<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended MARCH 31, 1998
--------------
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 or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
</TABLE>
175 Strafford Avenue, Suite 116, Wayne, PA 19087-3377
- ---------------------------------------- -----------
(Address of principal executive offices) (Zip Code)
(610) 687-2600
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(Registrant's telephone number, including area code)
Not Applicable
- --------------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding twelve 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
As of March 31, 1998, there were 8,212,141 shares of the Registrant's
Common Stock, $.10 par value per share, issued and outstanding.
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<PAGE> 2
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
NINE MONTHS ENDED MARCH 31, 1998 AND 1997
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/98 3/31/97
----------- -----------
<S> <C> <C>
Net Sales $ 37,224 $ 57,421
Cost of Sales 30,197 48,553
-------- --------
Gross Profit 7,027 8,868
-------- --------
Expenses:
Selling, General & Administrative 9,649 8,544
Systems Development 1,958 620
-------- --------
Total Expenses 11,607 9,164
-------- --------
Operating Loss (4,580) (296)
-------- --------
Other Income (Expense):
Interest Income 202 400
Interest Expense (886) (1,377)
Other - Net 99 (64)
-------- --------
Total Other Expense (585) (1,041)
-------- --------
Loss from Continuing Operations
Before Income Taxes (5,165) (1,337)
(Benefit)/Provision for Income Taxes (1,015) 318
-------- --------
Loss from Continuing Operations (4,150) (1,655)
Discontinued Operations:
Loss from Operations (net of applicable
income tax benefit of $1,142 in FY 1997 -- (1,731)
Loss on Disposal (net of applicable
income tax of $199 in FY 1998) (370) --
-------- --------
Net Loss $ (4,520) $ (3,386)
======== ========
Loss Per Common Share - Basic and
Assuming Dilution:
Loss Per Common Share
from Continuing Operations $ (0.51) $ (0.21)
Loss Per Common Share
from Discontinued Operations $ (0.04) $ (0.22)
Net Loss Per Common Share $ (0.55) $ (0.43)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 3
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 1998 AND 1997
(In Thousands Except Per Share Data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
3/31/98 3/31/97
----------- -----------
<S> <C> <C>
Net Sales $ 12,548 $ 13,842
Cost of Sales 10,410 12,550
-------- --------
Gross Profit 2,138 1,292
-------- --------
Expenses:
Selling, General & Administrative 3,426 2,563
Systems Development 432 222
-------- --------
Total Expenses 3,858 2,785
-------- --------
Operating Loss (1,720) (1,493)
-------- --------
Other Income (Expense):
Interest Income 114 297
Interest Expense (213) (471)
Other - Net 108 (84)
-------- --------
Total Other Income/(Expense) 9 (258)
-------- --------
Loss from Continuing Operations
Before Income Taxes (1,711) (1,751)
Benefit for Income Taxes (261) (409)
-------- --------
Loss from Continuing Operations (1,450) (1,342)
Discontinued Operations:
Loss from Operations (net of applicable
income tax benefit of $408 in 1997) -- (610)
-------- --------
Net Loss $ (1,450) $ (1,952)
======== ========
Loss Per Common Share - Basic and
Assuming Dilution:
Loss Per Common Share
from Continuing Operations $ (0.18) $ (0.17)
Loss Per Common Share
from Discontinued Operations $ (0.00) $ (0.08)
Net Loss Per Common Share $ (0.18) $ (0.25)
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 4
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
3/31/98 6/30/97
----------- ---------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 6,622 $ 3,888
Accounts Receivable, Net 4,937 9,189
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 19,165 25,497
Inventories
Raw Material 2,717 5,062
Work in Process 3,828 2,326
Finished Goods 1,290 2,278
Prepaid Expenses and Other 5,981 5,406
------- -------
Total Current Assets 44,540 53,646
Property, Plant and Equipment - Net 22,485 26,119
Other Assets 2,485 2,269
------- -------
Total Assets $69,510 $82,034
======= =======
</TABLE>
Continued...
<PAGE> 5
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Continued)
(In Thousands)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
3/31/98 6/30/97
----------- ---------
<S> <C> <C>
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Current Portion of Long-Term Debt $11,161 $ 2,250
Accounts Payable 4,819 4,846
Advances on Long-Term Contracts 5,969 4,551
Accrued Expenses 4,428 6,642
------- -------
Total Current Liabilities 26,377 18,289
------- -------
Deferred Income Taxes 1,559 1,559
------- -------
Long-Term Debt -- 16,640
------- -------
Commitments and Contingencies
Stockholders' Equity:
Common stock, $.10 par; authorized
20,000,000 shares at 3/31/98 and
6/30/97; issued and outstanding,
8,212,141 shares at 3/31/98 and
8,046,707 at 6/30/97 824 805
Preferred stock, $.10 par; authorized
1,000,000 shares at 3/31/98 and at
6/30/97; none issued and outstanding
at 3/31/98 and 6/30/97 -- --
Capital in Excess of Par 24,503 23,935
Retained Earnings 16,229 20,749
Cumulative Translation Adjustment 18 57
------- -------
Total Stockholders' Equity 41,574 45,546
------- -------
Total Liabilities & Stockholders' Equity $69,510 $82,034
======= =======
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE> 6
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997
(In Thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
3/31/98 3/31/97
----------- -----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(4,520) $(3,386)
Items Not Requiring Cash:
Depreciation 3,298 2,904
Provision for Discontinued Operations 569 --
Changes in Certain Assets and Liabilities:
Accounts Receivable 2,415 2,535
Costs and Estimated Earnings in Excess
of Billings on Uncompleted Contracts 6,332 6,860
Inventories (1,907) (1,065)
Prepaid Expenses and Other (575) (69)
Accounts Payable (27) (5,782)
Advances on Long-Term Contracts 1,418 1,723
Accrued Expenses (1,601) (2,778)
------- -------
Net Cash Provided By Operating Activities 5,402 942
------- -------
Cash Flows From Investing Activities:
Proceeds from Sale of Discontinued Operations 7,881 --
Additions to Property, Plant and Equipment (2,662) (2,495)
Other (255) 199
------- -------
Net Cash Provided By/(Used In) Investing Activities 4,964 (2,296)
------- -------
Cash Flows From Financing Activities:
Proceeds From Issuance of Common Stock, Options
Exercised and Warrants, Including Related Tax Benefit 97 575
Repayments under Term Loan (2,250) (2,250)
Borrowings under Revolving Credit Facility, Net (5,479) 1,204
------- -------
Net Cash Used In Financing Activities (7,632) (471)
------- -------
Net Increase/(Decrease) in Cash 2,734 (1,825)
Cash at Beginning of the Period 3,888 5,057
------- -------
Cash at End of the Period $ 6,622 $ 3,232
======= =======
</TABLE>
Continued...
