<PAGE> 1
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
FILED BY THE REGISTRANT [X] FILED BY A PARTY OTHER THAN THE REGISTRANT [ ]
- --------------------------------------------------------------------------------
Check the appropriate box:
[ ] Preliminary Proxy Statement
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
ECC International Corp.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
- --------------------------------------------------------------------------------
<PAGE> 2
ECC INTERNATIONAL CORP.
November 10, 1998
Dear Fellow Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders of
ECC International Corp. to be held on Thursday, December 3, 1998, at 10:00 a.m.
at the Four Seasons Hotel, One Logan Square, Philadelphia, Pennsylvania 19103.
The Board of Directors and management look forward to greeting personally those
stockholders able to attend.
At this meeting, as set forth in the accompanying Notice of Annual Meeting
and Proxy Statement, stockholders will be asked to consider and act upon: (i)
the election of the Board of Directors to serve for a one-year term, (ii) the
approval of the Company's 1999 Employee Stock Purchase Plan, and (iii) the
ratification of the selection of PricewaterhouseCoopers LLP as the Company's
independent public accountants for the current fiscal year.
Your vote is important, regardless of the number of shares you own. We urge
you to sign, date and mail the enclosed proxy card as soon as possible, even if
you currently plan to attend the annual meeting. This will not prevent you from
voting in person, but will ensure that your vote is counted if you are unable to
attend the meeting.
On behalf of the Board of Directors, thank you for your continued support.
Sincerely,
/s/ JAMES C. GARRETT
JAMES C. GARRETT
President and
Chief Executive Officer
<PAGE> 3
ECC INTERNATIONAL CORP.
------------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of
ECC INTERNATIONAL CORP.:
Notice is hereby given that the Annual Meeting of Stockholders of ECC
International Corp., a Delaware corporation (the "Company"), will be held at the
Four Seasons Hotel, One Logan Square, Philadelphia, Pennsylvania 19103, on
December 3, 1998 at 10:00 a.m., Eastern Standard Time (the "Meeting"), to
consider and act upon the following matters:
1. To elect a Board of Directors to serve until the next Annual
Meeting of Stockholders of the Company and until their successors are duly
elected and qualified.
2. To approve the Company's 1999 Employee Stock Purchase Plan.
3. To ratify the selection of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the current year.
4. To transact such other business, if any, as may properly come
before the Meeting and any adjournments thereof.
The Board of Directors has no knowledge of any other business to be
transacted at the Meeting.
Holders of record of the Company's Common Stock, $.10 par value per share,
as of the close of business on October 9, 1998 will be entitled to notice of and
to vote at the Meeting and any adjournments thereof. A list of stockholders is
open for examination to any stockholder at the principal executive offices of
the Company, 2001 West Oak Ridge Road, Orlando, Florida 32809-3803 and will be
available at the Meeting.
By Order of the Board of Directors,
/s/ Ajit W. Hirani
Ajit W. Hirani, Secretary
Orlando, Florida
November 10, 1998
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE PROMPTLY
SIGN, DATE AND MAIL THE ENCLOSED PROXY. IF YOU ARE PRESENT AT THE MEETING, YOU
MAY WITHDRAW YOUR PROXY AND VOTE YOUR SHARES PERSONALLY.
<PAGE> 4
ECC INTERNATIONAL CORP.
2001 WEST OAK RIDGE ROAD
ORLANDO, FL 32809-3803
------------------------
PROXY STATEMENT
FOR THE ANNUAL MEETING OF STOCKHOLDERS TO BE
HELD ON DECEMBER 3, 1998
This Proxy Statement is furnished in connection with the solicitation by
the Board of Directors of ECC International Corp., a Delaware corporation (the
"Company"), of proxies for use at the Annual Meeting of Stockholders of the
Company to be held at the Four Seasons Hotel, One Logan Square, Philadelphia,
Pennsylvania 19103, on December 3, 1998, at 10:00 a.m., Eastern Standard Time
(the "Meeting"), and all adjournments thereof. The matters to be considered and
acted upon at the Meeting are described below in this Proxy Statement.
All shares represented by proxies will be voted in the manner specified on
the proxy. Any proxy not specifying the contrary will be voted in the election
of directors for the Board of Directors' nominees, in favor of the proposal to
approve the Company's 1999 Employee Stock Purchase Plan and in favor of the
proposal regarding the selection of accountants. Stockholders giving proxies may
revoke them by written request to the Secretary of the Corporation at any time
prior to their being voted.
THE NOTICE OF MEETING, THIS PROXY STATEMENT, THE ENCLOSED PROXY AND THE
COMPANY'S ANNUAL REPORT FOR THE FISCAL YEAR ENDED JUNE 30, 1998 ARE FIRST BEING
SENT OR GIVEN TO THE COMPANY'S STOCKHOLDERS ON OR ABOUT NOVEMBER 10, 1998. THE
COMPANY WILL, UPON WRITTEN REQUEST OF ANY STOCKHOLDER, FURNISH WITHOUT CHARGE A
COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1998, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, WITHOUT EXHIBITS. PLEASE
ADDRESS ALL SUCH REQUESTS TO THE COMPANY, 2001 WEST OAK RIDGE ROAD, ORLANDO,
FLORIDA 32809-3803, ATTENTION: SECRETARY. EXHIBITS WILL BE PROVIDED UPON WRITTEN
REQUEST AND PAYMENT OF AN APPROPRIATE PROCESSING FEE.
VOTING SECURITIES AND VOTES REQUIRED
Holders of record of the Company's Common Stock, $.10 par value per share
(the "Common Stock"), as of the close of business on October 9, 1998 (the
"Record Date"), will be entitled to notice of and to vote at the Meeting and any
adjournments thereof. As of the Record Date, there were outstanding and entitled
to vote 8,329,409 shares of Common Stock. With respect to each matter to come
properly before the Meeting, each holder of shares of Common Stock will be
entitled to one vote per share. Pursuant to the Company's stockholder rights
plan, each outstanding share of Common Stock has attached to it one Preferred
Stock Purchase Right (the "Rights"), which entitles the registered holder to
purchase from the Company one one-thousandth of a share of the Company's Series
B Junior Participating Preferred Stock at a price of $40.00 per one
one-thousandth of a share, subject to adjustment. The description and terms of
the Rights are set forth in a Rights Agreement between the Company and Mellon
Bank, N.A., as Rights Agent, dated as of August 27, 1996, as amended.
The holders of a majority of the shares of Common Stock issued and
outstanding and entitled to vote at the Meeting shall constitute a quorum for
the transaction of business at the Meeting. Shares of Common Stock present in
person or represented by proxy (including shares which abstain or do not vote
with respect to one or more of the matters presented for stockholder approval)
will be counted for purposes of determining whether a quorum exists at the
Meeting.
<PAGE> 5
The affirmative vote of the holders of a plurality of the shares of Common
Stock present or represented at the Meeting is required for election of
directors. The affirmative vote of the holders of a majority of the shares of
Common Stock present or represented at the Meeting is required for approval of
the Plan and the ratification of the selection of PricewaterhouseCoopers LLP as
the Company's independent auditors for the current fiscal year.
Shares which abstain from voting as to a particular matter, and shares held
in "street name" by brokers or nominees who indicate on their proxies that they
do not have discretionary authority to vote such shares as to a particular
matter, will not be counted as votes in favor of such matter, and will also not
be counted as votes cast or shares voting on such matter. Accordingly,
abstentions and "broker non-votes" will have no effect on the voting on a matter
that requires the affirmative vote of a plurality. However, because shares which
abstain and shares represented by "broker non-votes" are nonetheless considered
to be shares present or represented at the Meeting, abstentions and "broker
non-votes" with respect to a matter that requires the affirmative vote of a
majority of the shares present or represented at the Meeting will have the same
effect as a vote against such matter.
All shares represented by properly executed proxies will, unless such
proxies have previously been revoked, be voted at the Meeting in accordance with
the directions of the proxies. If no direction is indicated, the shares will be
voted as recommended by the Board of Directors. A stockholder executing and
returning a proxy has the power to revoke it at any time before it is voted by
providing written notice of such revocation to the Secretary of the Company, by
submitting a validly executed later-dated proxy, or by attending the Meeting and
voting in person. The mere presence of a stockholder at the Meeting, however,
will not constitute a revocation of a previously submitted proxy.
