANT
The Company has three subsidiaries, Educational Computer International,
Inc., a Delaware corporation, ECC International Inc., a Virgin Islands
corporation, and ECC Simulation Limited, all of which are wholly owned.
<PAGE> 1
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the following Registration
Statements of ECC International Corp. and subsidiaries of our report dated
August 9, 1995, on our audits of the consolidated financial statements of ECC
International Corp. and subsidiaries as of June 30, 1995 and 1994, and for the
fiscal years ended June 30, 1995, 1994 and 1993, which report is included in
this Annual Report on Form 10-K:
Form S-8 (File No. 2-85483)
Form S-8 (File No. 33-02768)
Form S-8 (File No. 33-11904)
Form S-8 (File No. 33-37224)
Form S-8 (File No. 33-46671)
Form S-8 (File No. 33-68550)
/S/ COOPERS & LYBRAND L.L.P.
Philadelphia, Pennsylvania
September 19, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1995
<PERIOD-START> JUL-01-1994
<PERIOD-END> JUN-30-1995
<CASH> 3,535
<SECURITIES> 0
<RECEIVABLES> 8,829
<ALLOWANCES> 51
<INVENTORY> 10,035
<CURRENT-ASSETS> 63,864
<PP&E> 51,466
<DEPRECIATION> 27,459
<TOTAL-ASSETS> 89,739
<CURRENT-LIABILITIES> 22,881
<BONDS> 16,250
<COMMON> 766
0
0
<OTHER-SE> 48,273
<TOTAL-LIABILITY-AND-EQUITY> 89,739
<SALES> 107,607
<TOTAL-REVENUES> 107,607
<CGS> 82,060
<TOTAL-COSTS> 82,060
<OTHER-EXPENSES> 13,813
<LOSS-PROVISION> 51
<INTEREST-EXPENSE> 1,487
<INCOME-PRETAX> 11,171
<INCOME-TAX> 3,853
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,318
<EPS-PRIMARY> .93
<EPS-DILUTED> .93
</TABLE>
