SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Fiscal Year Ended June 27, 1997
( ) 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: 0-10726
C-COR ELECTRONICS, INC.
(Exact name of Registrant as specified in its charter)
Pennsylvania 24-0811591
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
60 Decibel Road
State College, Pennsylvania 16801
(Address of principal executive offices and Zip Code
Registrant's telephone number, including area code: (814) 238-2461
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes (X) No ( )
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will
not be contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. ( )
As of September 5, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $122,115,561.
As of September 5, 1997, the Registrant had 9,141,514 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
1) 1997 Annual Report to Shareholders (Parts I, II and IV)
2) Proxy Statement dated September 15, 1997 (Part III)
<PAGE>
PART I
Item 1. Business
Some of the information presented in this report constitutes forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Corporation believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include the timing of orders received from customers;
the gain or loss of significant customers; changes in the mix of products sold;
changes in the cost and availability of parts and supplies; fluctuations in
warranty costs; completion of a tentative settlement for certain litigation; new
product development activities; regulatory changes affecting the
telecommunications industry, in general, and the Corporation's operations, in
particular; competition and changes in domestic and international demand for the
Corporation's products; and other factors which may impact operations and
manufacturing. For additional information concerning these and other important
factors which may cause the Corporation's actual results to differ materially
from expectations and underlying assumptions, please refer to the reports filed
by the Corporation with the Securities and Exchange Commission.
Introduction
C-COR Electronics, Inc. (the "Corporation") was incorporated in the Commonwealth
of Pennsylvania on June 30, 1953. Prior to fiscal year 1996, the Corporation
operated in one industry segment broadly defined as the Electronic Distribution
Products segment. During the fiscal year ended June 28, 1996, a fundamental
shift occurred in the markets and customers, as cable television (CATV)
operators reduced their purchases of the Corporation's Digital Fiber Optics
Equipment in lieu of other technology alternatives. As a result, in fiscal years
1996 and 1997, the Corporation operated in two industry segments: the Electronic
Distribution Products segment which represents the Corporation's continuing
operations and provides hybrid fiber coax (HFC) equipment for signal
distribution applications, primarily to the CATV market; and the Digital Fiber
Optics Transmission Products segment which has been reported as a discontinued
business segment in fiscal year 1997 and provides products for long-distance,
point-to-point video, voice and data signal transmission applications, primarily
for telephony, distance-learning and other non-CATV markets. On July 10, 1997,
the Corporation announced its intent to discontinue its Digital Fiber Optics
Transmission Products segment in a phase-down process expected to span nine
months. See "Discontinued Operations." In the remainder of this document, the
discussions are based on continuing operations, except where the context
indicates otherwise. The Corporation's headquarters are in State College,
Pennsylvania, and its manufacturing facilities are in State College, Reedsville,
and Tipton, Pennsylvania, and in Tijuana, Mexico. The Corporation also maintains
administrative offices in Denver, Colorado; Toronto, Canada; Almere, The
Netherlands; and Hong Kong. During fiscal year 1997, the Corporation announced
that it would transfer the manufacture of the power supply assembly component of
its radio frequency (RF) amplifiers to the Corporation's new production facility
in Mexico in the summer of 1997. That transfer has taken place and initial
shipments began in August 1997.
The Corporation has been approved for ISO 9001 registration at its Pennsylvania
manufacturing facilities. ISO 9001 is the most comprehensive of all ISO 9000
series requirements and includes quality assurance in design, development,
production, installation and servicing. Criteria for registration are set by the
International Organization for Standardization, whose function is to develop
global standards in an effort to improve the exchange of goods and services
internationally. This designation builds on the Corporation's reputation as a
high-quality, global provider of transmission electronics.
ELECTRONICS DISTRIBUTION PRODUCTS SEGMENT
Products and Services
The Corporation provides three principal product families for use in broadband
voice, video, and data networks: RF amplifiers, amplitude modulation (AM) fiber
optic equipment, and network management systems. Amplifiers include a series of
FlexNet(R) 862 MHz and 750 MHz trunks, terminating bridgers, and line extenders
designed specifically for use in today's widely-accepted HFC network
architectures. The newest addition to this line is FlexNet(R) 900 Series
amplifiers, which offer high performance, two-way capability, and advanced
powering for today's complex communications networks. Other RF distribution
products available from the Corporation include push-pull, power-doubling, and
feedforward technologies; trunk, minitrunk, and split-band amplifiers; and main
line passives to 1 GHz. In fiscal year 1997, shipments began of the I-Flex(TM)
global product family, specially designed for fiber-intensive architectures that
require cabinet and pedestal mount housings. Featuring 862 MHz bandwidth
capability, the I-Flex(TM) product line consists of amplifiers and fiber optic
nodes.
The Corporation's AM fiber optic products include a wide range of both headend
and strand-mounted equipment designed for use in HFC applications. Headend
equipment, which operates up to 862 MHz, includes a universal mainframe,
high-performance Distribution Feedback (DFB) transmitters at a variety of output
powers, receivers for both forward and return path applications, and power
supplies. FlexNode (TM), the Corporation's 6-port AM fiber optic node, features
750 MHz and 862 MHz bandwidth capability, maximum performance with RF and optics
in one module, simplified internal fiber management and 90 volt powering. The AM
fiber optic products are fully integrated into the Corporation's Cable Network
Management (CNM(TM)) system.
CNM(TM) is a network management system that is playing an increasingly critical
role in communications. This user-friendly, computer-based control and
monitoring system aids in outage prediction, notifying the operator of problems,
often before they even occur, so maintenance crews can go directly to a problem
without having to search the system unit by unit.
In fiscal year 1997, the Corporation announced a cooperative marketing agreement
with Bay Networks, Inc., LANcity Cable Modem Division (now called Broadband
Technologies Division), to focus on delivery of high-speed data over HFC
networks. The companies agreed to work together to help ensure interoperability
of equipment and quality delivery of high-speed data over these networks. The
first step in the relationship has involved focusing on interoperability of Bay
Networks' modems and the Corporation's DataSelect(TM) offering of HFC equipment
and related technical services.
In support of its products, the Corporation offers a complete line of technical
customer services, including pre-sale analysis and consultation, network design,
field engineering, technical documentation, training seminars, and equipment
repair and testing.
Sales and Distribution
The Corporation's principal customers include operators of communication
networks worldwide, as well as network integrators. During fiscal year 1997,
consolidation continued to occur among cable operators in the domestic CATV
industry; however, the Corporation does not consider that occurrence to have had
a material impact on its business. Most of the Corporation's sales were
comprised of equipment manufactured or provided by the Corporation, with the
remainder being from services. Sales efforts are conducted from the
Corporation's headquarters; from offices in Colorado, Canada and Europe; and
from 8 regional sales offices located throughout the United States.
For the fiscal year ended June 27, 1997, the Corporation's international sales
from continuing operations represented 19% of net sales, primarily in the
Canadian, Asian, European, and Latin American markets. In the fiscal years ended
June 28, 1996, and June 30, 1995, international sales from continuing operations
were 39% and 40%, respectively, of net sales. See the discussion of segment
information in the Corporation's 1997 Annual Report to Shareholders, Note R,
incorporated herein by reference.
During the past fiscal year, the Corporation's CATV customers have included
almost all of the largest system operators in the United States. The
Corporation's largest customer during the fiscal year ended June 27, 1997, was
Time Warner Cable, which accounted for 36% of net sales. The Corporation's
largest customers during the fiscal year ended June 28, 1996 were Rogers
Cablesystems, Inc. and Time Warner Cable, each accounting for 18% of net sales.
During the fiscal year ended June 30, 1995, the Corporation's largest customers
were Rogers Cablesystems, Inc., accounting for 24% of the net sales, and Time
Warner Cable, accounting for 19% of net sales. No other customer accounted for
10% or more of net sales during fiscal years 1995, 1996, and 1997, respectively.
At June 27, 1997, the Corporation's backlog of orders was $34.9 million. At June
28, 1996, the Corporation's backlog of orders was $24.3 million, and at June 30,
1995, it was $53.8 million. For additional information regarding backlog, refer
to Management's Discussion and Analysis of Financial Condition and Results of
Operation incorporated herein by reference to pages 17 through 20 of the
Registrant's 1997 Annual Report to Shareholders.
Research and Product Development
The Corporation operates in an industry that is subject to rapid changes in
technology. The Corporation's ability to compete successfully depends in large
part upon its ability to react to such changes. Accordingly, the Corporation is
engaged in ongoing research and development activities that are intended to
advance existing product lines, provide custom-designed variations of existing
product lines, and develop or evaluate new products. Research and development
activities for the three major product groups are conducted at the Corporation's
headquarters. The Corporation has an interdepartmental team which assigns
product development priorities. The result is a market-driven set of guidelines
for the timely development of new products. During this past fiscal year,
research and product development expenditures have been primarily directed at
expanding the Corporation's RF amplifier line, AM fiber optic technology and
network management systems.
During fiscal year 1997, the Corporation continued implementation of product
development process changes in order to improve cycle time to design, develop
and deliver new products; reduce manufacturing costs; and improve design
quality.
During the fiscal years ended June 27, 1997, June 28, 1996, and June 30, 1995,
the Corporation spent approximately $5,681,000, $4,857,000, and $3,786,000,
respectively, on research and development, primarily related to RF distribution
equipment, AM fiber optic systems, and network management. Anticipated new
product development initiatives focused on AM fiber optics, network management,
and other technology areas, are expected to result in increased research and
development expense in future years, as compared to fiscal year 1997. None of
the research and product development expenditures have been capitalized.
Competition
The Corporation's products are marketed with emphasis on their premium quality
and are generally priced competitively with other manufacturers' product lines.
Equipment reliability, superior customer service and an enhanced warranty
program are several of the key criteria for competition. In these respects, the
Corporation considers its competitive position to be favorable. Other bases for
competition include pricing and technological leadership. Although less
expensive products are available, the Corporation believes it is in a good
competitive position with respect to pricing. The Corporation believes that its
strong commitment to efficient network design, a broad offering of technical
customer services, and its focus on research and development, enhance its
competitive position in the market.
There are several competing equipment vendors selling network products in the
United States, a few of which have greater sales of similar equipment than the
Corporation; however, the Corporation believes it offers a broader product line
in the RF distribution amplifier segment of the market.
Currently, CATV networks serve more than 64.5 million subscribers in the United
States. CATV construction has evolved to the point where this network passes
over 95% of TV households in the United States. The CATV industry claims that
their market penetration exceeds 60% and is approaching 65%. Over the next
several years, most industry observers expect this trend to continue. However,
there are alternative methods of distributing entertainment video or information
services to subscribers. All of the methods compete, to a limited extent, with
conventional CATV services. The alternative distribution technologies include
Off Air Broadcast Service, Multichannel Multipoint Distribution Service (MMDS),
Local Multipoint Distribution Service (LMDS), Satellite Master Antenna
Television (SMATV), and Direct Broadcast Satellite Service (DBS). Generally,
these alternative technologies are limited in terms of their ability to deliver
two-way service and/or local programming. Based upon these limitations, it is
the Corporation's belief that such technologies will mature to the point that
they serve a relatively narrow segment of the market. On the other hand, a CATV
network has two-way capability and has the ability to deliver vast amounts of
information to subscribers. As a result, the Corporation believes that the CATV
industry is uniquely positioned to benefit from the evolution that is occurring
in the telecommunications industry, particularly in the area of high-speed data
delivery. Similarly, due to its reputation and long-standing tradition of
servicing the CATV industry with excellence, the Corporation believes that it is
strategically positioned to grow and expand with the industry.
External Influences/Industry
The primary market factors affecting the global communications industry include
access to funding, technology advancements, and government regulations. The
increased demand for products offered by the Corporation to domestic and
international customers has resulted from a combination of the market factors
listed above. In recent years, the global communications industry has grown
rapidly by constructing networks to meet the increased demand for video, voice,
and data services.
A significant amount of consolidation has occurred over recent years in the
domestic communications industry. Cable companies have bought other cable
companies in order to achieve efficiency through clustering of properties.
Telephone companies (telcos) have bought telcos. Telcos have even bought cable
companies. Overall, the Corporation believes this consolidation has, in some
cases, led to delays in plans for network construction resulting in slower
ordering of products and services as network planners take time to assess their
new situation.
In the area of technology, advancements in the global communications industry
are occurring at a rapid rate. Traditional, one-way broadband amplifier cascades
are being replaced by two-way HFC architectures which employ fiber optic
electronics to individual service cells (nodes). The Corporation believes that
HFC networks could have significant strategic advantages in the future as the
demand grows for the highest-capacity, lowest-cost networks for delivery of
two-way, high-speed, data service. The Corporation has combined its strength in
conventional RF amplifiers with an increasing presence in the areas of AM fiber
optics and network management systems, and believes that it is well positioned
to be a supplier in the interactive multimedia network industry.
Cable operators have traditionally used HFC network architectures for providing
video services to the home. The HFC network architecture utilized in the CATV
industry has been embraced by several telcos, while others continue to explore
their options between HFC and other approaches and technologies, such as DBS,
FTTC (fiber to the curb) and ADSL (asymmetrical digital subscriber line). Sales
by the Corporation of HFC equipment to customers in the telephone industry
declined in fiscal year 1997. The Company believes the decline resulted from
reassessment of strategic alternatives and priorities by the telcos in
connection with pursuing direct competition with cable MSO's in providing video
services.
The regulatory environment in the United States has changed in recent periods
with the passage of the Telecommunications Act of 1996. Key provisions of the
Telecommunications Act are designed to enhance competition in the industry in
that they permit telcos to sell video services, and in some cases, to buy out
local cable companies; allow cable operators to charge what they wish for many
channels; allow Regional Bell Operating Companies (RBOC's) to sell long-distance
services, under certain conditions; require local telcos to open their networks
to competitors; and allow RBOCs to manufacture customer equipment. The
Corporation believes that competition among customer groups (CATV operators and
telcos, competing to build networks and offer similar services, could benefit
the Corporation as a key equipment provider for those networks.
While the Telecommunications Act of 1996 was viewed by many in the domestic
communications industry as the necessary catalyst to opening a robust network
building cycle in the United States, the Corporation has not seen a significant
increase in orders directly attributable to the benefits described above. The
Corporation's domestic sales did increase 26% for fiscal year 1997 over sales
for the previous fiscal year, but the majority came from traditional domestic
cable operators. The Corporation believes the increase was a result of network
upgrade activity, by new and existing customers, to enhance capacity with
expanded bandwidth products. The push to upgrade networks is being driven by
demand for increased and improved services, affecting not only video and voice
requirements, but also demand for two-way, high-speed, data.
International demand for advanced services is increasing as well, as mature
markets are deregulating and emerging economies are seeking to expand their
communications capabilities. The Corporation sees the international markets as a
key growth area now, and in the future and will continue to pursue opportunities
in the international markets.
Employees
The Corporation had approximately 1,200 employees as of September 5, 1997, of
whom approximately 70% were engaged in manufacturing, inspection, and quality
control activities. The remainder were engaged in executive, administrative,
sales, product development, research, and technical customer services
activities. The technical staff includes 103 employees with baccalaureate or
more advanced degrees in engineering or other technical disciplines, and an
additional 304 persons with at least two years of technical college or military
education equivalent to a two-year degree. None of the employees are represented
by a collective bargaining representative.
Suppliers
The Corporation closely monitors supplier delivery performance and quality and
employs a strategy of limiting the total number of suppliers to those who are
quality leaders in their respective specialties and who will work with the
Corporation as partners in the supply function. Typical items purchased are die
cast aluminum housings, RF hybrids, printed circuit boards, fiber optic laser
transmitter assemblies, and standard electronic components. Although a few of
the components used by the Corporation are single-sourced, the Corporation has
experienced no significant difficulties to date in obtaining adequate quantities
of raw materials and component parts.
In fiscal year 1997, the Corporation continued its implementation of process
changes focused on order fulfillment. The goal of this corporate-wide effort has
been to reduce cycle time throughout the manufacturing process, reduce
inventory, improve productivity, and enhance product quality.
Key to the success of inventory reduction is the implementation of in-house
vendor supply relationships. Through this method, the Corporation can gain
access to key parts needed in the manufacturing process on a "just-in-time"
basis. The Corporation has implemented a number of in-house vendor supply
relationships to date.
DISCONTINUED OPERATIONS
Digital Fiber Optics Transmission Products Segment
On July 10, 1997, the Corporation announced its intent to discontinue its
Digital Fiber Optics Transmission Products segment in a phase-down process
expected to span nine months. The Digital Fiber Optics Transmission Products
segment provided products for long-distance, point-to-point video, voice and
data signal transmission applications, primarily for telephony, distance-
learning and other non-CATV markets. Customers were primarily telcos, major
broadcast companies and educational institutions. The decision to discontinue
this segment was based on an assessment of the potential return on continued
funding of product development for the Corporation's proprietary digital
technology versus other opportunities for investments in the Corporation's core
business, especially AM fiber optics technology.
Research and development expenditures for this segment were $4,005,000,
$4,544,000, and $2,836,000 in fiscal years 1997, 1996 and 1995, respectively.
This business segment has been accounted for as a discontinued business segment
in fiscal year 1997, and its results have been excluded from continuing
operations for all periods presented in the Corporation's fiscal year 1997
consolidated financial statements, incorporated herein by reference to pages 21
through 34 of the Registrant's 1997 Annual Report to Shareholders.
Additional information regarding discontinued operations and segment performance
is incorporated by reference to Notes B (Discontinued Operations) and R (Segment
Information) on pages 26 and 32 of the Registrant's 1997 Annual Report to
Shareholders.
Item 2. Properties
The Corporation operates the following principal facilities:
<TABLE>
Approximate (O)Owned
Location Principal Use Square Feet (L)Leased
<S> <C> <C> <C>
State College, Pennsylvania Administrative Offices
and Manufacturing 133,000 O
Tipton, Pennsylvania Manufacturing 45,000 O
Reedsville, Pennsylvania Manufacturing 60,000 L
Tijuana, Mexico Manufacturing 25,200 L
Almere, The Netherlands Administrative Offices 14,100 L
Ajax, Ontario, Canada Administrative Offices 5,000 L
</TABLE>
The Corporation believes its current facilities are well maintained and in good
operating condition, and that such facilities are sufficient for its present
operations.
Item 3. Legal Proceedings
On or about March 31, 1995, James and Elizabeth McCarthy, who own 150 shares of
the Registrant's Common Stock, filed a complaint in the United States District
Court for the Eastern District of Pennsylvania against the Corporation and its
then Chief Executive Officer, Richard E. Perry, alleging that, during the period
January 17, 1995, through March 24, 1995, the defendants knowingly or recklessly
omitted material information about the Registrant in violation of Sections 10
(b) and 20 (a) of the Securities Exchange Act of 1934 and common law. The
complaint seeks permission to proceed as a class action on behalf of certain
persons who purchased shares of the Registrant's Common Stock during the period
January 17, 1995, through March 24, 1995, and who were allegedly damaged. The
complaint seeks compensatory damages in an unspecified amount and costs and
expenses relating to the complaint, including reasonable attorney's fees. On May
26, 1995, the Corporation filed a motion to dismiss the complaint which was
denied in part and granted in part on December 28, 1995. Plaintiffs have filed a
motion for class certification, and the Corporation is preparing its opposition.
Discovery has commenced, but a trial date has not yet been set.
On September 17, 1997, a tenative settlement was reached in this matter which,
subject to completion of documentation and approval by the Court, would require
the Corporation to make a payment in the first or second quarter of fiscal year
1998 of an amount that (net of insurance proceeds) is not expected to have a
material adverse effect on the Corporation's results of operations for such
periods.
Item 4. Submission of Matters to a Vote of Securities Holders
There were no matters submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 27, 1997.
Executive Officers of the Registrant
All executive officers of the Corporation are elected annually at the Annual
Meeting of the Board of Directors (which is normally held on the date of the
Annual Meeting of Shareholders of the Corporation) to serve in their office for
the next succeeding year and until their successors are duly elected and
qualified. The listing immediately following this paragraph gives certain
information about the Corporation's executive officers, including the age,
present position, and business experience during the past five years.
Name Age Position/Experience
Richard E. Perry 67 Chairman since June 1986; Chief Executive
Officer from July 1985 to August 1996;
President from July 1985 through December
1992.
Scott C. Chandler 36 President and Chief Executive Officer since
August 1996. Vice President-General Manager,
U S WEST Cable & Multimedia, Regional Bell
Operating Company (RBOC), from September
1995 to August 1996; Vice President-General
Manager, !NTERPRISE America, a subsidiary of
U S WEST Communications (RBOC), from January
1994 to August 1995; Director-Vendor
Relations/Channel Support, !NTERPRISE
Networking Services, a subsidiary of U S WEST
Communications (RBOC), from January 1992 to
December 1993; Director, Market Strategy
Development, U S WEST, Inc., (RBOC), from
June 1990 to December 1991.
Edwin S. Childs 58 Vice President-Human Resources since August
1996; Director, Human Resources from
September 1986 to July 1996.
David J. Eng 44 Sr. Vice President-Worldwide Sales since
March 1997; Vice President - Sales, North,
Central and South America from August 1996 to
March 1997; Vice President-Sales & Marketing
from August 1994 to August 1996. Director,
Regional Telephony Sales, Scientific Atlanta,
Inc. from March 1993 to July 1994; Regional
Sales Manager, Scientific Atlanta, Inc. from
April 1985 to February 1993.
Lawrence R. Fisher, Jr. 47 Vice President-Engineering since August 1996;
Director, RF Engineering Product Development
from June 1995 to July 1996; Manager, RF
Engineering from June 1994 to May 1995.
Director of Engineering, Calan, Inc. from
January 1993 to May 1994. Vice President,
Bulick & Fisher Sales Associates from March
1990 to December 1992.
Chris A. Miller 44 Vice President-Finance, Secretary and
Treasurer since July 1995; Controller,
Planning Manager and Assistant Secretary from
February 1993 to July 1995; Controller and
Assistant Secretary from February 1987 to
February 1993.
Donald F. Miller 55 Vice President-Operations & Manufacturing
since August 1995; Plant Manager from
September 1987 to August 1995.
Gerhard B. Nederlof 49 Sr. Vice President, Marketing, Business
Development and Services since March 1997;
Vice President-Sales, Europe and Pacific Rim
from August 1996 to March 1997; Vice
President-International from January 1992 to
August 1996. Managing Director of DataCable
B.V. from November 1981 to January 1992.
PART II
Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The information required by this item is incorporated herein by reference to
page 36 of the Registrant's 1997 Annual Report to Shareholders under the caption
"Stock Listing."
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference to
the inside cover of the Registrant's 1997 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The information required by this item is incorporated herein by reference to
pages 17 through 20 of the Registrant's 1997 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference to
pages 21 through 34 of the Registrant's 1997 Annual Report to Shareholders.
Item 9. Changes and Disagreements on Accounting and Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
The information with respect to Directors required by this item is incorporated
herein by reference to pages 2 and 3 of the Registrant's Proxy Statement dated
September 15, 1997.
The information with respect to Executive Officers required by this item is set
forth in Part I of this report.
To the Corporation's knowledge, based soley on a review of the copies of such
reports furnished to the Corporation and written representations, and no other
reports were required during the fiscal year ended June 27, 1997, its officers,
directors, and ten-percent shareholders complied with all applicable Section
16(a) filing requirements, except that Mr. Chandler filed a single report on
Form 4 approximately one month late to report a single purchase of approximately
2,500 shares of the Corporation's Common Stock shortly after he became President
and Chief Executive Officer of the Corporation.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to
pages 6 through 12 of the Registrant's Proxy Statement dated September 15, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated herein by reference to
pages 4 and 6 of the Registrant's Proxy Statement dated September 15, 1997.
Item 13. Certain Relationships and Related Transactions
The Registrant had no related transactions or relationships requiring disclosure
under Regulation S-K, Item 404, during the fiscal year 1997.
PART IV
ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) As indicated in Item 8 of Part II, the following
consolidated financial statements of the Registrant included in
the Registrant's 1997 Annual Report to Shareholders for the
year ended June 27, 1997, are incorporated by reference to
pages 21 through 34 of the Registrant's Annual Report to
Shareholders.
Consolidated Balance Sheets -- Years ended June 27, 1997, and
June 28, 1996.
Consolidated Statements of Operations -- Years ended June 27,
1997, June 28, 1996, and June 30, 1995.
Consolidated Statements of Cash Flows -- Years ended June 27,
1997, June 28, 1996, and June 30, 1995.
Consolidated Statements of Shareholders' Equity -- Years ended
June 27, 1997, June 28, 1996, and June 30, 1995.
Notes to Consolidated Financial Statements.
Report of KPMG Peat Marwick LLP.
(2) The following financial statement schedule of the Registrant is
filed as a part of this report:
Schedule II -- Valuation and Qualifying Accounts
Report of KPMG Peat Marwick LLP
Schedules, other than the one listed above, have been omitted
because they are not applicable or the required information is
shown in the consolidated financial statements or notes thereto.
(3) Exhibits
<TABLE>
NUMBER DESCRIPTION OF DOCUMENTS
<S> <C>
(3) (a) Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit
3-a.1. to Amendment No. 2 to Form S-1 Registration Statement, File No. 2-70661).
(3) (b) Amendment to Articles of Incorporation of Registrant, filed September 21, 1995
(incorporated by reference to Exhibit (3) (b) of Registrant's Form 10-K for the year
ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
(3) (c) Bylaws of Registrant, as amended October 27, 1987, (incorporated by reference to Exhibit
(3) (b) to the Registrant's Form 10-K for the year ended June 30, 1988, Securities and
Exchange Commission File No., 0-10726).
(4) Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4 to Amendment
No. 1 of Form S-1 Registration Statement, File No. 2-70661).
(10) (a) Deferred Compensation Plan between the Registrant and Richard E. Perry dated December 6,
1989, (incorporated by reference to Exhibit (10) (y) to the Registrant's Form 10-K for
the year ended June 30, 1990, Securities and Exchange Commission File No. 0-10726).
(10) (b) 1989 Non-Employee Directors' Non-Qualified Stock Option Plan (incorporated by reference
to Exhibit 28 to Form S-8 Registration Statement, File No. 33-35208).
(10) (c) Employment Agreement dated January 1, 1992, between the Registrant and Gerhard B.
Nederlof (incorporated by reference to Exhibit (10) (v) to the Registrant's Form 10-K for
the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726).
(10) (d) Indemnification Agreement dated February 3, 1992, between the Registrant and Gerhard B.
Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K
for the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726).
(10) (e) Supplemental Retirement Plan Participation Agreement dated April 20, 1993, between the
Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (bb) to the
Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange
Commission File No. 0-10726).
(10) (f) Change of Control Agreement dated May 21, 1993, between the Registrant and Gerhard B.
Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K
for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726).
(10) (g) Change of Control Agreement dated August 22, 1994, between the Registrant and David J.
Eng (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the
year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726).
(10) (h) Form of Indemnification Agreement dated August 22, 1994, between the Registrant and David
J. Eng (incorporated by reference to Exhibit (10) (pp) to the Registrant's Form 10-K for
the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726).
(10) (i) Supplemental Retirement Plan Participation Agreement dated August 22, 1994, between the
Registrant and David J. Eng (incorporated by reference to Exhibit (10) (qq) to the
Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange
Commission File No. 0-10726).
(10) (j) Change of Control Agreement dated May 23, 1995, between the Registrant and Joseph E.
Zavacky (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
(10) (k) Form of Indemnification Agreement dated May 23, 1995, between the Registrant and Joseph
E. Zavacky (incorporated by reference to Exhibit (10) (hh) to the Registrant's Form 10-K
for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
(10) (l) Supplemental Retirement Plan Participation Agreement dated May 22, 1995, between the
Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (ii) to the
Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange
Commission File No. 0-10726).
(10) (m) Change of Control Agreement dated May 22, 1995, between the Registrant and Chris A.
Miller (incorporated by reference to Exhibit (10) (jj) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
(10) (n) Form of Indemnification Agreement dated May 22, 1995, between the Registrant and Chris A.
Miller (incorporated by reference to Exhibit (10) (kk) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
10) (o) Supplemental Retirement Plan Participation Agreement dated August 24, 1995, between the
Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (ll) to the
Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange
Commission File No. 0-10726).
(10) (p) Change of Control Agreement dated August 24, 1995, between the Registrant and Donald F.
Miller (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for
the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726).
(10) (q) Form of Indemnification Agreement dated August 24, 1995, between the Registrant and
Donald F. Miller (incorporated by reference to Exhibit (10) (nn) to the Registrant's Form
10-K for the year ended June 30, 1995, Securities and Exchange Commission File No.
0-10726).
(10) (r) Lease Agreement dated November 10, 1994, between the Registrant and Mifflin County
Industrial Development Corporation for a manufacturing building (incorporated by
reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 30,
1995, Securities and Exchange Commission File No. 0-10726).
(10) (s) Registrant's Retirement Savings and Profit Sharing Plan as Amended July 1, 1989, and
including amendments through April 19, 1994. (incorporated by reference to Exhibit
99.B14 to Form S-8 Registration Statement, File No. 333-02505).
(10) (t) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the
Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (x) to the
Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange
Commission File No. 0-10726).
(10) (u) Change of Control Agreement dated August 13, 1996, between the Registrant and Edwin S.
Childs. (incorporated by reference to Exhibit (10) (y) to the Registrant's Form 10-K for
the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (v) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Edwin
S. Childs. (incorporated by reference to Exhibit (10) (z) to the Registrant's Form 10-K
for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (w) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the
Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (aa) to
the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange
Commission File No. 0-10726).
(10) (x) Change of Control Agreement dated August 13, 1996, between the Registrant and Lawrence R.
Fisher, Jr. (incorporated by reference to Exhibit (10) (bb) to the Registrant's Form 10-K
for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (y) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and
Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (cc) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10) (z) Amended and Restated Employment Agreement dated October 16, 1995, between the Registrant
and Richard E. Perry. (incorporated by reference to Exhibit (10) (dd) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10) (aa) Employment Agreement dated July 2, 1996, between the Registrant and Scott C. Chandler.
(incorporated by reference to Exhibit (10) (ee) to the Registrant's Form 10-K for the
year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (bb) Registrant's Supplemental Executive Retirement Plan effective May 1, 1996. (incorporated
by reference to Exhibit (10) (ff) to the Registrant's Form 10-K for the year ended June
28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (cc) Note and Security Agreement effective November 2, 1995, between the Registrant and Mellon
Bank, N.A. (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K
for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (dd) Supplement to Note and Security Agreement effective November 2, 1995, between the
Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (hh) to the
Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange
Commission File No. 0-10726).
(10) (ee) Revolving Line of Credit Agreement effective November 2, 1995, between the Registrant and
Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (ii) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No.
0-10726).