2
<PAGE> 6
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information, as of July 31, 1998,
with respect to the beneficial ownership of Common Stock by (i) each person
known by the Company to beneficially own more than five percent of the
outstanding shares of Common Stock, (ii) each director and nominee for director,
(iii) each executive officer named in the Summary Compensation Table under the
heading "Executive Compensation" below and (iv) all directors and executive
officers of the Company as a group:
<TABLE>
<CAPTION>
SHARES OF PERCENTAGE OF
NAME OF COMMON STOCK OUTSTANDING SHARES
BENEFICIAL OWNER BENEFICIALLY OWNED(1) OF COMMON STOCK(2)
---------------- --------------------- ------------------
<S> <C> <C>
5% STOCKHOLDERS:
Heartland Advisors, Inc.
790 North Milwaukee Street
Milwaukee, WI 53202................................... 1,854,350(3) 22.3%
Franklin Advisors, Inc.
777 Mariners Island Blvd.
San Mateo, CA 94404................................... 705,000(4) 8.5%
Dimensional Fund Advisors, Inc.
1299 Ocean Avenue, 11th Floor
Santa Monica, CA 90401................................ 544,914(5) 6.6%
Salomon Smith Barney Holdings Inc.
388 Greenwich Street
New York, NY 10013.................................... 450,000(6) 5.4%
DIRECTORS:
Bruce A. Beda........................................... 27,062(7) *
Julian Demora........................................... 334,492(8) 4.0%
James C. Garrett........................................ 135,000(9) 1.6%
Ajit W. Hirani.......................................... 50,813(10) *
Martin S. Kaplan........................................ 54,696(11) *
Jesse Krasnow........................................... 71,773(12) *
Thomas E. McGrath....................................... 44,111(13) *
Merrill A. McPeak....................................... 38,105(14) *
OTHER NAMED EXECUTIVE OFFICERS:
Patrick M. Donohue...................................... 17,000(15) *
Relland M. Winand....................................... 20,688(16) *
George W. Murphy........................................ 138,847(17) 1.7%
James M. Ferguson....................................... 7,368 *
All directors and executive officers as
a group (10 persons).................................. 793,740(18) 11.3%
</TABLE>
- ---------------
* Percentage is less than 1% of the total number of outstanding shares of
Common Stock.
(1) The number of shares of Common Stock beneficially owned by each person or
entity is determined under rules promulgated by the Securities and Exchange
Commission (the "Commission"). Under such rules, beneficial ownership
includes any shares as to which the person or entity has sole or shared
voting power or investment power, and also includes any shares which the
person or entity has the right to acquire within 60 days after July 31,
1998. Any references in these footnotes to stock options held by a person
shall refer only to stock options currently exercisable or exercisable
within 60 days after July 31,
3
<PAGE> 7
1998. Unless otherwise indicated, each person or entity referred to above
has sole voting and investment power with respect to the shares listed. The
inclusion herein of any shares deemed beneficially owned does not
constitute an admission of beneficial ownership of such shares.
(2) For purposes of this table, the number of outstanding shares of Common
Stock is adjusted for each person to include the number of shares of Common
Stock subject to stock options held by such person.
(3) The foregoing information is derived from information provided by Heartland
Advisors, Inc. to the Company. Heartland Advisors, Inc. reports sole
dispositive power over 1,854,350, and sole voting power over 1,267,950, of
such beneficially owned shares of Common Stock.
(4) The foregoing information is derived from information provided to the
Company.
(5) On February 10, 1998, Dimensional Fund Advisors Inc. filed a Schedule 13G
pursuant to Section 13 of the Exchange Act and the rules promulgated
thereunder reporting its beneficial ownership of shares of Common Stock as
of February 6, 1998. Dimensional Fund Advisors Inc. reported sole
dispositive power over 544,914 and sole voting power over 308,064 of such
beneficially owned shares of Common Stock.
(6) On January 21, 1998, Smith Barney Mutual Funds Management Inc., Salomon
Smith Barney Holdings Inc. and Travelers Group Inc. each filed a Schedule
13G/A pursuant to Section 13 of the Exchange Act and the rules promulgated
thereunder reporting its beneficial ownership of shares of Common Stock as
of January 15, 1998. Smith Barney Mutual Funds Management Inc., a wholly
owned subsidiary of Salomon Smith Barney Holdings Inc. reported beneficial
ownership of 450,000 shares of Common Stock. Salomon Smith Barney Holdings
Inc. disclaims beneficial ownership of all such shares. Salomon Smith
Barney Holdings Inc., a wholly owned subsidiary of Travelers Group Inc.
reported beneficial ownership of 450,000 shares of Common Stock. Travelers
Group Inc. disclaims beneficial ownership of all shares held by Salomon
Smith Barney Holdings Inc. and Smith Barney Mutual Funds Management Inc. On
June 10, 1998, Travelers Group Inc. filed a Schedule 13G/A pursuant to
Section 13 of the Exchange Act and the rules promulgated thereunder to
report the fact that as of the date thereof it had ceased to be the
beneficial owner of more than five percent of the outstanding shares of
Common Stock.
(7) Includes 10,000 shares subject to outstanding stock options.
(8) Includes 15,000 shares which are held in trust for the benefit of Mr.
Demora's spouse, 302,416 shares which are held in trust for the benefit of
Mr. Demora and 10,000 shares subject to outstanding stock options.
(9) Includes 85,000 shares subject to outstanding stock options.
(10) Includes 34,000 shares subject to outstanding stock options.
(11) Includes 20,000 shares subject to outstanding stock options.
(12) Includes 12,000 shares which are held in trust for the benefit of
Mr. Krasnow's three children.
(13) Includes 20,000 shares subject to outstanding stock options.
(14) Includes 25,000 shares subject to outstanding stock options.
(15) Consists of 17,000 shares subject to outstanding stock options.
(16) Includes 16,568 shares subject to outstanding stock options.
(17) Includes 25,000 shares subject to outstanding stock options.
(18) Includes the shares described in notes 7-16 above.
4
<PAGE> 8
ELECTION OF DIRECTORS
The persons named in the enclosed proxy (James C. Garrett and Martin S.
Kaplan) will vote to elect as directors of the Company the eight nominees named
below unless authority to vote for the election of any or all of the nominees is
withheld by marking the proxy to that effect. Each nominee has consented to
being named in this Proxy Statement and to serve as a director if elected.
Each director will be elected to hold office until the next Annual Meeting
of Stockholders or until his successor is duly elected and qualified. If for any
reason any nominee should become unavailable for election prior to the Meeting,
the person acting under the proxy may vote the proxy for the election of a
substitute. It is not presently expected that any of the nominees will be
unavailable. The affirmative vote of the holders of a plurality of the shares of
the Common Stock of the Company present or represented at the Meeting is
necessary for the election of the nominees named below.
Set forth below are the name and age of each nominee for the Board and the
positions and offices held by him, his principal occupation and business
experience for at least the past five years, the names of other publicly held
companies of which he serves as a director and the year of the commencement of
his term as a director of the Company. Information with respect to the number of
shares of Common Stock beneficially owned by each director as of July 31, 1998,
appears under "Security Ownership of Certain Beneficial Owners and Management."
There are no family relationships among any of the nominees for director and
executive officers of the Company.
BRUCE A. BEDA, age 57, became a director in 1997. Mr. Beda has been Chief
Executive Officer of Orion Partners, LLC, a private investment and consulting
company, since February 1995. Previously, he was Chief Financial Officer at
VentureDynes Ltd., a multi-divisional manufacturing company. Mr. Beda serves on
the Boards of Directors of Stifel Financial Corp. and Iwerks Entertainment, Inc.
JULIAN DEMORA, age 72, became a director in 1992. Mr. Demora is President
of the construction and development company, Key Realty and Development, Inc.
JAMES C. GARRETT, age 54, is President and Chief Executive Officer of the
Company. He became a director in June 1998. Previously, Mr. Garrett served as
Vice President and General Manager of the Raytheon E-Systems Communications
Division from 1991 to June 1998.
AJIT W. HIRANI, age 51, is Vice President, General Manager of the Training
Systems Division for the Company. Mr. Hirani has been employed by the Company
since 1972 and became a director in 1995.
MARTIN S. KAPLAN, age 59, became a director in 1969. Mr. Kaplan is a Senior
Partner in the law firm of Hale and Dorr LLP, outside counsel to the Company.
JESSE KRASNOW, age 49, became a director in 1976. Mr. Krasnow is a Partner
in the private investment firm of Lefferts/Fore Associates.
THOMAS E. MCGRATH, age 54, became a director in 1983. Mr. McGrath is a
Managing Director of Citicorp Securities, Inc.
MERRILL A. MCPEAK, age 63, became a director in 1995. He served over twenty
years in senior United States Air Force positions, culminating in four years as
Chief of Staff from 1990 through 1994, retiring with the rank of General.