<PAGE> 7
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED
MARCH 31, 1998 AND 1997 (Continued)
(In Thousands)
(Unaudited)
Nine Months Nine Months
Ended Ended
3/31/98 3/31/97
----------- -----------
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Year For:
Interest $940 $1,422
Income Taxes $ -- $ 922
Supplemental Schedule of
Non Cash Financing Activities:
Issuance of Employee Stock Incentives $421 $ --
Issuance of Director Equity Compensation $ 69 $ --
See accompanying notes to the consolidated financial statements.
<PAGE> 8
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying statements are unaudited and have been prepared by ECC
pursuant to the rules and regulations of the Securities and Exchange
Commission. The June 30, 1997 consolidated balance sheet was derived from
audited financial statements but does not include all disclosures required
by generally accepted accounting principles. In the opinion of management
the accompanying unaudited consolidated financial statements contain all
adjustments, consisting of only normal recurring adjustments, necessary to
present fairly the consolidated financial position, results of operations
and cash flows for the interim period presented. These unaudited
consolidated financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto in the Company's
Annual Report on Form 10-K for the fiscal year ended June 30, 1997.
2. Basic loss per common share is computed by dividing net loss available to
common shareholders by the weighted-average number of common shares
outstanding during the period. Diluted loss per share is computed by
dividing net loss available to common shareholders by the weighted-average
number of common shares outstanding during the period adjusted for the
number of shares that would have been outstanding if the dilutive potential
common shares had been issued. The diluted loss per share does not assume
the exercise of options that would have an antidilutive effect on earnings
per share.
The weighted-average number of common shares outstanding for the basic and
diluted per share calculations are identical since the assumed exercise of
all outstanding options would be antidilutive.
The weighted-average number of common shares outstanding for each period
presented are as follows:
3/31/98 3/31/97
--------- ---------
Three-months ended 8,204,292 7,960,739
Nine-months ended 8,160,122 7,888,900
3. The Company did not comply with the minimum fixed charge coverage ratio at
September 30, 1997, December 31, 1997 or March 31, 1998 under its Term Loan
and Revolving Credit Agreement and, accordingly, has received irrevocable
waivers with respect to such covenant from its bank lender. The Company
made the two final required payments on its term loan totaling $2,250,000
during the first quarter of fiscal year 1998.
On November 25, 1997, the Company executed an amendment to its Revolving
Credit Agreement whereby the maximum aggregate principal amount of
advances, including the face amount of Letters of Credit, was reduced from
$25 million to $15 million. In addition, the Company was required to pay $6
million on the Revolving Credit Agreement with proceeds from the sale of
certain assets of the vending operation. An amendment dated February 17,
1998 further reduced permitted borrowings under the Revolving Credit
Agreement to $13 million. In addition, the February 17, 1998 amendment
modified the fixed charge covenant and the current ratio covenant.
The Company's bank lenders also extended the Revolving Credit Agreement's
expiration
<PAGE> 9
date to October 1, 1998. Pending re-negotiation of the Revolving Credit
Agreement, outstanding amounts due under the Agreement are classified as
current liabilities in the consolidated balance sheet at March 31, 1998.
4. In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, "Earnings Per Share" ("SFAS
128"). SFAS 128 specifies new standards designed to improve the earnings
per share ("EPS") information provided in financial statements by
simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of EPS data on an
international basis. Changes made to simplify the EPS computation include:
eliminating the presentation of primary EPS and replacing it with basic
EPS, with the principal difference being that common stock equivalents are
not considered in computing basic EPS. The Company adopted this standard
during the second quarter of fiscal year 1998. There was no significant
change in loss per share as a result of the adoption of this standard. Loss
per share amounts for all periods presented were restated to conform to the
SFAS 128 requirements.
5. On November 25,1997, the Company completed the sale of the fixed assets,
inventory and trade receivables of the Company's vending operation.
Proceeds from the sale of the vending operation were used to reduce the
Company's debt.
Operating results have been segregated in the accompanying consolidated
statements of operations. Net losses for the nine and three-month periods
ended March 31, 1998 were included as a component of discontinued
operations in the Company's June 30, 1997 consolidated financial
statements. Discontinued operations at June 30, 1997 included management's
best estimates of the amounts expected to be realized on the sale of the
vending operation, the costs directly associated with the disposal of the
operation, as well as the operating losses expected to be incurred during
the phase-out period.
