UNITED STATES
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 26, 1998
( ) 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 4, 1998, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $123,715,006.
As of September 4, 1998, the Registrant had 9,157,124 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
1) 1998 Annual Report to Shareholders (Parts I, II and IV)
2) Proxy Statement dated September 21, 1998 (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, including without limitation, continuation of increased domestic spending
for network upgrades, the continuation of competitive pricing pressures,
anticipated increased spending on product development, the continued
availability of capital resources and the Corporation's ability to assess the
risks of the year 2000 issue, with respect to its operations, and resolve them
in a timely manner. 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, new product development activities, economic
conditions affecting domestic and international markets, 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
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. In fiscal year 1998 and prior to fiscal year
1996, the Corporation operated in one industry segment broadly defined as 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. In fiscal years 1997
and 1996, the Corporation operated in two industry segments: the Electronic
Distribution Products segment and the Digital Fiber Optics Transmission Products
segment which has been reported as a discontinued business segment. 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. On July 10, 1997,
the Corporation announced the discontinuance of its Digital Fiber Optics
Transmission Products segment in a nine-month wind-down process. See
"Discontinued Operations." In the remainder of this document, the discussions
are based on the Corporation's continuing operations, the Electronic
Distribution Products segment, except where the context indicates otherwise.
The Corporation's headquarters are in State College, Pennsylvania, and its
manufacturing facilities are in State College and Tipton, Pennsylvania, and in
Tijuana, Mexico. The Corporation also maintains administrative offices in
Toronto, Canada; Almere, The Netherlands; and Hong Kong. In fiscal year 1998,
the Corporation began manufacturing the power supply component of its RF
amplifier products in Tijuana, Mexico. The Corporation substantially completed
the transfer of the power supply component production to this facility as of
June 26, 1998, and continues to ramp up production at this manufacturing
facility. As part of a restructuring, on June 25, 1998, the Corporation
announced the closing of its manufacturing plant located in Reedsville,
Pennsylvania. Additional information regarding this restructuring is
incorporated by reference to Note A (Summary of Significant Accounting Policies)
on page 22 of the Registrant's 1998 Annual Report to Shareholders.
The Corporation has been approved for ISO 9001 registration at its Pennsylvania
and Tijuana 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. The Corporation's other RF
distribution products include push-pull, power-doubling, and feedforward
technologies; trunk, minitrunk, and split-band amplifiers; and main line
passives to 1 GHz. For the international markets, particularly Europe, the
Corporation offers 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. During fiscal year 1998, the Corporation
introduced two new I-Flex products, the line extender and the network management
agent, which the Corporation expects to be available for shipment beginning in
fiscal year 1999.
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.
During fiscal year 1998, the Corporation introduced a completely new line of AM
fiber optic headend and node products for use in HFC applications. The
Corporation expects these products to be available for shipment beginning in
fiscal year 1999. Bearing the trade name NAVICOR(TM), these products offer a
total solution approach to the distribution portion of the network. Three of the
new headend products are used to transmit and receive voice, video and data
signals: the AM headend rack system, the 1550 nm transmitter and the
erbium-doped fiber amplifier (EDFA). NAVICOR optical nodes include the Quadrant:
four active output node, and two versions of the FlexNet(R) node: the Compass
and the GPS. The Corporation believes this group of nodes offers the
flexibility, scalability and cost effectiveness network operators are looking
for as they build today while planning for the future.
The Corporation believes network management is playing a critical role in
communication systems. CNM is the Corporation's network management system. 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. During fiscal year 1998, the Corporation introduced the
latest version of this product, CNM System 2, which is expected to be available
for shipment in fiscal year 1999.
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. Consolidation has occurred
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 are 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, Europe and Hong Kong; and from 8 regional sales offices
located throughout the United States.
For the fiscal year ended June 26, 1998, the Corporation's international sales
represented 21% of net sales, primarily in the Canadian, Asian, European, and
Latin American markets. In fiscal years ended June 27, 1997, and June 28, 1996,
international sales were 19% and 39%, respectively, of net sales. See the
discussion of segment information in the Corporation's 1998 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 26, 1998, was
Time Warner Cable, which accounted for 31% of net sales. 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. No other customer
accounted for 10% or more of net sales during fiscal years 1996, 1997, and 1998,
respectively.