(10) (ff) Supplement to Revolving Line of Credit Agreement effective November 2, 1995, between the
Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (jj) to the
Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (gg) (i) 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(i) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (gg) (ii) Amendment to 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(ii) to the
Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (hh) (i) 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(i) to the Registrant's
Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726).
(10) (hh) (ii) Amendment to 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(ii) to
the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (ii) Fiscal Year 1997 Profit Incentive Plan. (incorporated by reference to Exhibit (10) (mm) to the
Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission
File No. 0-10726).
(10) (jj) Note and Security Agreement effective November 14, 1996, between the Registrant and Mellon
Bank, N.A.
(10) (kk) Supplement to Note and Security Agreement effective November 14, 1996, between the
Registrant and Mellon Bank, N.A.
(10) (ll) Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and
Mellon Bank, N.A.
(10) (mm) Supplement to Revolving Line of Credit Agreement effective November 14, 1996, between the
Registrant and Mellon Bank, N.A.
(10) (nn) Amended and Restated Employment Agreement dated July 21, 1997, between the Registrant
and Richard E. Perry.
(10) (oo) Amended and Restated Employment Agreement dated July 30, 1997, between the Registrant
and Gerhard B. Nederlof.
(11) Statement re Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended June 27, 1997.
(21) Subsidiaries of the Registrant.
(23) Consent of Independent Auditors.
(27) Financial Data Schedule.
</TABLE>
(b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 1997:
None.
(c) Exhibits: See (a) (3) above.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
C-COR ELECTRONICS, INC.
(Registrant)
September 25, 1997
/s/ Scott C. Chandler, President and
Chief Executive Officer
(principal executive officer)
/s/ Chris A. Miller, Vice President-Finance,
Secretary and Treasurer (principal
financial officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities indicated on the 25th day of September 1997.
/s/ Richard E. Perry, Director, Chairman
/s/ Donald M. Cook, Jr., Director
/s/ I. N. Rendall Harper, Jr., Director
/s/ Anne P. Jones, Director
/s/ John J. Omlor, Director
/s/ Frank Rusinko, Jr., Director
/s/ James J. Tietjen, Director
/s/ Philip L. Walker, Jr., Director
<PAGE>
<TABLE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C COL. D COL. E
ADDITIONS
DESCRIPTION Balance Charged Charged to Balance
at Beginning to Costs Other Accounts- Deductions- at End
of Period and Expenses Describe Describe of Period
- -----------------------------------------------------------------------------------------------------------------------------
Year ended June 27, 1997
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets to
which they apply:
Allowance for Doubtful Accounts $ 355,000 $ 157,000 $0 $ 2,000(1) $ 510,000
Inventory Reserve-Continuing Operations 1,112,000 1,323,000 0 1,202,000(2) 1,233,000
Inventory Reserve-Discontinued
Operations 305,000 3,418,000 0 93,000(2) 3,630,000
- ------------------------------------------------------------------------------------------------------------------------------
$1,772,000 $ 4,898,000 $0 $ 1,297,000 $ 5,373,000
- ------------------------------------------------------------------------------------------------------------------------------
Reserves not deducted from assets:
Product Warranty Reserve-Continuing
Operations $1,724,000 $ 2,310,000 $0 $ 1,849,000(3) $ 2,185,000
Product Warranty Reserve-Discontinued
Operations 0 4,028,000 0 599,000(3) 3,429,000
Workers' compensation self-insurance 704,000 1,068,000 0 610,000(4) 1,162,000
Allowance for Discontinued Operations 0 3,375,000 0 0 3,375,000
- ------------------------------------------------------------------------------------------------------------------------------
$2,428,000 $10,781,000 $0 $ 3,058,000 $10,151,000
- ------------------------------------------------------------------------------------------------------------------------------
Year ended June 28, 1996
Reserves deducted from assets to
which they apply:
Allowance for Doubtful Accounts $ 657,000 $ 0 $0 $ 302,000(1) $ 355,000
Inventory Reserve-Continuing Operations 949,000 819,000 0 656,000(2) 1,112,000
Inventory Reserve-Discontinued
Operations 500,000 273,000 0 468,000(2) 305,000
- ------------------------------------------------------------------------------------------------------------------------------
$2,106,000 $ 1,092,000 $0 $ 1,426,000 $ 1,772,000
- ------------------------------------------------------------------------------------------------------------------------------
Reserves not deducted from assets:
Product Warranty Reserve-Continuing
Operations $1,751,000 $ 1,981,000 $0 $ 2,008,000(3) $ 1,724,000
Workers' compensation self-insurance 553,000 653,000 0 502,000(4) 704,000
- ------------------------------------------------------------------------------------------------------------------------------
$2,304,000 $ 2,634,000 $0 $ 2,510,000 $ 2,428,000
- ------------------------------------------------------------------------------------------------------------------------------
Year ended June 30, 1995
Reserves deducted from assets to
which they apply:
Allowance for Doubtful Accounts $ 348,000 $ 313,000 $0 $ 4,000(1) $ 657,000
Inventory Reserve-Continuing Operations 497,000 546,000 0 94,000(2) 949,000
Inventory Reserve-Discontinued
Operations 151,000 731,000 0 382,000(2) 500,000
- ------------------------------------------------------------------------------------------------------------------------------
$ 996,000 $ 1,590,000 $0 $ 480,000 $ 2,106,000
- ------------------------------------------------------------------------------------------------------------------------------
Reserves not deducted from assets:
Product Warranty Reserve-Continuing
Operations $ 602,000 $ 2,355,000 $0 $ 1,206,000(3) $ 1,751,000
Workers' compensation self-insurance 0 665,000 0 112,000(4) 553,000
- ------------------------------------------------------------------------------------------------------------------------------
$ 602,000 $ 3,020,000 $0 $ 1,318,000 $ 2,304,000
- ------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory disposals.
(3) Warranty claims honored during year.
(4) Worker's compensation claims paid.
Note: Unless otherwise indicated, reserves relate to continuing operations
</FN>
</TABLE>
$23,000,000.00 November 14, 1996
For value received, and intending to be legally bound, Undersigned, as defined
below, promises to pay to Mellon Bank, N.A. ("Bank") or its order at State
College, Pennsylvania the sum of Twenty-Three Million and No/100 Dollars
($23,000,000.00) or such lesser or greater principal amount as may be
outstanding from time to time under the Revolving Line of Credit Agreement dated
August 31, 1994(as amended and supplemented from time to time, the "Credit
Agreement"), between Bank and Undersigned, with interest on the outstanding
balance from the date of this Note and Security Agreement ("Note") at the
rate(s) ("Contractual Rate(s)") specified herein.
Payment of principal and interest shall be due and payable, as set forth in the
attached supplement to Note and Security Agreement.
This Note and Security Agreement is given in replacement of that original Note
and Security agreement dated August 31, 1994, and as amended and restated on
November 1, 1994, December 29, 1994, February 1, 1995, April 3, 1995, and June
21, 1995, in order to extend the maturity date. This is not a novation of the
prior Note and Security Agreement(s). All prior security interests granted shall
carry to this Note and Security Agreement.
After maturity, whether by acceleration or otherwise, interest shall accrue at a
rate 2 percent per annum above the Contractual Rate(s) specified until all sums
due hereunder are paid. Interest shall continue to accrue after the entry of
judgment by confession or otherwise at the Contractual Rate(s) until all sums
due hereunder and/or under the judgment are paid, unless the Contractual Rate(s)
is (are) altered by subsequent maturity, Undersigned agrees to pay to Bank, as
consideration for Bank's commitment under the Credit Agreement, (i) a commitment
fee equal to N/A % per annum on the unborrowed Commitment Amount (as defined in
the Credit Agreement), from time to time, for each day of the Commitment Period
(as defined in the Credit Agreement), and (ii) a facility fee equal to N/A % per
annum on the Commitment Amount (whether borrowed or unborrowed) for each day of
the Commitment Period, in each case payable for the preceding period for which
such fee has not been paid, (a) on the last day of each N/A, and N/A after the
date hereof, (b) on the date of each reduction of the Commitment Amount on the
amount so reduced, and (c) on the last day of the Commitment Period.
If any law, regulation, order, decree or guideline or interpretation or
application thereof by any governmental authority charged with the
interpretation or administration thereof or compliance by Bank with any request
or directive of any governmental authority (whether or not having the force of
law) shall either impose, modify or deem applicable any capital adequacy or
similar requirement against assets (funded or contingent) of, or credits or
commitments to extend credit extended by Bank and the result of any of the
foregoing is to increase the cost to, reduce the income receivable by, or impose
any expense (including loss of margin) upon Bank with respect to the Credit
Agreement, this Note, or the making, maintenance or funding of any part of the
Loans (or, in the case of capital adequacy or similar requirement, to have the
effect of reducing the rate of return on Bank's capital, taking into account
Bank's policies with regard to capital adequacy) by an amount which Bank deems
to be material, Bank shall from time to time notify Undersigned of the amount
determined in good faith by Bank (which determination shall be conclusive absent
manifest error) to be necessary to compensate Bank for such increase, reduction
or imposition. Such amount shall be due and payable by Undersigned to Bank ten
(10) business days after such notice is given.
So long as Bank is the holder hereof, Bank's books and records shall be
presumed, except in the case of manifest error, to accurately evidence at all
times all amounts outstanding under this Note and the date and amount of each
advance and payment made pursuant hereto.
The prompt and faithful performance of all of Undersigned's obligations
hereunder, including without limitation time of payment, is of the essence of
this Note.
Certain terms used in this Note are defined in Section 9 below.
1. Security Interest. Undersigned hereby grants to Bank a security interest in
the following property now owned or hereafter acquired by Undersigned:
no (a) all equipment, wherever located, including machinery, motor
vehicles, furniture and fixtures;
yes (b) all inventory (whether held for sale or lease or to be furnished under
contracts of service), raw materials, work in process, and materials used or
consumed in the conduct of Undersigned's business, and all books, records,
invoices and other documents which describe or evidence the same;
no (c) all farm products;
yes (d) all accounts, contract rights, general intangibles, choses in action,
instruments, chattel paper, documents (including all documents of title and
warehouse receipts) and all rights to the payment of money, however evidenced or
arising;
no (e) the securities described below, together with all cash, stock or other
dividends or distributions paid upon or made in respect of such securities in
any form; all securities received in addition to or in exchange for such
securities; and all subscription rights incident to such securities; and
no (f) Other
(g) In addition to the foregoing, Undersigned (1) grants to Bank a security
interest in all accessions, parts, accessories, attachments and appurtenances in
any way used with, attached or related to, or installed in, any equipment or
inventory constituting "Collateral" hereunder; (2) grants to Bank a security
interest in all substitutions for, renewals of, improvements, replacements and
additions to, and the products and proceeds (cash and non-cash) of all property
constituting "Collateral" hereunder and any insurance policies relating thereto;
(3) grants to Bank a security interest in, lien upon, and right of setoff
against, all deposit accounts, credits, securities, moneys or other property of
Undersigned which may at any time be in the possession of, delivered to, or owed
by Bank, including any proceeds or returned or unearned premiums of insurance,
and the proceeds (cash and non-cash) of all the foregoing property; and (4)
assigns to Bank all moneys which may become payable on any policy of insurance
required to be maintained under this Note, including any returned or unearned
premiums.
All such property subject to Bank's security interests described in this Section
1 is referred to herein collectively as the "Collateral". With respect to
Section 4 hereunder, the term "Collateral" shall not include the property
described in Subsections (g ) (3) and (g) (4) of this Section 1.
All security interests in Collateral shall be deemed to arise and be perfected
under and governed by the Uniform Commercial Code, except to the extent that
such law does not apply to certain types of transactions or Collateral, in which
case applicable law shall govern.
2. Obligations Secured. The Collateral shall secure the following obligations
("Obligations") of Undersigned to Bank: (a) all amounts at any time owing or
payable under this Note, (b) all costs and expenses incurred by Bank in the
collection or enforcement of this Note or the protection of the Collateral; (c)
all future advances made by Bank for taxes, levies, insurance, and repairs to or
maintenance of the Collateral: and (d) any other indebtedness, liability or
obligation of Undersigned to Bank, past, present, or future, direct or indirect,
absolute or contingent, individual, joint or several, now due or to become due,
whether as drawer, maker, endorser. guarantor. surety or otherwise, except that
none of the security interests created herein shall secure any obligation
incurred by Undersigned which is defined as "consumer credit" by Federal Reserve
Board Regulation Z, 12 C.F.R. 226.1 et seq., and is not exempted from the
application of that Regulation.
3. Representations. Undersigned hereby makes the following representations and
warranties which shall be true and correct on the date of this Note and shall
continue to be true and correct at the time of the creation of any Obligation
secured hereby and until the Obligations secured hereby shall have been paid in
full: (a) Undersigned's residence and or Chief Executive Office, as the case may
be, is as stated below or as otherwise stated in a subsequent written notice
delivered to Bank pursuant to the terms hereof; (b) Undersigned has good and
marketable title to the Collateral subject to no security interest, lien or
encumbrance, except as indicated to the contrary to Bank in writing prior to the
execution of this Note; and (c) if any of the Undersigned is an individual, each
such individual is at least 18 years of age and under no legal disability or
incapacity.
4. Covenants. Undersigned covenants and agrees that until the Obligations
secured hereunder have been paid in full, Undersigned shall: (a) use the
proceeds of the Loans evidenced hereby only for the purpose(s) specified to the
Bank at or prior to the execution hereof; (b) not permit use of the Collateral
for any illegal purposes; (c) promptly notify Bank in writing of any change in
its or their residence or Chief Executive Office; (d) not permit removal of any
of the Collateral from county to county or state to state unless Bank has given
written consent in advance; (e) maintain at all times good and marketable title
to all Collateral, free and clear of any security interest, lien or encumbrance
except as to which Bank may grant its prior written consent pursuant to section
4(f) below), and defend such title against the claims and demands of all
persons; (f) not (1) affix the Collateral or permit the Collateral to be affixed
to real estate or to any other goods, (2) lease, mortgage, pledge or encumber
the Collateral, (3) permit the Collateral's identity to be lost, (4) permit the
Collateral to be levied upon or attached under any legal process, (5) permit or
cause any security interest or lien to arise with respect to the Collateral
(other than those created in this Note), or (6) except Collateral customarily
sold by Undersigned in the ordinary course of business and so sold in such
manner for full value, sell, consign, part with possession of, or otherwise
dispose of the Collateral or any rights therein, except as Bank may grant its
prior specific written consent with respect to acts or events specified in
subsections (1), (2), (5) or (6) hereof; (g) maintain the Collateral in good
condition and repair, excepting only reasonable wear and tear; pay and discharge
all taxes and other levies on the Collateral, as well as the costs of repair and
maintenance thereof; and furnish to Bank upon request documentary proof of
payment of such taxes, levies and costs; (h) provide additional collateral at
such times and having such value as Bank may request, if Bank shall have
reasonable grounds for believing that the value of the Collateral has become
insufficient to secure all Obligations evidenced or secured by this Note; (i)
purchase and maintain policies of insurance (including flood insurance) to
protect the Collateral or other property against such risks and casualties, and
such amounts, as shall be required by Bank and/or applicable law, which policies
shall (1) be in form and substance satisfactory to Bank (2) designate Bank as
loss payee and, at Bank's option, as additional insured, and (3) be (or
certificates evidencing the same shall be) deposited with Bank; (j) provide,
upon request, financial or other information, documentation or certifications to
Bank (including balance sheets and income statements), all in form and content
satisfactory to Bank; (k) execute, upon demand by Bank, any financing statements
or other documents which Bank may deem necessary to perfect or maintain
perfection of the security interest(s) created in this Note and pay all costs
and fees pertaining to the filing of any financing, continuation or termination
statements with regard to such security interests; (1) procure, and cause a
statement of Bank's security interest to be noted on, any certificate of title
issued or required by law to be issued with respect to any motor vehicle
constituting part of the Collateral, and cause any such certificate to be
delivered to Bank within 10 days from the later of the date of this Note or the
date of the issuance of such certificate; (m) pay, upon demand, all amounts
incurred by Bank in connection with any action or proceeding taken or commenced
by Bank to enforce or collect this Note or protect, insure or realize upon the
Collateral, including attorney's fees equal to the Lesser of (a) 20% of the
above sum and interest then due hereunder, or $500.00, whichever is greater, or
(b) the maximum amount permitted by law, and attorney's costs and all costs of
legal proceedings; and (n) immediately notify Bank if any of Undersigned's
accounts arise out of contracts with the United States or any department, agency
or instrumentality thereof, and execute any instruments and take any steps
required by Bank in order that all moneys due and to become due under any such
contracts shall be assigned to Bank and notice thereof given to the United
States under the Federal Assignment of Claims Act.
5. Events of Default. The occurrence of any of the following shall constitute an
"Event of Default" hereunder: (a) default in payment or performance of any of
the Obligations evidenced or secured by this Note or any other evidence of
liability of Undersigned to Bank; (b) the breach by any Obligor (defined as
Undersigned and each surety or guarantor of any of Undersigned's liabilities to
Bank, as well as any person or entity granting Bank a security interest in
property to secure the Obligations evidenced hereby) of any covenant contained
in the Credit Agreement, this Note, or in any separate security, guarantee or
suretyship agreement between Bank and any Obligor, the occurrence of any default
hereunder or under the terms of any such agreement, or the discovery by Bank of
any false or misleading representation made by any Obligor herein or in any such
agreement or in any other information submitted to Bank by any Obligor; (c) with
respect to any Obligor: (1) death or incapacity of any individual or general
partner; or (2) dissolution of any partnership or corporation; (d) any
assignment for the benefit of creditors by any Obligor; (e) insolvency of any
Obligor; (f) the filing or commencement of any petition, action, case or
proceeding, voluntary or involuntary, under any state or federal law regarding
bankruptcy, insolvency, reorganization, receivership or dissolution, including
the Bankruptcy Reform Act of 1978, as amended, by or against any Obligor, (g)
default under the terms of any lease of or mortgage on the premises where any
Collateral is located; (h) garnishment, attachment or taking by governmental
authority of any Collateral or other property of the Undersigned which is in
Bank's possession; (i) a determination by Bank, which determination shall be
conclusive if made in good faith, that a material adverse change has occurred in
the financial or business condition of undersigned; or (j) the maturity of any
life insurance policy held as Collateral under this Note by reason of the death
of the insured or otherwise.
6. Acceleration; Remedies. Upon the occurrence of any event of Default: (a) all
amounts due under this Note, including the unpaid balance of principal and
interest thereof, shall become immediately due and payable at the option of
Bank, without any demand or notice whatsoever; (b) Undersigned shall, upon
demand by Bank, assemble the Collateral and promptly make it available to Bank
at any place designated by Bank which is reasonably convenient to both parties;
(c) Bank may immediately and without demand exercise any of its rights and
remedies granted herein, under applicable law, or which it may otherwise have,
against the Undersigned, the Collateral, or otherwise; and (d) Bank may, without
notice or process of any sort, peaceably enter any premises where any vehicle
constituting a part of the Collateral is located and take possession, retain and
dispose of such vehicle and all property located in or upon it. Bank shall have
no obligation to return any property not constituting Collateral found in any
such vehicle unless Bank actually receives undersigned's written request
therefor specifically describing such property within 72 hours after
repossession thereof. Notwithstanding any provision to the contrary contained
herein, upon the occurrence of an Event of default as described in Section 5 (f)
hereof, all amounts due under this Note shall become immediately due and
payable, without any demand, notice, or further action by Bank whatsoever and an
action therefor shall immediately accrue.
7. Bank's Rights. Undersigned hereby authorizes Bank, and Bank shall have the
continuing right, at its sole option and discretion, to: (a) do anything which
Undersigned is required but fails to do hereunder, and in particular Bank may,
if Undersigned fails to do so, (1) insure or take any reasonable steps to
protect the Collateral, (2) pay all taxes, levies, expenses and costs arising
with respect to the Collateral, or (3) pay any premiums payable on any policy of
insurance required to be obtained or maintained hereunder, and add any amounts
paid under this Section 7(a) to the principal amount of the indebtedness secured
by this Note; and direct any insurer to make payment of any insurance proceeds,
including any returned or unearned premiums, directly to Bank. and apply such
moneys to any Obligations or other amounts evidenced or secured hereby in such
order and fashion as Bank may elect; (c) inspect the Collateral at any
reasonable time; (d) pay any amounts Bank elects to pay or advance hereunder on
account of insurance, taxes, or other costs, fees or charges arising in
connection with the Collateral, either directly to the payee of such cost, fee
or charge directly to Undersigned, or to such payee(s) and undersigned jointly;
and (e) pay the proceeds of the Loans evidenced by, this Note to any, or all of
the Undersigned individually or jointly, or to such other persons as any of the
undersigned may direct.
In addition to all rights given to Bank by this Note, Bank shall have all the
rights and remedies of a secured party under any applicable law, including
without limitation, the Uniform Commercial Code.
8. Miscellaneous Provisions. (a) Undersigned waives protest of all commercial
paper at any time held by Bank on which Undersigned is in any way liable, notice
of nonpayment at maturity of any and all accounts, and (except where requested
hereby) notice of action taken by Bank; and hereby ratifies and confirms
whatever Bank may do. Bank shall be entitled to exercise any right
notwithstanding any prior exercise, failure to exercise or delay in exercising
any such right. (b) Bank shall retain the lien of any judgment entered on
account of the indebtedness evidenced hereby, as well as any security interest
previously granted to secure repayment of the indebtedness evidenced hereby, and
Undersigned warrants that Undersigned has no defense whatsoever to any action or
proceeding that may be brought to enforce or realize on such judgment or
security interest. (c) If any provision hereof shall for any reason be held
invalid or unenforceable, no other provision shall be affected thereby, and this
Note shall be construed as if the invalid or unenforceable provision had never
been a part of it. The descriptive headings of this Note are for convenience
only and shall not in any way affect the meaning or construction of any
provision hereof. (d) The rights and privileges of Bank contained in this Note
shall inure to the benefit of its successors and assigns, and the duties of
Undersigned shall bind all heirs, personal representatives, successors and
assigns. (e) This Note shall in all respects be governed by the laws of the
state in which this Note is payable (except to the extent that federal law
governs), and all references to the Uniform Commercial Code shall be deemed to
refer to the Uniform Commercial Code as enacted in such state. (f) Undersigned
hereby irrevocably appoints Bank and each holder hereof as Undersigned's
attorney-in-fact to: (1) endorse Undersigned's name to any draft or check which
may be payable to Undersigned in order to collect the proceeds of any insurance
or any returned or unearned premiums in respect of any policies of insurance
required to be maintained hereunder; and (2) take any action Bank deems
necessary to perfect or maintain perfection of any security interest granted to
Bank herein including executing any document on Undersigned's behalf. (g)
Undersigned shall bear the risk of loss of, damage to, or destruction of the
Collateral, and Undersigned hereby releases Bank from all claims for loss or
damage to the Collateral caused by any act or omission on the part of Bank,
except for willful misconduct. (h) Copies or reproductions of this document or
of any financing statement may be filed as a financing statement.
9. Definitions. As used herein: (a) "account". "chattel paper", "contract
right", "document", "instrument", and "inventory" have the same respective
meanings given to those terms in the Uniform Commercial Code; (b) "general
intangibles" has the meaning given to that term in the Uniform Commercial Code,
including without limitation, customer lists, books and records (including
without limitation, all correspondence, files, tapes, cards, book entries,
computer runs, computer programs and other papers and documents, whether in the
possession or control of Undersigned or any computer service bureau), rights in
franchises and sales contracts, patents, copyrights, trademarks, logos,
goodwill, trade names, label designs, royalties, brand names, plans, blueprints,
inventions, patterns, trade secrets, licenses, jigs, dies, molds, and formulas;
(c) "Chief Executive Office" means the place from which the main part of the
business operations of an entity is managed; and (d) "Undersigned" refers
individually and collectively to all makers of this Note, including, in the case
of any partnership, all general partners of such partnership individually and
collectively, whether or not such partners sign below. Undersigned shall each be
jointly and severally bound by the terms hereof, and, with respect to any
partnership executing this Note, each general partner shall be bound hereby both
in such general partner's individual and partnership capacities.
Capitalized terms not defined in this Note shall have the same meanings set
forth in the Credit Agreement.
10. Confession of Judgment. Undersigned hereby empowers the prothonotary or any
attorney of any court of record to appear for Undersigned and to confess
judgment as often as necessary against Undersigned in favor of the holder
hereof, as of any term, for the above sum plus interest due under the terms
hereof, together with costs of legal proceedings and an attorney's commission
equal to the lesser of (a) 20% of the above sum and interest then due hereunder
or $500.00, whichever is greater, or (b) the maximum amount permitted by law,
with release of all errors. Undersigned waives all laws exempting real or
personal property from execution.
Attest:
Joseph E. Zavacky
(Corporate Seal)
C-COR Electronics, Inc.
By: Chris A. Miller
Title: Vice President - Finance
Address for Notices to Undersigned:
60 Decibel Road
State College, PA 16801
Mellon Bank, N.A.
By: John A. Rodgers
Address for Notices to Bank:
Mellon Bank, N.A.
Attn: Middle Market Banking
P.O. Box 19
State College, PA 16804-0019
AMENDED AND RESTATED
SUPPLEMENT TO NOTE AND SECURITY AGREEMENT
This Amended and Restated Supplement to Note and Security Agreement (this
"Supplement") is annexed to and is part of the Amended and Restated Note and
Security Agreement dated November 12, 1996 of Undersigned payable to MELLON
BANK, N.A. ("Bank") in the stated principal amount of TWENTY-THREE Million
Dollars and No Cents ($23,000,000.00). Such Note and Security Agreement, as
supplemented by this Supplement, shall be referred to as the "Note".
1. Payment. Principal on the Note shall be due and payable on October 31, 1997.
Accrued interest on the Prime Rate Portion, ABS Rate Portion, and As-Offered
Rate Portion shall be due and payable on the last Business Day of each calendar
month after the date hereof and on October 31, 1997. Interest on each Rate
Segment of the LIBOR-Rate Portion shall be due and payable on the last day of
the corresponding Rate Period, but in no case less frequently than 90 days after
the previous interest payment on account of such LIBOR-Rate Portion. After
maturity of any part of the Note (by acceleration or otherwise), interest on
such part of the Note shall be due and payable on demand.
2. Interest Rate Options. The unpaid principal amount of the Note shall bear
interest for each day until due on one or more bases selected by Undersigned
from among the interest rate options ("Interest Rate Options") set forth below.
Undersigned understands and agrees: (a) that Bank may in its sole discretion
from time to time determine that the right of Undersigned to select, convert to
or renew the Prime Rate Option, the ABS Rate Option, the LIBOR-Rate Option, or
As-Offered Rate Option is not available, although Bank agrees to make a good
faith effort to provide all Interest Rate Options to Borrower, and (b) that
subject to the provisions of this Supplement, Undersigned may select any number
of Interest Rate Options to apply simultaneously to different parts of the
unpaid principal amount of the Note and may select any number of Rate Segments
to apply simultaneously to different parts of the LIBOR-Rate Portion.
Available Interest Rate Options
Prime Rate Option: A rate per annum (computed on the basis of a year of 360 days
and actual days elapsed) for each day equal to the Prime Rate.
ABS Rate Option: A rate per annum (computed on the basis of a year of 360 days
and actual days elapsed) for each day equal to the ABS Rate for such day plus
120 Basis Points.
LIBOR-Rate Option: For each Rate Segment of the LIBOR-Rate Portion, a rate per
annum (computed on the basis of a year of 360 days and actual days elapsed) for
each day equal to the LIBOR-Rate for such Rate Segment for such day plus 120
Basis.
As-Offered Rate Option: For each Rate Segment of the As-Offered Rate Portion, a
rate per annum (computed on the basis of a year of 360 days and actual days
elapsed) for each day equal to the As-Offered Rate for such Rate Segment for
such day plus 120 Basis Points.
3. Rate Periods. At any time when Undersigned selects, converts to or renews the
LIBOR-Rate Option or As-Offered Rate Option, Undersigned shall fIx a period (the
"Rate Period") which shall be one, two, or three months and in the case of the
As-Offered Rate Option, shall be such number of days as Bank may offer at its
sole discretion, which shall be acceptable to Bank in Bank's sole discretion,
during which the LIBOR-Rate Option or As-Offered Rate Option shall apply to the
corresponding Rate Segment. Bank's right to payment of principal and interest
under the Note shall in no way be affected by the fact that one or more Rate
Periods may be in effect.
4. Amounts. Every selection of, conversion to or renewal of the ABS Rate Option,
the LIBOR-Rate Option, or the As-Offered Rate option shall be in a principal
amount selected by Undersigned but limited to no more than four interest rate
segments at any one time.
5. Interest After Maturity. After the principal amount of any part of the Prime
Rate Portion or the ABS Rate Portion shall have become due and payable, such
amount shall bear interest for each day until paid (before and after judgment)
at a rate per annum (based on a 360 day year and actual days elapsed) which for
each day shall be the greater of (a) 2% above the Prime Rate Option on the day
such amount became due and (b) 2% above the Prime Rate option, such interest
rate to change automatically from time to time effective as of the effective
date of each change in the Prime Rate. After the principal amount of any part of
the LIBOR-Rate Portion or the As-Offered Rate Option shall have become due and
payable, such amount shall bear interest for each day until paid (before and
after judgment) (a) until the end of the applicable then-current Rate Period at
a rate per annum 2% above the LIBOR-Rate Option or the As-Offered Rate Option
otherwise applicable to such part and (b) thereafter in accordance with the
first sentence of this Section 5.
6. Late Payment Charge. If any payment (including without limitation any
regularly scheduled payment, balloon payment and final payment) is not paid
within 25 days after it is due, Undersigned will pay a late charge equal to 5%
of the entire payment due (regardless of whether part of the payment due had
been made, and regardless of whether the payment due consists of principal and
interest, principal only or interest only). (Such late charge will be in
addition to any increase made to the interest rate(s) applicable to the
outstanding balance hereof as a result of maturity of this Note or otherwise, as
well as in addition to any other applicable fees, charges and costs.) Also, Bank
reserves the right to modify, in its sole discretion and upon thirty (30) days
prior written notice to Undersigned, the late charge set forth herein.
7. Selection, Conversion or Renewal of Rate Options. Subject to the other
provisions of this Supplement, Undersigned may select any Interest Rate Option
to apply to any borrowing evidenced by the Note. Subject to the other provisions
of this Supplement, Undersigned may convert any part of the unpaid principal
amount of the Note from any Interest Rate Option to any other Interest Rate
Option and may renew the LIBOR-Rate Option as to any Rate Segment: (a) at any
time with respect to conversion from the Prime Rate Option or ABS Rate Option to
any other Interest Rate option and (b) at the expiration of any Rate Period with
respect to conversion from or renewals of the LIBOR-Rate Option or As-offered
Rate Option as to the Rate Segment corresponding to such expiring Rate Period.