General McPeak has served as President of McPeak & Associates, a consulting
company, since 1994. General McPeak serves on the Boards of Directors of
Praegitzer Industries, Inc., Tektronix, Inc., Thrustmaster, Inc., Trans World
Airlines, Inc., Western Power & Equipment Corp. and E.Com, Inc.
5
<PAGE> 9
BOARD AND COMMITTEE MEETINGS
During the fiscal year ended June 30, 1998, the Board held ten meetings.
Every member of the Board attended at least 75% of the total number of meetings
of the Board and of all committees of the Board on which they respectively
served. The Company has an Audit Committee and a Compensation Committee. The
Company does not have a Nominating Committee.
The principal functions of the Audit Committee are to make recommendations
to the Board regarding the appointment of the Company's independent public
accountants, review and approve any major changes in accounting policy, review
the arrangements for, and the scope and results of, the independent audit,
review and approve the independent accountants' proposed fees for audit and
non-audit services, and review the Company's policies and procedures for
compliance with disclosure requirements with respect to conflicts of interest
and for prevention of unethical, questionable or illegal payments. Messrs. Beda,
Krasnow and McGrath, who compose the Audit Committee of the Board, each attended
the two meetings of that Committee held during the 1998 fiscal year.
The principal functions of the Compensation Committee are to advise and
guide the Board in determining executive officer compensation and to assist the
Board in the administration of the Company's stock option plans. Messrs. Demora,
Kaplan and McPeak, who compose the Compensation Committee of the Board, each
attended the two meetings of that Committee held during the 1998 fiscal year.
DIRECTORS' COMPENSATION
All of the directors are reimbursed for expenses incurred in connection
with their attendance at each Board and committee meeting. Each non-employee
director is paid annual fees of $20,000 plus $1,000 for each Board and committee
meeting attended. The Chairman of the Board, currently General McPeak, is paid
annual fees of $24,000 plus $1,000 for each Board and committee meeting
attended. Pursuant to the Company's 1997 Director Equity Compensation Plan,
one-half of the annual fees payable to each director are paid in the form of
unrestricted shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Except as described below, and based solely on its review of copies of
reports filed by reporting persons of the Company pursuant to Section 16(a) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), the
Company believes that during fiscal 1998 all filings required to be made by
reporting persons of the Company were timely made in accordance with the
requirements of the Exchange Act.
Mr. Beda, a director of the Company, reported the purchase of 4,000 shares
of Common Stock which occurred on February 18, 1998 and the purchase of 2,000
shares of Common Stock which occurred on February 19, 1998 on a Form 4 filed
March 14, 1998.
6
<PAGE> 10
EXECUTIVE COMPENSATION
EMPLOYMENT AGREEMENTS
In June 1998, the Company and Mr. Garrett entered into an employment
agreement providing for the employment of Mr. Garrett as the President and Chief
Executive Officer of the Company for a three-year term ending on June 28, 2001.
The agreement provides for an annual base salary of $250,000 as well as annual
cash bonuses and stock option grants upon the satisfaction of certain
agreed-upon goals and objectives. In addition, Mr. Garrett received a cash bonus
of $50,000 upon the execution of the agreement, as well as reimbursement for
certain relocation expenses. In connection with the agreement, Mr. Garrett was
granted stock options to purchase an aggregate of 250,000 shares of Common Stock
at an exercise price of $3.125 per share, vesting over three years, and
purchased an additional 50,000 shares of Common Stock from the Company for an
aggregate purchase price of $156,250 consisting of (i) $10,000 in cash and (ii)
a promissory note in the principal amount of $146,250. The promissory note shall
accrue interest at the rate of 5.58% per year and shall be paid in full on June
15, 2001. Upon the expiration of the agreement without renewal, Mr. Garrett
shall be entitled to receive continuing base salary and benefits for a period of
12 months. In the event that his employment with the Company is terminated
without cause, for good reason, or after a Change in Control (each as defined
therein), Mr. Garrett shall be entitled to receive continuing base salary and
benefits for the remainder of the term of the agreement or for a period of 24
months, whichever is greater. Mr. Garrett has also entered into a
non-competition and non-solicitation agreement with the Company pursuant to
which he is prohibited from competing with the Company or soliciting the
Company's employees during the term of his employment by the Company and for a
period of two years thereafter.
In April 1998, the Company and Mr. Murphy, the Company's former President
and Chief Executive Officer, entered into a consulting agreement providing for
the retention of Mr. Murphy as a consultant to the Company for a one-year term
ending on March 31, 1999. The agreement provides for aggregate fees of $100,000
to be paid by the Company to Mr. Murphy for his services. Mr. Murphy has also
entered into a non-competition and non-solicitation agreement with the Company
pursuant to which he is prohibited from competing with the Company or soliciting
the Company's employees for a five-year term ending on March 31, 2003. In
consideration therefor, the agreement provides for annual cash payments of
$50,000 from the Company to Mr. Murphy during the term of the agreement. Mr.
Murphy was also granted stock options to purchase an aggregate of 25,000 shares
of Common Stock at an exercise price of $3.375 per share. Mr. Murphy resigned as
President and Chief Executive Officer and as a member of the Board of Directors
in April 1998.
7
<PAGE> 11
SUMMARY COMPENSATION
The following table sets forth for each of the last three fiscal years
certain information concerning the compensation of the two individuals who
served as the Company's Chief Executive Officer during the fiscal year ended
June 30, 1998, the Company's three other executive officers who were serving as
executive officers on June 30, 1998, as well as one additional individual who
would have been included if he were serving as an executive officer on June 30,
1998 (the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
AWARDS
------------
ANNUAL COMPENSATION SECURITIES
NAME AND -------------------- UNDERLYING ALL OTHER
PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- --------- -------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
James C. Garrett(2)....................... 1998 -- $50,000 250,000 --
President and Chief
Executive Officer
George W. Murphy(3)....................... 1998 $373,681 -- 25,000 $23,689
Former President and 1997 324,567 -- -- 46,649
Chief Executive Officer 1996 312,423 45,000 -- 46,924
Ajit W. Hirani............................ 1998 242,740 -- -- 22,507
Vice President, General 1997 242,615 -- -- 29,943
Manager of Training Systems Division 1996 232,308 35,000 10,000 30,321
Patrick M. Donohue........................ 1998 190,319 -- -- 19,368
Vice President, 1997 189,808 -- -- 29,636
Marketing 1996 184,731 20,000 5,000 34,540
Relland M. Winand......................... 1998 133,325 -- -- 5,573
Vice President, 1997 120,000 -- -- 12,776
Finance and Treasurer 1996 103,116 18,000 10,000 15,878
James M. Ferguson(4)...................... 1998 153,925 -- -- 10,391
Vice President, New Business 1997 200,346 -- -- 24,657
Development -- ECC Vending Corp. 1996 196,193 -- -- 40,225
</TABLE>
- ---------------
(1) Includes the following: (a) the Company's contributions under the Executive
Savings and Investment Plan in 1998 for Messrs. Murphy, Hirani, Donohue and
Ferguson of $11,250, $10,515, $8,221 and $5,205, respectively; (b) the
Company's contributions under the Savings and Investment Plan in 1998 for
Mr. Winand of $4,000; (c) the portion of the premium paid by the Company
with respect to split-dollar executive deferred compensation insurance
program in 1998 for Messrs. Murphy, Hirani, Donohue, Winand and Ferguson of
$1,504, $515, $952, $157 and $932, respectively; (d) the taxable portion of
long-term disability premiums paid by the Company in 1998 for Messrs.
Murphy, Hirani, Donohue, Winand and Ferguson of $5,656, $2,880, $4,416,
$1,212 and $2,850, respectively; and (e) the taxable portion of group term
life insurance paid by the Company in 1998 for Messrs. Murphy, Hirani,
Donohue, Winand and Ferguson of $1,404, $348, $1,404, $204 and $1,404,
respectively.
(2) Mr. Garrett became President and Chief Executive Officer of the Company in
June 1998.
(3) Mr. Murphy served as President and Chief Executive Officer of the Company
until April 1998
(4) Mr. Ferguson served as Vice President, New Business Development -- ECC
Vending Corp. until January 1998.