At June 26, 1998, the Corporation's backlog of orders was $24.0 million. At June
27, 1997, the Corporation's backlog of orders was $34.9 million, and at June 28,
1996, it was $24.3 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 13 through 16 of the
Registrant's 1998 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 the past fiscal year,
research and product development expenditures were primarily directed at
expanding the Corporation's AM fiber optic technology and network management
systems and RF amplifier line.
During fiscal year 1998, the Corporation also continued with product development
process improvements to reduce cycle time to design, develop and deliver new
products; reduce manufacturing costs; and improve design quality.
During the fiscal years ended June 26, 1998, June 27, 1997, and June 28, 1996,
the Corporation spent approximately $7,459,000, $5,681,000, and $4,857,000,
respectively, on research and development related to AM fiber optic systems, RF
distribution equipment, and network management. Anticipated 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. No research and product development expenditures above 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
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. The Corporation believes it offers a broader product line in the RF
distribution amplifier segment of the market, along with a growing number of AM
fiber optic and network management products.
Currently, CATV networks serve more than 65.0 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
market penetration is approximately 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, Multipoint Multichannel Distribution Service (MMDS), Local
Multichannel 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 local programming. Based upon these limitations, it is the
Corporation's belief that such technologies will mature to the point where 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 substantial
amounts of information to subscribers. As a result, the Corporation believes 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 it is strategically positioned to grow and expand with the CATV
industry.
External Influences/Industry
The primary market factors affecting the global communications industry include
access to technology advancements, funding, 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. In the CATV industry, cable companies have
acquired other cable companies in order to achieve efficiency through clustering
of properties. Telephone companies have also made investments in and
acquisitions of cable companies and other telephone companies. In the spring of
1998, AT&T announced the proposed acquisition of Tele-Communications, Inc. a
major cable operator.
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 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 used in the CATV
industry has been utilized by several telephone operating companies, 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).
The regulatory environment in the United States has changed with 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 telephone
companies to sell video services, and in some cases, to buy out local cable
companies; allow cable operators to control charges for many channels; allow
Regional Bell Operating Companies (RBOC's) to sell long-distance services, under
certain conditions; require local phone companies to open their networks to
competitors; and allow RBOCs to manufacture customer equipment.
International requirements for advanced services are 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. The international markets continue
to represent distinct markets for HFC distribution equipment, and, in general,
demand can be highly variable.
Employees
The Corporation had approximately 1,200 employees as of September 4, 1998, 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 93 engineers with baccalaureate or more
advanced degrees, and an additional 279 persons with at least two years of
technical college or military education equivalent to a two-year degree.
Suppliers
The Corporation closely monitors supplier delivery performance and quality and
employs a strategy of limiting the total number of global 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.
The Corporation uses in-house vendor supply relationships to 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, and will continue to establish such relationships in the future in order
to decrease vendor lead times and reduce on-hand inventory.
DISCONTINUED OPERATIONS
Digital Fiber Optics Transmission Products Segment
On July 10, 1997, the Corporation announced the discontinuance of its Digital
Fiber Optics Transmission Products segment in a nine-month wind-down process.
The Corporation substantially completed the wind-down of this operation as of
March 1998. 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 and
$4,544,000 in fiscal years 1997 and 1996, respectively.
This business segment has been accounted for as a discontinued business segment
and its results have been excluded from continuing operations for all periods
presented in the Corporation's consolidated financial statements incorporated
herein by reference to pages 17 through 20 of the Registrant's 1998 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 23 and 29 of the Registrant's 1998 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(1) Manufacturing 60,000 O
Tijuana, Mexico(2) Manufacturing 25,200 L
Almere, The Netherlands Administrative Offices 14,100 L
Ajax, Ontario, Canada Administrative Offices 5,000 L
<FN>
(1) On June 25, 1998, the Corporation announced its decision to close its
manufacturing plant located in Reedsville, Pennsylvania, in order to reduce
costs and improve productivity and asset utilization. The Corporation had a
Lease/Option to Purchase Agreement with the Mifflin County Industrial
Development Corporation for the building and improvements located in Reedsville,
Pennsylvania. On August 10, 1998, the Corporation purchased the facility, which
is being held for sale.