Whenever Undersigned desires to select, convert or renew the LIBOR-Rate Option
or As-Offered Rate Option, Undersigned shall give Bank Standard Notice thereof
(which shall be irrevocable), specifying the date, amount and type of the
proposed new Interest Rate Option. If such notice has been duly given, and if
Bank in its sole discretion (based on a good faith effort to provide all
Interest Rate Options) approves the proposed selection, conversion or renewal,
on and after the date specified in such notice interest shall be calculated upon
the unpaid principal amount of the Note taking into account such selection,
conversion or renewal.
8. Prime Rate Fallback. If any Rate Period expires, any part of the Rate Segment
corresponding to such Rate Period which has not been converted or renewed in
accordance with Section 7 hereof automatically shall be converted to the Prime
Rate Option. If at any time the ABS Rate Option is determined to exceed the
Prime Rate Option, the ABS Rate Portion shall automatically convert to the Prime
Rate Option. If Undersigned fails to select, or if Bank fails to approve
(because an Interest Option is not available in Bank's good faith
determination), an Interest Rate Option to apply to any borrowing evidenced by
the Note, such borrowing shall be deemed to be at the Prime Rate Option. If at
any time the Bank shall have determined in good faith (which determination shall
be conclusive) that the accrual of interest at any of the Interest Rate Options
has been made impractical or unlawful by compliance with the Bank in good faith
with any law (including common law), constitution, statute, treaty, regulation,
rule, ordinance, order, injunction, writ, decree, authority, bureau, central
bank, commission, department or instrumentality of either, or any court,
tribunal, grand jury or arbitrator, in each case whether foreign or domestic, or
administration thereof by any official body charged with the interpretation or
administration thereof or with any request or directive of any such official
body (whether or not having the force of law), then, and in any such event, the
outstanding principal amount of this Note subject to such Interest Rate Option
shall accrue interest at the Prime Rate Option and the Undersigned shall not
have the right to select such Interest Rate Option.
9. Prepayments. Undersigned shall have the right at its option from time to time
to prepay the Prime Rate Portion and ABS Rate Portion in whole or in part.
Undersigned shall have no right to prepay any part of the LIBOR-Rate Portion or
As-Offered Rate Portion at any time without the prior written consent of Bank
except that Undersigned may prepay any part of any Rate Segment at the
expiration of the Rate Period corresponding to such Rate Segment. Prepayments
shall be made by giving the Bank Standard Notice thereof (which shall be
irrevocable), specifying the date, and amount and type of prepayment, and upon
such date the amount so specified and accrued interest thereon shall be due and
payable.
10. Indemnity. Undersigned shall indemnify Bank against any loss or expense
(including loss of margin) which Bank has sustained or incurred as a consequence
of:
(i) payment, prepayment or conversion of any part of any Rate Segment
of the LIBOR-Rate Portion or As-offered Rate Portion on a day other than the
last day of the corresponding Rate Period (whether or not any such payment is
pursuant to demand by Bank under the Note and whether or not any such payment,
prepayment or conversion is consented to by Bank, unless Bank shall have
expressly waived such indemnity in writing);
(ii) attempt by Undersigned to revoke in whole or part any irrevocable
notice given pursuant to Section 6 of this Supplement; or
(iii) breach of or default by any Obligor in the performance or
observance of any covenant or condition contained in the Loan Agreement (if
any), the Note or any separate security, guarantee or suretyship agreement
between Bank and any Obligor.
If Bank sustains any such loss or expense it shall from time to time notify
Undersigned of the amount determined in good faith by Bank (which determination
shall be conclusive) to be necessary to indemnify Bank for such loss or expense.
Such amount shall be due and payable by Undersigned on demand.
11. Records. The unpaid principal amount of the Note, the unpaid interest
accrued thereon, the interest rate or rates applicable to such unpaid principal
amount, the duration of such applicability and the date and amount of each
payment or demand shall at all times be ascertained from the books and records
created by Bank, which shall be conclusive absent manifest error.
12. Notices. All notices under Sections 7 or 9 of this Supplement shall be in
writing or by telephone promptly confirmed in writing, and all such writings
shall be sent by first-class, first-class express or certified mail or by hand
delivery, in all cases with charges prepaid. All notices shall be sent to the
applicable party at the address stated on the signature page hereof or in
accordance with the last unrevoked written direction from such party to the
other parties hereto. All notices by Undersigned shall be effective when
received by Bank and all notices by Bank shall be effective when telephoned,
deposited in the mail or hand delivered. Written notices or confirmations by
Undersigned shall not be deemed records of Bank within the meaning of Section 11
of this Supplement whether or not received by Bank. Bank may conclusively rely
without inquiry on any notice or confirmation purporting to be from or
authorized by Undersigned.
13. Definitions. As used in this Supplement:
"ABS Rate" shall mean a per annum rate of interest equal to the rate of
interest determined by Bank, in its sole discretion, from time to time, to be
its ABS Rate. Such ABS Rate shall change from time to time as of the effective
date of each change in the ABS Rate as determined in the sole discretion of
Bank. The ABS Rate may be greater or less than other interest rates charged by
Bank to other borrowers and is not solely based or dependent upon the interest
rate which Bank may charge any particular borrower or class of borrowers.
"As-Offered Rate Option" shall mean a rate per annum offered by Bank in
its sole discretion to Undersigned from time to time for such Rate Period for
such Rate Segment as Bank may offer in its sole discretion, such interest rate
to remain fixed for the duration of such Rate Period.
"Business Day" shall mean any day on which Bank is open for business at
the location where the Note is payable.
"LIBOR-Rate" for any day for any proposed or existing Rate Segment
corresponding to a Rate Period shall mean the rate per annum determined by Bank
to be the rate per annum obtained by dividing (the resulting quotient to be
rounded upward to the nearest 1/100 of 1%) (A) the rate of interest (which shall
be the same for each day in such Rate Period) estimated in good faith by Bank in
accordance with its usual procedures (which determination shall be conclusive)
to be the average of the rates per annum for deposits in United States dollars
offered to major money center banks in the London interbank market at
approximately 11:00 a.m., London time, two London Business Days prior to the
first day of such Rate Period for delivery on the first day of such Rate Period
in amounts comparable to such Rate Segment (or, if there are no such comparable
amounts actively traded, the smallest amounts actively traded) and having
maturities comparable to such Rate Period by (B) a number equal to 1.00 minus
the LIBOR-Rate Reserve Percentage for such day.
The "LIBOR-Rate" may also be expressed by the following formula:
[average of rates offered to major ]
[money banks in the London inter- ]
[bank market estimated by the Bank ]
LIBOR-Rate = [subsection (A)(1)] / (1.00 - LIBOR-Rate Reserve Percentage)
"LIBOR-Rate Reserve Percentage" for any day shall mean the
percentage (rounded upward to the nearest 1/100 of 1%), as determined in good
faith by Bank (which determination shall be conclusive) as representing for such
day the maximum effective reserve requirement (including without limitation
supplemental, marginal and emergency requirements) for member banks of the
Federal Reserve System with respect to eurocurrency funding (currently referred
to as "Euro-currency liabilities") of any maturity. Each LIBOR-Rate shall be
adjusted automatically as of the effective date of any change in the LIBOR-Rate
Reserve Percentage.
"London Business Day" shall mean a day for dealing in deposits
in United States dollars by and among banks in the London interbank market.
"Portion": "Prime Rate Portion" shall mean at any time the
part, including the whole, of the unpaid principal amount of the Note bearing
interest at such time under the Prime Rate Option or in accordance with the
first sentence of Section 5 of this Supplement. "ABS Rate Portion" shall mean at
any time the part, including the whole, of the unpaid principal amount of the
Note bearing interest at such time under the ABS Rate Option or in accordance
with the first sentence of Section 5 of this Supplement. "LIBOR-Rate Portion" or
"As-Offered Rate Portion" shall mean at any time the part, including the whole,
of the unpaid principal amount of the Note bearing interest at such time under
the LIBOR-Rate Option or As-Offered Rate Portion as the case may be, or at a
rate determined by reference to the LIBOR-Rate Option pursuant to Section 5 of
this Supplement.
"Prime Rate" shall mean the interest rate per annum announced
from time to time by Banks as its Prime Rate. The Prime Rate may be greater or
less than other interest rates charged by Bank to other borrowers and is not
solely based or dependent upon the interest rate which Bank may charge any
particular borrower or class of borrowers.
"Rate Segment" of the LIBOR-Rate Portion at any time shall
mean the entire principal amount of such Portion to which at such time there is
applicable a particular Rate Period beginning on a particular day and ending on
another particular day. (By definition, each Portion is at all times composed of
an integral number of discrete Rate Segments, each corresponding to a particular
Rate Period, and the sum of the principal amounts of all Rate Segments of a
particular Portion at any time equals the principal amount of such Portion at
such time).
"Standard Notice" shall mean an irrevocable notice provided to
the Bank on a Business Day which is
(i) at least one Business Day in advance in the case of
selection of, conversion to or renewal of the Prime Rate Option or prepayment of
any Prime Rate Portion;
(ii) at least one Business Day in advance in the case of
selection of, conversion to or renewal of the ABS Rate Option or prepayment of
any ABS Portion;
(iii) at least two London Business Days in advance in the
case of selection of, conversion to or renewal of the LIBOR-Rate Option or
prepayment of any LIBOR-Rate Portion, and
(iv) at least one Business Day in advance in the case of
selection of, conversion to or renewal of the As-Offered Rate Option or
prepayment of any As-Offered Rate Portion.
Standard Notice must be provided no later than 1:00 o'clock p.m., Pittsburgh
time, on the last day permitted for such notice.
Witness the due execution hereof intending to be legally bound this 14th day of
November, 1996.
Attest:
Joseph E. Zavacky
(Corporate Seal)
C-COR Electronics, Inc.
By: Chris A. Miller
Title: Vice President - Finance
Address for Notices to Undersigned:
60 Decibel Road
State College, PA 16801
Mellon Bank, N.A.
By: John A. Rodgers
Address for Notices to Bank:
Mellon Bank, N.A.
Attn: Middle Market Banking
P.O. Box 19
State College, PA 16804-0019
AMENDED AND RESTATED
C-COR Electronics, Inc. ("Borrower") has requested Mellon Bank, N.A. ("Bank") to
make loans (the "Loans") to Borrower from time to time during the period set
forth below (the "Commitment Period") in an aggregate principal amount
outstanding at any one time not to exceed Bank's commitment set forth below (the
"Commitment Amount") and, subject to the terms and conditions set forth herein
and in the Note and the other Credit Documents (hereinafter defined) and,
relying upon the representations and warranties herein and therein set forth,
Bank is willing to make such Loans.
Commitment Period: From the date hereof to but not including November 1, 1997.
Commitment Amount: The lesser of (i) $23,000,000.00 or (ii) the sum of 80% of
Eligible Accounts (as hereinafter defined) and 20% of Eligible Inventory (as
hereinafter defined).
Within the limits of time and amount set forth above and subject to the terms
and conditions set forth herein and in the Note and the other Credit Documents,
Borrower may borrow, repay and reborrow hereunder. Borrower may at any time or
from time to time reduce the Commitment Amount to an amount not less than the
sum of the unpaid principal amount of the Loans then outstanding plus the
principal amount of all Loans not yet made as to which notice has been given by
Borrower under Section 2 hereof, by providing not less than five days' prior
written notice (which notice shall be irrevocable) to such effect to Bank. If
Bank allows Loans above the Commitment Amount, all the terms and conditions set
forth herein and in the Note and the other Credit Documents will apply to such
Loans.
The obligation of Borrower to repay the Loans, to pay interest thereon and to
pay fees, if any, with respect to the Commitment Amount shall be evidenced by
one or more promissory notes, note and security agreements, letter of credit
applications, or other instruments or documents (collectively, the "Note"),
which together with this Agreement, including any Supplement hereto, and any
security agreements, instruments and other documents executed by Borrower in
connection herewith are sometimes referred to herein as the "Credit Documents".
In consideration of the foregoing and intending to be legally bound, Borrower
agrees with Bank as follows:
1. Representations and Warranties. In addition to the representations and
warranties contained in the Note and any other Credit Documents, Borrower hereby
makes the following representations and warranties which shall be true and
correct on the date hereof and shall continue to be true and correct at the time
of the creation of any of the Loans and until the Loans shall have been paid in
full, or if there are no Loans outstanding so long as the Commitment Period has
not expired:
(a) Organization-Corporation and Partnership. If Borrower is a corporation
or a partnership, Borrower is duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which Borrower is incorporated or
was formed; Borrower has the power and authority to own its properties and
assets, to carry on its businesses as now being conducted and is qualified to do
business in every jurisdiction in which it is required to qualify to do
business.
(b) Validity and Binding Nature. Borrower has the power to execute, deliver,
and perform this Agreement, the Note and all other Credit Documents, and when
executed and delivered, this Agreement, the Note and all other Credit Documents
will be valid and binding obligations of Borrower, enforceable in accordance
with their terms; provided, however, that this representation with respect to
enforceability is limited by bankruptcy, insolvency, or other laws of general
application relating to or affecting the enforcement of creditors' rights.
(c) Due Authorization-Corporation and Partnership. The execution, delivery
and performance of this Agreement, the Note and all other Credit Documents have
been duly authorized by all corporate or partnership action required for the
lawful creation and issuance and performance thereof and will not violate any
provision of law, any order of any court or governmental agency, the charter
documents and by-laws of, or partnership agreement of Borrower.
(d) Conflicting Instruments. The execution, delivery and performance of this
Agreement, the Note and all other Credit Documents will not violate any
provisions of any indenture, agreement, or other instrument to which Borrower or
any of Borrower's properties or assets are bound, and will not be in conflict
with, result in a breach of, or constitute (with due notice and/or lapse of
time) a default under any such indenture, agreement, or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of Borrower.
(e) Authorization and Consents. No authorization, consent, approval, license or
exemption of, and no registration, qualification, designation, declaration or
filing with any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, is necessary to the valid
execution, delivery and performance of this Agreement, the Note or any other
Credit Document.
(f) Financial Condition. The most recent financial statements of Borrower
delivered to the Bank are true and correct and represent fairly its financial
position as of the date thereof; and the results of its operations for the
period or periods indicated; and show all known liabilities, direct or
contingent, of Borrower as of the date thereof. Since the date of such financial
statements, there has been no material adverse change in the condition,
financial or otherwise, of Borrower or in the operations, business, prospects or
properties of Borrower and, since such date, Borrower has not incurred, other
than in the ordinary course of business, any indebtedness, liabilities,
obligations or commitments, contingent or otherwise, other than indebtedness
created hereunder.
(g) Compliance with Laws. Neither the Borrower nor any subsidiary is in
violation of or subject to any contingent liability on account of any law or any
order or regulation issued by any court or governmental authority, state or
federal, including but not limited to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended
(the "Code"), any applicable occupational and health or safety law,
environmental protection or pollution control law or hazardous waste or toxic
substances management, handling or disposal law.
(h) Litigation. Except as previously disclosed in writing to Bank prior to the
date of this Agreement, there is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency now
pending, or to the knowledge of Borrower, threatened by or against or affecting
Borrower or any of the properties or rights of Borrower which, if adversely
determined, would impair the right of Borrower to carry on its business
substantially as now conducted or would adversely affect the financial
condition, business or operations of Borrower.
(i) Misrepresentation. Neither this Agreement, the Note, the other Credit
Documents, nor any other document, statement, financial statement, or
certificate furnished to Bank by or on behalf of Borrower in connection
herewith, contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein not misleading
and, insofar as Borrower can now foresee, there is no event or condition which
may in the future materially adversely affect the financial condition,
operations, or properties of Borrower which has not been set forth in this
Agreement or in a document, statement, financial statement, or certificate
furnished to Bank in connection herewith.
2. Conditions. The obligation of Bank to make any Loan hereunder is subject to
the performance by Borrower of its obligations to be performed hereunder and
under the Note and the other Credit Documents on or before the date of such Loan
and to the satisfaction of the following further conditions:
(a) The representations and warranties contained herein, in the Note and in
the other Credit Documents shall be true on and as of the date of each Loan
hereunder with the same effect as though made on and as of each such date; on
each such date no "Event of Default" under and as defined in the Note and no
event, act or condition which with notice or the passage of time or both would
constitute such an Event of Default shall have occurred and be continuing or
exist or shall occur or exist after giving effect to the Loan to be made on such
date; and any request for borrowing under Section 2.(b) below shall constitute a
certification by Borrower to both such effects.
(b) Borrower shall have provided Bank with written notice (or telephonic
notice confirmed in writing) of the proposed Loan specifying the principal
amount thereof and the proposed date thereof, which notice shall be received by
Bank at its designated office no later than 1:00 p.m., local time at the place
where the proposed Loan is to be payable, on the date (which shall be a day on
which Bank is opened for business ) of such proposed Loan. Such notice shall
contain a certification as to the amounts of the then current Eligible Accounts
and Eligible Inventory. In the event Bank receives telephonic notice, Bank may
act in reliance upon such telephonic notice, provided Bank has acted in good
faith.
(c) The conditions, if any, specified in any Supplement hereto and in the Note
or any Credit Document shall have been met to the satisfaction of Bank.
(d) All legal details and proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory to Bank and Bank shall have
received all such counterpart originals or certified or other copies of such
documents and records of proceedings in connection with such transactions, in
form and substance satisfactory to Bank, as Bank may from time to time request.
3. General Covenants. In addition to the covenants contained in the Note and
the other Credit Documents, Borrower hereby covenants and agrees that, so long
as any of the Loans are outstanding, or if there are no Loans outstanding so
long as the Commitment Period has not expired, Borrower shall, except as Bank
may otherwise agree in Writing:
(a) Financial Statements-Annual. Furnish to Bank, within 90 days after the
end of each fiscal year of Borrower, a financial statement of Borrower's profit
and loss and surplus for such fiscal year and a balance sheet as of the end of
such fiscal year, in each case setting forth in comparative form the
corresponding figures for the preceding fiscal year, all in reasonable detail
and audited by an independent certified public accountant not unsatisfactory to
Bank.
(b) Accounts Receivable and Inventory Reporting. Furnish to Bank, on or
before the 45 day of each calendar month, a report, as at the end of the
preceding calendar month, containing Borrower's account receivable aging and a
description of raw material and finished goods inventory, including a listing of
Eligible Accounts and Eligible Inventory, all in reasonable detail and in form
and content satisfactory to Bank.
(c) Financial Statements-Other. Furnish to Bank each financial statement
required to be delivered to Bank by any supplement, addendum or amendment
hereto, and such other information concerning the financial or business affairs
of Borrower as may be requested by Bank from time to time.
(d) Property. Maintain and keep all its property in good repair, working
order and condition and make or cause to be made all necessary or appropriate
repairs, renewals, replacements, substitutions, additions, betterments and
improvements thereto so that the efficiency of all such properties shall at all
times be properly preserved and maintained.
(e) Taxes and Assessments. Duly pay and discharge all taxes, assessments
and governmental charges levied upon or assessed against it or against its
properties or income prior to the date on which penalties are attached thereto,
unless and except to the extent only that such taxes, assessments and charges
shall be contested in good faith and by appropriate proceedings diligently
conducted by Borrower (unless and until foreclosure, distraint, sale or other
similar proceedings shall have been commenced) and provided that such reserve or
their appropriate provisions, if any, as shall be required by generally accepted
accounting principles shall have been made therefor.
(f) Litigation. Promptly give notice in writing to Bank of the occurrence
of any material litigation, arbitration or governmental proceeding affecting
Borrower, and of any governmental investigation or labor dispute pending or, to
the knowledge of Borrower, threatened which could reasonably be expected to
interfere substantially with normal operations of the business of Borrower or
materially adversely, affect the financial condition, business, or operations of
Borrower.
(g) Books and Records. Maintain and keep proper records and books of account in
conformance with generally accepted accounting principles applied on a
consistent basis in which full, true and correct entries shall be made of all
its dealings and business affairs.
(h) Access to Properties, Books and Records. Permit any of the officers,
employees or representatives of Bank to visit and inspect any of the properties
of Borrower and to examine its books and records and discuss the affairs,
finances and accounts of Borrower with representatives thereof, during normal
business hours, and as often as Bank may request.
(i) Financial Information-Guarantors. Cause any third party guarantor of the
Loans to submit annually or at any time there is a material change in their
financial position, personal or business financial statements containing such
financial information as may be requested by Bank from time to time.
j) Other Obligations. Maintain all obligations of Borrower in whatsoever manner
incurred, including but not limited to obligations for borrowed money or for
services or goods purchased by Borrower, in a current status.
(k) Continuance of Business. Not engage in any line of business other than
those in which it is actively engaged in on the date hereof.
(l) Compliance with Laws. Comply, and shall cause any subsidiary to comply,
with all laws, and all regulations or orders, issued pursuant thereto, including
but not limited to ERISA, the Code, any applicable occupational, and health or
safety law, environmental protection or pollution control law or hazardous waste
or toxic substances management, handling or disposal law.
(m) Sale of Assets. Except for sales or other dispositions of inventory in the
ordinary course of business, not sell, lease, transfer, or otherwise dispose of
in a single transaction, or a series of related transactions, all or a
substantial part of the property and assets of Borrower, whether now owned or
hereafter acquired, to any person, firm or corporation.
(n) Acquisition of Assets. Not purchase or otherwise acquire all or
substantially all of the operating assets of any other person, firm or
corporation and, if Borrower is a corporation, not merge or consolidate with or
into any other person, firm or corporation, or permit any other person, firm or
corporation to merge with or into it, or acquire all or substantially all of the
property or assets of any other person, firm or corporation.
(o) Selling Accounts Receivable. Not sell, assign or discount any of its
accounts receivable or any promissory note held by it, with or without recourse,
other than the discount of such receivables or notes in the ordinary course of
business for collection.
(p) Payments on Outstanding Stock. Pursuant to or in contemplation of
termination, liquidation, dissolution or winding up of Borrower, not purchase,
redeem or retire or make any dividend on or distribution on account of, if
Borrower is a corporation, any shares of the capital stock of Borrower or if
Borrower is a partnership, any capital account of any partner of such
partnership.
(q) Affiliated Entities. Not establish any partnership, subsidiary, corporation,
joint venture or other form of business combination.
(r) Insurance. Keep all insurable property, real and personal, now owned or
hereafter acquired, insured at all times against loss or damage by fire and
extended coverage risks and other hazards of the kinds customarily insured
against and in amounts customarily carried by businesses engaged in comparable
businesses and comparably situated: effect all such insurance under valid and
enforceable policies issued by insurers of recognized responsibility not
unacceptable to Bank; and, promptly from time to time upon request of Bank,
deliver to Bank a summary schedule indicating all insurance then in effect.
(s) Investments. Not purchase, own, invest in or otherwise acquire, directly or
indirectly, any stock or other securities, or make or permit to exist any
investment or capital contribution or acquire any interest whatsoever in any
other person, firm or corporation or permit to exist any loans or advances for
such purposes except for investments in direct obligations of the United States
of America or any agency thereof, obligations guaranteed by the United States of
America, certificates of deposit issued by a bank or trust company, organized
under the laws of the United States, or any state thereof, or marketable
securities which are publicly traded on a nationally recognized market.
(t) Patents. Preserve and protect its patents, franchises, licenses, trademarks,
trademark rights, tradenames, tradename rights, and copyrights used or useful in
the conduct of its business.
u) Guarantees and Contingencies. Not endorse, assume, guarantee, become surety
for, or otherwise become or remain liable in connection with the obligations of
any person, firm or corporation, except Borrower may endorse negotiable or other
instruments for deposit or collection or similar transactions in the ordinary
course of its business.
v) Transactions with Affiliates. Not enter into any transaction, including,
without limitation, the purchase, sale, leasing or exchange of property, real or
personal, or the rendering of any service, with any person, firm or corporation
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than would be obtained in a comparable
arm's-length transaction with any other person, firm or corporation not
affiliated with Borrower.
w) Modifications to Other Agreements. Not amend or modify any existing agreement
with any person, firm or corporation in any manner materially adverse to
Borrower.
x) Notice of Event of Default. Promptly give notice in writing to Bank of the
occurrence of any Event of Default under and as defined in the Note, and of any
condition, event, act or omission which, with the giving of notice or the lapse
of time or both, would constitute such an Event of Default.
General Provisions.
a) Waivers. The provisions of this Agreement may from time to time be waived in
writing by Bank in its sole discretion. Any such waiver of any kind on the part
of Bank of any breach or default under this Agreement or any waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent set forth in such writing. No delay by Bank in
exercising any right or remedy hereunder shall operate as a waiver thereof
b) Financial Covenants. Compliance or non-compliance with all financial
covenants of Borrower contained herein, or in any supplement, addendum or
amendment hereto, shall be determined in accordance with generally accepted
accounting principles applied on a consistent basis. All financial statements of
Borrower required to be delivered to Bank hereby, or by any written supplement
now or hereafter executed by Borrower in which reference to this Agreement is
made, shall be prepared on the basis of generally accepted accounting principles
applied on a consistent basis.
(c) Binding Nature. The rights and privileges of Bank contained in this
Agreement shall inure to the benefit of its successors and assigns, and the
duties of Borrower shall bind all heirs, personal representatives, successors,
and assigns. "Borrower" refers individually and collectively to all signers of
this Agreement, including, in the case of any partnership, all general partners
of such partnership individually and collectively, whether or not such partners
sign below. Each of the signers shall be jointly and severally bound by the
terms hereof, and, with respect to any partnership executing this Agreement,
each general partner shall be bound hereby both in such general partner's
individual and partnership capacities.
(d) Governing Law. Time of performance hereunder is of the essence of this
Agreement. This Agreement and any written supplement hereto executed by Borrower
in which reference to this Agreement is made shall in all respects be governed
by the laws of the state where the Note is payable (except to the extent that
federal law governs).
(e) Severability. If any provision hereof shall for any reason be held invalid
or unenforceable, no other provision shall be affected thereby, and this
Agreement shall be construed as if the invalid or unenforceable provision had
never been a part of it. The descriptive headings hereof are for convenience
only and shall not in any way affect the meaning or construction of any
provision hereof.
(f) Definitions. i) "Eligible Accounts" shall be defined as trade accounts
receivable created or acquired by Borrower in the ordinary course of business
which are and at all times continue to be acceptable to Bank and in which Bank
has a Prior Security Interest at all times. Standards of acceptability shall be
fixed and may be revised from time to time solely by Bank in its exclusive
judgment.
ii) "Eligible Inventory" shall be defined as Borrower's inventory, excluding
work in process, of saleable raw materials and finished goods manufactured or
acquired by Borrower in the ordinary course of business, in its sole possession
or control, stored in a location or locations and in a manner acceptable to
Bank. valued at the lower of cost or market value, which inventory is and at all
times continues to be acceptable to Bank and in which Bank has a Prior Security
Interest at all times. Standards of acceptability shall be fixed and may be
revised from time to time solely by Bank in its exclusive judgment.
iii) "Prior Security Interest" shall be defined as an enforceable, perfected
security interest (under the Uniform Commercial Code), which interest is senior
and prior to all liens (including without limitation all security interests,
pledges, bailments, leases, mortgages, conditional sales and title retention
agreements, charges, claims, encumbrances, judgments, levies and all other types
of liens whatsoever).
5. Loans Above Commitment Amount. Notwithstanding any other provision of this
Agreement, the Note or the other Credit Documents, if, in Bank's sole
determination, the principal balance of the Loans hereunder shall at any time
exceed the Commitment Amount, Borrower shall pay such excess to Bank on demand.
6. Special Covenants. In addition to the covenants contained herein and in the
Note and the other Credit Documents, Borrower hereby agrees that, so long as any
of the Loans are outstanding, or if there are no Loans outstanding so long as
the Commitment Period has not expired, Borrower shall, except as Bank may grant
its prior written consent, comply with the special provisions or covenants set
forth in any written supplement, now or hereafter executed by Borrower, in which
reference to this Agreement is made.
Attest:
Joseph E. Zavacky
(Corporate Seal)
C-COR Electronics, Inc.
By: Chris A. Miller
Title: Vice President - Finance
Address for Notices to Undersigned:
60 Decibel Road
State College, PA 16801
Mellon Bank, N.A.
By: John A. Rodgers
Address for Notices to Bank:
Mellon Bank, N.A.
Attn: Middle Market Banking
P.O. Box 19
State College, PA 16804-0019
AMENDED AND RESTATED
C-COR Electronics, Inc. ("Borrower") has requested Mellon Bank, N.A. ("Bank") to
make loans (the "Loans") to Borrower from time to time during the period set
forth below (the "Commitment Period") in an aggregate principal amount
outstanding at any one time not to exceed Bank's commitment set forth below (the
"Commitment Amount") and, subject to the terms and conditions set forth herein
and in the Note and the other Credit Documents (hereinafter defined) and,
relying upon the representations and warranties herein and therein set forth,
Bank is willing to make such Loans.
Commitment Period: From the date hereof to but not including November 1, 1997.
Commitment Amount: The lesser of (i) $23,000,000.00 or (ii) the sum of 80% of
Eligible Accounts (as hereinafter defined) and 20% of Eligible Inventory (as
hereinafter defined).
Within the limits of time and amount set forth above and subject to the terms
and conditions set forth herein and in the Note and the other Credit Documents,
Borrower may borrow, repay and reborrow hereunder. Borrower may at any time or
from time to time reduce the Commitment Amount to an amount not less than the
sum of the unpaid principal amount of the Loans then outstanding plus the
principal amount of all Loans not yet made as to which notice has been given by
Borrower under Section 2 hereof, by providing not less than five days' prior
written notice (which notice shall be irrevocable) to such effect to Bank. If
Bank allows Loans above the Commitment Amount, all the terms and conditions set
forth herein and in the Note and the other Credit Documents will apply to such
Loans.
The obligation of Borrower to repay the Loans, to pay interest thereon and to
pay fees, if any, with respect to the Commitment Amount shall be evidenced by
one or more promissory notes, note and security agreements, letter of credit
applications, or other instruments or documents (collectively, the "Note"),
which together with this Agreement, including any Supplement hereto, and any
security agreements, instruments and other documents executed by Borrower in
connection herewith are sometimes referred to herein as the "Credit Documents".
In consideration of the foregoing and intending to be legally bound, Borrower
agrees with Bank as follows:
1. Representations and Warranties. In addition to the representations and
warranties contained in the Note and any other Credit Documents, Borrower hereby
makes the following representations and warranties which shall be true and
correct on the date hereof and shall continue to be true and correct at the time
of the creation of any of the Loans and until the Loans shall have been paid in
full, or if there are no Loans outstanding so long as the Commitment Period has
not expired:
(a) Organization-Corporation and Partnership. If Borrower is a corporation
or a partnership, Borrower is duly organized, validly existing, and in good
standing under the laws of the jurisdiction in which Borrower is incorporated or
was formed; Borrower has the power and authority to own its properties and
assets, to carry on its businesses as now being conducted and is qualified to do
business in every jurisdiction in which it is required to qualify to do
business.