During the second quarter of fiscal year 1998, the Company recorded an
additional provision for the estimated loss on disposal of discontinued
operations of $370,000, after-tax. This change in the estimated loss
resulted primarily from additional costs associated with the consummation
of the sale of the fixed assets, inventory and trade receivables of the
vending operation.
<PAGE> 10
ECC INTERNATIONAL CORP. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
This Quarterly Report on Form 10-Q contains forward-looking statements
within the meaning of Section 21E of the Securities Exchange Act of 1934,
as amended. For this purpose, any statements contained herein that are not
statements of historical fact may be deemed to be forward-looking
statements. Without limiting the foregoing, the words "believes,"
"anticipates," "plans," "expects," and similar expressions are intended to
identify forward-looking statements. There are a number of factors that
could cause the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include,
without limitation, those set forth below under the caption "Certain
Factors That May Affect Future Operating Results."
a) MATERIAL CHANGES IN FINANCIAL CONDITION.
During the nine-month period ended March 31, 1998, the Company's principal
sources of cash were proceeds from the sale of certain assets of the
vending operation, billings and receipts on costs and estimated earnings in
excess of billings on uncompleted contracts and advances on contracts in
the UK subsidiary. The principal uses of these funds were to make the final
payments on the term loan, pay down the revolving credit agreement, finance
the increase in inventories and to fund the improvements to the Orlando
facility.
Accounts receivable, raw material, and property, plant and equipment
decreased as a result of the sale of these items in connection with the
disposal of the vending operation. (See Note 5 to the Consolidated
Financial Statements.)
Accounts receivable also decreased as a result of the near completion of
the two main contracts in the UK subsidiary.
Costs and estimated earnings in excess of billings on uncompleted contracts
decreased due to the completion or near completion of several contracts in
the domestic training division. This decrease was partially offset by
progress on several new domestic training division contracts which were
awarded during the third quarter of fiscal year 1998.
Work in process inventory increased primarily due to unabsorbed overhead.
Overhead is absorbed on an annualized projected rate. Management expects
that volume during the fourth quarter of fiscal year 1998 will support the
currently budgeted overhead rate.
Finished goods inventory decreased as a result of the sale of vending units
inventoried at June 30, 1997.
Prepaid expenses and other increased primarily due to the federal tax
benefit recorded for the federal net operating loss realized during the
nine-month period ended March 31, 1998.
<PAGE> 11
Advances on long-term contracts increased as a result of payments received
in advance of work performed on contracts in the UK division.
Accrued expenses decreased primarily as a result of the realization of
accrued losses associated with the sale of certain assets of the vending
operation on November 25, 1997. (See Note 5 to the Consolidated Financial
Statements.)
The increase in capital in excess of par was primarily the result of
employee stock bonuses and director equity compensation during the
nine-month period ended March 31, 1998.
The Company did not comply with the minimum fixed charge coverage ratio at
September 30, 1997, December 31, 1997 and March 31, 1998 under its Term
Loan and Revolving Credit Agreement and, accordingly, has received
irrevocable waivers with respect to such covenant from its bank lender. The
Company made the two final required payments on its term loan totaling
$2,250,000 during the first quarter of fiscal year 1998.
On November 25, 1997, the Company executed an amendment to its Revolving
Credit Agreement whereby the maximum aggregate principal amount of
advances, including the face amount of Letters of Credit, was reduced from
$25 million to $15 million. The Company was also required to pay $6 million
on the Revolving Credit Agreement with proceeds from the sale of certain
assets of the vending operation. An amendment dated February 17, 1998
further reduced permitted borrowings under the Revolving Credit Agreement
to $13 million. In addition, the February 17, 1998 amendment modified the
fixed charge covenant and the current ratio covenant.
The Company's bank lenders also extended the Revolving Credit Agreement's
expiration date to October 1, 1998. Pending re-negotiation of the Revolving
Credit Agreement, outstanding amounts due under the Loan Facility are
classified as current liabilities in the consolidated balance sheet at
March 31, 1998.
During the remainder of fiscal year 1998, the Company anticipates spending
approximately $400,000 for new machinery and equipment and to continue to
refurbish the Orlando facility.
Other than as stated above, the Company currently has no other material
commitments for capital expenditures. Management believes that with funds
available under its loan facility and its projected cash flows, the Company
will have sufficient resources to meet current and future operating
commitments.
<PAGE> 12
b) MATERIAL CHANGES IN RESULTS OF OPERATIONS.
Continuing Operations
Net sales decreased for the nine and three-month periods ended March 31,
1998 as compared to the same periods ended March 31, 1997. The decrease in
net sales was primarily the result of several domestic training division
contracts with reduced activity as they are complete or near completion.
This decrease in net sales was partially offset by sales generated from the
award of several new contracts during the third quarter of fiscal year 1998
including: Javelin multi-year; CCTT LRIP; a Saudi VIGS contract; as well as
several additions to other ongoing contracts.
Net sales volume in the UK subsidiary also decreased for the nine and
three-month periods ended March 31, 1998 as compared to the same periods
ended March 31, 1997. The decrease in net sales in the UK was a result of
reduced activity on its two major contracts as they are expected to be
completed during the first half of fiscal year 1999. The UK subsidiary was
awarded a contract for Cabin Crew Training equipment from Airtours
International Airways Ltd. during the third quarter of fiscal year 1998,
however, activity on this new contract was minimal during this period. The
Board of Directors is currently reviewing the Company's options regarding
ECC Simulation Limited to determine whether sufficient opportunities exist
for this operation to return to profitability.