(2) As of June 26, 1998, the Corporation leased approximately 25,200 square feet
of real property located in Tijuana, Mexico, for the purpose of manufacturing.
The Corporation has entered into a new lease agreement for manufacturing space
of approximately 61,900 square feet of real property, also located in Tijuana,
Mexico. The new lease commenced on September 15, 1998. The prior lease will be
terminated at such time as the Corporation has transferred all manufacturing to
the new facility, currently projected to take place by November 30, 1998.
</FN>
</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, certain shareholders of the Corporation filed a
complaint in the United States District Court for the Eastern District of
Pennsylvania against the Corporation and its Chief Executive Officer alleging
violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934
and common law. On September 27, 1997, a tentative settlement was reached with
respect to this litigation, and the settlement amount was recorded in the
financial statements during the first quarter of fiscal year 1998. On July 14,
1998, the United States District Court for the Eastern District of Pennsylvania
approved the settlement reached by the parties and dismissed the case with
prejudice.
On August 28, 1998, the Corporation filed a complaint against Rockwell
International Corp. ("Rockwell") in the United States District Court for the
Middle District of Pennsylvania. The complaint was served on Rockwell on
September 11, 1998. The complaint alleges breach of contract, breach of implied
warranty and breach of the implied covenant of good faith and fair dealing by
Rockwell in connection with the development by Rockwell and sale to the
Corporation of an application specific integrated circuit ("ASIC") to be used by
the Corporation in the manufacture of high-speed digital fiber optic receivers
and transmitters. The ASIC was a component used in products sold by the
Corporation as part of its Digital Fiber Optics Transmission Products Segment,
which has been discontinued. The lawsuit seeks damages of not less than
$10,000,000.
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 26, 1998.
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.
<TABLE>
Name Age Position/Experience
<S> <C> <C>
Richard E. Perry 68 Chairman since June 1986; Chief
Executive Officer from July 1985 to August
1996 and from March 1998 to July 1998;
President from July 1985 through December
1992.
David A. Woodle 42 President and Chief Executive Officer
since July 20,1998; General Manager-
Strategic Systems of Raytheon Systems
Company, a company providing computer systems
integration services to government and
commercial customers, from January 1998 to
July 1998; Vice President and General
Manager, Raytheon E-Systems, HRB Systems
from June 1996 to January 1998; VP, Strategic
Programs and TMS, Raytheon E-Systems, HRB
Systems from October 1990 to June 1996.
Edwin S. Childs 59 Vice President-Human Resources since August
1996; Director, Human Resources from
September 1986 to July 1996.
David J. Eng 45 Sr. Vice President-Sales since September
1998; Sr. Vice President-Worldwide Sales from
March 1997 to September 1998; 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. 48 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.
Lynn D. Hutcheson 50 Senior Vice President-Engineering and
Technology since March 1998, Independent
Consultant, Fiber Optic Technology from
August 1997 to March 1998; Vice
President-Engineering, ADC Broadband
Communications from September 1996 to August
1997; Director, Engineering, Raynet
Corporation/Ericsson Corp. from September
1987 to September 1996.
Chris A. Miller 45 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 56 Vice President-Operations & Manufacturing
since August 1995; Plant Manager from
September 1987 to August 1995.
Gerhard B. Nederlof 50 Sr. Vice President, Marketing and Services
since 1998, Sr. Vice President, Marketing,
Business Development and Services from March
1997 to September 1998; 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.
<FN>
Note: Scott C. Chandler served as President and Chief Executive Officer of the
Corporation from August 13, 1996 until his resignation was effective on April 7,
1998.
</FN>
</TABLE>
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 32 of the Registrant's 1998 Annual Report to Shareholders under the caption
"Stock Listing."
There were no sales of unregistered securities during fiscal year 1998.