(b) Validity and Binding Nature. Borrower has the power to execute, deliver,
and perform this Agreement, the Note and all other Credit Documents, and when
executed and delivered, this Agreement, the Note and all other Credit Documents
will be valid and binding obligations of Borrower, enforceable in accordance
with their terms; provided, however, that this representation with respect to
enforceability is limited by bankruptcy, insolvency, or other laws of general
application relating to or affecting the enforcement of creditors' rights.
(c) Due Authorization-Corporation and Partnership. The execution, delivery
and performance of this Agreement, the Note and all other Credit Documents have
been duly authorized by all corporate or partnership action required for the
lawful creation and issuance and performance thereof and will not violate any
provision of law, any order of any court or governmental agency, the charter
documents and by-laws of, or partnership agreement of Borrower.
(d) Conflicting Instruments. The execution, delivery and performance of this
Agreement, the Note and all other Credit Documents will not violate any
provisions of any indenture, agreement, or other instrument to which Borrower or
any of Borrower's properties or assets are bound, and will not be in conflict
with, result in a breach of, or constitute (with due notice and/or lapse of
time) a default under any such indenture, agreement, or other instrument, or
result in the creation or imposition of any lien, charge or encumbrance of any
nature whatsoever upon any of the properties or assets of Borrower.
(e) Authorization and Consents. No authorization, consent, approval, license or
exemption of, and no registration, qualification, designation, declaration or
filing with any court or governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, is necessary to the valid
execution, delivery and performance of this Agreement, the Note or any other
Credit Document.
(f) Financial Condition. The most recent financial statements of Borrower
delivered to the Bank are true and correct and represent fairly its financial
position as of the date thereof; and the results of its operations for the
period or periods indicated; and show all known liabilities, direct or
contingent, of Borrower as of the date thereof. Since the date of such financial
statements, there has been no material adverse change in the condition,
financial or otherwise, of Borrower or in the operations, business, prospects or
properties of Borrower and, since such date, Borrower has not incurred, other
than in the ordinary course of business, any indebtedness, liabilities,
obligations or commitments, contingent or otherwise, other than indebtedness
created hereunder.
(g) Compliance with Laws. Neither the Borrower nor any subsidiary is in
violation of or subject to any contingent liability on account of any law or any
order or regulation issued by any court or governmental authority, state or
federal, including but not limited to the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended
(the "Code"), any applicable occupational and health or safety law,
environmental protection or pollution control law or hazardous waste or toxic
substances management, handling or disposal law.
(h) Litigation. Except as previously disclosed in writing to Bank prior to the
date of this Agreement, there is no action, suit or proceeding at law or in
equity or by or before any governmental instrumentality or other agency now
pending, or to the knowledge of Borrower, threatened by or against or affecting
Borrower or any of the properties or rights of Borrower which, if adversely
determined, would impair the right of Borrower to carry on its business
substantially as now conducted or would adversely affect the financial
condition, business or operations of Borrower.
(i) Misrepresentation. Neither this Agreement, the Note, the other Credit
Documents, nor any other document, statement, financial statement, or
certificate furnished to Bank by or on behalf of Borrower in connection
herewith, contains an untrue statement of a material fact or omits to state a
material fact necessary to make the statements contained therein not misleading
and, insofar as Borrower can now foresee, there is no event or condition which
may in the future materially adversely affect the financial condition,
operations, or properties of Borrower which has not been set forth in this
Agreement or in a document, statement, financial statement, or certificate
furnished to Bank in connection herewith.
2. Conditions. The obligation of Bank to make any Loan hereunder is subject to
the performance by Borrower of its obligations to be performed hereunder and
under the Note and the other Credit Documents on or before the date of such Loan
and to the satisfaction of the following further conditions:
(a) The representations and warranties contained herein, in the Note and in
the other Credit Documents shall be true on and as of the date of each Loan
hereunder with the same effect as though made on and as of each such date; on
each such date no "Event of Default" under and as defined in the Note and no
event, act or condition which with notice or the passage of time or both would
constitute such an Event of Default shall have occurred and be continuing or
exist or shall occur or exist after giving effect to the Loan to be made on such
date; and any request for borrowing under Section 2.(b) below shall constitute a
certification by Borrower to both such effects.
(b) Borrower shall have provided Bank with written notice (or telephonic
notice confirmed in writing) of the proposed Loan specifying the principal
amount thereof and the proposed date thereof, which notice shall be received by
Bank at its designated office no later than 1:00 p.m., local time at the place
where the proposed Loan is to be payable, on the date (which shall be a day on
which Bank is opened for business ) of such proposed Loan. Such notice shall
contain a certification as to the amounts of the then current Eligible Accounts
and Eligible Inventory. In the event Bank receives telephonic notice, Bank may
act in reliance upon such telephonic notice, provided Bank has acted in good
faith.
(c) The conditions, if any, specified in any Supplement hereto and in the Note
or any Credit Document shall have been met to the satisfaction of Bank.
(d) All legal details and proceedings in connection with the transactions
contemplated by this Agreement shall be satisfactory to Bank and Bank shall have
received all such counterpart originals or certified or other copies of such
documents and records of proceedings in connection with such transactions, in
form and substance satisfactory to Bank, as Bank may from time to time request.
3. General Covenants. In addition to the covenants contained in the Note and
the other Credit Documents, Borrower hereby covenants and agrees that, so long
as any of the Loans are outstanding, or if there are no Loans outstanding so
long as the Commitment Period has not expired, Borrower shall, except as Bank
may otherwise agree in Writing:
(a) Financial Statements-Annual. Furnish to Bank, within 90 days after the
end of each fiscal year of Borrower, a financial statement of Borrower's profit
and loss and surplus for such fiscal year and a balance sheet as of the end of
such fiscal year, in each case setting forth in comparative form the
corresponding figures for the preceding fiscal year, all in reasonable detail
and audited by an independent certified public accountant not unsatisfactory to
Bank.
(b) Accounts Receivable and Inventory Reporting. Furnish to Bank, on or
before the 45 day of each calendar month, a report, as at the end of the
preceding calendar month, containing Borrower's account receivable aging and a
description of raw material and finished goods inventory, including a listing of
Eligible Accounts and Eligible Inventory, all in reasonable detail and in form
and content satisfactory to Bank.
(c) Financial Statements-Other. Furnish to Bank each financial statement
required to be delivered to Bank by any supplement, addendum or amendment
hereto, and such other information concerning the financial or business affairs
of Borrower as may be requested by Bank from time to time.
(d) Property. Maintain and keep all its property in good repair, working
order and condition and make or cause to be made all necessary or appropriate
repairs, renewals, replacements, substitutions, additions, betterments and
improvements thereto so that the efficiency of all such properties shall at all
times be properly preserved and maintained.
(e) Taxes and Assessments. Duly pay and discharge all taxes, assessments
and governmental charges levied upon or assessed against it or against its
properties or income prior to the date on which penalties are attached thereto,
unless and except to the extent only that such taxes, assessments and charges
shall be contested in good faith and by appropriate proceedings diligently
conducted by Borrower (unless and until foreclosure, distraint, sale or other
similar proceedings shall have been commenced) and provided that such reserve or
their appropriate provisions, if any, as shall be required by generally accepted
accounting principles shall have been made therefor.
(f) Litigation. Promptly give notice in writing to Bank of the occurrence
of any material litigation, arbitration or governmental proceeding affecting
Borrower, and of any governmental investigation or labor dispute pending or, to
the knowledge of Borrower, threatened which could reasonably be expected to
interfere substantially with normal operations of the business of Borrower or
materially adversely, affect the financial condition, business, or operations of
Borrower.
(g) Books and Records. Maintain and keep proper records and books of account in
conformance with generally accepted accounting principles applied on a
consistent basis in which full, true and correct entries shall be made of all
its dealings and business affairs.
(h) Access to Properties, Books and Records. Permit any of the officers,
employees or representatives of Bank to visit and inspect any of the properties
of Borrower and to examine its books and records and discuss the affairs,
finances and accounts of Borrower with representatives thereof, during normal
business hours, and as often as Bank may request.
(i) Financial Information-Guarantors. Cause any third party guarantor of the
Loans to submit annually or at any time there is a material change in their
financial position, personal or business financial statements containing such
financial information as may be requested by Bank from time to time.
j) Other Obligations. Maintain all obligations of Borrower in whatsoever manner
incurred, including but not limited to obligations for borrowed money or for
services or goods purchased by Borrower, in a current status.
(k) Continuance of Business. Not engage in any line of business other than
those in which it is actively engaged in on the date hereof.
(l) Compliance with Laws. Comply, and shall cause any subsidiary to comply,
with all laws, and all regulations or orders, issued pursuant thereto, including
but not limited to ERISA, the Code, any applicable occupational, and health or
safety law, environmental protection or pollution control law or hazardous waste
or toxic substances management, handling or disposal law.
(m) Sale of Assets. Except for sales or other dispositions of inventory in the
ordinary course of business, not sell, lease, transfer, or otherwise dispose of
in a single transaction, or a series of related transactions, all or a
substantial part of the property and assets of Borrower, whether now owned or
hereafter acquired, to any person, firm or corporation.
(n) Acquisition of Assets. Not purchase or otherwise acquire all or
substantially all of the operating assets of any other person, firm or
corporation and, if Borrower is a corporation, not merge or consolidate with or
into any other person, firm or corporation, or permit any other person, firm or
corporation to merge with or into it, or acquire all or substantially all of the
property or assets of any other person, firm or corporation.
(o) Selling Accounts Receivable. Not sell, assign or discount any of its
accounts receivable or any promissory note held by it, with or without recourse,
other than the discount of such receivables or notes in the ordinary course of
business for collection.
(p) Payments on Outstanding Stock. Pursuant to or in contemplation of
termination, liquidation, dissolution or winding up of Borrower, not purchase,
redeem or retire or make any dividend on or distribution on account of, if
Borrower is a corporation, any shares of the capital stock of Borrower or if
Borrower is a partnership, any capital account of any partner of such
partnership.
(q) Affiliated Entities. Not establish any partnership, subsidiary, corporation,
joint venture or other form of business combination.
(r) Insurance. Keep all insurable property, real and personal, now owned or
hereafter acquired, insured at all times against loss or damage by fire and
extended coverage risks and other hazards of the kinds customarily insured
against and in amounts customarily carried by businesses engaged in comparable
businesses and comparably situated: effect all such insurance under valid and
enforceable policies issued by insurers of recognized responsibility not
unacceptable to Bank; and, promptly from time to time upon request of Bank,
deliver to Bank a summary schedule indicating all insurance then in effect.
(s) Investments. Not purchase, own, invest in or otherwise acquire, directly or
indirectly, any stock or other securities, or make or permit to exist any
investment or capital contribution or acquire any interest whatsoever in any
other person, firm or corporation or permit to exist any loans or advances for
such purposes except for investments in direct obligations of the United States
of America or any agency thereof, obligations guaranteed by the United States of
America, certificates of deposit issued by a bank or trust company, organized
under the laws of the United States, or any state thereof, or marketable
securities which are publicly traded on a nationally recognized market.
(t) Patents. Preserve and protect its patents, franchises, licenses, trademarks,
trademark rights, tradenames, tradename rights, and copyrights used or useful in
the conduct of its business.
u) Guarantees and Contingencies. Not endorse, assume, guarantee, become surety
for, or otherwise become or remain liable in connection with the obligations of
any person, firm or corporation, except Borrower may endorse negotiable or other
instruments for deposit or collection or similar transactions in the ordinary
course of its business.
v) Transactions with Affiliates. Not enter into any transaction, including,
without limitation, the purchase, sale, leasing or exchange of property, real or
personal, or the rendering of any service, with any person, firm or corporation
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to Borrower than would be obtained in a comparable
arm's-length transaction with any other person, firm or corporation not
affiliated with Borrower.
w) Modifications to Other Agreements. Not amend or modify any existing agreement
with any person, firm or corporation in any manner materially adverse to
Borrower.
x) Notice of Event of Default. Promptly give notice in writing to Bank of the
occurrence of any Event of Default under and as defined in the Note, and of any
condition, event, act or omission which, with the giving of notice or the lapse
of time or both, would constitute such an Event of Default.
General Provisions.
a) Waivers. The provisions of this Agreement may from time to time be waived in
writing by Bank in its sole discretion. Any such waiver of any kind on the part
of Bank of any breach or default under this Agreement or any waiver of any
provision or condition of this Agreement must be in writing and shall be
effective only to the extent set forth in such writing. No delay by Bank in
exercising any right or remedy hereunder shall operate as a waiver thereof
b) Financial Covenants. Compliance or non-compliance with all financial
covenants of Borrower contained herein, or in any supplement, addendum or
amendment hereto, shall be determined in accordance with generally accepted
accounting principles applied on a consistent basis. All financial statements of
Borrower required to be delivered to Bank hereby, or by any written supplement
now or hereafter executed by Borrower in which reference to this Agreement is
made, shall be prepared on the basis of generally accepted accounting principles
applied on a consistent basis.
(c) Binding Nature. The rights and privileges of Bank contained in this
Agreement shall inure to the benefit of its successors and assigns, and the
duties of Borrower shall bind all heirs, personal representatives, successors,
and assigns. "Borrower" refers individually and collectively to all signers of
this Agreement, including, in the case of any partnership, all general partners
of such partnership individually and collectively, whether or not such partners
sign below. Each of the signers shall be jointly and severally bound by the
terms hereof, and, with respect to any partnership executing this Agreement,
each general partner shall be bound hereby both in such general partner's
individual and partnership capacities.
(d) Governing Law. Time of performance hereunder is of the essence of this
Agreement. This Agreement and any written supplement hereto executed by Borrower
in which reference to this Agreement is made shall in all respects be governed
by the laws of the state where the Note is payable (except to the extent that
federal law governs).
(e) Severability. If any provision hereof shall for any reason be held invalid
or unenforceable, no other provision shall be affected thereby, and this
Agreement shall be construed as if the invalid or unenforceable provision had
never been a part of it. The descriptive headings hereof are for convenience
only and shall not in any way affect the meaning or construction of any
provision hereof.
(f) Definitions. i) "Eligible Accounts" shall be defined as trade accounts
receivable created or acquired by Borrower in the ordinary course of business
which are and at all times continue to be acceptable to Bank and in which Bank
has a Prior Security Interest at all times. Standards of acceptability shall be
fixed and may be revised from time to time solely by Bank in its exclusive
judgment.
ii) "Eligible Inventory" shall be defined as Borrower's inventory, excluding
work in process, of saleable raw materials and finished goods manufactured or
acquired by Borrower in the ordinary course of business, in its sole possession
or control, stored in a location or locations and in a manner acceptable to
Bank. valued at the lower of cost or market value, which inventory is and at all
times continues to be acceptable to Bank and in which Bank has a Prior Security
Interest at all times. Standards of acceptability shall be fixed and may be
revised from time to time solely by Bank in its exclusive judgment.
iii) "Prior Security Interest" shall be defined as an enforceable, perfected
security interest (under the Uniform Commercial Code), which interest is senior
and prior to all liens (including without limitation all security interests,
pledges, bailments, leases, mortgages, conditional sales and title retention
agreements, charges, claims, encumbrances, judgments, levies and all other types
of liens whatsoever).
5. Loans Above Commitment Amount. Notwithstanding any other provision of this
Agreement, the Note or the other Credit Documents, if, in Bank's sole
determination, the principal balance of the Loans hereunder shall at any time
exceed the Commitment Amount, Borrower shall pay such excess to Bank on demand.
6. Special Covenants. In addition to the covenants contained herein and in the
Note and the other Credit Documents, Borrower hereby agrees that, so long as any
of the Loans are outstanding, or if there are no Loans outstanding so long as
the Commitment Period has not expired, Borrower shall, except as Bank may grant
its prior written consent, comply with the special provisions or covenants set
forth in any written supplement, now or hereafter executed by Borrower, in which
reference to this Agreement is made.
Attest:
Joseph E. Zavacky
(Corporate Seal)
C-COR Electronics, Inc.
By: Chris A. Miller
Title: Vice President - Finance
Address for Notices to Undersigned:
60 Decibel Road
State College, PA 16801
Mellon Bank, N.A.
By: John A. Rodgers
Address for Notices to Bank:
Mellon Bank, N.A.
Attn: Middle Market Banking
P.O. Box 19
State College, PA 16804-0019
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 21 day of July, 1997, by and between C-COR
ELECTRONICS, INC., a Pennsylvania Business Corporation with its principal place
of business at 60 Decibel Road, State College, Pennsylvania (hereinafter,
"Corporation"),
-AND-
RICHARD E. PERRY (hereinafter, "Employee").
BACKGROUND
A. Corporation has employed Employee since July 17, 1985, first as President and
Chief Executive Officer and then as Chairman, President and Chief Executive
Officer and then as Chairman.
B. Corporation and Employee entered into an Amended and Restated Employment
Agreement, dated April 1, 1988 for the period commencing on July 17, 1985 and
ending on June 30, 1990.
C. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated October 27, 1989 for the period commencing on July 17, 1985 and
ending on June 30, 1993.
D. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated September 4, 1990 to amend the section entitled, Bonus.
E. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated April 23, 1991 to further amend the section entitled, Bonus and
to extend the term hereof.
F. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated April 19, 1994 for the period commencing on July 17, 1985 and
ending on October 31, 1997.
G. Corporation and Employee are also parties to a "Change of Control" Employment
Agreement dated April 30, 1986 and an Amendment to such Agreement dated June 13,
1986 (together referred to herein as the "Change of Control Agreement"), and an
Indemnification Agreement dated October 23, 1986 (the "Indemnification
Agreement").
H. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated October 16, 1995 for the purpose of modifying the terms of the
retirement annuity provided for in Section 2.05 hereof and incorporating herein
and amending the terms of the Change of Control Agreement and the
Indemnification Agreement.
I. On August 13, 1996, in accordance with Section 1.02 hereof, Corporation
notified Employee that Employee would, effective September 13, 1996, no longer
serve Corporation as Chief Executive Officer.
J. Corporation and Employee entered into an Amended and Restated Employment
Agreement dated November 24, 1996 for the purpose of amending Section 2.01
hereof, concerning salary, Section 2.03 hereof, concerning incentive
compensation, and Section 2.04 hereof, concerning stock options.
K. On March 3, 1997, Employee notified Corporation that Employee would,
effective immediately, voluntarily reduce his salary under Section 2.01 hereof
from $150,000 to $125,000.
L. Corporation and Employee desire to further amend and restate the Employment
Agreement between Corporation and Employee for the purpose of amending Section
1.01 hereof, concerning employment and term, amending Section 2. 01 hereof,
concerning salary, deleting Section 2.07 hereof, concerning automobile
allowance, and deleting Section 2.11 hereof concerning club membership.
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound thereby, the parties hereto agree as follows:
SECTION I.
Description of Employment
1.01. Employment and Term. Corporation agrees to employ Employee and Employee
agrees to be so employed for a term which initially commenced on July 17, 1985
and which will end on October 31, 2000.
1.02. Capacity. For the period commencing on September 13, 1997 and ending on
October 31, 2000, Employee shall serve in the capacity of Chairman of the Board
of Directors (if elected to the Board of Directors) and shall perform such other
duties as Employee and the Board of Directors shall mutually determine;
provided, however, that upon thirty (30) days advance written notice, Employee
may, at his option, elect to resign and retire as Chairman of the Board of
Directors.
1.03. Time and Efforts. For the period commencing on September 13, 1997 and
ending on October 31, 2000, as provided for in Section 1.02 hereof, Employee
shall diligently and conscientiously devote his best efforts and such time and
attention as may be necessary to the discharge of his duties as Chairman of the
Board and of such other duties as may be determined by mutual agreement.
SECTION II.
Compensation
2.01. Salary. During the period of Employee's employment hereunder beginning on
September 13, 1997, the Corporation shall pay to Employee a salary at an annual
rate of One Hundred Thousand ($100,000.00) Dollars, payable bi-weekly for
services rendered.
2.02. Business Expenses. Employee shall be reimbursed by Corporation for all
reasonable expenses incurred in carrying out his employment duties or in
otherwise promoting the business of Corporation by presenting to the designated
officer of Corporation an itemized expense account report with receipts
attached.
2.03. Incentive Compensation. Corporation shall include Employee as a
participant at the officer level under Corporation's "Profit Incentive Plan".
Employee will be entitled to such awards as are declared from time to time by
the Board of Directors under the terms of the "Profit Incentive Plan".
2.04. Stock options. As of April 19, 1994, Employee was granted Incentive Stock
Options for 25,000 shares of C-COR common stock. Further, on August 13, 1996,
Employee was granted Incentive Stock Options for 25,000 shares of C-COR common
stock. All such Incentive Stock Options are exercisable at any time (not to
exceed ten years after the date of grant), during Employee's employment by
Corporation and, following termination of employment, for a period equal to the
lesser of five (5) years or the period of time remaining for exercise of the
respective options (not to exceed ten years after the date of grant).
2.05 (a) Retirement Annuity. Upon Employee's retirement on October 31, 2000,
Corporation shall pay to Employee a retirement annuity in the amount of Fifty
Thousand and No/100 ($50,000.00) Dollars per year, payable on July 1 of each
year, for the life of Employee. In the event that Employee dies following
retirement and is survived by his spouse, Betty Perry, annuity payments in like
amount shall continue to be paid each July 1, following Employee's death to
Betty Perry for her lifetime. All such annuity payments will cease on Betty
Perry's death.
(b) Pre-retirement Survivor's Annuity. In the event Employee dies prior
to his retirement from Corporation and is survived by his spouse, Betty Perry,
Corporation shall pay Betty Perry a survivor's annuity in the amount of Fifty
Thousand and No/100 ($50,000.00) Dollars per year, payable on July 1 of each
year, for Betty Perry's lifetime. All such annuity payments will cease on Betty
Perry's death.
(c) Conditions. Nothing contained in this Section 2.05 and no actions
taken pursuant to this Agreement shall create or be construed to create a trust
of any kind, or a fiduciary relationship between Corporation and Employee, or
his spouse. Any funds which may be reserved by Corporation to pay for the
retirement and survivor's annuity payments provided for herein shall continue
for all purposes to be a part of the general funds of Corporation and no person
other than Corporation shall by virtue of this Agreement have any right to or
interest in such funds. Any bookkeeping reserve accounts for such payments will
be maintained by Corporation solely as a convenience in the administration of
this Agreement. To the extent that any person acquires a right to receive
payments from Corporation under this Section, such right shall be no greater
than the rights of any unsecured general creditor of the Corporation. Neither
Employee nor his representative shall have any right to commute, sell, assign,
transfer, encumber or otherwise dispose of the right to receive payments
hereunder, which payments and the right thereto are expressly declared to be
nonassignable and nontransferable and any attempted assignment or transfer by
Employee, or his spouse, shall be void and of no effect. Title to and beneficial
ownership of any assets, whether cash, investments, life insurance policies or
other assets which Corporation may use to fund its obligation hereunder shall at
all times remain in Corporation.
(d) Insurance Policies. Employee understands that Corporation may make
application to purchase a life insurance policy or policies on his life, or on
the lives of Employee and his spouse in order to fund its obligations under this
section, which policy or policies will be owned by Corporation and under which
Corporation will be the sole beneficiary. Employee agrees to provide Corporation
with such information as it may require in order to make such application and to
cooperate fully with Corporation in respect of such application, including the
taking of a physical examination if requested to do so. Further, Employee shall
use his best efforts to cause his spouse to provide Corporation with such
information as it may require in order to make such application and to cooperate
fully with Corporation in respect of such application, including the taking of a
physical examination if requested to do so. In the event the insurance company
to which application is made declines to issue a policy at standard premium
rates, Corporation's obligations under this section 2.05 will be void unless
Corporation decides otherwise. Similarly, upon Employee's death, if the proceeds
of the policy on Employee's life are not paid to Corporation because the
information Employee furnished in connection with the application was materially
false or Employee's or any other insured's death is caused by suicide within two
(2) years of the date on which any policy on Employee's or Employee's spouse's
life was issued, Corporation will be under no obligation to pay the annuity
provided for in this Section 2.05.
2.06. Life Insurance Coverage. Corporation will provide to Employee group term
life insurance in a face amount equal to three times the Employee's salary.
Increases in life insurance coverage will occur at the same time the Employee's
salary is increased pursuant to Section 2.01 hereof.
2.07. Financial and Tax Planning Reimbursement. Corporation agrees to reimburse
Employee for expenses incurred in his personal financial and tax planning up to
an amount not exceeding One Thousand Five Hundred ($1,500.00) Dollars per year
during the term of this Agreement.
2.08. Other Benefit Plans. Employee shall also be eligible to participate in
Corporation's other fringe benefit plans, including both those plans presently
existing and those which may in the future be adopted, in accordance with the
terms and provisions of such plans.
2.09. Vacation. Employee shall be entitled to a reasonable amount of vacation.
2.10. Physical Examination. Corporation agrees to reimburse Employee for the
expense of an annual physical examination by a physician selected by Employee.
SECTION III.
Intellectual Property
3.01. Disclosure. Employee agrees to promptly and fully disclose to Corporation
all inventions, improvements, original works of authorship, formulas, processes,
computer programs, techniques, know-how and data (hereinafter collectively
referred to as "Inventions"), whether or not patentable or copyrightable, made
or conceived or first reduced to practice or learned by Employee either alone or
jointly with others, whether or not during Employee's regular hours of
employment and directly or indirectly relating to or capable of being used for
the benefit of Corporation's business. Employee agrees, without compensation
additional to that provided for in Section II of this Agreement, to assign all
rights in and to such inventions to Corporation and to execute, at Corporation's
request, appropriate documents effectuating such assignments.
3.02. Maintenance of Records. Employee agrees to maintain accurate and current
written records of all such Inventions, in the form of notes, sketches,
drawings, or reports which shall be and will remain the property of and
available to Corporation at all times.
3.03. Provision of Assistance. Employee agrees, upon Corporation's request,
during and after the term of employment set forth herein, to assist Corporation,
its attorneys, and nominees at its or their expense in preparing and prosecuting
applications for letters patent on Inventions created by him and applications to
register copyrights on inventions created by him providing, however, that time
actually spent by Employee at such work after termination of employment at
Corporation's request, shall be paid for by Corporation at a reasonable rate,
and that necessary expenses incurred by Employee in connection with Employee's
duties under this paragraph shall be paid by Corporation.
3.04. Previous Inventions. Employee expressly retains an interest in and title
to Inventions patented or unpatented which Employee conceived prior to his term
of employment with Corporation.
3.05. Term of Obligations. Employee's termination of employment by Corporation
under this Agreement shall not affect the obligations imposed on Employee by
Paragraphs 3.01, 3.02 and 3.03 and such obligations shall be binding on
Employee's heirs, executors and administrators.
SECTION IV.
Confidentiality and Noncompetition
4.01. Confidentiality. Employee agrees, during and after his term of employment
hereunder, without the prior written consent of Corporation, not to disclose to
any person other than Corporation, by publication or otherwise, or use for his
own benefit, any confidential information of Corporation or any Inventions,
whether conceived in whole or in part by Employee or by others. Employee's duty
under this paragraph includes but is not limited to the nondisclosure of trade
secrets or confidential information, knowledge or data of Corporation which he
may obtain during the course of his employment relating to Corporation's
business, technical or otherwise, including but not limited to manufacturing
methods, processes, techniques, products, engineering development products,
computer programs, customer lists, machines, research, compositions, inventions
or discoveries. Employee agrees that upon leaving the employ of Corporation, he
will not take with him any original or copy of documents, or records relating to
the foregoing matters, without the written consent of Corporation. This Section
does not apply to any Inventions described in Section 3.04 above.
4.02. Noncompetition. In consideration of Corporation's agreement to extend the
term of Employee's employment, for the duration of his employment by
Corporation, and for a period of two (2) years after the termination thereof,
Employee agrees:
(a) Not to, on behalf of himself or any other entity or corporation,
directly or indirectly, as an employee, agent, independent contractor, owner,
stockholder, partner, officer, director or otherwise, engage in the business of
the manufacture or sale of electronic equipment for use in cable television or
broadband data transmission systems in North America, Central America and South
America, Europe, the Middle East and the Far East, including the Pacific Rim.
(b) Not to call on or solicit, on behalf of himself or on behalf of any
other entity or corporation, any of the customers of Corporation for the purpose
of selling or distributing to any of said customers any product or service
comparable to or competitive with products or services developed, sold and/or
distributed by Corporation or products or services which Corporation may have
under development during the period of time Employee was employed by Corporation
("Corporation's Products"); nor will Employee in any way, directly or
indirectly, for himself or on behalf of any other entity or corporation,
solicit, divert or take away any customer of Corporation. For purposes of this
Agreement, "customer" shall mean any person, entity or corporation which has
purchased Corporation's Products, or has received a price quotation from
Corporation for Corporation's Products, at any time within the three (3) year
period prior to the date of termination of Employee's employment.
(c) Not to enter or attempt to enter into an employment or agency
relationship with any person who, at the time of such entry (or attempted
entry), or at the time of termination of Employee's service with Corporation,
was an officer, director, employee, principal or agent of Corporation if, but
only if, such employment or agency relationship is with respect to a business in
competition with Corporation.
(d) Not to induce or attempt to induce any person described in
subparagraph (c) to leave his or her employment, agency, directorship or office
with Corporation to enter into a business in competition with Corporation.
It is understood by and between the parties to this Agreement that the aforesaid
covenants set forth in this Section 4.02 are essential elements of this
Agreement, and that, but for the agreement of Employee to comply with such
covenants, Corporation would not have agreed to the terms of employment set
forth in this Agreement. Such covenants by Employee shall be construed as
agreements independent of any other provision in this Agreement. The existence
of any claim or cause of action of Employee against Corporation, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Corporation of such covenants.
In addition to all other legal remedies available to Corporation for enforcement
of the covenants of this Section 4.02, the parties agree that Corporation shall
be entitled to an injunction by any court of competent jurisdiction to prevent
or restrain any breach or threatened breach thereof.
The parties to this Agreement agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area of
application, or the definition of Corporation's Products in such covenants to be
unreasonable, arbitrary or against public policy, then a lesser time period
and/or a smaller geographical area and/or a less encompassing definition of
Corporation's Products which are determined to be reasonable, nonarbitrary and
not against public policy may be enforced against Employee. The parties to this
Agreement agree and acknowledge that they are familiar with the present and
proposed operations of Corporation and believe that the restrictions set forth
in this Section 4.02 are reasonable with respect to its subject matter, duration
and geographical application.
The provisions of this Section 4.02 may be waived, in part or fully, in writing
by Corporation at its option.
These restrictive covenants shall survive the termination of this Agreement.
SECTION V.