Overall gross margin as a percentage of net sales increased for the nine
and three-month periods ended March 31, 1998 versus the same periods ended
March 31, 1997. This increase was a result of the completion or near
completion of many large "cost plus" type contracts which have historically
had lower gross margins than the "fixed price" type. In addition, the
Company is continuing cost reduction initiatives, including significant
workforce reductions. However, overhead levels have not decreased
proportionate to the decrease in sales volume. Management anticipates that
the activity generated from several of its new contracts, combined with
continued cost reduction initiatives, will result in improved results
during the fourth quarter of fiscal year 1998.
Selling, general and administrative expense increased for the nine and
three-month periods ended March 31, 1998 versus the corresponding period in
the prior fiscal year primarily as a result of fees paid to international
marketing representatives, consulting fees and an increase in bid and
proposal activities.
Systems development expense increased for the nine and three-month periods
ended March 31, 1998 versus the corresponding period in the previous fiscal
year. The increase is primarily the result of efforts in the domestic
training division to develop and/or enhance technologies and processes in
order to remain competitive in the industry.
Interest income decreased for the nine and three-month periods ended March
31, 1998 as interest due the Company based on the IRS look-back method of
accounting for completed contracts was substantially lower than the amount
received in the corresponding period in the prior fiscal year.
<PAGE> 13
Interest expense decreased for the nine and three-month periods ended
March 31, 1998 versus the corresponding periods in the previous fiscal
year. The decrease was primarily the result of final payments totaling
$2,250,000 on the Company's term loan during the first quarter of fiscal
year 1998 as well as payments totaling $5,500,000 on the revolving credit
facility during the second quarter of fiscal year 1998.
Discontinued Operations
On November 25, 1997 the Company completed the sale of the fixed assets,
inventory and trade receivables of the Company's vending operation.
Proceeds from the sale of the vending operation were used to reduce the
Company's debt.
Operating results have been segregated in the accompanying consolidated
statements of operations. Net losses for the nine and three-month periods
ended March 31, 1998 were included as a component of discontinued
operations in the Company's June 30, 1997 consolidated financial
statements. Discontinued operations at June 30, 1997 included management's
best estimates of amounts expected to be realized on the sale of the
vending operation, the costs directly associated with the disposal of the
operation, as well as the operating losses expected to be incurred during
the phase-out period.
During the second quarter of fiscal year 1998, the Company recorded an
additional provision for the estimated loss on disposal of discontinued
operations of $370,000, after-tax. The change in the estimated loss
resulted primarily from additional costs associated with the consummation
of the sale of the fixed assets, inventory and trade receivables of the
vending operation.
c) CERTAIN FACTORS THAT MAY AFFECT FUTURE OPERATING RESULTS.
The following important factors, among others, could cause actual results
to differ materially from those indicated by forward-looking statements
made in this Quarterly Report on Form 10-Q and presented elsewhere by
management from time to time. All forward-looking statements included in
this document are based on information available to the Company on the date
hereof, and the Company assumes no obligation to update any such
forward-looking statements.
A number of uncertainties exist that could affect the Company's future
operating results, including, without limitation, general economic
conditions, changes in government spending, cancellation of weapons
programs, delays in contract awards, delays in the acceptance process of
contract deliverables, the Company's continued ability to develop and
introduce products, the introduction of new products by competitors,
pricing practices of competitors, the cost and availability of parts and
the Company's ability to control costs.
To date, a substantial portion of the Company's revenues have been
attributable to long-term contracts with various government agencies. As a
result, any factor adversely affecting procurement of long-term government
contracts could have a material adverse effect on the Company's financial
condition and results of operations.
<PAGE> 14
The Company's UK subsidiary, ECC Simulation Limited, has experienced
significant losses in recent quarters. The Company has initiated a 20%
workforce reduction in the UK subsidiary and additional workforce
reductions and other cost-saving measures will be made in the future as
necessary. The Board of Directors is currently reviewing the Company's
options to determine the Company's future plans with respect to the UK
subsidiary. There can be no assurance that the UK subsidiary will return to
profitability in the near term or at all.
Because of these and other factors, past financial performance should not
be considered an indication of future performance. The Company's future
quarterly operating results may vary significantly, depending on factors
such as the timing of contract awards. Investors should not use historical
trends to anticipate future results and should be aware that the trading
price of the Company's Common Stock may be subject to wide fluctuations in
response to quarterly variations in operating results and other factors,
including those discussed above.
The Company recognizes that it must ensure that its products and operations
will not be adversely impacted by various so-called "Year 2000" systems and
software failures which can arise in certain date-sensitive functions. All
of the Company's products are currently Year 2000 compliant, and therefore,
the Company does not expect to undertake additional research and
development efforts in this regard. In addition, the Company is in the
process of identifying anticipated costs, problems and uncertainties
associated with making its internal-use operating systems Year 2000
compliant. In general, the Company expects to resolve the Year 2000 issue
with respect to its computer systems and software applications through
upgrade, conversion, modification or replacement of non-compliant systems
and applications. There can be no assurance, however, that the systems of
other parties upon which the Company's business also relies will be Year
2000 compliant. The costs of becoming Year 2000 compliant, or the failure
thereof by the Company or other parties, could have a material adverse
effect on the Company's business, financial condition or results of
operations.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
<PAGE> 15
PART II. OTHER INFORMATION
ECC INTERNATIONAL CORP.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
a. EXHIBITS
Exhibit 10.1 - Amendment, dated as of January 30, 1998, to the
Term Loan and Revolving Credit Agreement dated as of September 20,
1994 by and among the Company and First Fidelity Bank, N.A.