Item 6. Selected Financial Data
The information required by this item is incorporated herein by reference to
page 2 of the Registrant's 1998 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 13 through 16 of the Registrant's 1998 Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Item 8. Financial Statements and Supplementary Data
The information required by this item is incorporated herein by reference to
pages 17 through 30 of the Registrant's 1998 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 21, 1998.
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 solely on a review of the copies of such
reports furnished to the Corporation and written representations that no other
reports were required during the fiscal year ended June 26, 1998, its officers,
directors, and ten-percent shareholders complied with all applicable Section
16(a) filing requirements.
Item 11. Executive Compensation
The information required by this item is incorporated herein by reference to
pages 7 through 14 of the Registrant's Proxy Statement dated September 21, 1998.
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 7 of the Registrant's Proxy Statement dated September 21, 1998.
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 1998.
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 financial
statements of the Registrant included in the Registrant's 1998
Annual Report to Shareholders for the year ended June 26, 1998,
are incorporated by reference to pages 17 through 30 of the
Registrant's Annual Report to Shareholders.
Consolidated Balance Sheets -- Years ended June 26, 1998, and
June 27, 1997.
Consolidated Statements of Operations -- Years ended June 26,
1998, June 27, 1997, and June 28, 1996.
Consolidated Statements of Cash Flows -- Years ended June 26,
1998, June 27, 1997, and June 28, 1996.
Consolidated Statements of Shareholders' Equity -- Years ended
June 26, 1998, June 27, 1997, and June 28, 1996.
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) 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) (d) 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) (e) 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) (f) 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) (g) 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) (h) 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) (i) 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) (j) 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) (k) 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) (l) 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) (m) 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) (n) 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) (o) 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) (p) 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) (q) 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) (r) 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) (s) 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) (t) 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) (u) 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) (v) 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) (w) 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) (x) 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) (y) 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) (z) 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) (aa) 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) (bb) (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) (bb) (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) (cc) (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) (cc) (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) (dd) 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) (ee) Note and Security Agreement effective November 14, 1996, 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 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (ff) Supplement to Note and Security Agreement effective November 14, 1996, between the
Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (kk) to the Registrant's
Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (gg) Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and
Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (ll) to the Registrant's Form 10-K for
the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (hh) Supplement to Revolving Line of Credit Agreement effective November 14, 1996, between the
Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (mm) to the Registrant's
Form 10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (ii) Amended and Restated Employment Agreement dated July 21, 1997, between the Registrant and Richard E.
Perry (incorporated by reference to Exhibit (10) (nn) to the Registrant's Form 10-K for the year
ended June 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (jj) Amended and Restated Employment Agreement dated July 30, 1997, between the Registrant
and Gerhard B. Nederlof. (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form
10-K for the year ended June 27, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (kk) Notes and Security Agreement effective December 30, 1997, between the Registrant and Mellon Bank, N.A.
(incorporated by reference to Exhibit (10) (a) to the Registrant's Form 10-Q for the thirteen-week
period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (ll) Supplement to Note and Security Agreement effective December 30, 1997, between the Registrant and
Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (b) to the Registrant's Form 10-Q for the
thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (mm) Revolving Line of Credit Agreement effective December 30, 1997, between the Registrant and Mellon Bank,
N.A. (incorporated by reference to Exhibit (10) (c) to the Registrant's Form 10-Q for the
thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (nn) Supplement to Revolving Line of Credit Agreement effective December 30, 1997, between the Registrant
and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (d) to the Registrant's Form 10-Q for
the thirteen-week period ended December 26, 1997, Securities and Exchange Commission File No. 0-10726).
(10) (oo) Supplemental Retirement Plan Participation Agreement dated February 23, 1998, between the Registrant
and Lynn D. Hutcheson.
(10) (pp) Change of Control Agreement dated February 23, 1998, between the Registrant and Lynn D. Hutcheson.
(10) (qq) Form of Indemnification Agreement dated February 23, 1998, between the Registrant and
Lynn D. Hutcheson.
(10) (rr) Employment Agreement dated June 22, 1998, between the Registrant and David A. Woodle.
(10) (ss) Fiscal Year 1999 Profit Incentive Plan
(10) (tt) Fiscal Year 1999 Incentive Plan
(11) Statement re Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended June 26, 1998.