Change of Control
5.01. Change of Control. The provisions of Sections 5.02 and 5.03 of this
Agreement shall become operative upon a change of control of Corporation, as
hereinafter defined. For purposes of this Agreement, a "change of control" shall
be deemed to have occurred if and when:
(a) Subsequent to the date of this Agreement, any person or group of
persons acting in concert shall have acquired ownership of or the right to vote
or to direct the voting of shares of capital stock of Corporation representing
thirty (30%) percent or more of the total voting power of Corporation, or
(b) Corporation shall have merged into or consolidated with another
corporation, or merged another corporation into Corporation, on a basis whereby
less than fifty (50%) percent of the total voting power of the surviving
corporation is represented by shares held by former shareholders of Corporation
prior to such merger or consolidation, or
(c) Corporation shall have sold more than fifty (50%) percent of its
assets to another corporation or other entity or person, or
(d) As the result of, or in connection with, any cash tender or exchange
offer, merger or other business combination, sale of assets or contested
election, the persons who were directors of Corporation before such transaction
cease to constitute a majority of directors of Corporation.
5.02. Termination Within Eighteen (18) Months. In the event that the employment
of Employee with Corporation is terminated involuntarily within eighteen (18)
months after a change of control occurs:
(a) Employee shall be entitled to receive an amount of cash equal to
the sum of the following amounts:
(i) two (2) times his annual salary as provided for in Section
2.01 hereof at his rate on the date of termination of employment (but not less
than two times Employee's annual salary prior to the Change of Control); and
(ii) two (2) times Corporation's annual 401(k) retirement plan
contribution at the Employee's contribution rate on the termination of his
employment (but not less than the amount the Corporation was matching prior to
Change of Control) (and subject to applicable limitations of the Internal
Revenue Code, which may dictate that such amount shall not be added to the
retirement plan but shall be paid in cash).
The sum of these amounts shall be paid in equal monthly installments over a
period of twenty-four (24) months, the first such installment to be paid within
ten (10) days after Employee's termination of employment.
(b) Employee shall be entitled to receive an amount of cash equal to two
times the amount that would have been awarded to him under the Profit Incentive
Plan of the Company, pursuant to the terms of such plan as in effect immediately
prior to such change in control and regardless of whether such plan may have
been changed thereafter, for the then-current calendar year if such award were
based on 100% of his share under said plan for such calendar year. Such amount
shall be paid at the same time as awards are paid to other participants in said
plan if such plan shall have been continued but in no event later than July 31
of the year following that year in respect of which the award was to have been
paid. If no plan is in effect at the time of change of control, a cash payment
of $40,200 will be paid to the Employee within 10 days after dismissal by the
Company.
(c) Employee shall continue for a period of twenty-four (24) months from
the date of his termination to be covered at the expense of Corporation by the
same or equivalent health, dental, accident, life and disability insurance
coverages as he was enrolled in immediately prior to termination of his
employment; provided, however, that the Employee may elect to be paid in cash
within thirty (30) days after termination of his employment an amount equal to
Corporation's cost of providing such coverages during such period.
(d) If on the date of termination of employment, Employee was eligible
for a retirement annuity, Employee shall become eligible for the benefits
payable under such annuity and such annuity shall be paid to Employee, or, if
applicable, Employee's spouse, in the same manner, amounts and intervals as if
Employee had, on the date of his termination of employment following a change of
control, retired from employment with Corporation.
(e) All outstanding options held by Employee, both exercisable and
nonexercisable, shall be immediately exercisable regardless of the time the
option has been held by Employee and shall remain exercisable until their
original expiration date, subject to applicable requirements of the Internal
Revenue Code.
(f) Corporation shall continue for a period of twenty-four (24) months
to pay Employee's monthly dues and special assessments, if any, of any club of
which Employee was a member at the time of termination and of which Corporation
was paying such dues and shall permit the Employee to continue to use such
membership thereafter, without reimbursement to Corporation of any membership or
initiation fees or assessments, so long as Employee wishes to do so on the basis
that monthly fees and special assessments will thereafter be paid by him.
(g) Corporation shall for a period of twenty-four (24) months continue
to pay Employee Six Hundred and 00/100 ($600.00) Dollars per month for expenses
of operating an automobile owned by Employee.
(h) Within thirty (30) days after Employee's termination of employment
as a result of a change of control, Corporation shall pay to Employee in a lump
sum an amount of cash, net of all federal, state and local income taxes, which
shall be sufficient to enable Employee to purchase a paid-up annuity issuable by
a financially sound and reputable insurance company providing for payment
beginning at age sixty-two (62) of a monthly benefit equal to One Thousand and
no/100 ($ 1,000.00) Dollars per month for the life of Employee.
5.03 Resignation Within Two Years. In the event the Employee should determine in
good faith that his status or responsibilities with Corporation has or have
diminished subsequent to a change of control, and shall for that reason resign
from his employment with Corporation within two (2) years after such change of
control, Employee shall be entitled to receive all of the payments and enjoy all
of the benefits specified in Section 5.02 hereof as if Employee's employment by
Corporation had terminated on the date of Employee's resignation.
5.04 Agreements Not Exclusive. The specific agreements referred to in this
Section V are not intended to exclude Employee's participation in other benefits
available to executive personnel generally or to preclude other compensation or
benefits as may be authorized by the Board of Directors of Corporation at any
time.
5.05 Enforcement Costs. Corporation is aware that upon the occurrence of a
change of control the Board of Directors or a shareholder of Corporation may
then cause or attempt to cause corporation to refuse to comply with its
obligations under this Section V, or may cause or attempt to cause corporation
to institute, or may institute, litigation seeking to have this Section V
declared unenforceable, or may take, or attempt to take, other action to deny
Employee the benefits intended under this Section V. In these circumstances, the
purpose of this Section V could be frustrated. It is the intent of Corporation
that Employee not be required to incur the expenses associated with the
enforcement of his rights under this Section V by litigation or other legal
action because the cost and expense thereof would substantially detract from the
benefits extended to Employee hereunder, nor be bound to negotiate any
settlement of his rights hereunder under threat of incurring such expenses.
Accordingly, if following a change of control, it should appear to Employee that
Corporation has failed to comply with any of its obligations under this Section
V or in the event that Corporation or any other person takes any action to
declare this Section V void or unenforceable, or institute any litigation or
other legal action designed to deny, diminish or to recover from Employee the
benefits intended to be provided to Employee hereunder and that Employee has
complied with all reasonable obligations related to Employees employment with
Corporation, Corporation irrevocably authorizes Employee from time to time to
retain counsel of his choice at the direct expense and liability of Corporation
as provided in this Section 5.05 to represent Employee in connection with the
initiation or defense of any litigation or other legal action, whether by or
against Corporation or any director, officer, shareholder or other person
affiliated with Corporation, in any jurisdiction. Not withstanding any existing
or prior attorney-client relationship between Corporation and such counsel,
Corporation irrevocably consents to Employee entering into an attorney-client
relationship with such counsel, and in that connection Corporation and Employee
agree that a confidential relationship shall exist between Employee and such
counsel. The reasonable fees and expenses of counsel selected from time to time
by Employee as hereinabove provided shall be paid or reimbursed to Employee by
Corporation on a regular, periodic basis upon presentation by Employee of a
statement or statements prepared by such counsel in accordance with its
customary practices up to a maximum aggregate amount of $500,000, said amount to
be "grossed up" to cover federal and state income taxes. The amount of the gross
up shall be calculated in accordance with the following formula: A /(1 - R),
where A is the amount of legal fees and R is the combined highest marginal tax
rate applicable to Employee in the tax year that the payment is made.
5.06. No Set-Off, Corporation shall not be entitled to set-off against the
amount payable to Employee any amounts earned by Employee in other employment
after termination of his employment with Corporation, or any amounts which might
have been earned by Employee in other employment had he sought other employment.
The amounts payable to Employee under this Section V shall not be treated as
damages but as severance compensation to which Employee is entitled by reason of
termination of his employment in the circumstances contemplated by this Section
V. However, a set-off may be taken by Corporation against the amounts payable to
Employee for expenses covering the same or equivalent hospital, medical,
accident, and disability insurance coverages as set forth in Section 5.02(c); or
for expenses covering monthly dues and special assessments of any club of which
Employee was a member at the time of termination and of which Corporation was
paying dues as set forth in Section 5.02(f); or for expenses related to monthly
automobile allowance as set forth in Section 5.02(g) if such benefits are paid
for the Employee by a new employer after Employee's termination of employment by
Corporation under Section 5.02 hereof or after Employee's resignation under
Section 5.03 hereof.
5.07. Termination. The provisions of this Section V shall continue during the
Term hereof but shall terminate when the employment of Employee with Corporation
shall terminate, so long as such termination was not in anticipation of or
related to a change of control.
SECTION VI
Indemnification for Service as Director
6.01. Indemnity of Employee. In consideration of Employee's service to
Corporation as a director of Corporation since October 23, 1986, Corporation
hereby agrees to hold harmless and indemnify Employee as a director to the full
extent authorized or permitted by the provisions of the Pennsylvania Business
Corporation Law (the "State Statute"), or by any amendment thereof or other
statutory provisions authorizing or permitting such indemnification which is
adopted after the date hereof.
6.02. Maintenance of Insurance and Self-Insurance.
(a) Corporation represents that it presently has in force and effect
policies of Directors and Officers Liability Insurance ("D&O Insurance") in
insurance companies and amounts as follows (the "Insurance Policies"):
<TABLE>
<S> <C> <C>
Insurer Policy No. Amount
Federal Insurance Co. 8133-97-22 $10,000,000
Lexington Insurance Co. F0089OD95 $ 5,000,000 in
excess of the
above $10,000,000
Stonewall Insurance Co. TDX9823904 $ 5,000,000 in
excess of the
above $15,000,000
</TABLE>
Subject only to the provisions of Section 6.02(b) hereof, Corporation hereby
agrees that, so long as Employee shall continue to serve as a director of
Corporation (or shall continue at the request of Corporation to serve as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) and thereafter so long as Employee shall be
subject to any possible claim or threatened, pending or completed action, suit
or proceeding, whether civil, criminal or investigative by reason of the fact
that Employee was a director of Corporation (or served in any of said other
capacities), Corporation will purchase and maintain in effect for the benefit of
Employee one or more valid, binding and enforceable policy or policies of D&O
Insurance providing, in all respects, coverage at least comparable to that
presently provided pursuant to the Insurance Policies.
(b) Corporation shall not be required to maintain said policy or of D&O
Insurance in effect if said insurance is not reasonably available or if, in the
reasonable business judgment of the then directors of Corporation, either (i)
the premium cost for such insurance is substantially disproportionate to the
amount of coverage or (ii) the coverage provided by such insurance is so limited
by exclusions that there is insufficient benefit from such insurance.
(c) In the event Corporation does not purchase and maintain in effect
said policy or policies of D&O Insurance pursuant to the provisions of Section
6.02(a) hereof, Corporation agrees to hold harmless and indemnify Employee to
the full extent of the coverage which would otherwise have been provided for the
benefit of Employee pursuant to the Insurance Policies.
6.03. Additional Indemnity. Subject only to the exclusions set forth in Section
6.04 hereof, Corporation hereby further agrees to hold harmless and indemnify
Employee:
(a) Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by
Employee in connection with any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (including
an action by or in the right of the Corporation) to which Employee is, was or at
any time becomes a party, or is threatened to be made a party, by reason of the
fact that Employee is, was or at any time becomes a director, officer, employee
or agent of Corporation, or is or was serving or at any time serves at the
request of Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise; and
(b) Otherwise to the fullest extent as may be provided to Employee by
Corporation under the non-exclusivity provisions of Section 7-1 of the By-laws
of Corporation and the State Statute.
6.04. Limitations additional Indemnity. No indemnity pursuant to Section 6.03
hereof shall be paid by Corporation:
(a) except to the extent the aggregate of losses to be indemnified
thereunder exceeds the sum of $ 1,000 plus the amount of such losses for which
Employee is indemnified either pursuant to Sections 6.01 or 6.02 hereof or
pursuant to any D&O Insurance purchased and maintained by the Corporation;
(b) in respect to remuneration paid to Employee if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law;
(c) on account of any suit in which judgment is rendered against
Employee for an accounting of profits made from the purchase or sale by Employee
of securities of Corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar provisions of
any federal, state or local statutory law;
(d) on account of Employee's conduct which is finally adjudged by a
court of competent jurisdiction to have been knowingly fraudulent or
deliberately dishonest or to have constituted willful misconduct or
recklessness;
(e) if a final decision by a court of competent jurisdiction shall
determine that such indemnification is not lawful.
6.05. Continuation of Indemnity. All agreements and obligations of Corporation
contained herein shall continue during the period Employee is a director,
officer, employee or agent of Corporation (or is or was serving at the request
of Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise) and shall continue
thereafter so long as Employee shall be subject to any possible claim or
threatened, pending or completed action, suit or proceeding, whether civil,
criminal or investigative, by reason of the fact that Employee was a director of
Corporation or serving in any other capacity referred to herein.
6.06. Notification and Defense of Claim. Promptly after receipt by Employee of
notice of the commencement of any action, suit or proceeding, Employee will, if
a claim in respect thereof is to be made against Corporation under this Section
VI, notify Corporation of the commencement thereof; but the omission so to
notify Corporation will not relieve it from any liability which it may have to
Employee otherwise than under this Section VI. With respect to any such action,
suit or proceeding as to which Employee notifies Corporation of the commencement
thereof:
(a) Corporation will be entitled to participate therein at its own
expense;
and
(b) Except as otherwise provided below, to the extent that it may wish,
Corporation jointly with any other indemnifying party similarly notified will be
entitled to assume the defense thereof, with counsel satisfactory to Employee.
After notice from Corporation to Employee of its election so to assume the
defense thereof, Corporation will not be liable to Employee under this Section
VI for any legal or other expenses subsequently incurred by Employee in
connection with the defense thereof other than reasonable costs of investigation
or as otherwise provided below. Employee shall have the right to employ
Corporation's counsel in such action, suit or proceeding but the fees and
expenses of such counsel incurred after notice from Corporation of its
assumption of the defense thereof shall be at the expense of Employee unless (i)
the employment of counsel by Employee has been authorized by Corporation, (ii)
Employee shall have reasonably concluded that there may be a conflict of
interest between Corporation and Employee in the conduct of the defense of such
action or (iii) Corporation shall not in fact have employed counsel to assume
the defense of such action, in each of which cases the fees and expenses of
counsel shall be at the expense of Corporation. Corporation shall not be
entitled to assume the defense of any action, suit or proceeding brought by or
on behalf of Corporation or as to which Employee shall have made the conclusion
provided for in (ii) above.
(c) Corporation shall not be liable to indemnify Employee under this
Section VI for any amounts paid in settlement of any action or claim effected
without its written consent. Corporation shall not settle any action or claim in
any manner which would impose any penalty or limitation on Employee with
Employee's written consent. Neither Corporation nor Employee will unreasonably
withhold its or his consent to any proposed settlement.
6.07. Repayment @f Expenses. Employee will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Employee in the event and only to the extent
that it shall be ultimately determined that Employee is not entitled to be
indemnified by Corporation for such expenses under the provisions of the State
Statute, the By-laws of Corporation, this Section VI or otherwise.
6.08. Enforcement.
(a) Corporation expressly confirms and agrees that it has entered into
this Section VI and assumed the obligations imposed on Corporation hereby in
order to induce Employee to continue as a director of Corporation, and
acknowledges that Employee is relying upon this Section VI in continuing in such
capacity.
(b) In the event Employee is required to bring any action to enforce
rights or to collect moneys due under this Agreement and is successful in such
action, Corporation shall reimburse Employee for all of Employee's reasonable
fees and expenses in bringing and pursuing such action.
SECTION VII.
Miscellaneous
7.01. Use of Name. Employee agrees to allow Corporation to have his name or
picture used by Corporation for advertising or trade purposes during the term of
this Agreement.
7.02. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon Employee and upon Corporation, their successors and assigns,
including, without limitation, any person, partnership, company or corporation
which may acquire substantially all of Corporation's assets or business or into
which Corporation may be consolidated, merged or otherwise combined.
7.03. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
7.04. Legal Construction. In the event any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not effect any other provision thereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
7.05. Amendment. No amendment, modification or alteration of the term hereof
shall be binding unless the same be in writing, dated subsequent to the date
hereof and duly executed by the parties hereto.
7.06. Integration. This Agreement constitutes the entire understanding and
agreement between C-COR and Employee with regard to the subject matter hereof
and supersedes all other agreements and understandings between Corporation and
Employee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the
intent to be legally bound thereby on the day and year first above written.
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 30 day of July, 1997 to be effective as of the 1st day
of March, 1997, by and between C-COR ELECTRONICS, INC., a Pennsylvania Business
Corporation with its principal place of business at 60 Decibel Road, State
College, Pennsylvania ("Corporation"),
-AND-
GERHARD B. NEDERLOF, of Windwardside, Saba, Netherlands Antilles ("Employee")
BACKGROUND
A. Corporation desires to employ Employee as its Senior Vice President -
Marketing, Business Development and Services and Employee desires to be so
employed by Corporation.
B. The parties mutually desire to set forth in this Employment Agreement (the
"Agreement") the terms and conditions under which Employee will be employed by
Corporation.
NOW, THEREFORE, in consideration of the mutual promises contained herein, and
intending to be legally bound thereby, the parties hereto agree as follows:
SECTION I.
Description of Employment
1.01. Employment and Term. Corporation agrees to employ Employee and Employee
agrees to be so employed for a term commencing on March 1, 1997 and ending on
November 3, 1999 (the "Term"). Provided, however, that Employee's employment
hereunder shall be contingent upon Employee's securing an extension of his L1A
Visa to November 3, 1999. Corporation may terminate this Agreement in the event
that Employee fails to secure an extension to his current L1A Visa, effective
as of the date of the expiration of Employee's current L1A Visa.
1.02. Capacity. During the Term, Employee shall serve as Corporation's Senior
Vice President - Marketing, Business Development and Services, or in such other
offices or capacities as shall be determined by Corporation's Board of
Directors.
1.03. Time and Efforts. During the Term, Employee shall diligently and
conscientiously devote his best efforts and his full time and attention to the
discharge of his duties as Senior Vice President - Marketing, Business
Development and Services and of such other duties as may be determined by the
Board of Directors of Corporation. Employee acknowledges that during the period
of this employment pursuant to this Agreement as the Senior Vice President -
Marketing, Business Development and Services of Corporation, he will not have
any other employment or business affiliations without the prior approval of the
Board of Directors of Corporation.
SECTION II.
Compensation
2.01. Salary. During the period of Employee's employment hereunder as Senior
Vice President Marketing, Business Development and Services Corporation shall
pay to Employee a salary at an annual rate of One Hundred Fifteen Thousand
($115,000) Dollars through the period ending on June 27, 1997 and at the annual
rate of One Hundred Twenty-Eight Thousand ($128,000.00) Dollars commencing on
June 28, 1997, payable bi-weekly, for services rendered. Employee may be
eligible for future increases in salary, based on Corporation's evaluation of
Employee's performance. Further, Employee acknowledges receipt of a one (1) time
initial relocation expense payment of Thirty-Six Thousand Nine Hundred
($36,900.00) Dollars.
2.02. Business Expenses. Employee shall be reimbursed by Corporation for all
reasonable expenses incurred in carrying out his employment duties or in
otherwise promoting the business of Corporation by presenting to the designated
officer of Corporation an itemized expense account report with receipts
attached.
2.03. Incentive Compensation. During the Term, Corporation shall include
Employee as a participant at the Officer level under Corporation's "Variable
Compensation Plans" or any successor Plans. Employee will be entitled to such
awards as are declared from time to time by the Board of Directors under the
terms of the "Variable Compensation Plans" or any successor Plans.
2.04. Stock Options. Employee shall be eligible for stock option awards in
accordance with stock option plans adopted by the Corporation from time to time.
All such stock option awards shall be nonqualified stock options and shall be
granted under and be subject to all of the terms and conditions of the C-COR
Electronics, Inc. 1988 Stock Option Plan and a Nonqualified Stock Option
Granting Agreement or any successor plan and granting agreement.
2-05. Supplemental Retirement Plan. Employee will be entitled to participate in
Corporation's Supplemental Retirement Plan with an annual supplemental
retirement benefit of Eighteen Thousand and No/100 ($18,000.00) Dollars
commencing at Employee's retirement at age sixty-five (65) and continuing for a
period of fifteen years in accordance with and subject to the terms of such plan
and a Participation Agreement entered into between Corporation and Employee on
May 14, 1993 and attached hereto as Exhibit "A.".
2.06. Life Insurance Coverage. Corporation will provide to Employee group term
life insurance in a face amount equal to three times the Employee's salary.
Changes in life insurance coverage will occur at the same time Employee's salary
is changed pursuant to Section 2.01 hereof.
2.07. Financial and Tax Planning Reimbursement. Corporation agrees to reimburse
Employee for expenses incurred in his personal financial and tax planning up to
an amount not exceeding One Thousand and No/ 100 ($1,000.00) Dollars per year
during the term of this Agreement.
2.08. Other Benefit Plans. During the Term, Employee shall also be eligible to
voluntarily participate in Corporation's other fringe benefit plans, upon
Employee's payment of appropriate premiums, co-pays and deductibles, including
both those plans presently existing and those which may in the future be
adopted, in accordance with the terms and provisions of such plans.
2.09. Vacation. During the Term, Employee shall be entitled to three (3) weeks
vacation per year.
2. 10. Physical Examination. Corporation agrees to reimburse Employee in an
amount not to exceed Two Hundred and No/ 100 ($200. 00) Dollars per year for the
expense of an annual physical examination by a physician selected by Employee.
2.1 I. Final Relocation Payment. On or before June 26, 1998, Corporation shall
pay Employee a one (1) time lump sum payment of One Hundred Twenty Thousand
($120,000.00) Dollars, less appropriate federal, Pennsylvania and local
withholding taxes, in consideration of Employee's relocation to State College,
Pennsylvania. Should Employee voluntarily resign from his employment by
Corporation within one (1) year from the date of the execution of this Agreement
and the final relocation payment has already been paid to Employee at the time
of Employee's resignation, Employee agrees to pay to Corporation an amount equal
to the reduction of the final relocation payment determined in accordance with
the following table within thirty (30) days of the Employee's termination of
employment:
<TABLE>
<S> <C>
Percentage
Number of Months Between Execution Reduction of
Date of this Agreement and Employee's Final Relocation
Effective Date of Resignation Payment
- ------------------------------------- ----------------
0 - 6 months 100%
6 - 9 months 75%
9 - 12 months 25%
</TABLE>
In the event such payment has not yet been paid to Employee prior to Employee's
resignation, Corporation shall not have any obligation to pay Employee
any portion of such final relocation payment.
SECTION III.
Intellectual Property
3.01. Disclosure. Employee agrees to promptly and fully disclose to Corporation
all inventions, improvements, original works of authorship, formulas, processes,
computer programs, techniques, know-how and data (hereinafter collectively
referred to as "Inventions"), whether or not patentable or copyrightable, made
or conceived or first reduced to practice or learned by Employee either alone or
jointly with others, whether during Employee's regular hours of employment and
directly or indirectly relating to or capable of being used for the benefit of
Corporation's business. Employee agrees, without compensation additional to that
provided for in Section II of this Agreement, to assign all rights in and to
such inventions to Corporation and to execute, at Corporation's request,
appropriate documents effectuating such assignments.
3.02. Maintenance of Records. Employee agrees to maintain accurate and current
written records of all such Inventions, in the form of notes, sketches,
drawings, or reports which shall be and will remain the property of and be
available to Corporation at all times.
3.03. Provision of Assistance. Employee agrees, upon Corporation's request,
during and after the Term, to assist Corporation, its attorneys, and nominees at
its or their expense in preparing and prosecuting applications for letters
patent on Inventions created by him and applications to register copyrights on
inventions created by him providing, however, that time actually spent by
Employee at such work after termination of employment, at Corporation's request,
shall be paid for by Corporation at a reasonable rate, and that necessary
expenses incurred by Employee in connection with Employee's duties under this
paragraph shall be paid by Corporation.
3.04. Previous Inventions. Employee expressly retains an interest in and title
to Inventions patented or unpatented which Employee conceived prior to the Term.
3.05. Term of Obligation. Employee's termination of employment by Corporation
under this Agreement shall not affect the obligations imposed on Employee by
Paragraphs 3.01, 3.02 and 3.03 and such obligations shall be binding on
Employee's heirs, executors and administrators.
SECTION IV.
Confidentiality and Noncompetition
4.01. Confidentiality. Employee agrees, during and after the Term, without the
prior written consent of Corporation, not to disclose to any person other than
Corporation, by publication or otherwise, or use for his own benefit, any
confidential information of Corporation or any Inventions, whether conceived in
whole or in part by Employee or by others. Employee's duty under this section
includes but is not limited to the nondisclosure of trade secrets or
confidential information, knowledge or data of Corporation which he may obtain
during the course of his employment relating to Corporation's business,
technical or otherwise, including but not limited to manufacturing methods,
processes, techniques, products, engineering development products, computer
programs, customer lists. machines, research, compositions, inventions or
discoveries. Employee agrees that upon leaving the employ of Corporation, he
will not take with him any original or copy of documents, or records relating to
the foregoing matters, without the written consent of Corporation. This Section
does not apply to any Inventions described in Section 3.04 above.
4.02. Noncompetition. In consideration of Employee's employment, for the
duration of his employment by Corporation, and for a period of two (2) years
after the termination thereof, employee agrees:
(a) Not to, on behalf of himself or any other
entity or corporation, directly or indirectly, as an
employee, agent, independent contractor, owner,
stockholder, partner, officer, director or otherwise,
engage in the business of the manufacture or sale of
electronic equipment for use in cable television or
broadband data transmission systems in North America,
Central America and South America, Europe, the Middle
East and the Far East, including the Pacific Rim.
(b) Not to call on or solicit, on behalf of
himself or on behalf of any other entity or
corporation, any of the customers of Corporation for
the purpose of selling or distributing to any of said
customers any product or service comparable to or
competitive with products or services developed, sold
and/or distributed by Corporation or products or
services which Corporation may have under development
during the period of time Employee was employed by
Corporation ("Corporation's Products"); nor will
Employee in any way, directly or indirectly, for
himself or on behalf of any other entity or
corporation, solicit, divert or take away any
customer of Corporation. For purposes of this
Agreement, "customer" shall mean any person, entity
or corporation which has purchased Corporation's
Products, or has received a price quotation from
Corporation for Corporation's Products, at any time
within the three (3) year period prior to the date of
termination of Employee's employment.
(c) Not to enter or attempt to enter into an
employment or agency relationship with any person
who, at the time of such entry (or attempted entry),
or at the time of termination of Employee's service
with Corporation, was an officer, director, employee,
principal or agent of Corporation if, but only if,
such employment or agency relationship is with
respect to a business in competition with
Corporation.
(d) Not to induce or attempt to induce any
person described in subparagraph (c) to leave his or
her employment, agency, directorship or office with
Corporation to enter into a business in competition
with Corporation.
It is understood by and between the parties to this Agreement that the aforesaid
covenants set forth in this Section 4.02 are essential elements of this
Agreement, and that, but for the agreement of Employee to comply with such
covenants, Corporation would not have agreed to the terms of employment set
forth in this Agreement. Such covenants by Employee shall be construed as
agreements independent of any other provisions in this Agreement. The existence
of any claim or cause of action by Employee against Corporation, whether
predicated on this Agreement or otherwise, shall not constitute a defense to the
enforcement by Corporation of such covenants.
In addition to all other legal remedies available to Corporation for enforcement
of the covenants of this Section 4.02, the parties agree that Corporation shall
be entitled to an injunction by any court of competent jurisdiction to prevent
or restrain any breach or threatened breach hereof.
The parties to this Agreement agree that, if any court of competent jurisdiction
determines the specified time period or the specified geographical area of
application, or the definition of Corporation's Products in such covenants to be
unreasonable, arbitrary or against public policy, then a lesser time period
and/or a smaller geographical area and/or a less encompassing definition of
Corporation's Products which are determined to be reasonable, nonarbitrary and
not against public policy may be enforced against Employee. The parties to this
Agreement agree and acknowledge that they are familiar with the present and
proposed operations of Corporation and believe that the restrictions set forth
in this Section 4.02 are reasonable with respect to its subject matter, duration
and geographical application.
The provisions of this Section 4.02 may be waived, in part or fully, in writing
by Corporation at its option.
These restrictive covenants shall survive the termination of this Agreement.
SECTION V.
Change of Control: Indemnification Agreement
5.01. Change of Control. Employee will continue to be covered under the Change
of Control Agreement between Corporation and Employee dated May 14, 1993 and
attached hereto as Exhibit "B."
5.02. Indemnification. Employee will continue to be covered under the
Indemnification Agreement between Corporation and Employee dated February 3,
1992 and attached hereto as Exhibit "C."
SECTION VI.
Miscellaneous
6.01. Use of Name. Employee agrees to allow Corporation to have his name or
picture used by Corporation for advertising or trade purposes during the term of
this Agreement.
6.02. Binding Effect. This Agreement shall inure to the benefit of and be
binding upon Employee and upon Corporation, their successors and assigns,
including, without limitation, any person, partnership, company or corporation
which may acquire substantially all of Corporation's assets or business or into
which Corporation may be consolidated, merged or otherwise combined.
6.03. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the Commonwealth of Pennsylvania.
6.04. Legal Construction. In the event any one or more of the provisions
contained in this Agreement shall for any reason be held invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not effect any other provision thereof and this Agreement shall be
construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
6.05. Amendment. No amendment, modification or alteration of the terms hereof
shall be binding unless the same be in writing, dated subsequent to the date
hereof and duly executed by the parties hereto.
6.06. Integration. This Agreement, plus the attached Exhibits, constitute the
entire understanding and agreement between Corporation and Employee with regard
to the subject matter hereof and supersedes all other agreements and
understandings between Corporation and Employee, including, without limitation,
the Employment Agreement between Corporation and Employee dated February 28,
1997 and a supplementary Memo dated March 17, 1997 from
Joseph Zavacky to Edwin Childs and Gerhard B. Nederlof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the
intent to be legally bound thereby on the day and year first above written.
C-COR ELECTRONICS, INC.