Exhibit 10.2 - Amendment, dated as of February 17, 1998, to the
Term Loan and Revolving Credit Agreement dated as of September 20,
1994 by and among the Company and First Fidelity Bank, N.A.
Exhibit 10.3 - Amendment, dated as of March 16, 1998, to the Term
Loan and Revolving Credit Agreement dated as of September 20, 1994
by and among the Company and First Fidelity Bank, N.A.
Exhibit 10.4 - Amended and Restated Revolving Credit Note, dated
February 17, 1998.
Exhibit 27.1 - Financial Data Schedule for the nine-month period
ended March 31, 1998.
b. REPORTS ON FORM 8-K
None.
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ECC INTERNATIONAL CORP.
Date MAY 15, 1998 /s/ Relland Winand
---------------------------------
Relland Winand
Vice President, Finance and
Principal Financial and
Accounting Officer
<PAGE> 1
EXHIBIT 10.1
First Union National Bank
Portfolio Management
PA 1310
123 South Broad Street
Philadelphia, Pennsylvania 19109-1199
Fax 215-985-3143
January 30, 1998
Relland Winand
Chief Financial Officer
ECC International Corp.
176 Strafford Ave.
Wayne, PA 19087-3377
Dear Rell:
Reference is made to that certain:
1. Term Loan and Revolving Credit Agreement, dated as of September 20,
1994 (together with all amendments and modifications thereto) by and between ECC
International Corp. ("ECC"), and First Fidelity Bank, National Association, (the
"Bank"; now named First Union National Bank), and all of the documents,
instruments and agreements executed in connection therewith (collectively, the
"ECC Loan Documents").
2. Revolving Credit Agreement, dated as of September 20, 1994 (together
with all amendments and modifications thereto), by and between ECC Simulation
Limited ("Simulation," and, together with ECC, the "Borrowers"), and the Bank
and all of the documents, instruments and agreements executed in connection
therewith (collectively, the "Simulation Loan Documents" and, together with the
ECC Loan Documents, the "Loan Documents").
Terms capitalized but not defined herein shall have the meanings
ascribed thereto in the Loan Documents.
By letter agreement dated December 19, 1997, the Borrowers and the Bank
agreed to modify Section P.1 of the Term Loan and Revolving Credit Agreement to
substitute $3,000,000.00 for $2,000,000.00 where it appears therein
(representing the maximum amount ECC may lend to Simulation) for the period
ending January 31, 1998 (the "Temporary Modification"). The Borrowers have
requested that the Bank
<PAGE> 2
extend the Temporary Modification through February 13, 1998, and the Bank has
agreed to do so pursuant to the terms hereof.
The Borrowers hereby affirm, as of the date hereof, the representations
and warranties set forth in the Loan Documents exactly as if they were made on
and as of the date hereof, except where disclosed to the Bank in writing prior
to the date hereof or where immaterial. The Borrowers represent and warrant that
there is no breach of any term, covenant or provision of the Loan Documents and
that no Event of Default or other event which, with the passage of time, the
giving of notice, or both, would become an Event of Default has occurred and is
continuing. The Borrowers agree that the Loan Documents are binding and
enforceable against the Borrowers pursuant to the terms thereof and the
Borrowers have no defenses, set-offs, or counterclaims to their obligations
thereunder.
In reliance upon the Borrowers' reaffirmation and representations and
warranties stated above, the Bank agrees to the extension of the Temporary
Modification.
All other terms, covenants and conditions of the Loan Documents are
hereby reaffirmed, ratified and confirmed in all respects and shall remain in
full force and effect. Nothing contained herein is intended to be or shall be
construed as a waiver of any default, Event of Default, or any of the Bank's
rights and remedies under the Loan Documents and applicable law, all of which
are expressly reserved and preserved.
Please acknowledge your receipt and acceptance of this letter by
signing below (and having the guarantors identified below also sign where
indicated) and returning a copy to the Bank. Upon the Bank's receipt of an
executed copy of this letter, this letter will become effective.
Sincerely yours,
FIRST UNION NATIONAL BANK
By: /s/ Suzanne S. Storm
Name: Suzanne S. Storm
Title: Senior Vice President
-2-
<PAGE> 3
THE UNDERSIGNED ACKNOWLEDGE, CONSENT AND AGREE TO THE FOREGOING TERMS, COVENANTS
AND CONDITIONS AND AGREE TO BE BOUND THEREBY.
Date: January 30, 1998
BORROWER
ATTEST: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
GUARANTOR
ATTEST: ECC SIMULATION LIMITED
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary Title: President
GUARANTOR
ATTEST: EDUCATIONAL COMPUTER CORPORATION
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL, INC.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
-3-
<PAGE> 4
BORROWER
ATTEST: ECC SIMULATION LIMITED
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary Title: President
GUARANTOR
ATTEST: EDUCATIONAL COMPUTER CORPORATION
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL, INC.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
-4-
<PAGE> 1
EXHIBIT 10.2
AMENDMENT TO CREDIT AGREEMENT
THIS AMENDMENT ("Amendment") made as of February 17, 1998, between ECC
INTERNATIONAL CORP. ("ECC"), ECC SIMULATION LIMITED ("Simulation") and FIRST
UNION NATIONAL BANK (successor by merger to First Fidelity Bank, National
Association) ("Bank").