(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 1998
On March 30, 1998, the Registrant filed a Form 8-K with the Securities
and Exchange Commission reporting that Scott C. Chandler had resigned as
the Registrant's President and Chief Executive Officer and as a Director
of C-COR Electronics, Inc.
On June 16, 1998, the Registrant filed a Form 8-K with the Securities
and Exchange Commission reporting that its Board of Directors had
elected David A. Woodle as the Registrant's President and Chief
Executive Officer, effective July 20, 1998.
(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 24, 1998
/s/ David A. Woodle, 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 24th day of September 1998.
/s/ Richard E. Perry, Director, Chairman
/s/ Donald M. Cook, Jr., Director
/s/ Anne P. Jones, Director
/s/ John J. Omlor, Director
/s/ Frank Rusinko, Jr., Director
/s/ J. J. Tietjen, Director
<PAGE>
<TABLE>
SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS
<CAPTION>
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 26, 1998
<S> <C> <C> <C> <C> <C>
Reserves deducted from assets to
which they apply:
Allowance for Doubtful Accounts $ 510,000 $ (79,000) $0 $ 1,000(1) $ 430,000
Inventory Reserve-Continuing Operations 1,233,000 1,674,000 0 920,000(2) 1,987,000
Inventory Reserve-Discontinued
Operations 3,630,000 (1,573,000) 0 1,212,000(2) 845,000
- -------------------------------------------------------------------------------------------------------------------------------
$ 5,373,000 $ 22,000 $0 $ 2,133,000 $ 3,262,000
- -------------------------------------------------------------------------------------------------------------------------------
Reserves not deducted from assets:
Product Warranty Reserve-Continuing
Operations $ 2,185,000 $ 966,000 $0 $ 1,435,000(3) $ 1,716,000
Product Warranty Reserve-Discontinued
Operations 3,429,000 1,283,000 0 2,421,000(3) 2,291,000
Workers' compensation self-insurance 1,162,000 921,000 0 764,000(4) 1,319,000
Allowance for Discontinued Operations 3,375,000 0 0 2,775,000(5) 600,000
- -------------------------------------------------------------------------------------------------------------------------------
$10,151,000 $ 3,170,000 $0 $ 7,395,000 $ 5,926,000
- -------------------------------------------------------------------------------------------------------------------------------
Year ended June 27, 1997
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
- -------------------------------------------------------------------------------------------------------------------------------
<FN>
(1) Uncollectible accounts written off, net of recoveries.
(2) Inventory disposals.
(3) Warranty claims honored during year.
(4) Worker's compensation claims paid.
(5) Expenses for Discontinued Operations incurred from measurement date to
disposal date Note: Unless otherwise indicated, reserves relate to continuing
"Attachment D"
C-COR ELECTRONICS, INC.
SUPPLEMENTAL RETIREMENT PLAN
PARTICIPATION AGREEMENT
1. I, the undersigned Participant ("Participant"), hereby acknowledge
receipt of a copy of the Supplemental Retirement Plan of C-COR Electronics, Inc.
("Corporation"), effective April 20, 1993 (the "Plan"). By completion of this
Agreement, I agree to comply with the terms of the Plan in all respects. I
understand that all provisions of the Plan are hereby made a part of this
Agreement.
2. In consideration of the foregoing and subject to the terms of the Plan,
Corporation promises to pay the Supplemental Retirement Benefit therein
described of $ 1,500.00 per month.
3. Tax-Advice. I agree I have been advised by Corporation to consult my own
tax advisors with respect to this Agreement and that neither Corporation nor its
representatives have made or make any representation or warranties as to such
consequences.
4. Insurance Policies. I understand that Corporation may make application
to purchase a life insurance policy or policies on my life, which will be owned
by Corporation and under which it will be the sole beneficiary. I agree 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 this connection, I represent that my date of birth is 3/18/48. In the
event the insurance company to which application is made declines to issue the
policy at standard premium rates, this Agreement will be void unless Corporation
decides otherwise. Similarly, if I should die prior to the date on which payment
of the Supplemental Retirement Benefit commences and the proceeds of a policy on
my life are not paid to Corporation because the information I have furnished in
connection with the application is materially false or my death was caused by
suicide within two (2) years of the date on the policy on my life issues,
Corporation will be under no obligation to pay the Survivor Benefit herein
provided.