8
<PAGE> 12
OPTION GRANTS
The following table sets forth certain information concerning grants of
stock options made during the fiscal year ended June 30, 1998 to each of the
Named Executive Officers. The Company granted no stock appreciation rights
during the fiscal year ended June 30, 1998.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
--------------------------------------------------- ANNUAL RATES OF
NUMBER OF PERCENT OF STOCK PRICE
SECURITIES TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM(1)
OPTIONS EMPLOYEES IN PRICE PER EXPIRATION ----------------------
NAME GRANTED FISCAL YEAR SHARE(2) DATE 5% 10%
---- ---------- ------------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
James C. Garrett......... 150,000 50.85% $3.125 6/15/08 $294,794 $747,066
100,000 33.90% $3.125 6/15/08 $196,529 $498,044
George W. Murphy......... 25,000 8.47% $3.375 4/07/03 $ 23,311 $ 51,511
Ajit W. Hirani........... -- -- -- -- -- --
Patrick M. Donohue....... -- -- -- -- -- --
Relland M. Winand........ -- -- -- -- -- --
James M. Ferguson........ -- -- -- -- -- --
</TABLE>
- ---------------
(1) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compound rates of appreciation (5% and 10%) on
the market value of the Common Stock on the date of option grant over the
term of the options. These numbers are calculated based on rules promulgated
by the Securities and Exchange Commission and do not reflect the Company's
estimate of future stock price growth. Actual gains, if any, on stock option
exercises and Common Stock holdings are dependent on the timing of such
exercise and the future performance of the Common Stock. There can be no
assurance that the rates of appreciation assumed in this table can be
achieved or that the amounts reflected will be received by the option
holder.
(2) All options were granted at fair market value as determined by the Board of
Directors of the Company on the date of the grant.
9
<PAGE> 13
OPTION EXERCISES AND YEAR-END VALUES
The following table sets forth certain information concerning the exercise
of stock options during the fiscal year ended June 30, 1998 by each of the Named
Executive Officers and the number and value of unexercised options held by each
of the Named Executive Officers on June 30, 1998. No stock appreciation rights
were exercised during fiscal 1998 by the Named Executive Officers or were
outstanding at year-end.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
SHARE AT FISCAL YEAR-END AT FISCAL YEAR-END(2)
ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED(1) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- ----------- ----------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
James C. Garrett................. -- -- 70,000/180,000 $8,750/$22,500
George W. Murphy................. -- -- 25,000/0 $ 0/$0
Ajit W. Hirani................... -- -- 34,000/16,000 $ 0/$0
Patrick M. Donohue............... -- -- 17,000/0 $ 0/$0
Relland M. Winand................ 500 $969 16,568/2,400 $ 3,105/$0
James M. Ferguson................ -- -- 0/0 $ 0/$0
</TABLE>
- ---------------
(1) Represents the difference between the exercise price and the fair market
value of the Common Stock on the date of exercise.
(2) Value based on the last sales price per share ($3.25) of the Company's
Common Stock on June 30, 1998, as reported on the New York Stock Exchange,
less the exercise price.
REPORT OF THE COMPENSATION COMMITTEE
The Company's Compensation Committee of the Board is responsible for
determining the compensation of, and compensation policies with respect to, the
executive officers of the Company, including the Chief Executive Officer. The
Compensation Committee currently consists of Messrs. Demora, Kaplan and McPeak.
The objectives of the Company's executive compensation program are to:
- Attract and retain key executives of outstanding abilities who are
critical to the long-term success of the Company;
- Align executive compensation with the Company's financial performance,
business strategies, values and objectives;
- Enhance the profitability of the Company, and thereby enhance
stockholder value, by linking the financial interests of the Company's
executives with those of the stockholders; and
- Recognize and reward individual performance and responsibility.
10
<PAGE> 14
Executive Compensation Program
The Board, with guidance and input from the Compensation Committee,
approves the executive compensation program on an annual basis, including
specified levels of compensation for all executive officers. The Company's
executive compensation program has been designed to implement the objectives
described above and is composed of the following fundamental elements:
- A base salary that is determined by individual contributions and
sustained performance.
- An annual cash bonus that is tied to corporate financial performance
as well as the achievement of individual business-related objectives,
including ability to address the corporate need to increase
profitability.
- A long-term incentive program that rewards executives when stockholder
value is created through an increase in the market value of the
Company's Common Stock.
In general, the Compensation Committee intends that the overall total
compensation opportunities provided to the executive officers should reflect
competitive compensation for executives with corresponding responsibilities in
selected comparable companies. To the extent determined to be appropriate, the
Compensation Committee also considers general economic conditions, the Company's
financial performance and the individual's performance in establishing the
compensation opportunities of the executive officers. Total compensation
opportunities for the executive officers are adjusted over time as necessary to
meet this objective. Actual compensation earned by the executive officers
reflects both their contributions to the Company's actual stockholder value
creation and the Company's actual financial performance. While the targeted
total compensation levels for the executive officers are intended to be
competitive, compensation paid in any particular year may be more or less than
the average, depending upon the Company's actual performance.
Base Salary. Base salaries for executive officers are reviewed by the
Compensation Committee and are set by the Board at the beginning of each fiscal
year. In determining salary adjustments, the Board considers individual
performance and contributions to the Company, external competitiveness and the
recommendations of the Compensation Committee and management. The Board did not
award across-the-board salary increases to the Company's executive officers,
including the Chief Executive Officer, for fiscal 1998. The Board believed that
across-the-board salary increases were inappropriate given the Company's recent
performance. One executive officer received a salary increase during fiscal 1998
due to individual factors relating to such officer's role and responsibility
with the Company.
Annual Incentive Compensation. Annual incentives for the Company's
executive officers are intended to reflect the Company's belief that management
can make significant contributions to enhance stockholder value by achieving
Company objectives and maximizing earnings. Accordingly, the Company has
developed a management bonus plan that awards cash bonuses based on the
achievement of certain objectives, including addressing issues relating to
improvement in long-term corporate earnings, actual performance versus budget,
order backlog, acquisition of new business and overall Company profitability.
Bonuses for executive officers are discretionary and are determined
annually by the Board after a review of the recommendations of the Compensation
Committee and management. The bonuses, if any, for the two employee directors
are determined by the Board without any recommendations from management. The
Board did not award any annual bonuses to the Company's executive officers,
including the Chief Executive Officer, for fiscal 1998. The Board believed that
bonuses were inappropriate given the Company's recent performance. See
"-- Summary Compensation."
11
<PAGE> 15
Long-Term Incentive Compensation. The Company's long-term incentive
compensation program is implemented through the grant of stock options under the
Company's 1991 Option Plan and 1998 Stock Incentive Plan. This program is
intended to align executive interests with the long-term interests of
stockholders by linking executive compensation with stockholder enhancement. In
addition, the program motivates executives to improve long-term stock market
performance by allowing them to develop and maintain a significant, long-term
equity ownership position in the Company's Common Stock. Stock options are
granted at prevailing market rates and generally will have value only if the
Company's stock price increases in the future.
Stock option awards are reviewed and considered by the Board, guided by
input and recommendations from management for each participant, the financial
results for the Company and the participant's present equity holdings in the
Company. All executive officers, including the Chief Executive Officer, are
eligible to receive awards under the Company's 1991 Option Plan and 1998 Stock
Incentive Plan.
Section 162(m) of the Internal Revenue Code of 1986, as amended (the
"Code"), generally disallows a tax deduction to public companies for
compensation over $1,000,000 paid to its Named Executive Officers. Qualifying
performance-based compensation will not be subject to the deduction limit if
certain requirements are met. No Named Executive Officer received compensation
exceeding this limit in fiscal 1998. Although the Company does not currently
intend to qualify its annual incentive awards as performance-based, it will
continue to monitor the impact of Section 162(m) on the Company.
Chief Executive Officer Compensation. Mr. Murphy served as the Company's
Chief Executive Officer until April 1998. Mr. Murphy's base salary for the 1998
fiscal year was based upon a consideration of a number of factors, including:
achievement of short- and long-term financial and strategic targets and
objectives; external competitiveness; internal equity of compensation
relationships; Company position within the industries in which it competes,
including market share; overall economic climate; and individual contributions
to the Company.
In June 1998, Mr. Garrett became the Company's Chief Executive Officer. Mr.
Garrett is a party to a multi-year employment agreement with the Company that
fixes his annual base salary at $250,000 per year. Mr. Garrett also is entitled
to receive annual cash bonuses and stock options upon the satisfaction of
agreed-upon goals and objectives. For fiscal 1999, Mr. Garrett is entitled to
receive a minimum cash bonus of $50,000 and an option to purchase 30,000 shares
of Common Stock. See "-- Employment Agreements." The Compensation Committee
believes that this compensation package is comparable to those of chief
executive officers of selected comparable companies and reflects the Company's
qualitative judgment of Mr. Garrett's expected contributions to the Company
during the term of the agreement.