BACKGROUND
Bank and ECC entered into a certain Term Loan and Revolving Credit
Agreement dated as of September 20, 1994 (as amended to date, the "ECC Credit
Agreement") relative to, inter alia, a Revolver (the "ECC Revolver"), as more
fully set forth therein, the terms of which are incorporated herein by
reference. Bank and Simulation entered into a certain Revolving Credit Agreement
dated as of September 20, 1994 (as amended to date, the "Simulation Credit
Agreement") relative to a Revolver (the "Simulation Revolver"), as more fully
set forth therein, the terms of which are incorporated herein by reference. The
parties desire to amend the ECC Credit Agreement and the Simulation Credit
Agreement and provide certain waivers in the manner hereinafter provided. All
capitalized terms used herein which are not defined hereby shall have the
meaning ascribed thereto in the ECC Credit Agreement. Subject to the
satisfaction of all conditions specified herein, all amendments and other
matters effected hereby are, unless otherwise stated herein to the contrary,
effective as of the date hereof.
NOW, THEREFORE, the parties, INTENDING TO BE LEGALLY BOUND, agree as
follows:
1. Loans to Simulation. Effective as of February 13, 1998, the
reference in Section P.1 of the ECC Credit Agreement and in Section N.1 of the
Simulation Credit Agreement to "$1,500,000" (representing the amount that ECC
may lend to Simulation) is hereby replaced by "$3,000,000".
2. Fixed Charge Covenant.
a. Borrowers have advised Bank that Borrowers have failed to
comply with the Fixed Charge Ratio for the fiscal period ending December 31,
1997. Bank hereby irrevocably waives said noncompliance as of December 31, 1997.
Such waiver relates only to the specific covenant and for the fiscal period set
forth above, and shall in no event imply any obligation of Bank to grant any
other or further waiver.
b. Effective as of January 1, 1998, Section P.13 of the ECC
Credit Agreement and Section N.13 of the Simulation Credit Agreement are hereby
<PAGE> 2
amended and restated in their entirety to read as follows:
"Fixed Charge Covenant. Permit the Fixed Charge Ratio to be less
than 1.25 to 1.0 as of 3/31/98 and 2.25 to 1.0 as of 6/30/98 and
as of 9/30/98. As used herein, "Fixed Charge Ratio" means, as of
any date, the ratio of (i) Consolidated net income plus
depreciation, interest expense and taxes for the fiscal quarter
ending on such date, to (ii) Fixed Charges of the Borrower and all
Consolidated Persons for such fiscal quarter, and "Fixed Charges"
means the sum of dividends, payments on capital leases, interest
expense and principal payments ("Principal on Long Term Debt") on
indebtedness for borrowed money which matures more than one year
from the date of such principal payment."
3. Current Ratio. Effective as of 12/31/97, the outstanding principal
balance of the ECC Revolver and the Simulation Revolver shall not be included as
a Current Liability for purposes of calculating the Consolidated Current Ratio.
4. Maximum Principal Amount of ECC Revolver and Simulation Revolver.
a. Effective the date hereof, and notwithstanding Section A.2.b.
of the ECC Credit Agreement to the contrary, the maximum aggregate principal
amount of advances, including the face amount of Letters of Credit (as defined
in the ECC Credit Agreement), to be outstanding at any time under the ECC
Revolver (the "Maximum Principal Amount") shall be an amount which, when taken
together with the principal amount of cash advances and the face amount of
letters of credit outstanding under the Simulation Revolver, is not greater than
$13,000,000.
b. Effective the date hereof, and notwithstanding Section A.1.b.
of the Simulation Credit Agreement to the contrary, the Maximum Principal Amount
(as defined in the Simulation Credit Agreement) of advances, including the face
amount of letters of credit, to be outstanding at any time under the Simulation
Revolver shall be an amount which is equal to the lesser of (i) $5,500,000 or
(ii) an amount which, when taken together with the principal amount of cash
advances and the face amount of letters of credit outstanding under the ECC
Revolver, is not greater than $13,000,000; provided, that notwithstanding the
foregoing to the contrary, if due solely to fluctuations in the exchange rate
for Dollars and Pounds Sterling, the Equivalent Dollar Amount (as defined in the
Simulation Credit Agreement) of outstanding cash advances and the face amount of
outstanding letters of credit made in Pounds Sterling, when taken together with
outstanding cash advances and the face amount of outstanding letters of credit
made in Dollars under the Simulation Credit Agreement, exceeds the applicable
sublimit set forth in subpart (i) above by 10% or less, Simulation need not
repay such excess until the Expiration Date, provided, that if the same exceeds
the said applicable sublimit by more than 10% or if the
-2-
<PAGE> 3
Equivalent Dollar Amount of outstanding cash advances and the face amount of
outstanding letters of credit made in Pounds Sterling, when taken together with
the sum of outstanding cash advances and the face amount of outstanding letters
of credit made in Dollars and the principal amount of cash advances and the face
amount of letters of credit outstanding under the ECC Revolver, exceeds
$13,000,000, Simulation will repay the principal of the Simulation Revolver in
the amount of such excess within one (1) Business Day after notice thereof from
Bank.
5. Applicable Margin. Section D.2. of the ECC Credit Agreement and
Section C.2. of the Simulation Credit Agreement are hereby amended in order
that, effective as of the date hereof and thereafter until all Liabilities under
each Credit Agreement are repaid in full, but subject in all events to the
Bank's right to charge interest at the Default Rate (as defined in the
applicable Revolving Credit Note), the Applicable Margin for principal
outstanding under the ECC Revolver and the Simulation Revolver which accrues
interest tied to the Eurodollar Rate is plus 2.25 percentage points.