By: Scott C. Chandler, President and
Chief Executive Officer
By: Gerhard B. Nederlof
<TABLE>
Computation of Earnings Per Share
(in thousands except per share data)
Year Ended Year Ended Year Ended
June 27, 1997 June 28, 1996 June 30, 1995
<S> <C> <C> <C>
Primary
Average Shares Outstanding 9,504 9,554 9,332
Net effect of dilutive stock
options-based on the
treasury stock method using
average market price - 314 527
Total(1) 9,504 9,868 9,859
Income from Continuing Operations $ 4,257 $ 9,014 $ 8,528
Loss from Discontinued Operations (6,605) (3,095) (213)
Loss from Disposal of Discontinued
Operations (3,830) - -
Net Income (Loss) ($ 6,178) $ 5,919 $ 8,315
Net Income (Loss) Per Share
Continuing Operations $ 0.45 $ 0.91 $ 0.86
Discontinued Operations (0.70) (0.31) (0.02)
Disposal of Discontinued
Operations (0.40) - -
Net Income (Loss) Per Share(1) ($ 0.65) $ 0.60 $ 0.84
Fully Diluted
Average Shares Outstanding 9,504 9,554 9,332
Net effect of dilutive stock
options-based on the
treasury stock method using
the greater of the average
market price or the year-end
market price - 314 568
Total 9,504 9,869 9,900
Income from Continuing Operations $ 4,257 $ 9,014 $ 8,528
Loss from Discontinued Operations (6,605) (3,095) (213)
Loss from Disposal of Discontinued
Operations (3,830) - -
Net Income (Loss) ($ 6,178) $ 5,919 $ 8,315
Net Income (Loss) Per Share
Continuing Operation 0.45 $ 0.91 $ 0.86
Discontinued Operations (0.70) (0.31) (0.02)
Disposal of Discontinued
Operations (0.40) - -
Net Income (Loss) Per Share(1) ($ 0.65) $ 0.60 $ 0.84
<FN>
(1)Adjusted for two-for-one stock split effective December 5, 1994.
</FN>
</TABLE>
1997 ANNUAL REPORT
C-COR ELECTRONICS, INC.
Our Legacy, Our Future
There are opportune times during the life of every business when it is essential
to stop and reflect on where you've been so that you can better focus on and
prepare for where you're going. At C-COR, a challenging, transitional year
provided the ideal opportunity for such self-examination. After all, it's been
nearly 45 years since C-COR launched into the communications industry. We've
recognized this as the appropriate time to reflect on and assess our role within
a rapidly changing global marketplace.
In tracking our evolution, we've rediscovered a number of strengths for which
C-COR is known. Strengths that reflect the heart and soul of our business.
Strengths that provide a solid foundation from which we operate today and on
which to build our future.
First and foremost, we are broadly recognized for providing a full line of
robust, high quality network components for two-way HFC (hybrid fiber coax) [pg
6]. Used in a variety of communications networks worldwide, these products have
helped earn us the trust and confidence of customers around the globe--customers
like TCA Cable [pg 7], who rely on us for solutions that often define the
industry standard.
As you'll see in the story of our ten-year relationship with Rogers Cablesystems
in Canada, we have historically placed great value on developing strong customer
relationships [pages 8 & 9]. We have excelled at understanding and addressing
our customers' specific needs. And it's why we count everyone from cable
television operators and telephone companies, to major broadband communication
network installers, among our list of satisfied customers.
An industry leader in the distribution portion of the network [page 12], C-COR
has established itself as an innovator of next-generation equipment and systems.
In fact, our strategic alliance with one of today's leading-edge cable modem
suppliers and the inclusion of C-COR components in active, two-way signal
transmission, point to our respected role within the industry.
Finally, factors such as our size, key process improvements and a strong balance
sheet enable C-COR to remain flexible and agile enough to embrace and remain
poised for change [pg 14].
As you can see, our legacy is impressive. And while it's been a challenging
year, reinvesting our energy and focus on each of these strengths gives us every
reason to believe that C-COR is well-positioned to move into the new century.
It's a future we can all look forward to.
C-COR conducts its sales efforts from headquarters in State College, PA, through
regional offices in the U.S., Canada, Hong Kong, and the Netherlands, as well as
through numerous distributors worldwide. Keep up with C-COR through our web
site: http://www.c-cor.com.
<TABLE>
Selected Financial Data
(in thousands of dollars except per share data)
Fiscal Year Ended 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statement of operations(1):
Net Sales $131,941 $139,539 $121,269 $ 60,207 $ 47,114
Income from Continuing Operations 4,257 9,014 8,528 3,177 3,052
Income (Loss) from Discontinued
Operations (6,605) (3,095) (213) 855 337
Loss from Disposal of Discontinued
Operations (3,830) - - - -
Net Income (Loss) (6,178) 5,919 8,315 4,032 3,389
Net Income (Loss) Per Share
Continuing Operations $ 0.45 $ 0.91 $ 0.86 $ 0.34 $ 0.33
Discontinued Operations (0.70) (0.31) (0.02) 0.09 0.04
Disposal of Discontinued Operations (0.40) - - - -
Net Income (Loss) Per Share(2) (0.65) 0.60 0.84 0.43 0.37
Balance sheet data (at period end)(1):
Working Capital $ 22,745 $ 35,452 $ 24,442 $ 25,061 $ 22,072
Total Assets 71,119 77,278 85,868 47,499 36,614
Total Indebtedness 10,667 9,177 22,623 501 588
Shareholders' Equity 41,678 53,317 44,725 34,139 29,499
<FN>
(1)Certain amounts have been reclassified for comparability with fiscal year
1997 presentation.
(2)Adjusted to reflect a two-for-one stock split effective December 5, 1994.
</FN>
</TABLE>
<TABLE>
NET SALES
IN THOUSANDS OF DOLLARS
<S> <C>
1993 47,114
1994 60,207
1995 121,269
1996 139,539
1997 131,941
</TABLE>
<TABLE>
INCOME FROM CONTINUING OPERATIONS
IN THOUSANDS OF DOLLARS
<S> <C>
1993 3,052
1994 3,177
1995 8,528
1996 9,014
1997 4,257
</TABLE>
<TABLE>
NET INCOME PER SHARE FROM CONTINUING OPERATIONS (1)
IN DOLLARS
<S> <C>
1993 0.33
1994 0.34
1995 0.86
1996 0.91
1997 0.45
<FN>
(1) Adjusted to reflect a two-for-one stock split effective December 5, 1994.
</FN>
</TABLE>
Some of the information presented in this report constitutes forward looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995. Although the Company believes that its expectations are based on
reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors which could cause actual results to
differ from expectations include the timing of orders received from customers;
the gain or loss of significant customers; changes in the mix of products sold;
changes in the cost and availability of parts and supplies; fluctuations in
warranty costs; new product development activities; regulatory changes affecting
the telecommunications industry, in general, and the Company's operations, in
particular; competition and changes in domestic and international demand for the
Company's products, and other factors which may impact operations and
manufacturing. For additional information concerning these and other important
factors which may cause the Company's actual results to differ materially from
expectations and underlying assumptions, please refer to the reports filed by
the Company with the Securities and Exchange Commission.
ROBUST, HIGH QUALITY NETWORK COMPONENTS FOR TWO-WAY HFC
<TABLE>
TABLE OF CONTENTS
<S> <C>
Corporate Profile /
Selected Financial Data Inside Cover
Shareholders' Letter 3
Our Legacy, Our Future
Robust Products 6
Customer Relationships 8
Industry Leader 12
Flexible and Agile 14
Management's Discussion and
Analysis 17
Consolidated Balance Sheets 21
Consolidated Statements of
Operations 22
Consolidated Statements of
Cash Flows 23
Consolidated Statements of
Shareholders' Equity 24
Notes to Consolidated Financial
Statements 25
Reports 34
Directors & Officers 35
Corporate Data 36
Mission Statement 37
</TABLE>
STRONG CUSTOMER RELATIONSHIPS
INDUSTRY LEADER
FLEXIBLE AND AGILE
Dear C-COR Shareholders:
As we reflect on the fiscal year just ended, we are reminded that with change
comes challenge, and that growth is often preceded by periods of great
transition. This year alone, the global communications marketplace has been
marked by significant changes, with major consolidation taking place in both the
network operator and vendor segments. Shifts in government regulation worldwide
have opened many new markets, bringing with them new ways of doing business.
Technological progress has continued to challenge businesses striving to provide
the advanced, highly reliable products and services required for today's
sophisticated networks. Even end-users of communications services have effected
change as the interest for video and voice on the networks has been joined by
the demand for high-speed data (Internet, private intranets and other online
services). In response to these many changes, C-COR has been faced with making
major decisions about the company's structure, product development priorities,
and ways to build value for our shareholders, customers and employees.
For fiscal year 1997, C-COR reported a net loss of ($6,178,000) or ($0.65) per
share versus net income of $5,919,000 or $0.60 per share for fiscal year 1996.
The primary factor contributing to the loss was our decision to discontinue the
digital fiber optic business located in Fremont, California. (Reference
Management's Discussion on page 17 for details.) The business segment
discontinuation was booked in the fourth quarter of fiscal year 1997 and
generated a loss for both the fourth quarter and the fiscal year. Revenues in
fiscal year 1997 from continuing operations were down about 5% from the previous
year, due primarily to a significant decrease in revenues from the international
market. Revenues from domestic customers increased 26% in fiscal year 1997.
Profitability in fiscal year 1997 was adversely impacted by product and customer
mix, pricing pressures (especially in the domestic market), and excess
manufacturing capacity. As a result, we put into place an aggressive plan to
improve financial results. This plan involved implementing cost-cutting and
restructuring initiatives such as work force adjustments, cutbacks in numerous
operating budgets, an increased focus on vendor-managed material programs, the
transfer of the manufacture of RF power supply assemblies to Mexico, and
realignment and reorganization of our sales and service organizations. Another
factor influencing fiscal 1997 results was a tax benefit in the third quarter
from a reassessment of foreign sales transactions, which added $0.06 in earnings
per share in that quarter.
In December 1996, we announced the launch of a stock repurchase program based on
our belief that our common stock was attractively priced, and that the
repurchase would represent a favorable opportunity for C-COR. The repurchase of
500,000 shares was completed in May 1997.
We have seen improvement in ordering during the year, resulting in a
book-to-bill ratio from continuing operations of 1.08 for the year versus 0.79
at the end of fiscal year 1996. Consequently, the backlog from continuing
operations at the end of fiscal year 1997 was up 43% from the end of the
previous year. We are encouraged by the revenue growth in the fourth quarter,
along with improvements in gross margins and productivity, resulting primarily
from implementation of restructuring and cost-reduction initiatives taken during
the year.
Although orders from the domestic market were slow to start this past fiscal
year, we are encouraged by trends that developed as the year progressed. The
demand to provide expanded bandwidth for high-speed data can be characterized as
the strongest driver. In the third quarter, we began to see improvement as
system operators firmed up budgets and capital spending plans. Additionally,
multiple system operators responded to the demand for improved financial
performance and enhanced customer service.
In the global marketplace, we have seen order trends improve in all sectors,
including Europe, Latin America, Asia and Canada. During the last quarter of the
fiscal year, international orders rebounded, increasing that component of the
backlog to 28% of the total at year-end.
In spite of the many challenges we faced during this transitional year, we are
pleased to report a number of positive events and trends. Early in the year, we
were chosen as Pennsylvania's 1996 Governor's Export Excellence Award recipient,
followed shortly thereafter by placing sixty-eighth on Fortune magazine's Top
100 list of America's Fastest Growing Companies. Progress continues with the
implementation of two RapidCycle(R) process improvement programs. Using the
Order Fulfillment methods, we are consistently reaching our goals of reduced
cycle time and improved first pass yield, which signals improved productivity
and quality. Additionally, the RapidCycle(R) Product Development program has
been fully implemented, and we are poised to apply these newly-acquired skills
to create a whole new platform of AM fiber optic products designed to meet the
need for flexibility in today's global networks.
During the past fiscal year, we bolstered our line of FlexNet(R) amplifiers by
adding the 900 Series, which has gained significant recognition in the
marketplace for its superior reverse path performance and high power-passing
capability. These wideband products offer improved performance for network
operators planning to deploy two-way services such as digital and high-speed
data. To accompany the FlexNet(R) Series of amplifiers in an HFC (hybrid fiber
coax) network, C-COR began offering FlexNode(TM), a reliable, cost-effective AM
fiber optic node solution for expanded bandwidth, high power-passing networks.
We are also pleased to report deliveries of our popular I-Flex(TM) products to
Hungary, the Netherlands, Norway, Poland, Russia, Spain, Turkey and the United
Kingdom.
Managed network solutions are key to meeting current and future needs in
advanced communications networks. To address this need, C-COR has launched an
aggressive program to develop next-generation network management systems,
including software and hardware designed to meet the operators' requirements for
the highest degree of reliability and predictability in their network. We expect
availability of this new product during calendar year 1998.
We now shift our focus to our objectives for the coming year, as well as plans
for the more distant future. In the short term, our product goals include
diversification of our HFC offerings and expansion into non-HFC product lines.
The new optical node and bridger amplifier product platform, along with network
management enhancements, are two examples of how we are working to do so. Our
announcement in the second quarter of 1997 of a strategic alliance with Bay
Networks' LANcity Cable Modem Division (now Broadband Technologies Division)
provides further evidence of the move to an expanded product offering. Both
companies have agreed to work together to ensure interoperability of equipment
and quality delivery of high-speed data over HFC networks.
Cost reduction is ongoing, with initiatives being implemented to reduce
materials, labor and overhead costs in manufacturing. We are pleased to report
the successful completion of the opening of our production facility in Mexico,
with the first products being shipped in August 1997. We are investigating other
methods for reducing labor and overhead costs.
Looking out just a few years, we see the much publicized new millennium, from
which we expect continued challenges and opportunities. We plan to expand our
non-RF product offerings and add revenues from non-HFC products and services.
Improvement of gross margins is a priority. The international market segment of
the business is being targeted for expansion as we identify new opportunities in
Asia, Europe, Latin America and North America.
In closing, we recognize that in fiscal year 1997, we have faced a number of
challenging situations. Our ability to successfully navigate these uncertain
times is reflected in this report's theme, "Our Legacy, Our Future." As we look
ahead, we are encouraged by the fact that the very issues that demanded our
attention are helping us to build a stronger organization. We sincerely
appreciate those who have continued to support us, and offer our optimism that
the future looks brighter as C-COR enters the new year with a solid plan to
reach or exceed our ambitious goals and objectives.
Sincerely,
Richard E. Perry
Chairman of the Board
Scott C. Chandler
President and
Chief Executive Officer
August 19, 1997
Our Legacy ... Robust Network Components for Two-Way HFC
For nearly 45 years, C-COR has offered the resources and support our customers
need to plan, design, build and maintain complex communications networks. In
doing so, we've created a niche as a developer and supplier of robust, high
quality network distribution products for two-way hybrid fiber coax (HFC).
More than simply keeping pace with customer demand, we have anticipated industry
changes and responded to them swiftly. Most recently, C-COR was the first to
offer 15 ampere current passing, reflecting our commitment to products that meet
the latest powering requirements.
We also had the foresight to create fiber and coax products that were two-way
capable-- even before the need for an expanded return path became evident.
Traditionally, signals flow through the cable network to the end-user in the
forward path, with only a small portion dedicated to the return path. Today, the
Internet, telephony and advanced digital services have brought the need for an
active two-way architecture to the forefront. C-COR leads with products that are
already capable of being installed and operated this way.
The family of products on which our legacy is built includes:
FlexNet(R) 900, 800 & 700 Series RF Amplifiers that boost the signal, delivering
high quality performance to homes and businesses. With 750 MHz and 862 MHz
bandwidth options, FlexNet(R) is ideal for HFC architectures requiring a
combination of analog and digital channels.
FlexNode(TM) AM Fiber Optic Node is a 6-port node/receiver that converts fiber
signals to RF signals that can be sent over the coax portion of the network to
homes and businesses. 862 MHz and 750 MHz options handle higher capacity while
maintaining superior quality.
AM Fiber Optics are used in aerial and underground fiber optic applications
where signals in an HFC network are transmitted from the headend to the node.
This application is ideal for C-COR's headend and strand mounted equipment,
including forward and return path transmitters, forward and return path
receivers, and power supplies, all housed in C-COR's sturdy mainframe racks.
I-Flex(TM) Amplifiers and AM Nodes were originally designed for fiber-intensive
architectures in European markets. The I-Flex(TM) global family features
cabinet-mount equipment required for underground installations around the world.
862 MHz and 750 MHz capabilities maximize efficiency and offer flexibility for
advanced services.
Cable Network Manager (CNM(TM)) is a network management system that is playing
an increasingly critical role in communications. This user-friendly,
computer-based control and monitoring system aids in outage prediction,
notifying the operator of problems--often before they even occur--so maintenance
crews can go directly to a problem without having to search the system unit by
unit.
Network operators worldwide recognize the merits of HFC: strong vendor support,
large installed base, scaleability and superior price / performance.
Our Future ... New Product and Service Solutions
In the coming years, C-COR will continue to provide products for the
distribution of signals using the HFC network architecture. While our global
product line currently includes RF amplifiers, AM fiber optics, and network
management solutions, we anticipate offering a new family of AM fiber optic
nodes and a more scaleable bridger amplifier in the next year.
To meet the need for cost-effective, upgradable networks, we are preparing to
release an entirely new product platform in which the RF electronics will occupy
a separate module from the optics. This enables our customers to easily upgrade
an RF amplifier to an AM fiber optic node by replacing just the fiber optic lid,
rather than the entire piece of equipment. Our customers will benefit from this
highly efficient and flexible way to migrate from one type of network
configuration to another. In the domestic market, where most networks will
continue to require rebuilds and upgrades, the ease and cost-effectiveness of
this new approach is ideal.
Internationally, where new builds are more prevalent, the modular design of our
products will allow us to satisfy a variety of configuration requirements.
Since system operators view monitoring and controlling of components as
essential to network management, we plan to offer a next-generation Cable
Network Manager (CNM(TM)) product. It will provide additional support for
telephony applications overseas, a major revenue source for network operators in
international markets.
Finally, we will continue to provide ongoing support and development of RF
amplifiers. Although we have typically been involved in coax cable and fiber
optic transmission mediums, our future could also include opportunities to offer
copper-based and wireless network distribution solutions.
C-COR and TCA: Setting the Standard Together for 30 Years
C-COR's distribution elctronics have certainly come a long way, thanks in part
to customers like TCA Cable of Tyler, Texas. In 1967, TCA Cable purchased its
very first C-COR amplifiers, the first of their kind to effectively dissipate
heat. These new amplifiers offered the higher performance and increased
reliability TCA Cable sought as it embarked on an ambitious network upgrade
plan.
Even back then, when our amplifiers featured just 12 channels operating at 220
MHZ, C-COR products were setting the standard. And over time as we increased the
bandwidth, TCA made steady network upgrades, earning high customer satisfaction
levels in the process.
Many years ago, in a key strategic move, TCA decided to standardize its network
products. For them, this has meant increased efficiency, solid vendor
relationships, and exceptional financial strength. For C-COR, it has meant
having a steady relationship with a satisfied customer for more than 30 years.
Today, C-COR's robust line of fiber and amplifier products enables TCA to offer
advanced services such as telephony, pay per view, high-speed data transmission
and traffic control. In the areas of services, TCA has taken advantage of
C-COR's network design capabilities and technical training programs. Working
together, C-COR and TCA Cable have forged a strong, lasting relationship that
has proven valuable as both have responded to continuous change over the years.
Our Legacy . . . Strong Customer Relationships
At C-COR, we've always known that it's customers who truly drive our business.
That's why we are committed to developing relationships that bring our customers
and staff together for the long-term. This kind of mutual participation helps us
understand a customer's particular needs so that we can respond with the product
solutions they want. In turn, their loyalty reflects a confidence in our
capabilities that inspires us to go even farther.
The working partnership we have with our customers occurs at many levels. For
instance, C-COR sales engineers are involved during the proposal process, while
regional account executives meet with customers on a regular basis. Our inside
sales representatives process customer orders, and top management fosters the
partnership at the highest levels.
In support of the products we offer, we also provide the service our customers
need to meet both short- and long-term goals. This includes network analysis and
design, equipment repair, field engineering and technical documentation, plus
multiple levels of technical training and seminars.
As their needs change over time, customers can depend on C-COR to be there every
step of the way. That's probably why the great majority of companies who do
business with us once continue to do repeat business with C-COR. In fact, it's
not unusual for us to establish and maintain strong partnerships with customers
for ten years or more (see pg 9).
These relationships have earned us a respected position within the industry, and
we show our appreciation in many ways. Most recently, we launched a "Special
Customer Day," during which we recognize a key customer for its continued
loyalty and trust in our ability to meet its needs. On one occasion, the
company's president personally addressed our employees, conveying how important
C-COR is as a business partner.
Confidence, trust and shared values are key to building and maintaining strong
relationships.
An Industry Pioneer Partners with C-COR
Customer-driven solutions have played a critical role in changing the shape of
the network distribution industry. Especially when it comes to Rogers
Cablesystems in Canada, who approached C-COR in the mid-1980s with a vision for
a "super distribution network." With drawings and plans in hand, they asked if
we could design and produce network amplifiers to meet their particular
specifications.
Working together, C-COR was able to help Rogers lead the way in expanding
network bandwidth in North America-- from 450 MHz to 550 MHz to 600 MHz and 750
MHz. In doing that, Rogers created an architecture that allowed for the
industry's first fully modular, electronic upgrade. Other pioneering efforts by
Rogers include the early adoption of fiber in the network and establishing
itself as having one of the largest installations of high-speed data customers
in North America.
Over the years, Rogers has also promoted the need for tools such as status
monitoring and network management. Because we listened and responded with the
technology they needed, C-COR amplifier products are now used in the largest,
most sophisticated remote status monitoring system in the world.
The relationship between Rogers and C-COR has been nurtured at many levels in
both organizations. In fact, many of the same sales and technical support
personnel have remained at C-COR over the years, people in whom Rogers continues
to place a great deal of confidence and trust. As we look to the future, we will
continue to build the Rogers relationship, using it as a model in cultivating
others.
Our Future ... Expanding Our Horizons
Looking ahead, C-COR is focused on two fronts: continually building on our
domestic strengths, while expanding our customer base internationally to address
the demands of challenging new markets throughout the world.
In addition to increasing international sales, C-COR is working to expand the
variety of products available to these markets. Three markets in particular
present exciting opportunities for growth: Asia, Europe, and Latin America. To
expand into these economies, we look to build on the model we have followed in
the North American market--developing a sense of mutual respect and providing
customers with solutions to their greatest challenges.
In the Asian Pacific market, economic growth is driving the demand for voice and
video networks. The HFC network configuration is dominant, giving us exceptional
potential to bring our FlexNet(R) amplifiers and AM fiber optics to Thailand,
the Philippines, Korea, Japan, Singapore, Hong Kong, China and New Zealand.
We are pursuing our strongest business in the European market in countries such
as Poland, the Czech Republic, Russia, Spain, Italy, Turkey and the United
Kingdom. This is due in large part to the deregulation of the telecommunications
market as well as the major consolidation of vendors who serve European
customers. C-COR markets our global family of I-Flex(TM) amplifiers and AM fiber
optics from its European office near Amsterdam, and other offices on the
continent and in the United Kingdom.
Economic growth in Latin America, including Argentina, Brazil and Chile, is
driving the demand for video services, telephony and data. The HFC architecture
is dominant, leading to growth opportunities for both amplifier and AM fiber
optics sales. C-COR sales and engineering support professionals spend
significant time in these countries working with our Latin American distributors
to provide network equipment for upgrades and new builds.
Our Legacy ... An Established Industry Leader
As an industry leader in the distribution portion of the network, C-COR has
carved out a niche role unlike that of any other supplier. We have been first to
market time and again with products and services that have set the stage for an
entire industry, beginning in 1953 when we introduced the first cable powering
system. Each decade thereafter we achieved new heights, such as in the 1980s
when we offered the 550 MHz feedforward trunk, or in the 90s when we introduced
the first 1 GHz amplifiers.
Today's leading-edge companies look to us as a partner in innovation. One
example is @Home Network, a supplier of high-speed interactive services to
residences and businesses. In a test lab located at its Redwood City,
California, headquarters, @Home Network will be installing C-COR's new
FlexNet(R) 900 Series amplifiers and FlexNode(TM) fiber optic nodes and other
headend AM fiber optics to be used in the test and development of high-speed
Internet applications and services for @Home's customers. C-COR's involvement in
this trial represents an exciting opportunity to participate in one of today's
hottest new technological arenas.
Even in the relatively new world of active two-way signal transmission, cable
operators have turned to C-COR. In fact, over 40% of the homes in the U.S. and
Canada using two-way cable modems are doing so over networks equipped with C-COR
distribution electronics. (1)
And because C-COR knew that the two-way architecture would be critical, we put
this technology in place even before the industry was ready for it. C-COR has
been supplying two-way capable electronics for over five years in its FlexNet(R)
series of amplifiers, and for nearly thirty years in earlier products.
We've even partnered with the respected name in cable modems, Bay Networks'
LANcity Cable Modem Division (now Broadband Technologies Division). In a
cooperative marketing agreement, C-COR and Bay Networks offer C-COR
DataSelect(TM), a complete set of equipment and services designed to deliver
high-speed data over HFC networks. This alliance enables us to ensure the
interoperability of equipment and quality delivery of high-speed data over these
networks.
(1) Source: Multichannel News, March 17, 1997. Calculations based on percentage
of U.S. and Canadian homes equipped with two-way cable modems supplied by
companies who purchase compatible C-COR network distribution products.
Leadership in providing the latest technology enables delivery of advanced
voice, video and data, including Internet and other online services.
@Home Network, @Home and the logo @ are trademarks of @Home Network and may be
registered in certain jurisdictions.
Our Future ... Next-Generation Provider
C-COR's vision is to become the leading provider of network distribution
solutions for next-generation communication networks. Several strategic moves
will help us accomplish this.
First, we are working to diversify our product line to meet anticipated needs.
This initiative could result in several new products or services to be used in
HFC applications, or even in developing a coax/fiber product to be used outside
of the HFC network. We are also exploring new products and services using
wireless and copper technology.
To enhance our competitive position, we are continually looking at ways to
reduce the costs to manufacture C-COR products. This process will involve
managing materials costs, specifying more cost-effective parts where possible,
utilizing alternative labor resources, automating production
processes, and reducing excessive test and alignment time. Internally, we are
committed to continually monitoring sales, general and administrative expenses
to achieve maximum efficiency.
Throughout our operation, C-COR is focused on attracting, training, developing
and retaining highly skilled people to help us achieve our vision. As our most
valued resource, our employees are being empowered at all levels to take the
lead in helping us meet our key objectives for the future.
Our commitment to becoming a next-generation provider has been recognized in
several ways. We are proud to hold a number of patents for innovation in
engineering design, such as a radio frequency choke and method of use, a
feedforward circuit and method for aligning and balancing the same, a one
gigahertz repeater station, and a safety interlock system for telecommunication
amplifiers, to name a few. Additionally, all C-COR facilities have achieved ISO
9001 registration, a testament to our commitment to quality assurance in design,
development, production, installation and servicing.
C-COR has an excellent reputation for equipment reliability, superior customer
service and an enhanced warranty program, all key criteria for success in the
future. Diversification, competitiveness and commitment to quality build value
for our customers, shareholders and employees.
Our Legacy ... Bringing Flexibility and Agility to Market
C-COR has always been large enough to meet the needs of a diverse customer base,
yet small enough to respond to change whenever necessary. Such flexibility and
agility has served us well during this transitional year, giving us the ability
to adapt to industry fluctuations and remain poised for the future.
To identify and respond to our customers' needs more quickly, we've implemented
a RapidCycle(R) process improvement program designed to reduce product
development cycle time and increase on-time performance. This new process has
enabled C-COR to identify market needs and respond swiftly. It also increases
our flexibility by freeing up our product development resources sooner so we can
move on to other projects.
Today, we are significantly better positioned to keep pace with the rapidly
changing marketplace.
Another recent process change at C-COR has been in order fulfillment, where we
have reduced the time from the point at which an order is placed to when it is
delivered to the customer. Our slogan, "Four on the Floor" best describes our
continuous goal of processing an order on the manufacturing floor in just four
days. Prior to these process enhancements, cycle time may have gone as high as
twenty days or more.
Cost-reduction measures have also helped us gain added flexibility. We've
improved and strengthened vendor relationships to manage the cost of producing
products. Implementation of an in-plant supplier program permits us to literally
place an order for parts, go to the lower level, pick them up, and deliver them
to the manufacturing floor--all in a matter of minutes.
Managing our personnel resources for maximum efficiency is another goal. To
address the ebb and flow that occurs in some areas, we are using a variety of
labor resources, including temporary help, interns and co-ops. And in sales and
marketing, we have restructured the organization to reduce operating expenses
and allow us to more effectively address the areas of value-added services and
corporate development.
Responsiveness is a key contributor to success. Process improvements in
manufacturing and product development empower our employees to achieve and
sustain the lead.
Our Future ... Embracing Change
C-COR stands poised to take advantage of the inevitable changes in our industry.
We have a solid balance sheet, giving us the ability to expand into new areas,
pursue acquisitions and shift additional focus onto R&D. As a dedicated group of
employees, we measure our success not by sales revenue alone, but by our ability
to navigate this volatile marketplace.
Effective facilities utilization will help us embrace and quickly respond to new
growth opportunities. In addition to expanded capacity, we have added many new
automated assembly and test methods that take advantage of the latest
manufacturing technology.
The implementation of a RapidCycle(R) product development program at C-COR will
also enable us to introduce products to market more quickly. Our goal is to
reduce the design development cycle time from a baseline of 17 months to a total
of 10 months from design inception to project completion. We are also working to
achieve a 90% on-time performance record---a measure of our ability to respond
promptly to market needs.
Throughout the organization, we are implementing more team-based processes for
achieving results. We anticipate the most impact in areas such as product
development, order fulfillment and other complex tasks requiring
multi-functional talents.
High-performance, cross-functional teams instill a sense of unity in achieving a
common goal.
With a legacy to be proud of and a future to look forward to, the employees of
C-COR enter the new fiscal year with a sense of anticipation and excitement
about the possibilities that lie ahead. High-speed data service, digital
television and telephony over HFC have emerged as key industry drivers. We will
strive to meet the challenges, address the inevitable changes and maximize the
opportunities offered by the global communications marketplace.
Management's Discussion & Analysis
(in thousands of dollars except share and per share data)
Disclosure Regarding Forward-Looking Statements
Some of the information presented in this Annual Report constitutes
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995, including, without limitation, continuation of
increased domestic spending for network upgrades, the continuation of
competitive pricing pressures, anticipated new product development initiatives,
and the continued availability of capital resources. Although the Company
believes it expectations are based on reasonable assumptions within the bounds
of it knowledge of it business and operations, there can be no assurance that
actual results will not differ materially from its expectations. Factors which
could cause actual results to differ from expectations include the timing of
orders received from customers; the gain or loss of significant customers;
changes in the mix of products sold; new product development activities; changes
in the cost and availability of parts and supplies; fluctuations in warranty
costs; regulatory changes affecting the telecommunications industry, in general,
and the Company's operations, in particular; competition and changes in domestic
and international demand for the Company's products, and other factors which may
impact operations and manufacturing. For additional information concerning these
and other important factors which may cause the Company's actual results to
differ materially from expectations and underlying assumptions, please refer to
the Company's reports filed on Form 10-K and other reports filed with the
Securities and Exchange Commission.