Julian Demora
Martin S. Kaplan
Merrill A. McPeak
12
<PAGE> 16
STOCK PERFORMANCE GRAPH
The following graph compares cumulative stockholder return on the Company's
Common Stock for the period from June 30, 1993 through June 30, 1998 with the
cumulative total return for (i) the Russell 2000 Index, (ii) a peer group index
determined by the Company consisting of EDO Corporation, Gencorp Inc., Hexcel
Corporation, Sparton Corporation, TransTechnology Corporation, United Industrial
Corporation and Wyman Gordon Co. (the "Peer Group Index") and (iii) the Russell
3000 Aerospace Industry Index (the "Aerospace Industry Index").
In prior years the Company's stock performance graph has compared the
Company's stock performance with the performance of (i) the Russell 2000 Index
and (ii) the Peer Group Index. For subsequent years the Company will substitute
the Aerospace Industry Index for the Peer Group Index. This change is being made
because the Company's Board of Directors has determined that, because of the
recent trends towards consolidation in the defense industry, the Aerospace
Industry Index presents a better comparison of the performance of the Company's
Common Stock against the capital stock of its peers than does the Peer Group
Index, which has become relatively narrow in recent years.
COMPARATIVE FIVE-YEAR TOTAL RETURNS(1)
ECC INTERNATIONAL CORP., RUSSELL 2000,
PEER GROUP AND RUSSELL 3000 AEROSPACE INDUSTRY
(PERFORMANCE THROUGH JUNE 30, 1998)
<TABLE>
<CAPTION>
[PERFORMANCE GRAPH]
RUSSELL
3000
RUSSELL AEROSPACE
ECC 2000 PEER GROUP INDUSTRY
<S> <C> <C> <C> <C>
1993 100.00 100.00 100.00 100.00
1994 547.37 104.40 85.58 116.34
1995 468.42 125.36 103.80 160.51
1996 384.21 155.30 161.29 220.48
1997 221.05 180.66 229.71 289.25
1998 136.84 210.47 237.69 287.44
</TABLE>
- ---------------
(1) Assumes $100 invested at the close of trading on the last trading day
preceding the first day of the fifth preceding fiscal year in the Company's
Common Stock, Russell 2000, Peer Group and Russell 3000 Aerospace Industry.
Cumulative total return assumes reinvestment of dividends.
13
<PAGE> 17
APPROVAL OF THE 1999 EMPLOYEE STOCK PURCHASE PLAN
On September 17, 1998, the Board of Directors adopted, subject to
stockholder approval, the 1999 Employee Stock Purchase Plan (the "Plan"). The
Plan authorizes the issuance of up to a total of 360,000 shares of Common Stock
to participating employees. The Plan is generally intended to continue the
program originally put in place by the Company's 1984 Employee Stock Purchase
Plan and continued by the 1987 Employee Stock Purchase Plan, 1990 Employee Stock
Purchase Plan, 1993 Employee Stock Purchase Plan and 1996 Employee Stock
Purchase Plan.
The Board of Directors believes that the Plan provides employees of the
Company with an opportunity to acquire a proprietary interest in the Company
through the purchase of Common Stock, which the Board of Directors believes will
help the Company attract and retain employees. ACCORDINGLY, THE BOARD BELIEVES
THAT APPROVAL OF THE PLAN IS IN THE BEST INTERESTS OF THE COMPANY AND ITS
STOCKHOLDERS AND RECOMMENDS A VOTE FOR THIS PROPOSAL.
All employees of the Company, including directors of the Company who are
employees, and all employees of any participating subsidiaries, who are
customarily employed by the Company for 20 or more hours per week and at least
five months in any calendar year are eligible to participate in the Plan.
Employees who would immediately after the grant own 5% or more of the total
combined voting power or value of the stock of the Company or any subsidiary are
not eligible to participate. As of August 31, 1998, approximately 427 of the
Company's employees would have been eligible to participate in the Plan.
On the first day of a designated payroll deduction period (the "Offering
Period"), the Company will grant to each eligible employee who has elected to
participate in the Plan an option to purchase shares of Common Stock as follows:
the employee may authorize an amount (a whole percentage from 1% to 10% of such
employee's base pay) to be deducted by the Company from such pay during the
Offering Period. On the last day of the Offering Period, the employee is deemed
to have exercised the option, at the option exercise price, to the extent of
accumulated payroll deductions. Under the terms of the Plan, the option price is
an amount equal to 85% of the average market price (as defined) per share of the
Common Stock on either the first day or the last day of the Offering Period,
whichever is lower. The Plan provides for six consecutive six-month Offering
Periods beginning with the six-month period extending from July 1, 1999 through
December 31, 1999.
If an employee is not a participant on the last day of the Offering Period,
such employee is not entitled to exercise any option, and the amount of such
employee's accumulated payroll deductions will be refunded. An employee's rights
under the Plan terminate upon voluntary withdrawal from the Plan at any time, or
when such employee ceases employment for any reason, except that upon
termination of employment because of death, the employee's beneficiary has
certain rights to elect to exercise the option to purchase the shares which the
accumulated payroll deductions in the participant's account would purchase at
the date of death.
Because participation in the Plan is voluntary, the Company cannot now
determine the number of shares of Common Stock to be purchased by any Named
Executive Officer, by all current executive officers as a group, or by
employees, including officers who are not executive officers, as a group.
Directors who are not employees may not participate in the Plan.
The Board may at any time amend the Plan. No amendment can be made,
however, without prior approval of the stockholders of the Company if such
amendment would (a) materially increase the number of shares which may be issued
under the Plan or (b) materially modify the requirements as to eligibility for
participation under the Plan.
14
<PAGE> 18
FEDERAL INCOME TAX CONSEQUENCES
The following is a summary of the United States federal income tax
consequences that generally will arise with respect to purchases made under the
Plan and with respect to the sale of Common Stock acquired under the Plan.
Tax Consequences to Participants. In general, a participant will not
recognize taxable income upon enrolling in the Plan or upon purchasing shares of
Common Stock at the end of an offering. Instead, if a participant sells Common
Stock acquired under the Plan at a sale price that exceeds the price at which
the participant purchased the Common Stock, then the participant will recognize
taxable income in an amount equal to the excess of the sale price of the Common
Stock over the price at which the participant purchased the Common Stock. A
portion of that taxable income will be ordinary income, and a portion may be
capital gain.
If the participant sells the Common Stock more than one year after
acquiring it and more than two years after the date on which the offering
commenced (the "Grant Date"), then the participant will be taxed as follows. If
the sale price of the Common Stock is higher than the price at which the
participant purchased the Common Stock, then the participant will recognize
ordinary compensation income in an amount equal to the lesser of:
(i) fifteen percent of the fair market value of the Common Stock on
the Grant Date; and
(ii) the excess of the sale price of the Common Stock over the price
at which the participant purchased the Common Stock.
Any further income will be long-term capital gain. If the sale price of the
Common Stock is less than the price at which the participant purchased the
Common Stock, then the participant will recognize long-term capital loss in an
amount equal to the excess of the price at which the participant purchased the
Common Stock over the sale price of the Common Stock.
If the participant sells the Common Stock within one year after acquiring
it or within two years after the Grant Date (a "Disqualifying Disposition"),
then the participant will recognize ordinary compensation income in an amount
equal to the excess of the fair market value of the Common Stock on the date
that it was purchased over the price at which the participant purchased the
Common Stock. The participant will also recognize capital gain in an amount
equal to the excess of the sale price of the Common Stock over the fair market
value of the Common Stock on the date that it was purchased, or capital loss in
an amount equal to the excess of the fair market value of the Common Stock on
the date that it was purchased over the sale price of the Common Stock. This
capital gain or loss will be a long-term capital gain or loss if the participant
has held the Common Stock for more than one year prior to the date of the sale
and will be a short-term capital gain or loss if the participant has held the
Common Stock for a shorter period.
Tax Consequences to the Company. The offering of Common Stock under the
Plan will have no tax consequences to the Company. Moreover, in general, neither
the purchase nor the sale of Common Stock acquired under the Plan will have any
tax consequences to the Company except that the Company will be entitled to a
business-expense deduction with respect to any ordinary compensation income
recognized by a participant upon making a Disqualifying Disposition. Any such
deduction will be subject to the limitations of Section 162(m) of the Code.