5. No Employment Commitment. Nothing in this Agreement shall be construed
to imply any commitment on the part of Corporation to continue me in its employ.
6. Beneficiary. I hereby designate the following person or persons as my
beneficiary or beneficiaries under this Agreement.
Anne L. Hutcheson, spouse___________________
--------------------------------------------
I reserve the right to change my beneficiary at any time and for any reason
and without notice to or the consent of the beneficiary or beneficiaries, by
delivering a writing to that effect to the office of the Secretary of
Corporation or its successor.
7. Additional Conditions
____None______________________________________________
======================================================
8. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
Dated: 2/23/98
L. D. Hutcheson
Participant
C-COR ELECTRONICS, INC.
By: Scott C. Chandler
Attachment H
LYNN D. HUTCHESON
C-COR ELECTRONICS, INC.
Supplemental Retirement Plan
1. Selection of Participants. This Plan is an unfunded non-qualified arrangement
for a select group of management and/or highly compensated employees of C-COR
Electronics Inc., (hereinafter "Corporation"). Each employee selected by
Corporation for participation hereunder (hereinafter "Participant") shall
indicate his agreement to the terms of this Plan by executing a Participation
Agreement to be provided by Corporation.
2. Definitions. Certain terms shall be defined hereunder as follows: a.
"Beneficiary" means a person, persons, trust or trusts which a
Participant shall, from time to time, designate in writing to receive any
benefits payable to him under this Plan in the event of his death.
b. "Committee" means the Compensation Committee of the Board of Directors
of Corporation.
c. "Disability" shall have the same meaning as the term is defined in
Corporation's Long Term Disability Plan.
d. "Effective Date of Plan" means April 20, 1993.
e. "Supplement Retirement Benefit" means a benefit provided to a
Participant if he elects to participate under the Plan and remains in
Corporation's employ until attaining the age specified in Section 3 of the Plan.
f. (1) "Participant" means full-time employees working more than 2,000
hours per year.
f. (2) "Participant Status Requirement" means a participant who has been a
participant in the Plan for five years, hired directly in the plan; or an
employee who has been a participant in the Plan for three years by being
promoted into the Plan and who has at least two additional years as an employee
of C-Cor Electronics, Inc.
g. "Participant Agreement" means the Agreement signed by Participant that
evidences his participation in the Plan. A blank Participation Agreement is
attached to this Plan and incorporated herein by this reference.
h. "Plan" means the Supplemental Retirement Plan of Corporation effective
April 20, 1993, and as it may be amended from time to time by the Corporation.
i. "Plan Administrator" means Corporation. Provided, however, that
Corporation shall only be designated as Plan Administrator and named Fiduciary
of the Plan for purposes of implementing the claims procedure contained in
Paragraph 14, and for no other purpose.
j. "Survivor Benefit" means a benefit provided to Participant's Beneficiary
if Participant elects to participate in the Plan and dies prior to commencement
of the Supplemental Retirement Benefit while in the employ of Corporation.
k. "Death Benefit" means a benefit provided to Participant's Beneficiary if
Participant elects to participate in the Plan and dies after commencement of the
Supplemental Retirement Benefit.
1. "Year of Service" means a consecutive 12-month period during which an
employee completes at least 2,000 hours of service with the Corporation.
3. Payments at Retirement.
a. Normal Retirement Date. If a Participant continues in employment with
Corporation until he attains age 65 and 10 years of participant status, then,
upon retirement, the Participant shall be entitled to receive from the
Corporation a Supplemental Retirement Benefit in the amount specified in his
Participation Agreement, payable in equal monthly installments, for a period of
15 years. Such payments shall begin on the first day of the month following the
Participant's attainment of his Normal Retirement Date.
b. Early Retirement.