General
In fiscal years 1997 and 1996, the Company operated in two industry segments:
the Electronic Distribution Products segment, which represents the Company's
continuing operations, and provides hybrid fiber coax (HFC) equipment for signal
distribution applications primarily to the cable television (CATV) market; and
the Digital Fiber Optics Transmission Products segment, which has been reported
as a discontinued business segment, and provides products for long distance,
point-to-point video, voice and data signal transmission applications, primarily
for telephony, distance learning and other non-CATV markets.
For fiscal year 1997, the Company incurred a net loss of ($6,178) or ($.65) per
share versus net income of $5,919 and $8,315 or $.60 and $.84 per share for
fiscal years 1996 and 1995, respectively. The primary factors in the fiscal year
1997 loss were losses deriving from the Company's Digital Fiber Optics
Transmission Products segment in conjunction with the Company's decision to
discontinue this business segment.
The Company announced July 10, 1997, its intent to discontinue its Digital Fiber
Optics Transmission Products business segment in a phase-down process expected
to span nine months. This business has been accounted for as a discontinued
business segment, and its results have been excluded from continuing operations
in the consolidated statements of operations from all periods presented in the
Company's fiscal year 1997 consolidated financial statements.
The decision to discontinue this segment was based on an assessment of the
potential return on continued funding of product development for the Company's
proprietary digital technology versus other opportunities for investments in the
Company's core business, especially AM fiber optics technology. The after-tax
loss from operations of the discontinued business segment was ($6,605) or ($.70)
per share for fiscal year 1997. This compares to a loss of ($3,095) and ($213)
or ($.31) and ($.02) per share for fiscal years 1996 and 1995, respectively. The
primary factors contributing to the increased loss from operations of the
discontinued segment in fiscal year 1997 were increased warranty costs of $3,300
and an impairment loss on goodwill of $571 recorded in the fourth quarter of
fiscal year 1997. In addition, an after-tax loss was recorded on the disposal of
the discontinued business segment of ($3,830) or ($.40) per share, in fiscal
year 1997. Included in the loss from disposal are write-offs of inventories and
fixed assets, and the other costs from the measurement date to the disposal
date. For additional information concerning discontinued operations, reference
Notes B and P of the consolidated financial statements.
The consolidated results discussion and analysis that follows, including
comparisons against prior years results, are based on continuing operations
only.
Results of Operations
Net sales in fiscal year 1997 were $131,941, a decrease of 5% from net sales of
$139,539 in fiscal year 1996. The decrease in sales was primarily attributable
to reduced international sales during the fiscal year. Net sales increased 15%
in fiscal year 1996 from net sales of $121,269 in fiscal year 1995. The increase
derived primarily from increased demand for the Company's products from both
domestic and international customers.
Domestic sales increased 26% in fiscal year 1997 to $106,785 from $84,792 in
fiscal year 1996, as capital spending by Multiple System Operators (MSOs)
increased over the prior fiscal year. The Company believes the increase was a
result of network upgrade activity, by new and existing customers, to enhance
capacity with expanded bandwidth products. The push to upgrade networks is being
driven by demand for improved services, affecting not only video and voice
requirements, but also demand for high-speed data. Domestic sales of hybrid
fiber coax (HFC) equipment to customers in the telephone industry declined in
fiscal year 1997. The Company believes that the decline resulted from a
reassessment of strategic alternatives and priorities by the telcos in
connection with pursuing direct competition with cable MSOs in providing video
services. Domestic sales increased 16% in fiscal year 1996 from $73,368 in
fiscal year 1995, due to increased RF product sales to customers in the
telephone industry.
International sales decreased 54% in fiscal year 1997 to $25,156 from $54,747 in
fiscal year 1996, resulting primarily from reduced demand by a significant
customer in Canada and reduced demand by customers in Asia and Latin America.
Countries in the aforementioned areas continue to represent distinct markets for
CATV equipment, and, in general, demand can be highly variable. International
sales increased 14% in fiscal year 1996 from $47,901 in fiscal year 1995 due to
increased demand in Asia.
The Company is subject to certain risks as a result of market and customer
concentration. For additional information regarding risks, reference Note N of
the consolidated financial statements.
The Company's open backlog of sales orders at June 27, 1997, was $34,851
compared to $24,333 at June 28, 1996. The backlog of sales orders at June 27,
1997, was comprised of 72% domestic and 28% international orders, compared to
86% domestic and 14% international orders at June 28, 1996. The Company's
book-to-bill ratio was 1.08 for fiscal year 1997, compared to 0.79 for fiscal
year 1996.
Gross profit margin for fiscal year 1997 was 20.6%. This compares to 24.9% in
fiscal year 1996 and 27.1% in fiscal year 1995. The decrease in the gross profit
margin fiscal year 1997 relative to the prior fiscal year was attributed
primarily to changes in product and customer sales mix. In addition, pricing
pressures continue to negatively impact gross profit margins, particularly on RF
coaxial cable amplifiers. The Company has taken steps to lower manufacturing
costs by continued efforts to improve manufacturing processes in order to
enhance efficiency and productivity, and continued efforts to redesign products
to enhance manufacturability and reduce material costs. The Company announced
during fiscal year 1997 that it would transfer the manufacture of the power
supply assembly component of its RF amplifiers to the Company's new production
facility in Mexico in the summer of 1997. The gross profit margin decrease in
fiscal year 1996 relative to fiscal year 1995 was attributed primarily to fixed
costs relating to underutilized capacity and product sales mix, as well as the
aforementioned increase in pricing pressures on RF products.
Selling and administrative expenses for fiscal year 1997 were $15,787 or 12% of
net sales, compared to $15,917 or 11% of net sales for fiscal year 1996, and
$15,949 or 13% of net sales for fiscal year 1995. The decrease in selling and
administrative expenses for fiscal year 1997 compared to fiscal year 1996 was
primarily due to various cost reduction initiatives which included personnel
reductions and decreased in various administrative expenses. In the fourth
quarter of fiscal year 1997, the Company reconfigured its worldwide sales
territories and consolidated its domestic sales forces. Selling and
administrative expenses remained relatively flat between fiscal years 1996 and
1995, with some fluctuation resulting from reductions in administrative
personnel costs.
Research and product development expenses for fiscal year 1997 were $5,681 or 4%
of net sales, compared to $4,857 or 4% of net sales for fiscal year 1996, and
$3,786 or 3% of net sales for fiscal year 1995. The increase research and
development expense in fiscal year 1997 over fiscal years 1996 and 1995 was
primarily due to the Company's strategy to increase investment in AM fiber
optics product development and network management systems. Increased spending
was also incurred in fiscal year 1997 for RF product development for the
Company's 800 and 900 series expanded bandwidth product lines. In addition, the
Company incurred expenditures in fiscal year 1997 to improve product development
processes designed to reduce product development cycle time and promote
cross-functional participation in the process. Anticipated new product
development initiatives are expected to result in increased research and
development expense in future years, as compared to fiscal year 1997.
Interest expense for fiscal year 1997 was $318 compared to $960 for fiscal year
1996 and $706 for fiscal year 1995. The reduction in interest expense for fiscal
year 1997 compared to fiscal year 1996 was primarily due to reduced level of
outstanding borrowings during the fiscal year on the Company's line-of-credit.
The increased interest expense for fiscal year 1996 compared to fiscal year 1995
was primarily due to higher borrowings on the Company's line-of-credit,
resulting from equipment purchases and facility expansions begun during fiscal
year 1995 and completed during fiscal year 1996.
Other income for fiscal year 1997 was $250, compared to $341 for fiscal year
1996 and $264 for fiscal year 1995. The reduction in other income for fiscal
year 1997 compared to fiscal years 1996 and 1995 was primarily due to lower
foreign currency transaction gains.
The Company's effective income tax rate for fiscal year 1997 was 25.4%. This
compares to 32.2% for fiscal year 1996 and 33.0% for fiscal year 1995. The
provision for income taxes is related to both U.S. and non-U.S. operations. The
decrease in the effective tax rate for fiscal year 1997 compared to fiscal year
1996 was primarily due to a nonrecurring tax benefit of $593 recorded in the
third quarter of fiscal year 1997, deriving from the Company's Foreign Sales
Corporation (FSC). The tax benefit resulted from reassessment of the Company's
foreign sales transactions for the prior three fiscal years. The decrease in the
effective tax rate for fiscal year 1996 compared to fiscal year 1995 was
primarily due to tax benefits arising out of increased foreign sales activity
and changes in the applicable statutory tax rates used for both state and
federal taxes.
Income from continuing operations for fiscal year 1997 was $4,257 or $.45 per
share. This compares to $9,014 or $.91 per share in fiscal year 1996 and $8,528
or $.86 per share in fiscal year 1995. The primary factors for the reduction in
income from continuing operations in fiscal year 1997 compared to fiscal year
1996 were the aforementioned reduction in net sales and gross profit margins,
coupled with increased expenditures for research and product development.
Financial Condition
The Company's financial condition remains strong at June 27, 1997. Accounts
receivable at June 27, 1997, were $19,299, a decrease of $1,718 from a balance
of $21,017 at June 28, 1996. Inventory levels were up $561 to $19,140 at June
27, 1997, from $18,579 at June 28, 1996. The increase was primarily in raw
material inventories to support an increased business level as of the end of the
fourth quarter of fiscal year 1997. Accounts payable at June 27, 1997, was
$8,636, an increase of $2,784 from the balance of $5,852 at June 28, 1996. The
increase is also a result of higher business activity in the fourth quarter of
fiscal year 1997 and purchases in support of the increased backlog of sales
orders.
Liquidity and Capital Resources
The Company's current ratio at June 27, 1997, decreased to 2.1 from 3.4 at the
end of fiscal year 1996. As of June 27, 1997, total cash and cash equivalents
totaled $452, down from $1,474 at June 28, 1996. Cash generated from operating
activities decreased as a result of changes in operating assets and liabilities
to $9,440 in fiscal year 1997 compared to $18,673 in fiscal year 1996, but
increased relative to cash used by operating activities of $10,400 in fiscal
year 1995.
Cash used in investing activities was $6,551 in fiscal year 1997 compared to
$8,000 in fiscal year 1996 and $12,060 in fiscal year 1995. The reduction of
cash used in investing activities was primarily due to lower purchases of
property, plant, and equipment in fiscal year 1997 compared to the prior two
fiscal years. Cash totaling $3,911 was used in financing activities during
fiscal year 1997. The Company repurchased 500,000 shares of its Common Stock
during fiscal year 1997 for $5,765 under a stock repurchase program using its
available capital resources to fund the purchases. Cash used in financing
activities of $10,744 in fiscal year 1996 resulted from payments on borrowings
on the Company's line-of-credit. Cash provided by financing activities of
$22,644 in fiscal year 1995 resulted from borrowings on the Company's
line-of-credit, primarily to fund capital equipment purchases and facility
expansion costs until permanent financing was obtained.
The Company maintains a line-of-credit with a bank under which it may borrow the
lesser of $23,000 or a percentage of eligible accounts receivable and inventory.
The borrowings are collateralized by accounts receivable and inventory. The
line-of-credit is committed through October 31, 1997, and the Company
anticipates renewing this line-of-credit annually. The Company had borrowings of
$3,466 on this line-of-credit as of June 27, 1997. This compares to an
outstanding balance of $1,147 as of June 28, 1996. Based upon the Company's
analysis of eligible accounts receivable and inventory, an additional $16,523
was available to borrow as of June 27, 1997.
Management believes that operating cash flow, as well as the aforementioned
financing source, will adequately provide for all cash requirements for the
foreseeable future, subject to requirements that additional growth or strategic
development might dictate.
<TABLE>
CONSOLIDATED BALANCE SHEETS
(in thousands of dollars except share data)
<C> <C>
June 27 June 28
1997 1996
Assets
CURRENT ASSETS
Cash and cash equivalents (Note A) $ 452 $ 1,474
Marketable securities (Notes A and C) 359 364
Accounts receivable, less allowance of $510 in 1997;
$355 in 1996 (Notes G & N) 19,299 21,017
Inventories (Notes D and G) 19,140 18,579
Deferred taxes (Note J) 2,616 2,544
Other current assets 1,893 1,949
Net current assets of discontinued operations (Note B) -0- 4,421
- ----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 43,759 50,348
PROPERTY, PLANT, AND EQUIPMENT, NET (Notes A, E and H) 25,060 24,168
INTANGIBLE ASSETS AND OTHER LONG-TERM ASSETS,
NET OF ACCUMULATED AMORTIZATION OF $224 IN 1997;
$202 IN 1996 (Notes A and F) 785 553
Net noncurrent assets of discontinued operations (Note B) 1,515 2,209
- ----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 71,119 $ 77,278
- ----------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 8,636 $ 5,852
Accrued liabilites (Note L) 6,825 7,068
Line-of-credit (Note G) 3,466 1,147
Current portion of long-term debt (Note H) 834 829
Net current liabilities of discontinued operations (Note B) 1,253 -0-
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 21,014 14,896
LONG-TERM DEBT, less current portion (Note H) 6,367 7,201
DEFERRED TAXES (Note J) 1,311 1,367
OTHER LONG-TERM LIABILITIES 749 497
Committments and Contingent Liabilities (Notes H and O)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 29,441 23,961
- -----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY (Notes A and I)
Preferred Stock, no par; authorized 2,000,000 shares; issued, none -0- -0-
Common Stock, $.10 par; authorized shares 24,000,000;
issued shares of 9,633,435 in 1997 and 9,602,528 in 1996 963 960
Additional paid-in capital 19,963 19,602
Treasury Stock ( 5,765) -0-
Retained earnings 26,632 32,810
Translation adjustment ( 101) ( 34)
Net unrealized loss on marketable securities ( 14) ( 21)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 41,678 53,317
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 71,119 $ 77,278
- ------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Operations
(in thousands except per share data)
Year Ended
June 27 June 28 June 30
1997 1996 1995
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
NET SALES $131,941 $139,539 $121,269
COST AND EXPENSES
Cost of sales 104,702 104,852 88,373
Selling and administrative 15,787 15,917 15,949
Research and product development 5,681 4,857 3,786
Interest 318 960 706
Other income, net (Note M) (250) (341) (264)
- -----------------------------------------------------------------------------------------------------------------------------
126,238 126,245 108,550
- -----------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 5,703 13,294 12,719
INCOME TAXES (BENEFIT) (Note J)
Current 1,298 3,875 4,977
Deferred 148 405 (786)
- -----------------------------------------------------------------------------------------------------------------------------
1,446 4,280 4,191
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME FROM CONTINUING OPERATIONS 4,257 9,014 8,528
- -----------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS: (Notes B, P and R)
Loss from operations of discontinued business segment,
less applicable income tax benefit $2,752 in 1997, $1,505 in
1996, and $110 in 1995 (6,605) (3,095) (213)
Loss on disposal of discontinued business segment,
less applicable income tax benefit $1,974 in 1997 (3,830) -0- -0-
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) (6,178) 5,919 8,315
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE (Note A)
Continuing operations $ 0.45 $ 0.91 $ 0.86
Discontinued operations
Loss from operations (0.70) (0.31) (0.02)
Loss on disposal of discontinued operations (0.40) -0- -0-
- -----------------------------------------------------------------------------------------------------------------------------
Total $ (0.65) $ 0.60 $ 0.84
- -----------------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares and Common Share Equivalents 9,504 9,868 9,859
- -----------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands of dollars)
Year Ended
June 27 June 28 June 30
1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS) $ (6,178) $ 5,919 $ 8,315
Adjustments to reconcile net income (loss) to net cash
and cash equivalents provided by (used in) operating activities:
Depreciation and amortization 4,910 3,972 2,921
Loss on disposal of discontinued operations, net of tax benefit 3,830 -0- -0-
Provision for deferred retirement salary plan 252 129 49
Loss on sale of marketable securities -0- -0- 68
Loss (Gain) on sale of property, plant, and equipment 22 (3) 13
Changes in operating assets and liabilities:
Accounts receivable 1,718 12,065 (17,812)
Inventories (561) 3,491 (9,530)
Discontinued operations - working capital changes
and noncash charges 3,236 (1,972) 2,056
Other assets (197) (895) (735)
Accounts payable 2,784 (2,055) 1,504
Accrued liabilities (243) (2,349) 3,572
Deferred income taxes (133) 371 (821)
- ----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS PROVIDED BY
(USED IN) OPERATING ACTIVITIES 9,440 18,673 (10,400)
- ----------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant, and equipment (5,884) (7,442) (14,355)
Purchase of marketable securities (200) -0- -0-
Proceeds from sale of marketable securities 216 -0- 3,184
Proceeds from maturity of marketable securities -0- 25 115
Investing activities of discontinued operations (698) (586) (1,016)
Proceeds from sale of property, plant, and equipment 15 3 12
- ----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (6,551) (8,000) (12,060)
- ----------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of debt and capital lease obligations (829) (594) (56)
Proceeds from long-term debt borrowing -0- 6,452 -0-
Proceeds from line-of-credit 21,936 39,029 58,707
Payment of line-of-credit (19,617) (58,333) (38,256)
Tax benefit deriving from exercise and sale of stock option shares 71 1,454 898
Issue common stock to employee stock purchase plan 88 107 67
Proceeds from exercise of stock options 205 1,141 1,284
Purchase of treasury stock (5,765) -0- -0-
- ----------------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,911) (10,744) 22,644
- ----------------------------------------------------------------------------------------------------------------------------------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,022) (71) 184
Cash and cash equivalents at beginning of year 1,474 1,545 1,361
- ----------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 452 $ 1,474 $ 1,545
- ----------------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statement of Shareholders' Equity
(in thousands of dollars)
<S> <C> <C> <C> <C> <C> <C>
Net Unrealized
Additional (Loss) Gain on
Common Paid-in Treasury Retained Translation Marketable
Stock Capital Stock Earnings Adjustment Securities
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 24, 1994 $ 460 $15,151 -0- $ 18,576 $ (9) $ (39)
Net Income 8,315
Exercise of stock options 19 1,265
Tax benefit deriving from exercise
and sale of stock option shares 898
Issue shares to employee stock purchase plan 67
Two-for-one stock split 466 (466)
Foreign currency translation adjustment 2
Net unrealized gain on marketable securities 20
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 30, 1995 945 16,915 -0- 26,891 (7) (19)
Net Income 5,919
Exercise of stock options 15 1,126
Tax benefit deriving from exercise
and sale of stock option shares 1,454
Issue shares to employee stock purchase plan 107
Foreign currency translation adjustment (27)
Net unrealized loss on marketable securities (2)
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 28, 1996 960 19,602 -0- 32,810 (34) (21)
Net Loss (6,178)
Exercise of stock options 2 203
Tax benefit deriving from exercise
and sale of stock option shares 71
Issue shares to employee stock purchase plan 1 87
Purchase of Treasury Stock (5,765)
Foreign currency translation adjustment (67)
Net unrealized loss on marketable securities 7
- -------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1997 $ 963 $19,963 $(5,765) $ 26,632 $ (101) $ (14)
- -------------------------------------------------------------------------------------------------------------------------
<FN>
See notes to consolidated financial statements.
</FN>
</TABLE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars except share and per share data)
June 27, 1997, and June 28, 1996
Description of Business:
The Company designs and manufactures high-quality electronic equipment used in a
variety of communication networks worldwide. In fiscal years 1997 and 1996, the
Company operated in two industry segments: the Electronic Distribution Products
segment, which provides hybrid fiber coax (HFC) equipment for signal
distribution applications primarily to the CATV market; and, the Digital Fiber
Optics Transmission Products segment, which provides products for long-distance,
point-to-point video, voice, and data signal transmission applications,
primarily for telephony, distance learning, and other non-CATV markets.
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation: The accompanying consolidated financial statements
include the accounts of the Company and its foreign and domestic subsidiaries.
Intercompany accounts and transactions have been eliminated in consolidation.
Reporting Periods: Management has adopted a fiscal year which ends on the last
Friday in June. For the reporting periods presented herein, the years ended on
June 27, 1997, June 28, 1996, and June 30, 1995. These years contained 52, 52,
and 53 weeks, respectively.
Use of Estimates: The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments: The carrying value of cash, accounts
receivable, accounts payable, and accrued liabilities approximate their fair
value due to the short-term nature of those instruments.
Inventories: Inventories are stated at the lower of cost or market. Cost is
determined on the first-in, first-out method.
Property, Plant, and Equipment: Property, plant, and equipment, which includes
leased property under capital leases, is stated at cost. Cost includes interest
associated with capital additions. Capitalized interest was $-0-, $23, and $-0-
in fiscal years 1997, 1996 and 1995, respectively. Depreciation or amortization
is calculated on the straight-line method for financial statement purposes based
upon the following estimated useful lives:
Building and improvements
under capital lease 15 years
Buildings 15 to 25 years
Machinery and equipment
under capital lease 5 years
Machinery and equipment 3 to 10 years
Leasehold improvements 10 to 15 years
Intangible Assets: Intangible assets include goodwill arising from excess of the
purchase price paid over the fair value of the net assets acquired with the
purchases of COMLUX in July 1990, and DataCable B.V. in January 1992. In the
beginning of fiscal year 1997, the Company adopted Statement of Financial
Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of" (Statement 121). There was
no impact upon initial adoption of Statement No. 121, however, in the fourth
quarter, the Company recorded an impairment loss of the goodwill relating to the
purchase of COMLUX. The amount of the impairment loss for fiscal year 1997 was
$571, and was recorded in the loss from operations of the discontinued business
segments. The impairment loss was recognized in the fourth quarter at the time
the decision was made to cease research and development expenditures on a new
platform of digital fiber optics products, and was determined by evaluating the
realizability of the goodwill with respect to COMLUX, based upon expected future
cash flows and operating results of the Company's Digital Fiber Optics
Transmission Products segment which was discontinued in fiscal year 1997 (See
Note B.)
The goodwill related to the purchase of DataCable B.V. in January 1992 was fully
amortized during fiscal year 1997.
Income Taxes: Under Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" (Statement 109), deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under Statement
109, the effect on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment date.
Shareholders' Equity: In fiscal year 1995, a two-for-one stock split was
approved by the Company's Board of Directors. The additional shares were
distributed on December 5, 1994, to shareholders of record at the close of
business on November 4, 1994, on the basis of one additional share for each
share held. Par value of $466 for the additional shares issued was transferred
from Additional Paid-in Capital to Common Stock. The par value of Common Stock
remained the same at $.10 (ten cents) per share. Also, during fiscal year 1995,
the shareholders of the Company approved a proposal to amend the Amended and
Restated Articles of Incorporation to increase the number of shares of Common
Stock authorized from 8,000,000 to 24,000,000.
In fiscal year 1997, the Company repurchased 500,000 shares of its common stock
for $5,765, under a stock repurchase program adopted in December 1996. The
Company used its available capital resources to fund the purchases. The
repurchased stock is expected to be held by the Company as treasury stock to be
used to meet the Company's obligations under its present and future stock option
plans and for other corporate purposes.
Cash Equivalents: The Company considers all highly liquid investments with a
maturity of three months or less when purchased, to be cash equivalents. Cash
equivalents are reflected at the lower of cost or market.
Marketable Securities: Marketable securities at June 27, 1997, consist of
municipal bonds and equity securities. The Company adopted the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115) at June 24, 1994.
Under Statement 115, the Company classifies all of its marketable securities as
available-for-sale and records them at fair value. Unrealized holding gains and
losses, net of the related tax effect, are excluded from earnings and are
reported as a separate component of shareholders' equity until realized.
Net income (loss) per share: Net income (loss) per share is determined by
dividing net income (loss) by the weighted average number of common shares,
including common share equivalents, outstanding during the fiscal quarter and
year-end periods.
Statement of Financial Accounting Standards No. 128, "Earnings Per Share"
(Statement 128), is effective for financial statements issued for periods ending
after December 15, 1997. It is anticipated that adoption of Statement No. 128
will not significantly impact the Company's net income per share.
Product Warranty: The Company warrants its products against defects in materials
and workmanship, generally for three to five years depending upon product lines.
A provision for estimated future costs relating to warranty expense is recorded
when product is shipped, based upon historical claims' history and specifically
identified warranty exposures.
Reclassification: Certain amounts have been reclassified for comparability with
fiscal year 1997 presentation.
B. DISCONTINUED OPERATIONS
On July 10, 1997, the Company announced that it would discontinue its Digital
Fiber Optics Transmission Products segment, in a phase-down process expected to
span nine months. The loss on disposal included write-offs of inventory and
fixed assets, and other costs from the measurement to the disposal date. The
loss, net of tax benefit of $1,974 on the disposal of the discontinued business
segment is $3,830.
The after-tax loss from operations of the discontinued business segment was
$6,605, $3,095, and $213 for fiscal years 1997, 1996, and 1995, respectively.
The primary factors contributing to the loss from operations of the discontinued
business segment in fiscal year 1997 were increased warranty costs of $3,300 and
an impairment loss on goodwill of $571, recorded in the fourth quarter of fiscal
year 1997.
Operating results for the discontinued business segment are segregated and
reported as discontinued operations in the accompanying consolidated statements
of operations. Prior year financial statements have been reclassified to conform
with the current year presentation. Summarized information relating to the
discontinued operations for fiscal years 1997, 1996, and 1995 is as follows:
<TABLE>
June 27, June 28, June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Net sales $ 7,994 $ 9,359 $ 16,172
Costs and expenses ( 17,351) ( 13,959) ( 16,495)
---------- ---------- ----------
Loss before income taxes ( 9,357) ( 4,600) ( 323)
Income tax (benefit) ( 2,752) ( 1,505) ( 110)
---------- ---------- ----------
Net loss ( 6,605) ( 3,095) ( 213)
---------- ---------- ----------
</TABLE>
The assets and liabilities of the discontinued operations have been reclassified
in the accompanying consolidated financial statements to separately identify
them as net current assets (liabilities) and net noncurrent assets related to
the discontinued operations. These net assets (liabilities) consist of net
working capital, net property, plant and equipment, other assets and intangible
assets, less related liabilities as follows for the periods ended June 27, 1997,
and June 28, 1996.
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Current assets:
Accounts receivable $ 817 $ 448
Inventory 1,181 4,327
Deferred tax assets 4,013 760
Other assets 4 15
---------- ----------
6,015 5,550
---------- ----------
Current liabilities:
Accounts payable ( 342) ( 875)
Accrued other ( 3,551) ( 254)
Allowance for disposal
of discontinued operations ( 3,375) -0-
---------- ----------
( 7,268) ( 1,129)
---------- ----------
Net current assets
(liabilities) of
discontinued operations ($ 1,253) $ 4,421
---------- ----------
Noncurrent assets:
Plant and equipment, net $ 1,498 $ 1,449
Goodwill -0- 740
Other assets 17 20
---------- ----------
1,515 2,209
---------- ----------
Noncurrent liabilities: -0- -0-
---------- ----------
Net noncurrent assets of
discontinued operations $ 1,515 $ 2,209
---------- ----------
</TABLE>
C. MARKETABLE SECURITIES
Marketable securities as of June 27, 1997, and June 28, 1996, consisted of the
following:
<TABLE>
Gross Gross
Unrealized Unrealized
Amortized Holding Holding Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
June 27, 1997:
Available-for-sale:
Municipal bonds $ 382 $ -0- ($ 24) $ 358
Equity securities 1 -0- -0- 1
---------- ---------- ---------- ----------
$ 383 $ -0- ($ 24) $ 359
---------- ---------- ---------- ----------
June 28, 1996:
Available-for-sale:
Municipal bonds $ 397 $ -0- ($ 34) $ 363
Equity securities 2 -0- ( 1) 1
---------- ---------- ---------- ----------
$ 399 $ -0- ($ 35) $ 364
---------- ---------- ---------- ----------
</TABLE>
Maturities of investment securities classified as available-for-sale at June 27,
1997, were as follows:
<TABLE>
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Available-for-sale:
Due after one year through
five years $ 382 $ 358
Equity securities 1 1
---------- ----------
$ 383 $ 359
---------- ----------
</TABLE>
D. INVENTORIES
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Finished goods $ 1,436 $ 2,821
Work-in-process 3,346 3,050
Raw materials 14,358 12,708
---------- ----------
$ 19,140 $ 18,579
---------- ----------
</TABLE>
Included in the amounts above are reserves of $1,233 at June 27, 1997, and
$1,112 at June 28, 1996.
E. PROPERTY, PLANT, AND EQUIPMENT
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Land $ 468 $ 468
Building and improvements
under capital lease 1,727 1,727
Building 10,090 9,270
Machinery and equipment
under capital lease 110 124
Machinery and equipment 33,586 28,654
Leasehold improvements 751 735
---------- ----------
46,732 40,978
Less accumulated depreciation
and amortization 21,672 16,810
---------- ----------
$ 25,060 $ 24,168
---------- ----------
</TABLE>
F. INTANGIBLE ASSETS
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Cost of intangibles:
Goodwill-DataCable B.V. 224 224
---------- ----------
224 224
---------- ----------
Less accumulated amortization:
Goodwill-DataCable B.V. 224 202
---------- ----------
224 202
---------- ----------
Net Book Value $ -0- $ 22
---------- ----------
</TABLE>
G. LINE-OF-CREDIT
At June 27, 1997, the Company had short-term borrowings of $3,466 under a
revolving line-of-credit. On this line-of-credit, the Company may borrow the
lesser of $23,000 or percentage of eligible accounts receivable and inventory.
The borrowings bear interest at various rates generally equal to the London
Interbank Offered Rate (LIBOR) plus 1.20%. The weighted average interest rate
equaled 7.1% at June 27, 1997, and 6.90% at June 28, 1996, and requires
compliance with certain covenants. Interest is payable in 30 and 90 days as
billed. The line-of-credit agreement is committed through October 31, 1997.
Borrowings are collateralized by accounts receivable and inventory. Based upon
the Company's analysis of eligible accounts receivable and inventory, an
additional $16,523 was available to borrow as of June 27, 1997. The
line-of-credit balance at June 28, 1996, was $1,147.
H. LONG-TERM DEBT
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Notes payable $ 5,646 $ 6,369
Capital lease obligations 1,555 1,661
---------- ----------
7,201 8,030
Less current portion 834 829
---------- ----------
$ 6,367 $ 7,201
---------- ----------
</TABLE>
Notes Payable: The Company obtained funding through the Pennsylvania Industrial
Development Authority (PIDA) of $539 for construction of the Tipton,
Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of
3%, which is contingent upon meeting certain job creation commitments. Monthly
payments of principal and interest of $4 are required through the year 2006. The
borrowing is collateralized by certain property, plant, and equipment. The
principal balance at June 27, 1997, was $335.