15
<PAGE> 19
RATIFICATION OF THE APPOINTMENT OF
INDEPENDENT PUBLIC ACCOUNTANTS
The Board has selected PricewaterhouseCoopers LLP as the Company's
independent public accountants for the fiscal year ending June 30, 1999, subject
to ratification by stockholders at the Meeting. Although stockholder approval of
the Board's selection of PricewaterhouseCoopers LLP is not required by law, the
Board believes that it is advisable to give stockholders an opportunity to
ratify this selection. If this proposal is not approved at the Meeting, the
Board will reconsider the matter. It is not expected that any representative of
PricewaterhouseCoopers LLP, which served as the Company's independent public
accountants for the fiscal year ended June 30, 1998, will be present at the
Meeting.
OTHER MATTERS
The Board knows of no business that will be presented for consideration at
the Meeting other than as stated in the Notice of Meeting. If any other business
properly comes before the Meeting, it is the intention of the persons named in
the enclosed proxy to vote or otherwise act in accordance with their judgment on
such matters.
The Company will bear the entire cost of soliciting proxies. In addition to
solicitations by mail, the Company's directors, officers and regular employees
may, without additional remuneration, solicit proxies by telephone, facsimile
and personal interviews. The Company reserves the right to retain outside
agencies for the purpose of soliciting proxies. Brokers, custodians and
fiduciaries in whose names stock is held will be requested to forward proxy
soliciting material to the owners of stock held in their names and the Company
will reimburse them for their reasonable out-of-pocket expenses in connection
with this service.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS FOR THE 1999 ANNUAL MEETING
Any proposal that a stockholder of the Company wishes to be considered for
inclusion in the Company's proxy statement and proxy for the Company's 1999
Annual Meeting of Stockholders (the "1999 Annual Meeting") pursuant to Rule
14a-8 under the Exchange Act must be submitted to the Secretary of the Company
at its offices, 2001 West Oak Ridge Road, Orlando, Florida 32809-3803, no later
than July 13, 1999.
If a stockholder of the Company wishes to present a proposal before the
1999 Annual Meeting, but does not wish to have the proposal considered for
inclusion in the Company's proxy statement and proxy, such stockholder must also
give written notice to the Secretary of the Company at the address noted above.
The Secretary must receive such notice not less than 50 days nor more than 75
days prior to the 1999 Annual Meeting; provided that, in the event that less
than 65 days' notice or prior public disclosure of the date of the 1999 Annual
Meeting is given or made, notice by the stockholder must be received not later
than the close of business on the 15th day following the date on which such
notice of the date of the meeting was mailed or such public disclosure was made,
whichever occurs first. If a stockholder fails to provide timely notice of a
proposal to be presented at the 1999 Annual Meeting, the proxies designated by
the Board of Directors of the Company will have discretionary authority to vote
on any such proposal.
16
<PAGE> 20
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE SIGN, DATE
AND MAIL THE ENCLOSED PROXY. IF YOU ARE PRESENT AT THE MEETING, YOU MAY WITHDRAW
YOUR PROXY AND VOTE YOUR SHARES PERSONALLY.
By Order of the Board of Directors,
/s/ Ajit W. Hirani
Ajit W. Hirani, Secretary
Dated: November 10, 1998
17
<PAGE> 21
APPENDIX A
ECC INTERNATIONAL CORP.
1999 EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSES.
The 1999 Employee Stock Purchase Plan of ECC International Corp. (the
"Plan") is intended to provide a method whereby employees of ECC International
Corp. and its Subsidiary Corporations (as defined below) (hereinafter
collectively referred to, unless the context otherwise requires, as the
"Company") will have an opportunity to acquire a proprietary interest in the
Company through the purchase of shares of the common stock of the Company (the
"Common Stock"). It is the intention of the Company to have the Plan qualify as
an "employee stock purchase plan" under Section 423 of the Internal Revenue Code
of 1986, as amended (the "Code"). Accordingly, the Plan shall be construed so as
to extend and limit participation in a manner consistent with the requirements
of such Section 423.
2. DEFINITIONS.
(a) "base pay" means regular straight-time earnings (as the same
may be adjusted from time to time) but excluding payments for overtime, shift
differentials, incentive compensation, sales commissions, bonuses and other
special payments.
(b) "Employee" means any person who is customarily employed by the
Company for 20 or more hours per week and at least five months in a calendar
year.
(c) "Offering" or "Offerings" means the offering(s) of shares of
Common Stock to Employees of the Company pursuant to this Plan.
(d) "Offering Commencement Date" means the date on which an
Offering under the Plan commences pursuant to Paragraph 4.
(e) "Offering Termination Date" means the date on which an
Offering under the Plan terminates pursuant to Paragraph 4.
(f) "Offering Period" means, with respect to each Offering under
the Plan, the period of time beginning on the applicable Offering Commencement
Date and ending on the applicable Offering Termination Date.
(g) "Subsidiary Corporation" means any present or future
corporation which (i) is a "subsidiary corporation" as that term is defined in
Section 424 of the Code and (ii) is designated as a participant in the Plan by
the Board of Directors or by the Committee described in Paragraph 13.
<PAGE> 22
3. ELIGIBILITY.
(a) Any Employee who shall have completed three months of
employment and who shall be employed by the Company on an Offering Commencement
Date shall be eligible to participate in the applicable Offering under the Plan.
(b) Any provision of the Plan to the contrary notwithstanding, no
Employee shall be granted an option to participate in the Plan:
(i) if, immediately after the grant, such Employee would
own stock, and/or hold outstanding options to purchase stock,
possessing 5% or more of the total combined voting power or value of
all classes of stock of the Company or of any Subsidiary Corporation
(for purposes of this Paragraph the rules of Section 424(d) of the Code
shall apply in determining stock ownership of any Employee, and all
stock which an Employee has a contractual right to purchase shall be
treated as stock owned by the Employee); or
(ii) which permits his or her rights to purchase stock of
the Company or of any Subsidiary Corporation, pursuant to this Plan or
any other employee stock purchase plan of the Company or of any
Subsidiary Corporation, to accrue at a rate which exceeds $25,000 of
the fair market value of such stock (determined at the time such option
is granted) for each calendar year in which the option is outstanding
at any time.
4. OFFERING DATES.
The Plan will be implemented by six (6) semi-annual Offerings of an
aggregate of 360,000 shares (subject to adjustment as provided in Paragraphs
12(a) and 17) each of the Common Stock, as follows:
(i) the first Offering shall commence on July 1, 1999 and shall
terminate on December 31, 1999;
(ii) the second Offering shall commence on January 1, 2000 and
shall terminate on June 30, 2000;
(iii) the third Offering shall commence on July 1, 2000 and shall
terminate on December 31, 2000;
(iv) the fourth Offering shall commence on January 1, 2001 and
terminate on June 30, 2001;
(v) the fifth Offering shall commence on July 1, 2001 and
terminate on December 31, 2001; and
(vi) the sixth Offering shall commence on January 1, 2002 and
terminate on June 30, 2002.
-2-
<PAGE> 23
5. PARTICIPATION.
All eligible Employees will become participants in an Offering on the
applicable Offering Commencement Date. Payroll deductions for a participant
shall commence on the Offering Commencement Date applicable to the Offering (or
as soon thereafter as may be determined by the Company in its discretion) and
shall end on the Offering Termination Date applicable to such Offering, unless
sooner terminated pursuant to Paragraph 10.
6. PAYROLL DEDUCTIONS.
(a) A participant may elect to have amounts withheld from his or
her base pay on each payday by completing an authorization for a payroll
deduction (an "Authorization") on the form provided by the Company and
delivering it to the Company at least 10 days prior to the applicable Offering
Commencement Date. At the time a participant files his or her Authorization for
a payroll deduction, the participant shall elect to have deductions made from
his or her pay on each payday during the time he or she is a participant in an
Offering at the rate of 0, 1, 2, 3, 4, 5, 6, 7, 8, 9 or 10% of his or her base
pay. The aggregate amount of a participant's payroll deductions for any Offering
Period is referred to herein as the "Authorized Deduction." An Authorization
filed with respect to an Offering shall also be deemed to be an Authorization
with respect to any subsequent Offering; provided, that (i) the participant may
amend his or her Authorization with respect to the subsequent Offering by filing
a new Authorization at least seven days and not more than 60 days prior to the
Offering Commencement Date of the subsequent Offering, and (ii) the participant
may withdraw his or her payroll deductions from the Plan at any time pursuant to
Section 8(b). If a participant has not filed an Authorization with respect to an
Offering (including an Authorization deemed to apply to a subsequent Offering
pursuant to the preceding sentence) on or before the date(s) specified by the
Company, he or she shall be deemed to have filed an Authorization election to
withhold 0% of any base pay.