(1) If a Participant's employment with the corporation terminates due to
Early Retirement or Disability prior to his attainment of Normal Retirement Date
but following his attainment of age 55 and ten (10) years of participant status,
such Participant may retire before his Normal Retirement Date and receive early
retirement benefits from the Plan. The early retirement benefit shall be equal
to the actuarial equivalent of the Supplemental Retirement Benefit (as specified
in the Participant's Agreement) commencing at the Normal Retirement Date. Such
actuarial equivalent early retirement benefit shall be equal to the Supplemental
Retirement Benefit multiplied by the early retirement factor set forth in
Appendix A.
(2) If a Participant's employment with the corporation terminates due to
Early Retirement or Disability prior to his attainment of Normal Retirement Date
but following his attainment of age 60 and attainment of participant status
requirements, but less than ten (10) years of participant status, such
Participant may retire before his Normal Retirement Date and receive early
retirement benefits from the Plan. This early retirement benefit shall be equal
to the early retirement benefit as calculated in Section 3.b. (1) and then
multiplied by a benefit percentage factor for years of participant status less
than ten (10) years as set forth in Appendix B.
(3) The Early Retirement or Disability Benefit to which the Participant is
entitled shall be paid in equal monthly installments for a period of 15 years.
Such payments shall begin on the first day of the month following the
Participant's termination of employment. Provided, however, that no early
retirement or disability benefit shall be payable under this Section 3.b. if the
Participant has not satisfied the participant status requirement. For
calculating participant status, the Extended Salary Plan of the Corporation,
effective October 1, 1987, shall be a predecessor plan to this Plan.
c. Late Retirement. If a Participant remains employed after the attainment
of his Normal Retirement Date, such benefit shall not commence until he actually
retires. The amount of the Participant's late retirement benefit shall be equal
to the actuarial equivalent of his Supplemental Retirement Benefit that would
have commenced at his Normal Retirement Date. Such actuarial equivalent late
retirement benefit shall be equal to the Supplemental Retirement Benefit
multiplied by the late retirement factors set forth in Appendix C and payable in
equal monthly installments for a period of 15 years.
d. Death Following Retirement. If a Participant should die after payment of
a Supplemental Retirement Benefit begins, but before receipt of the last of such
payments, the remaining balance of such payments shall be paid on their due
dates to the Participant's beneficiary designated in the Participant's Agreement
or, failing such designation, to the Participant's estate. As stated in Section
3.a., the total monthly payments of the Supplemental Retirement Benefit (for pre
and post death) shall not exceed fifteen (15) years.
4. Other Termination of Employment or Participant Status Short of Required
Participant Status. If a Participant's employment with the Corporation
terminates for any other reason (other than Death, Disability or Retirement), or
a Participant has not met the participant status requirements, then he shall not
be entitled to payment of a Supplemental Retirement Benefit under the Plan.
5. Survivor Benefits (Pre-Retirement Death of Participant).
(1) If an eligible Participant should die while in the Corporation's
employment, and the Participant has become eligible for either Early, Normal, or
Late Retirement, but before commencement of the Supplemental Retirement Benefit,
such eligible benefit shall become payable to the Participant's beneficiary or,
failing such designation, to the Participant's estate. Such benefit shall be
paid in equal monthly installments, for a period of 15 years. Such payments
shall begin on the first day of the month following the Participant's death.
(2) If a Participant should die while in the Corporation's employment, and
the Participant has not become eligible for either Early, Normal, or Late
Retirement, but has met the participant status requirements, the Participant's
beneficiary or, failing such designation, the Participant's estate, shall be
entitled to a survivor benefit. This survivor benefit shall be equal to the
actuarial equivalent of the Supplemental Retirement Benefit commencing at Normal
Retirement Date. Such actuarial equivalent survivor benefit shall be equal to
the Supplemental Retirement Benefit multiplied by the early retirement factors
set forth in Appendix A and payable in equal monthly installments for a period
of 15 years.
6. Status of Investments. All investments made by Corporation under this Plan
will be deemed made solely for the purpose of aiding Corporation in measuring
and meeting its obligations under this Plan. Corporation shall be the sole owner
of all such investments and of all rights and privileges conferred by the terms
of the instruments evidencing such investments. Nothing stated herein will cause
such investments to be treated as anything but the general assets of
Corporation, nor will anything stated herein cause such investments to represent
the vested, secured or preferred interest of any Participants or his
Beneficiaries.