6. Conditions. The effectiveness of the amendments, waiver and other
provisions hereof is subject to satisfaction of the following conditions
precedent:
a. ECC 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 ECC Credit
Agreement and related Loan Documents;
b. Simulation shall, concurrently herewith, execute and deliver
to Bank an amended and restated Revolving Credit Note in the face amount of
$5,500,000, 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
Simulation Credit Agreement and related Loan Documents;
c. ECC shall, concurrently herewith, pay to Bank an amendment
fee in the amount of $15,000;
d. ECC and Simulation shall, concurrently herewith, deliver to
Bank certified resolutions of its Board of Directors authorizing it to execute,
deliver and perform this Amendment and any documents required to be executed in
connection herewith;
e. Each of ECC and Simulation shall deliver to Bank such other
documents, instruments and agreements as Bank may reasonably request.
-3-
<PAGE> 4
7. Representations and Warranties. ECC and Simulation each represents
and warrants to Bank that:
a. The execution and delivery by ECC and Simulation of this
Amendment and the performance by it of the transactions herein contemplated (i)
are and will be within its powers; (ii) have been authorized by all necessary
corporate action; and (iii) are not and will not be in contravention of any
order of any court or other agency of government, of law or any other indenture,
agreement or undertaking to which ECC or Simulation is a party or by which the
property of ECC or Simulation is bound, or be in conflict with, result in a
breach of constitute (with due notice and/or lapse of time) a default under any
such indenture, agreement or undertaking or result in the imposition of any
lien, charge or incumbrance of any nature on any of the properties of ECC or
Simulation.
b. This Amendment is valid, legal, binding and enforceable in
accordance with its terms.
c. No Default or Event of Default, other than that which is
expressly being waived pursuant to the terms hereof, is outstanding.
8. Reaffirmation. Except as specifically modified by this Amendment,
the ECC Credit Agreement and the Simulation Credit Agreement and all other Loan
Documents referred to in either thereof shall remain unchanged and in full force
and effect, and this Amendment shall be construed as supplemental thereto, and
each of ECC and Simulation 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. Each of ECC and
Simulation further reaffirms all guaranties, liens and security interests
heretofore granted by it to Bank pursuant to the Loan Documents, including
without limitation the liens, security interests and guaranties granted pursuant
to the Security Agreement dated September 20, 1994, among Bank, ECC, ECC
International, Inc. and Educational Computer Corporation International
("Security Agreement"), that certain Guarantee and Debenture dated September 20,
1994, executed and delivered by Simulation to Bank ("Guaranty and Debenture"),
that certain Guaranty and Surety Agreement dated September 20, 1994, from ECC,
ECC International, Inc. and Educational Computer Corporation to Bank
("Guaranty") and that certain Mortgage, Assignment of Rents and Security
Agreement dated April 6, 1995 from ECC to Bank ("Mortgage").
9. Counterpart. This Amendment may be executed in any number of
counterparts, each of which shall constitute an original and all of which, taken
together, shall constitute one and the same instrument.
-4-
<PAGE> 5
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
Attest: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
Attest: ECC SIMULATION LIMITED
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
FIRST UNION NATIONAL BANK
By: /s/ Stephanie Micua
------------------------------
Name: Stephanie Micua
Title: Asst. Vice President
-5-
<PAGE> 6
JOINDER
Each of the undersigned consents to the foregoing Amendment, the terms
of which are incorporated herein by reference.
IN WITNESS WHEREOF, the undersigned have executed this Joinder this
17th day of February, 1998.
Attest: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
Attest: EDUCATIONAL COMPUTER
CORPORATION INTERNATIONAL
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
-6-
<PAGE> 1
EXHIBIT 10.3
First Union National Bank
Portfolio Management
PA 1310
123 South Broad Street
Philadelphia, Pennsylvania 19109-1199
Fax 215-985-3143
March 16, 1998
Relland Winand
Chief Financial Officer
ECC International Corp.
176 Strafford Ave.
Wayne, PA 19087-3377
Dear Rell:
Reference is made to that certain:
1. Term Loan and Revolving Credit Agreement, dated as of September 20,
1994 (together with all amendments and modifications thereto), by and between
ECC International Corp. ("ECC"), and First Fidelity Bank, National Association
(the "Bank"; now named First Union National Bank), and all of the documents,
instruments and agreements executed in connection therewith (collectively, the
"ECC Loan Documents").
2. Revolving Credit Agreement, dated as of September 20, 1994 (together
with all amendments and modifications thereto), by and between ECC Simulation
Limited ("Simulation," and, together with ECC, the "Borrowers"), and the Bank
and all of the documents, instruments and agreements executed in connection
therewith (collectively, the "Simulation Loan Documents" and, together with the
ECC Loan Documents, the "Loan Documents").
Terms capitalized but not defined herein shall have the meanings
ascribed thereto in the Loan Documents.
The Borrowers have requested that the Bank agree to modify Section P.1
of the Term Loan and Revolving Credit Agreement and Section N.1 of the Revolving
Credit Agreement to substitute $6,000,000.00 for $3,000,000.00 where it appears
therein (representing the maximum amount ECC may lend to Simulation) (the
"Modification") and the Bank has agreed to do so pursuant to the terms hereof,
such Modification to be effective as of 3/16/98.
<PAGE> 2
The Borrowers hereby affirm, as of the date hereof, the representations
and warranties set forth in the Loan Documents exactly as if they were made on
and as of the date hereof, except where disclosed to the Bank in writing prior
to the date hereof or where immaterial. The Borrowers represent and warrant that
there is no breach of any term, covenant or provision of the Loan Documents
(other than as set forth above) and that no Event of Default or other event
which, with the passage of time, the giving of notice, or both, would become an
Event of Default has occurred and is continuing. The Borrowers agree that the
Loan Documents are binding and enforceable against the Borrowers pursuant to the
terms thereof and the Borrowers have no defenses, set-offs, or counterclaims to
their obligations thereunder.