(b) All payroll deductions made for a participant shall be
credited to his or her account under the Plan. A participant may not make any
separate cash payment into such account.
(c) Except as provided in Paragraph 8(b) or Paragraph 10, a
participant may not make changes to the rate of deductions from his or her base
pay during an Offering Period.
7. GRANTING OF OPTIONS.
(a) With respect to each Offering, a participating Employee shall
be deemed to have been granted, on the applicable Offering Commencement Date, an
option (the "Option") to purchase a maximum number of shares of Common Stock
determined as follows: 85% of the market value of a share of Common Stock on
such Offering Commencement Date shall be divided into an amount equal to (x)
that percentage of the Employee's base pay which he or she has elected to have
withheld (not to exceed 10%)
-3-
<PAGE> 24
multiplied by (y) the Employee's base pay for the period of such Offering. The
market value of the Common Stock shall be determined as provided in paragraph
(b) below.
An Employee's base pay for the period of any such Offering shall be
determined as follows: (i) in the case of a full-time employee normally paid on
an hourly rate, by multiplying his or her current hourly rate by 1040; (ii) in
the case of a part-time employee normally paid on an hourly rate, by multiplying
his or her normal hourly rate by the product of 26 times the number of hours in
his or her normal work week; (iii) in the case of an employee normally paid at a
bi-weekly rate, by multiplying his or her normal bi-weekly rate by 13; (iv) in
the case of a part-time employee normally paid at a weekly rate, by multiplying
his or her normal weekly rate by 26; and (v) in the case of an employee normally
paid at a monthly rate, by multiplying his or her normal monthly rate by six.
(b) With respect to each Offering, the purchase price of a share
of Common Stock purchased with the Authorized Deduction (the "Option Exercise
Price") shall be the lower of:
(i) 85% of the closing sale price of the Common Stock on
the New York Stock Exchange on the Offering Commencement Date
applicable to such Offering (or on the next regular business day on
which shares of the Common Stock shall be traded in the event that no
such shares shall have been traded on the Offering Commencement Date);
or
(ii) 85% of the closing sale price of the Common Stock on
the New York Stock Exchange on the Offering Termination Date applicable
to such Offering (or on the next regular business day on which shares
of the Common Stock shall be traded in the event that no such shares
shall have been traded on the Offering Termination Date).
8. EXERCISE OF OPTIONS.
With respect to each Offering during the term of the Plan:
(a) Unless a participant gives written notice of withdrawal to the
Company as provided in Paragraph 10, his or her Option will be deemed to have
been exercised automatically on the Offering Termination Date applicable to such
Offering for the purchase of the number of whole shares of Common Stock which
the Authorized Deduction in his or her account on such date will purchase at the
applicable Option Exercise Price (but not in excess of the number of shares for
which an Option has been granted the employee pursuant to Paragraph 7(a)). No
fractional shares will be issued. Any excess in such participant's account on
such date will be returned to him or her, provided that any excess returned will
not be credited with any interest.
(b) By written notice to the Treasurer of the Company at any time
prior to the applicable Offering Termination Date, a participant may elect to
withdraw all (but not less than all) of the accumulated payroll deductions in
his or her account at such time.
-4-
<PAGE> 25
9. DELIVERY OF SHARE CERTIFICATES.
As promptly as practicable after the Offering Termination Date with
respect to each Offering, the Company will deliver to each participant, as
appropriate, a certificate or certificates representing the shares of Common
Stock purchased upon the exercise of such participant's Option.
10. WITHDRAWAL.
(a) As indicated in Paragraph 8(b), a participant may withdraw
payroll deductions credited to his or her account at any time prior to the
applicable Offering Termination Date by giving written notice of withdrawal to
the Treasurer of the Company. All of the participant's payroll deductions
credited to his or her account will be paid to the participant promptly after
receipt of such notice of withdrawal, and no further payroll deductions will be
made with respect to such participant during such Offering. The Company may, at
its option, treat any attempt by an employee to borrow on the security of
accumulated payroll deductions as an election to withdraw such deductions.
(b) A participant's withdrawal from any Offering will not have any
effect upon his or her eligibility to participate in any succeeding Offering or
in any similar plan which may hereafter be adopted by the Company.
(c) Upon termination of the participant's employment for any
reason, including retirement but excluding death or disability while in the
employ of the Company, the payroll deductions credited to his or her account
will be returned to the participant or, in the case of his or her death
subsequent to the termination of employment, to the person or persons entitled
thereto under Paragraph 14.
(d) Upon termination of the participant's employment because of
death or disability, the participant or his or her beneficiary (as defined in
Paragraph 14) shall have the right to elect, by written notice given to the
Treasurer of the Company prior to the expiration of the period of 30 days
commencing with the date of the death or disability of the participant, either:
(i) to withdraw all of the payroll deductions credited to
the participant's account under the Plan; or
(ii) to exercise the participant's option for the purchase
of Common Stock on the Offering Termination Date next following the
date of the participant's death or disability for the purchase of the
number of full shares of Common Stock which the accumulated payroll
deductions in the participant's account at the date of the
participant's death or disability will purchase at the applicable
Option Exercise Price, and any excess in such account will be returned
to the participant or said beneficiary.
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In the event that no such written notice of election shall be duly
received by the Treasurer of the Company, the participant or beneficiary shall
automatically be deemed to have elected to withdraw the payroll deductions
credited to the participant's account at the date of the participant's death or
disability, and the same will be paid promptly to the participant or said
beneficiary.
11. INTEREST.
No interest will be paid or allowed on any money paid into the Plan or
credited to the account of any participant employee except as specifically set
forth in this Plan.
12. STOCK.
(a) The maximum number of shares of Common Stock which shall be
made available for sale under the Plan during any Offering under the Plan shall
be 60,000 shares (subject to increase pursuant to the last sentence of this
Paragraph 12(a)), subject in each case to adjustment upon changes in
capitalization of the Company as provided in Paragraph 17. If the total number
of shares for which Options are exercised on any Offering Termination Date in
accordance with Paragraph 8 exceeds 60,000, the Company shall make a pro rata
allocation of the shares available for delivery and distribution in as nearly a
uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of payroll deductions credited to the account of each
participant under the Plan shall be returned to him or her as promptly as
possible. If fewer than 60,000 shares are purchased during any given Offering
under the Plan, the amount not purchased shall be carried over to and made
available during the next and other subsequent Offerings under the Plan.
(b) No participant will have any interest in Common Stock covered
by his or her Option until such Option has been exercised.
(c) The Common Stock to be delivered to a participant under the
Plan will be registered in the name of the participant, or, if the participant
so directs, by written notice to the Treasurer of the Company prior to the
Offering Termination Date applicable thereto, in the names of the participant
and one such other person as may be designated by the participant, as joint
tenants with rights of survivorship, to the extent permitted by applicable law.
(d) The Board of Directors of the Company may, in its discretion,
require as conditions to the Exercise of any Option that the shares of Common
Stock reserved for issuance upon the exercise of the Option shall have been duly
listed, upon official notice of issuance, on the New York Stock Exchange, and
that either:
(i) a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), with respect to said shares
shall be effective; or
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(ii) the Company shall have received the opinion of
counsel acceptable to the Company to the effect that the issuance of
such shares is exempt from all registration requirements under the
Securities Act.
13. ADMINISTRATION.
The Plan shall be administered by the Compensation Committee (the
"Committee") appointed by the Board of Directors of the Company. The officer of
the Company charged by the Committee with day-to-day administration of the Plan
shall, for matters involving the Plan, be an ex officio member of the Committee.
The interpretation and construction of any provision of the Plan and the
adoption of all rules and regulations for administering the Plan shall be made
by the Committee; provided, however, that any such interpretation, rule or
regulation adopted by the Committee may be subsequently altered, amended or
repealed by the Committee or the Board of Directors. All such interpretations,
rules and regulations made by the Committee and approved by the Board of
Directors with respect to any matter or provision contained in the Plan shall be
final, conclusive and binding upon the Company and upon all participants, their
heirs or legal representatives. The Company shall indemnify Committee members,
to the fullest extent permitted by applicable statute, for any expenses incurred
in defending a civil or criminal action or proceeding arising out of such
member's actions with respect to the administration of the Plan, in advance of
the final disposition of such action or proceeding, upon receipt of an
undertaking by the member indemnified to repay such payment if such member shall
be adjudicated not to have acted in good faith in the reasonable belief that
such member's actions were in the best interests of the Company.
14. DESIGNATION OF BENEFICIARY.
A participant may file a written designation of a beneficiary who is to
receive any shares of Common Stock and/or cash in the event of the death of the
participant prior to the delivery of such shares or cash to the participant.