The Company has obtained funding through the Pennsylvania Industrial Development
Authority (PIDA) of $1,952 for 40% of the cost of building expansion at its
manufacturing facility in State College, Pennsylvania. The PIDA borrowing has an
interest rate of 2%, which is contingent upon meeting certain job creation
commitments. Monthly payments of principal and interest of $13 are required
through the year 2010. The borrowing is collateralized by certain property,
plant, and equipment. The principal balance at June 27, 1997, was $1,763.
Additional funding of $4,500 for the expansion and renovation of the State
College facility was obtained from the Pennsylvania "Sunny Day Fund." This
funding has an interest rate of 2% which is also contingent upon meeting certain
job creation commitments. The funding is evidenced by two notes. The first note
is for $488 with an original maturity of 15 years and the second is for $4,012
with an original maturity of 7 years. Monthly payments of principal and interest
of $3 and $51, respectively, are required on these notes through the years 2010
and 2002, respectively. The borrowing is collateralized by certain equipment.
The principal balances at June 27, 1997, were $441 and $3,107, respectively.
Capital Lease Obligations: The Company has a Lease/Option to Purchase Agreement
with the Mifflin County Industrial Development Corporation (MCIDC) for a
building and improvements located in Mifflin County, Pennsylvania. The Company
is the guarantor of several borrowing commitments by the MCIDC for financing the
$1,727 cost of the project. The lease calls for a monthly payment of $14, which
is equal to the monthly principal and interest of the various borrowing
commitments by the MCIDC, through the year 2010. The original term of the lease
is for 15 years with an option to purchase the leased premises at any time
during the lease term for the outstanding balance of the borrowing commitments
plus closing costs. The borrowing commitments carry a weighted average interest
rate of 4.7%. For financial accounting purposes, the lease is accounted for as a
capital lease and, accordingly, an asset and liability have been recorded. This
was a noncash investing and financing transaction in fiscal year 1995.
Long-term debt at June 27, 1997, had scheduled maturities as follows:
<TABLE>
Fiscal year ending
<S> <C>
1998 $ 834
1999 853
2000 873
2001 892
2002 915
Thereafter 2,834
-------
$7,201
-------
</TABLE>
Total interest paid on the line-of-credit (described in Note G) and long-term
debt was $304, $958, and $608 for fiscal years ended 1997, 1996, and 1995,
respectively.
Operating Leases: The Company leases real property and other equipment under
operating leases. Certain leases are renewable and provide for the payment of
real estate taxes and other occupancy expenses. The future minimum lease
payments for noncancelable leases with remaining lease terms in excess of one
year are as follows:
<TABLE>
Fiscal year ending
<S> <C>
1998 $ 215
1999 83
2000 76
2001 70
2002 38
-------
$ 482
-------
</TABLE>
Rent expense relating to continuing operations was $748, $682, and $550 for
fiscal years ended 1997, 1996, and 1995, respectively.
I. STOCK OPTIONS
The Company's stock option plans provide for the grant of options to employees
with an exercise price per share of at least the fair market value of such
shares on the date prior to grant, and to directors with an exercise price equal
to the fair market value on the date of grant. Options granted to certain
employees are exercisable in cumulative annual installments of 20 percent per
year beginning one year after the date of grant. Options granted to non-employee
directors are exerciseable one year after grant. Certain options held by the
Chairman are exerciseable immediately. All shares and exercise prices have been
adjusted for the two-for-one stock split effective December 5, 1994.
In fiscal year 1997, the Company adopted the disclosure requirements of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (Statement 123). As allowed by Statement No. 123, the Company has
chosen to continue to account for stock based compensation using Accounting
Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and
related Interpretations. Accordingly, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
stock at the grant date over the amount an employee must pay to acquire the
stock. Accordingly, no compensation cost has been recognized. Had compensation
cost for the Company's Plans been determined under Statement No. 123, the
Company's net income (loss) and net income (loss) per share would have been
reduced to the pro forma amounts indicated below:
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C> <C>
Net income (loss) As Reported ($ 6,178) $ 5,919
Pro forma ($ 6,396) $ 5,614
Net income (loss) As Reported ($ 0.65) $ 0.60
per share Pro forma ($ 0.67) $ 0.57
</TABLE>
The per share weighted average fair values of stock options granted during
fiscal years 1997 and 1996 were $4.28 and $9.29, respectively, on the date of
grant using the Black-Scholes option-pricing model with the following weighted-
average assumptions: Fiscal year 1997 - expected dividend yield 0%, risk-free
interest rate of 6.38%, a volatility factor of the expected market price of the
Company's common stock of .5941, and a weighted average expected life of
approximately 4 years; Fiscal year 1996 - expected dividend yield 0%, risk-free
interest rate of 5.95%, a volatility factor of the expected market price of the
Company's common stock of .7235, and a weighted-average expected life of
approximately 4 years.
The fair value of stock options included in the pro forma amounts for fiscal
years 1997 and 1996 is not necessarily indicative of future effects on net
income and net income per share.
A summary of the status of the Company's two stock option plans as of June 27,
1997, June 28, 1996, and June 30, 1995, and changes during the years ended on
those dates is presented below:
<TABLE>
Fiscal years ended:
June 27, 1997 June 28, 1996 June 30, 1995
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- --------- --------- --------- --------- ---------
Outstanding at
beginning of year 776,542 $15.09 752,460 $11.41 914,130 $ 6.97
Granted 118,000 $14.99 233,265 $22.33 198,894 $21.97
Exercised ( 27,205) $ 8.32 (147,243) $ 7.82 (254,640) $ 5.04
Cancelled (115,888) $19.02 ( 61,940) $15.02 (105,924) $ 8.18
--------- --------- ---------
Outstanding at
end of year 751,449 $14.71 776,542 $15.08 752,460 $11.42
Options exercisable
at year-end 433,292 344,841 301,566
</TABLE>
The following table summarizes information about the Company's stock option
plans as of June 27, 1997:
<TABLE>
Options Outstanding Options Exercisable
- ---------------------------------------------------------------------- -----------------------------
<S> <C> <C> <C> <C> <C>
Range of Number Weighted-Avg. Number
Exercise Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Prices @ 06/27/97 Contractual Life Exercise Price @ 06/27/97 Exercise Price
- ------------------ ----------- ---------------- -------------- ----------- --------------
$ 2.75 to $ 8.625 263,170 5.6 years $ 6.62 242,420 $ 6.56
$ 9.00 to $15.00 137,124 7.6 years $12.31 53,078 $11.87
$15.375 to $21.375 186,765 9.0 years $18.86 46,598 $18.41
$21.50 to $27.00 85,075 8.2 years $22.64 63,180 $22.12
$27.25 to $33.75 79,315 8.0 years $27.40 28,016 $27.37
----------- -----------
751,449 7.3 years $14.71 433,292 $12.10
</TABLE>
J. INCOME TAXES
Total income tax expense (benefit) is allocated as follows:
<TABLE>
Year Ended
June 27, June 28, June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Income from
continuing operations $ 1,446 $ 4,280 $ 4,191
Results of discontinued
operations ($ 2,752) ($ 1,505) ($ 110)
Loss on disposal of
discontinued operations ($ 1,974) -0- -0-
---------- ---------- ----------
($ 3,280) $ 2,775 $ 4,081
---------- ---------- ----------
</TABLE>
Income tax expense from continuing operations consists of the following
components:
<TABLE>
Year Ended
June 27, June 28, June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Current:
Federal $ 1,493 $ 3,426 $ 3,617
State ( 97) 167 785
Foreign ( 98) 282 575
---------- ---------- ----------
1,298 3,875 4,977
---------- ---------- ----------
Deferred
Federal 133 356 ( 652)
State 15 49 ( 134)
---------- ---------- ----------
148 405 ( 786)
---------- ---------- ----------
$ 1,446 $ 4,280 $ 4,191
---------- ---------- ----------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 27, 1997, and
June 28, 1996, are presented below:
<TABLE>
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Gross deferred tax assets:
Accounts receivable, due to
allowance for doubtful
accounts $ 101 $ 129
Inventories, due to additional
costs inventoried for tax purposes
pursuant to the Tax Reform Act
of 1986 143 356
Inventories, due to accrual for
obsolescence 315 341
Vacation expense accrual for
accounting purposes 358 435
Workers' compensation expense
accrual for accounting purposes 395 280
Warranty expense accrual for
accounting purposes 762 705
Employee benefit plan accrual
for accounting purposes 190 186
Alternative minimum tax credit
carryforward 378 -0-
State net operating loss carryforward 100 -0-
Other 45 276
---------- ----------
Total gross deferred tax assets 2,787 2,708
Less valuation allowance -0- -0-
---------- ----------
Net total deferred tax assets 2,787 2,708
---------- ----------
Gross deferred tax liabilities:
Plant and equipment principally
due to differences in
depreciation ( 1,482) ( 1,531)
---------- ----------
Total gross deferred tax
liabilities ( 1,482) ( 1,531)
---------- ----------
Net deferred tax assets $ 1,305 $ 1,177
---------- ----------
Reflected on attached consolidated balance sheets as:
Current deferred asset $ 2,616 $ 2,544
Non-current deferred
liability, net ( 1,311) ( 1,367)
---------- ----------
Net deferred tax asset $ 1,305 $ 1,177
---------- ----------
</TABLE>
At June 27, 1997, the Company had a state operating loss carryforward of $1,000
which is available to offset future state taxable income through the fiscal year
2000. In addition, the Company has an alternative minimum tax (AMT) credit
carryforward of approximately $378 which is available to reduce future federal
regular income taxes over an indefinite period.
Under Statement 109, a valuation allowance is recognized if, based on the weight
of available evidence, it is more likely than not that some portion or all of
the deferred tax asset will not be realized. Based on the weight of all
available evidence, the Company concludes that a valuation allowance is not
needed.
The Company has not recognized a deferred tax liability for the basis
differences and the undistributed earnings related to its foreign subsidiaries
since the investment is essentially permanent in duration. Undistributed
earnings were approximately $790 at June 27, 1997.
A reconciliation of the effective income tax rate from continuing operations
with the statutory federal income tax rate is as follows:
<TABLE>
Year Ended
June 27, June 28, June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
State income taxes,
net of federal tax ( 1.7) 1.0 3.3
Tax effect of foreign
income and losses ( 2.8) 2.4 1.9
Tax effect of foreign
sales corporation ( 11.6) ( 4.1) ( 2.7)
Permanent differences 3.0 ( 0.3) ( 2.0)
Other 3.5 ( 1.8) ( 2.5)
---------- ---------- ----------
25.4% 32.2% 33.0%
</TABLE>
A tax benefit of $593, deriving from the Company's Foreign Sales Corporation
(FSC), was recorded in the third quarter of its fiscal year 1997. the tax
benefit resulted from reassessment of the Company's foreign sales transactions
for fiscal years 1994, 1995, and 1996.
Cash paid for income taxes was $1,071, $2,646, and $3,652 in fiscal years 1997,
1996, and 1995, respectively.
K. RETIREMENT PLANS
The Company has a retirement savings and profit sharing plan which qualifies
under Section 401(k) of the Internal Revenue Code. Participation is available to
all employees meeting minimum service and age requirements.
During 1996, the Company implemented a Deferred Compensation Plan providing
officers and key executives with the opportunity to participate in an
unqualified deferred compensation plan. This plan does not qualify under Section
401 of the Internal Revenue Code. The total of net participant deferrals, which
is reflected in other long-term liabilities, was $190 and $28 at June 27, 1997,
and June 28, 1996, respectively.
The Company also has a deferred retirement salary plan which is limited to
certain officers. The Company has accrued the present value of the estimated
future retirement benefit payments over the periods from the date of the
agreements. The accrued balance of these plans, included in other long-term
liabilities, was $559 and $469 at June 27, 1997, and June 28, 1996,
respectively.
Total expenses for these plans were $1,375, $1,341, and $808 for fiscal years
ended 1997, 1996, and 1995, respectively.
L. ACCRUED LIABILITIES
<TABLE>
Year Ended
June 27, June 28,
1997 1996
---------- ----------
<S> <C> <C>
Accrued incentive plan
expense $ -0- $ 318
Accrued vacation expense 1,358 1,394
Accrued salary expense 569 686
Accrued salary and sales
tax expense 555 940
Accrued warranty expense 2,185 1,724
Accrued workers'
compensation self-
insurance expense 1,162 704
Accrued other 996 1,302
---------- ----------
$ 6,825 $ 7,068
---------- ----------
</TABLE>
M. OTHER INCOME, NET
<TABLE>
Year Ended
June 27, June 28, June 30,
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Investment income ($ 110) ($ 114) ($ 126)
Loss on sale/writedown
of investments -0- -0- 68
(Gain) loss on foreign
currency transactions ( 58) ( 166) ( 158)
Amortization of
intangibles 22 45 45
Other, net ( 104) ( 106) ( 93)
---------- ---------- ----------
($ 250) ($ 341) ($ 264)
---------- ---------- ----------
</TABLE>
N. CONCENTRATION OF CREDIT RISK
The Company's customers are primarily in the cable television (CATV) industry.
The Company performs periodic credit evaluations of its customers' financial
conditions and generally does not require collateral. June 27, 1997, and June
28, 1996, accounts receivable from customers in the CATV industry were
approximately $18,307 and $19,366, respectively. Receivables are generally due
within 30 days. Credit losses are provided for in the consolidated financial
statements and have consistently been within management's expectations.
Sales to one customer were $48,039 (36%) in fiscal year 1997. Sales to two
customers were $24,966 (18%) and $25,792 (18%), respectively in fiscal year
1996. Sales to two customers were $29,326 (24%) and $23,320 (19%), respectively
in fiscal year 1995.
O. COMMITMENTS AND CONTINGENCIES
The Company had an established letter of credit of $900 at June 27, 1997, for
its self-insured workers' compensation program.
P. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of quarterly results of operations for the 1997 and
1996 fiscal years:
<TABLE>
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter(1)
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 31,844 $ 30,701 $ 32,801 $ 36,595
Gross profit 7,197 5,982 6,434 7,626
Income from continuing
operations 1,533 563 1,346 815
Discontinued operations ( 774) ( 228) ( 1,182) ( 8,251)
Net income (loss) 759 335 164 ( 7,436)
Net income per share from
continuing operations 0.16 0.06 0.14 0.09
Discontinued operations
per share ( 0.08) ( 0.03) ( 0.12) ( 0.89)
---------- ---------- ---------- ----------
Net income (loss) per
share $ 0.08 $ 0.03 $ 0.02 ($ 0.80)
---------- ---------- ---------- ----------
First Second Third Fourth
1996 Quarter Quarter Quarter Quarter
- ---------- ---------- ---------- ---------- ----------
Net sales $ 35,839 $ 32,517 $ 35,609 $ 35,574
Gross profit 9,131 7,110 8,959 9,487
Income from continuing
operations 2,515 1,089 2,771 2,639
Discontinued operations 116 ( 393) ( 1,409) ( 1,409)
Net income 2,631 696 1,362 1,230
Net income per share from
continuing operations 0.26 0.11 0.28 0.26
Discontinued operations
income (loss) per share 0.01 ( 0.04) ( 0.14) ( 0.14)
---------- ---------- ---------- ----------
Net income per share $ 0.27 $ 0.07 $ 0.14 $ 0.12
---------- ---------- ---------- ----------
<FN>
(1) Results for the fourth quarter of fiscal year 1997 were negatively impacted
by the Company's decision to discontinue its Digital Fiber Optics Transmission
Products business segment. Discontinued operations include pre-tax charges of
$3,300 related to warranty costs, an impairment loss on goodwill of $571, and a
$3,830 after-tax charge for the loss on disposal of the Digital Fiber Optics
Transmission Products business segment.
</FN>
</TABLE>
Q. LITIGATION
On or about March 31, 1995, two shareholders of the Company filed a complaint in
the United States District Court for the Eastern District of Pennsylvania
against the Company, alleging violations of securities and common law. The
complaint seeks permission to proceed as a class action on behalf of certain
persons who purchased shares of the Company's Common Stock during the period
January 17, 1995, through March 24, 1995. The complaint seeks compensatory
damages in an unspecified amount and costs and expenses relating to the
complaint, including reasonable attorney's fees. the Company's motion to dismiss
the complaint was granted in part and denied in part. Discovery has commenced,
but a trail date has not yet been set. Based upon the present stage of the
proceedings, the ultimate outcome of this suit cannot be ascertained at this
time.
R. SEGMENT INFORMATION
In fiscal years 1997 and 1996, the Company operated in two industry segments:
the Electronic Distribution Products segment, which represents the Company's
continuing operations and provides hybrid fiber coax (HFC) equipment for signal
distribution applications primarily to the CATV market; and the Digital Fiber
Optics Transmission Products segment, which is reported as a discontinued
business segment and provides products for long-distance, point-to-point video,
voice, and data signal transmission applications, primarily for telephony,
distance learning, and other non-CATV markets. The Company announced on July 10,
1997, its intent to discontinue its Digital Fiber Optics Transmission Products
segment in a phase-down process expected to span nine months.
Information about industry segments for fiscal years 1997, 1996, and 1995 is as
follows:
<TABLE>
Continuing Discontinued
Operations Operations Total
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Year Ended June 27, 1997
- ------------------------
Total revenue $ 131,941 $ 7,994 $ 139,935
Operating income (loss) $ 6,021 ($ 9,357) ($ 3,336)
Identifiable assets at June 27, 1997 $ 69,604 $ 9,852 $ 79,456
Capital Expenditures $ 5,884 $ 698 $ 6,582
Depreciation and amortization $ 4,910 $ 1,388 $ 6,298
Year ended June 28, 1996
- ------------------------
Total revenue $ 139,539 $ 9,359 $ 148,898
Operating income (loss) $ 14,254 ($ 4,600) $ 9,654
Identifiable assets at June 28, 1996 $ 75,069 $ 7,387 $ 82,456
Capital Expenditures $ 7,442 $ 586 $ 8,028
Depreciation and amortization $ 3,972 $ 755 $ 4,727
Year Ended June 30, 1995
- ------------------------
Total revenue $ 121,269 $ 16,172 $ 137,441
Operating income (loss) $ 13,425 ($ 323) $ 13,102
Identifiable assets at June 30, 1995 $ 83,490 $ 5,817 $ 89,307
Capital Expenditures $ 14,355 $ 1,016 $ 15,371
Depreciation and amortization $ 2,921 $ 1,001 $ 3,922
</TABLE>
The Company and subsidiaries operate in various geographic areas as indicted by
the following:
<TABLE>
U.S. Canada Europe Eliminations Total
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Year Ended June 27, 1997
- ------------------------
Sales to unaffiliated customers:
Domestic $ 106,785 $ 1,523 $ 751 $ -0- $ 109,059
Export 22,882 -0- -0- -0- 22,882
Transfers between geographic areas ( 95) -0- -0- 95 -0-
------------ ------------ ------------ ------------ ------------
Total revenue $ 129,572 $ 1,523 $ 751 $ 95 $ 131,941
Operating income $ 5,842 $ 162 $ 17 $ -0- $ 6,021
Identifiable assets at June 27, 1997 $ 67,464 $ 1,542 $ 598 $ -0- $ 69,604
Capital expenditures $ 5,852 $ 6 $ 26 $ -0- $ 5,884
Depreciation and amortization $ 4,847 $ 12 $ 51 $ -0- $ 4,910
Year ended June 28, 1996
- ------------------------
Sales to unaffiliated customers:
Domestic $ 84,792 $ 6,223 $ 5,968 $ -0- $ 96,983
Export 42,556 -0- -0- -0- 42,556
Transfers between geographic areas 9,570 -0- -0- ( 9,570) -0-
------------ ------------ ------------ ------------ ------------
Total revenue $ 136,918 $ 6,223 $ 5,968 ($ 9,570) $ 139,539
Operating income $ 11,596 $ 2,210 $ 448 $ -0- $ 14,254
Identifiable assets at June 28, 1996 $ 69,960 $ 3,464 $ 1,645 $ -0- $ 75,069
Capital expenditures $ 7,414 $ 10 $ 18 $ -0- $ 7,442
Depreciation and amortization $ 3,848 $ 15 $ 109 $ -0- $ 3,972
Year Ended June 30, 1995
- ------------------------
Sales to unaffiliated customers:
Domestic $ 73,368 $ 4,787 $ 7,616 $ -0- $ 85,771
Export 35,498 -0- -0- -0- 35,498
Transfers between geographic areas 8,649 -0- -0- ( 8,649) -0-
------------ ------------ ------------ ------------ ------------
Total revenue $ 117,515 $ 4,787 $ 7,616 ($ 8,649) $ 121,269
Operating income $ 11,349 $ 1,428 $ 648 $ -0- $ 13,425
Identifiable assets at June 30, 1995 $ 74,958 $ 3,213 $ 5,319 $ -0- $ 83,490
Capital expenditures $ 14,327 $ 10 $ 18 $ -0- $ 14,355
Depreciation and amortization $ 2,797 $ 15 $ 109 $ -0- $ 2,921
</TABLE>
Most transfers between geographic areas are made at the cost of producing the
items plus a profit margin. Identifiable assets are those assets identified with
the operations in each geographic area.
Financial Report
To The Shareholders:
The management of C-COR Electronics, Inc. is responsible for the preparation of
all financial statements in this Annual Report. These statements were prepared
in accordance with generally accepted accounting principles from the books and
records maintained by the Company. Adequate accounting systems and financial
controls are maintained to assure that these records reflect the transactions of
the Company and that its assets are protected from loss or unauthorized use. In
addition, the Audit Committee of the Board of Directors meets periodically with
management and KPMG Peat Marwick LLP to discuss financial reporting matters, the
internal controls, and the scope and results of the audit.
/s/ Chris A. Miller
Vice President-Finance, Secretary and Treasurer
August 15, 1997
Independent Auditors' Report
To the Board of Directors
C-COR Electronics, Inc.
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of C-COR
Electronics, Inc. and Subsidiaries as of June 27, 1997 and June 28, 1996, and
the related consolidated statements of operations, shareholders' equity, and
cash flows for each of the years in the three-year period end June 27, 1997.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of C-COR Electronics,
Inc. and Subsidiaries as of June 27, 1997 and June 28, 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 27, 1997, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
August 15, 1997
<TABLE>
DIRECTORS & OFFICERS
<CAPTION>
Year first
elected
Directors a director
- -------------------------------------------------------------------------------
<S> <C>
Richard E. Perry 1985
Chairman of the Board (2,4,5)
Scott C. Chandler 1996
President and Chief Executive Officer (2,4)
Donald M. Cook, Jr. 1988
Retired President and Chief Operating Officer,
SEMCOR, Inc. (2,3,4)
I.N. Rendall Harper, Jr. 1982
President, Chief Executive Officer and Treasurer,
American Micrographics Company, Inc. (1,4,5)
Anne P. Jones, Esq. 1989
Telecommunications Consultant (1,4,5)
John J. Omlor 1989
President and Chief Executive Officer,
John J. Omlor Associates, Ltd. (2,4)
Dr. Frank Rusinko, Jr. 1990
Senior Scientist and Director,
Carbon Research Center,
College of Earth and Mineral Sciences
of The Pennsylvania State University (1,3,4,5)
Dr. James J. Tietjen 1987
Dean, School of Technology Management,
The Stevens Institute of Technology (2,3,4)
Dr, Philip L. Walker, Jr. 1960
Evan Pugh Professor Emeritus
of Material Science,
The Pennsylvania State University (1,4)
<FN>
(1) Member of the Audit Committee
(2) Member of the Executive Committee
(3) Member of the Compensation Committee
(4) Member of the Strategic Planning Committee
(5) Member of the Nominating Committee
</FN>
</TABLE>
<TABLE>
Directors Emeriti
- -------------------------------------------------------------------------------
<S> <C>
Joseph C. Bates 1982
Dr. John L. McLucas 1982
Dr. Marsh W. White 1963
</TABLE>
Officers
- -------------------------------------------------------------------------------
Scott C. Chandler
President and Chief Executive Officer
Edwin S. Childs
Vice President
Human Resources
David J. Eng
Senior Vice President
Worldwide Sales
Lawrence R. Fisher, Jr.
Vice President
Engineering
Chris A. Miller
Vice President
Finance, Secretary and Treasurer
Donald F. Miller
Vice President
Operations and Manufacturing
Gerhard B. Nederlof
Senior Vice President
Marketing, Business Development and Services
Joseph E. Zavacky
Controller and Assistant Secretary
CORPORATE DATA
Annual Meeting of Shareholders
October 14, 1997 at 9:00 a.m.
Headquarters
C-COR Electronics, Inc.
60 Decibel Road
State College, Pennsylvania
Stock Listing
The Common Stock of C-COR Electronics, Inc., traded in the Nasdaq Stock Market's
National Market System, was first offered to the public in February 1981. The
Nasdaq symbol is CCBL. The range of high and low price information as reported
by Nasdaq follows:
<TABLE>
Quarter Ending Price
<S> <C>
September 30, 1995 High 36
Low 22 3/4
December 31, 1995 High 29 7/8
Low 21
March 31, 1996 High 24
Low 15
June 30, 1996 High 24
Low 15
September 30, 1996 High 18
Low 13 3/4
December 31, 1996 High 17 1/2
Low 11 7/8
March 31, 1997 High 15 3/4
Low 12
June 30, 1997 High 12 1/8
Low 9 1/2
</TABLE>
C-COR Electronics, Inc. has never paid a dividend. As of June 27, 1997, there
were 670 shareholders of record of Common Stock.
General Counsel
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
State College, Pennsylvania
SEC Counsel
Ballard Spahr Andrews & Ingersoll
Philadelphia, Pennsylvania
Independent Auditors
KPMG Peat Marwick LLP
State College, Pennsylvania
Transfer Agent and Registrar
American Stock Transfer Company
New York, New York
Form 10-K
A copy of the Company's Annual Report on Form 10-K, as filed with the Securities
and Exchange Commission, will be furnished without charge to any shareholder
upon written request.
We encourage shareholders whose stock is held by brokers or banks to call the
Investor Relations office at the Company's headquarters (Telephone:
814-231-4402, e-mail: [email protected]) to have their names placed on the financial
mailing list, enabling them to receive interim reports.
MISSION STATEMENT
C-COR is dedicated to responsive customer service, innovative design, and the
manufacture of quality products. We will be a leader in communication
technology. The Company will research and develop market opportunities within
our expertise to enhance profitable growth.
WHAT WE STAND FOR
At C-COR, our business practices are guided by a respect for ourselves and a
profound sense of responsibility to our employees, shareholders and customers.
EMPLOYEES
Nothing is more important to C-COR than the people who work here. To our people
we pledge a good work environment, fair compensation, recognition of
accomplishments, honesty in communications and understanding. In return, we
expect a positive attitude, an honest effort in the workplace and a dedication
to principles that we espouse.
CUSTOMERS
We realize the value of our customers and we have committed ourselves to
delivering a quality product at a fair price, to respond promptly to our
customers' requests, to provide superior service and support, and most of all,
to respect them and their needs.
SHAREHOLDERS
We recognize our responsibility to protect and nurture the investments of our
shareholders. We will manage C-COR in a manner that will produce a fair return
on investment while manifesting itself in capital appreciation. Our management
will be cost-effective and efficient. We will be open and honest in
communicating with shareholders and we will conduct our business in an ethical
manner.
SUPPLIERS
The criteria for choosing suppliers will be on the basis of quality, price and
performance; we expect of them what our customers expect of us.
COMMUNITY
C-COR is dedicated to being a good corporate citizen wherever we do business.
And, we believe in encouraging our employees to become involved in civic
affairs. We expect our employees to conduct business in an ethical manner, be
dedicated in their efforts on behalf of the Company and to work to improve the
quality of life in the workplace and the communities in which they live.
WORLD HEADQUARTERS
60 Decibel Road
State College, PA 16801
800-233-2267
814-238-2461
Fax 814-238-4065
EUROPEAN OFFICE
P.O. Box 10.265
1301 AG Almere
The Netherlands
+31-36-546 1111
Fax +31-36-536 4255
DENVER OFFICE
5299 DTC Boulevard, Suite 552
Englewood, CO 80111
303-713-0776
Fax 303-713-0639
CANADIAN OFFICE
377 MacKenzie Avenue, Unit 5
Ajax, Ontario L1S 2G2
905-427-0366
Fax 905-428-0927
REGIONAL SALES OFFICES
California, Colorado, Georgia, Indiana, Minnesota, Pennsylvania, South Carolina,
and Texas
Printed in the U.S.A.
All rights reserved.
(C) 1997, C-COR Electronics, Inc.
Subsidiaries of the Registrant: State of Incorporation:
C-COR/Comlux, Inc. Pennsylvania
C-COR Electronics Canada, Inc. Foreign (Canada)
C-COR Electronics Company Delaware
C-COR Electronics Foreign Sales Corporation St. Thomas, V.I.
C-COR Europe B.V. Foreign(Netherlands)
C-COR Europe Holding B.V. Foreign(Netherlands)
C-COR Royalty Corporation Delaware
C COR de Mexico, S.A. de C.V. Foreign (Mexico)
Consent of Independent Auditors
The Board of Directors
C-COR Electronics, Inc. and Subsidiaries:
The audits referred to in our report dated August 15, 1997, included the related
financial statement schedule as of June 27, 1997, and for each of the years in
the three-year period ended June 27, 1997, included in the annual report on form
10-K. This financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
We consent to the incorporation by reference in the registration statements
(Nos. 2-95959, 33-27440, 33-35208, 33-66590 and 333-02505) on form S-8 of C-COR
Electronics, Inc. and Subsidiaries of our reports, related to the consolidated
balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 27, 1997
and June 28, 1996, and the related consolidated statements of operations,
shareholders' equity and cash flows and related financial statement schedule for
each of the years in the three-year period ended June 27, 1997, which reports
are incorporated by reference in or appear in the June 27, 1997 annual report
on Form 10-K of C-COR Electronics, Inc. and Subsidiaries.
/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
September 25, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-27-1997
<PERIOD-END> JUN-27-1997
<CASH> 452
<SECURITIES> 359
<RECEIVABLES> 19,809
<ALLOWANCES> 510
<INVENTORY> 19,140
<CURRENT-ASSETS> 43,759
<PP&E> 46,732
<DEPRECIATION> 21,672
<TOTAL-ASSETS> 71,119
<CURRENT-LIABILITIES> 21,014
<BONDS> 0
0
0
<COMMON> 963
<OTHER-SE> 40,715
<TOTAL-LIABILITY-AND-EQUITY> 71,119
<SALES> 131,941
<TOTAL-REVENUES> 131,941
<CGS> 104,702
<TOTAL-COSTS> 21,468
<OTHER-EXPENSES> (250)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 318
<INCOME-PRETAX> 5,703
<INCOME-TAX> 1,446
<INCOME-CONTINUING> 4,257
<DISCONTINUED> (10,435)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (6,178)
<EPS-PRIMARY> (0.65)
<EPS-DILUTED> (0.65)
</TABLE>