In reliance upon the Borrowers' reaffirmation and representations and
warranties stated above, and notwithstanding the terms of the Loan Documents,
the Bank agrees to the Modification.
The foregoing Modification is effective only in this instance and for
the purpose for which it is given. All other terms, covenants and conditions of
the Loan Documents are hereby reaffirmed, ratified and confirmed in all respects
and shall remain in full force and effect. Nothing contained herein is intended
to be or shall be construed as a waiver of any other default or any of the
Bank's rights and remedies under the Loan Documents and applicable law, all of
which are expressly reserved and preserved.
Please acknowledge your receipt and acceptance of this letter by
signing below (and having the guarantors identified below also sign where
indicated) and returning a copy to the Bank. Upon the Bank's receipt of an
executed copy of this letter, this letter will become effective.
Sincerely yours,
FIRST UNION NATIONAL BANK
By: /s/ Stephanie Micua
----------------------------
Name: Stephanie Micua
Title: Asst. Vice President
-2-
<PAGE> 3
THE UNDERSIGNED ACKNOWLEDGE, CONSENT AND AGREE TO THE FOREGOING TERMS, COVENANTS
AND CONDITIONS AND AGREE TO BE BOUND THEREBY.
Date: March 16, 1998
BORROWER
ATTEST: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
GUARANTOR
ATTEST: ECC SIMULATION LIMITED
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary Title: President
GUARANTOR
ATTEST: EDUCATIONAL COMPUTER CORPORATION
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL, INC.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
-3-
<PAGE> 4
BORROWER
ATTEST: ECC SIMULATION LIMITED
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary Title: President
GUARANTOR
ATTEST: EDUCATIONAL COMPUTER CORPORATION
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL, INC.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary/Treasurer Title: President
GUARANTOR
ATTEST: ECC INTERNATIONAL CORP.
By: /s/ Relland Winand By: /s/ George W. Murphy
------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President
-4-
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
Obligation # __________________
February 17, 1998
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 UNION NATIONAL BANK (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 October 1, 1998.
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 to date, including 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,
<PAGE> 2
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.
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
-2-
<PAGE> 3
is obligated to pay 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 exercise thereof, or the exercise of any
other right, power, remedy or privilege.
-3-
<PAGE> 4
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 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.
-4-
<PAGE> 5
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/ George W. Murphy
------------------------------ --------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Vice President, Finance Title: President/CEO
Address: 175 Strafford Avenue
Wayne, PA 19087
Telecopier No. (610) 254-9268
-5-
<PAGE> 6
EXHIBIT A
Notice of Borrowing Under Revolving Credit
DATE OF BORROWING:_______________________________
DATE OF NOTE:____________________________________
AMOUNT REQUESTED: $______________________________
INTEREST RATE BASIS:_____________________________
INTEREST 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 to date, including by Amendment of even date
herewith (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.
5. Use of Borrowing will be to: ________________________________.
Date: ______________, 19__ ECC INTERNATIONAL CORP.
By:____________________________
Name:
Title:
-6-
<PAGE> 7
AMENDED AND RESTATED
REVOLVING CREDIT NOTE
Obligation # _________________
February 17, 1998
Philadelphia, Pennsylvania
$5,500,000
FOR VALUE RECEIVED, and intending to be legally bound hereby, the undersigned
Borrower, ECC SIMULATION LIMITED, unconditionally promises to pay to the order
of FIRST UNION NATIONAL BANK, (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 October 1, 1998.
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.1. of
that certain Revolving Credit Agreement dated September 20,
1994 between the Bank and the Borrower, as amended to date,
including 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 in accordance with the Loan Agreement. All payments
hereunder shall be made in lawful currency of the United
States of America or in pounds sterling, as set forth in the
Loan Agreement, 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.
-7-
<PAGE> 8
Any capitalized term used herein without definition shall have
the definition contained in the Loan Agreement
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 five
(5) Business Days 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.1.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 pursuant to the terms
hereof and under any other Loan Document, then to accrued and
unpaid interest and then to
-8-
<PAGE> 9
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 exercise thereof, or the exercise of any
other right, power, remedy or privilege.
-9-
<PAGE> 10
C. MISCELLANEOUS.
1. GOVERNING LAW. This Note shah 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 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.
-10-
<PAGE> 11
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 SIMULATION LIMITED
/s/ Relland Winand By: /s/ George W. Murphy
- ------------------------------ ------------------------------
Name: Relland Winand Name: George W. Murphy
Title: Secretary Title: President
Address: 175 Strafford Avenue
Wayne, PA 19087
Telecopier No.: (215) 254-9268
-11-
<PAGE> 12
EXHIBIT A
NOTICE OF BORROWING UNDER
REVOLVING CREDIT
DATE OF BORROWING:_______________________________
DATE OF NOTE:____________________________________
AMOUNT REQUESTED: $______________________________
INTEREST RATE BASIS:_____________________________
INTEREST PERIOD (IF APPLICABLE):_________________
The Borrower hereby notifies the Bank that it requires a borrowing ("Borrowing")
under the Revolving Credit Agreement dated September 20, 1994 (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.
5. Use of Borrowing will be: ____________________________________
_____________________________________________________________.
Date: ______________, 19__
ECC SIMULATION LIMITED
By:____________________________
Name:
Title:
-12-
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