Such designation of beneficiary may be changed by the participant at any time by
written notice to the Treasurer of the Company. Within 30 days after the
participant's death, the beneficiary may, as provided in Paragraph 10(d), elect
to exercise the participant's Option when it becomes exercisable on the Offering
Termination Date of the then current Offering. Upon the death of a participant
and upon receipt by the Company of proof of the identity and existence at the
participant's death of a beneficiary validly designated by the participant under
the Plan, and notice of election of the beneficiary to exercise the Option, the
Company shall deliver such stock and/or cash to such beneficiary. In the event
of the death of a participant and in the absence of a beneficiary validly
designated under the Plan who is living at the time of such participant's death,
the Company shall deliver such stock and/or cash to the executor or
administrator of the estate of the participant, or if no such executor or
administrator has been appointed (to the knowledge of the Company), the Company,
in its discretion, may deliver such stock and/or cash to the spouse or to any
one or more dependents of the participant as the Company may designate. No
beneficiary shall, prior to the death of the participant by whom he has been
designated, acquire any interest in the stock or cash credited to the
participant under the Plan.
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15. TRANSFERABILITY.
Neither payroll deductions credited to a participant's account nor any
rights with regard to the exercise of an Option or to receive stock under the
Plan may be assigned, transferred, pledged or otherwise disposed of in any way
by the participant otherwise than by will or the laws of descent and
distribution, and such Option shall be exercisable during the participants
lifetime only by the participant. Any such attempted assignment, transfer,
pledge or other disposition shall be without effect, except that the Company may
treat such act as an election to withdraw funds in accordance with Paragraph
8(b).
16. USE OF FUNDS.
All payroll deductions received or held by the Company under this Plan
may be used by the Company for any corporate purpose, and the Company shall not
be obligated to segregate such payroll deductions.
17. EFFECT OF CHANGES OF COMMON STOCK.
In the event of any changes of outstanding shares of the Common Stock
by reason of stock dividends, subdivisions, combinations and the like, the
aggregate number and class of shares available under this Plan and the Option
Exercise Price per share shall be appropriately adjusted by the Board of
Directors of the Company, whose determination shall be conclusive. Any such
adjustments may provide for the elimination of any fractional shares which would
otherwise become subject to any Option.
18. AMENDMENT OR TERMINATION.
The Board of Directors of the Company may at any time terminate or
amend the Plan. Except as hereinafter provided, however, no such termination may
affect Options previously granted, and no such amendment may make any change in
any Option previously granted which would adversely affect the rights of any
participant. In addition, no amendment may be made without prior approval of the
stockholders of the Company if such approval is required by Section 423 of the
Code or by Rule 16b-3 under the Securities Exchange Act of 1934.
19. NOTICES.
All notices or other communications by a participant to the Company
under or in connection with the Plan shall be deemed to have been duly given
when received by the Treasurer of the Company.
20. MERGER OR CONSOLIDATION.
If the Company shall at any time merge into or consolidate with another
corporation and the Company is the surviving entity, the holder of each Option
then outstanding will thereafter be entitled to receive at the next Offering
Termination Date
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<PAGE> 29
upon the exercise of such Option for each share as to which such Option shall be
exercised the securities or property to which a holder of one share of the
Common Stock was entitled upon and at the time of such merger or consolidation,
and the Board of Directors of the Company shall take such steps in connection
with such merger or consolidation as the Board of Directors shall deem necessary
to assure that the provisions of Paragraph 17 shall thereafter be applicable, as
nearly as reasonably may be, in relation to the said securities or property as
to which such holder of such Option might thereafter be entitled to receive
thereunder. In the event of a merger or consolidation in which the Company is
not the surviving entity, or of a sale of all or substantially all of the assets
of the Company, the Plan shall terminate, and all payroll deductions credited to
participants' accounts shall be returned to them.
21. APPROVAL OF STOCKHOLDERS.
The Plan has been adopted by the Board of Directors of the Company, but
shall be void and of no effect unless it is approved by the stockholders of the
Company at their next annual meeting.
22. REGISTRATION AND QUALIFICATION OF THE PLAN UNDER APPLICABLE
SECURITIES LAWS.
No Option shall be granted under the Plan until such time as the
Company has qualified or registered the shares which are subject to the Options
under the applicable state and federal securities laws to the extent required by
such laws.
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APPENDIX B
ECC INTERNATIONAL CORP.
PROXY FOR THE ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD DECEMBER 3, 1998
THIS PROXY IS SOLICITED ON BEHALF OF
THE BOARD OF DIRECTORS OF THE COMPANY
AND SHOULD BE RETURNED AS SOON AS POSSIBLE
The undersigned, having received notice of the Annual Meeting of
Stockholders and the Board of Directors' proxy statement therefor, and revoking
all prior proxies, hereby appoint(s) James C. Garrett and Martin S. Kaplan, and
each of them, attorneys or attorney of the undersigned (with full power of
substitution in them and each of them) for and in the name(s) of the undersigned
to attend the Annual Meeting of Stockholders of ECC INTERNATIONAL CORP. (the
"Company") to be held on Thursday, December 3, 1998 at 10:00 a.m. at the Four
Seasons Hotel, One Logan Square, Philadelphia, Pennsylvania 19103, and any
adjournments thereof, and there to vote and act upon the following matters
proposed by the Company in respect of all shares of stock of the Company which
the undersigned may be entitled to vote or act upon, with all the powers the
undersigned would possess if personally present. None of the following proposals
are conditioned upon the approval of any of the other proposals.
In their discretion, the proxy holders are authorized to vote upon such
other matters as may properly come before the meeting or any adjournments
thereof. The shares represented by this proxy will be voted as directed by the
undersigned. IF NO DIRECTION IS GIVEN WITH RESPECT TO ANY ELECTION TO OFFICE OR
PROPOSAL, THIS PROXY WILL BE VOTED AS RECOMMENDED BY THE BOARD OF DIRECTORS.
Attendance of the undersigned at the meeting or at any adjournment thereof will
not be deemed to revoke this proxy unless the undersigned shall revoke this
proxy in writing.
1. To elect the following nominees for director (except as marked below):
Bruce A. Beda, Julian Demora, James C. Garrett, Ajit W. Hirani, Martin
S. Kaplan, Jesse Krasnow, Thomas E. McGrath and Merrill A. McPeak
[ ] FOR [ ] WITHHOLD
all nominees all nominees
(except as marked below)
(Instruction: To withhold a vote for an individual nominee, write the
name of such nominee in the space provided below. Your shares will be
voted for the remaining nominees.)
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2. To approve the Company's 1999 Employee Stock Purchase Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To ratify the appointment of PricewaterhouseCoopers LLP as the
Company's independent public accountants for the current year.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED BY THE UNDERSIGNED STOCKHOLDER(S). IF NO OTHER INDICATION IS MADE, THE
PROXIES SHALL VOTE "FOR" ALL DIRECTOR NOMINEES AND "FOR" EACH OF PROPOSAL
NUMBERS 2 AND 3.
WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING, YOU ARE URGED TO
SIGN, DATE AND MAIL THIS PROXY IN THE ACCOMPANYING ENVELOPE.
A VOTE "FOR" ALL DIRECTOR NOMINEES AND A VOTE "FOR" EACH OF PROPOSAL
NUMBERS 2 AND 3 ARE RECOMMENDED BY THE BOARD OF DIRECTORS.
IN THEIR DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER
BUSINESS AS MAY PROPERLY COME BEFORE THE ANNUAL MEETING AND ANY ADJOURNMENT
THEREOF.
MARK HERE MARK HERE IF
FOR ADDRESS [ ] YOU PLAN TO [ ]
CHANGE AND ATTEND THE
NOTE AT LEFT MEETING
<PAGE> 32
Dated: _______________________________, 1998
____________________________________________
Signature
____________________________________________
Signature if held jointly
NOTE: PLEASE SIGN EXACTLY AS NAME APPEARS
HEREON. WHEN SHARES ARE HELD BY JOINT
OWNERS, BOTH SHOULD SIGN. WHEN SIGNING AS
ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE
OR GUARDIAN, PLEASE GIVE FULL TITLE AS SUCH.
IF A CORPORATION, PLEASE SIGN IN FULL
CORPORATE NAME BY AUTHORIZED OFFICER, GIVING
FULL TITLE. IF A PARTNERSHIP, PLEASE SIGN IN
PARTNERSHIP NAME BY AUTHORIZED PERSON,
GIVING FULL TITLE.