7. General Creditor Status. A Participant shall have no claim with respect to
any particular asset of Corporation, but shall be and shall remain at all times
a general creditor of Corporation and, therefore, a Participant's rights under
the Plan shall have not priority over the rights of any general creditor of
Corporation.
8. No Assignment. Neither a Participant nor his personal 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 by non-assignable and non-transferable. Any attempted
assignment or transfer by a Participant or his personal representative shall be
of no effect. Corporation shall have the right to assign this Plan and to
transfer its obligations hereunder.
9. Revocation and Amendment. This Plan may be amended or terminated at any time
at the sole discretion of the Board of Directors of Corporation; provided,
however, that any such amendment or termination shall not affect the rights of
any Participant which may have accrued under the Plan at the time of amendment
or termination.
10. No Employment Guarantee. Nothing contained in this Plan shall be construed
as conferring upon any Participant the right to continue in the employment of
Corporation.
11. Authority or Committee. The Committee shall have the full power and
authority to interpret, construe and administer this Plan. The Committee's
interpretations and construction hereof and actions hereunder shall be binding
and conclusive on all persons for all purposes. No member of the Committee shall
be liable to any person for any action taken or omitted in connection with the
interpretation or administration of this Plan unless attributable to his own
willful misconduct or lack of good faith.
12. Liability of the Corporation. Nothing contained in the Plan or the
Participation Agreement shall constitute the creation of a trust or other
fiduciary relationship between Corporation and Participant or between
Corporation and Beneficiary or any other person. Corporation shall not be
considered a trustee by reason of the existence of this Plan or the
Participation Agreement.
13. Funding Assets. Corporation reserves the absolute right in its sole and
exclusive discretion either to fund the obligations of Corporation undertaken by
this Plan or to refrain from funding the same, and to determine the extent,
nature and method of such funding. Should Corporation elect to fund this Plan,
in whole or in part, through life insurance contracts, Corporation shall be the
owner and beneficiary of each such policy. Corporation reserves the absolute
right, in its sole discretion, to terminate any such contract, as well as any
other funding program, at any time, either in whole or in part. Title to, and
beneficial ownership of, any assets which Corporation may earmark to pay the
benefits hereunder shall at all times remain in Corporation. Participant and
Participant's Beneficiary shall not have any property interest whatsoever in any
specific assets of Corporation. Nothing set forth in this Plan shall cause such
assets to be treated as anything but the general assets of Corporation. If
Corporation purchases life insurance contracts on the life of the Participant,
Participant agrees to sign any applications that may be reasonably required for
that purpose and to undergo any medical examination or tests which may be
reasonably necessary in such regard.
14. Claims Procedure. In the event that benefits under paragraph 3 or 5 of this
Plan are not paid to the Participant or his Beneficiary, and such person feels
entitled to receive them, a claim shall be made in writing to the Plan
Administrator within 60 days from the date payments are not made. Such claim
shall be reviewed by the Plan Administrator. If the claim is denied, in full or
in part, the Plan Administrator shall provide a written notice within 90 days
setting forth the specific reasons for denial, specific reference to the
provisions of this Plan upon which the denial is based, and any additional
material or information necessary to perfect the claim, if any. Also, such
written notice shall indicate the steps to be taken if a review of the denial is
desired. If a claim is denied and a review is desired, the Participant shall
notify the Plan Administrator in writing within 60 days (and a claim shall be
deemed denied if the Plan Administrator does not take any action with the
aforesaid 90 day period). In requesting review, the Participant may review this
Plan or any documents relating to it and submit any written issues and comments
the Participant may feel appropriate. In its sole discretion, the Plan
Administrator shall then review the claim and provide a written decision within
60 days. This decision likewise shall state the specific reasons for the
decision and shall include specific reference to specific provisions of this
Plan on which the decision is based.
15. Governing Law. This Plan shall be governed by the laws of the Commonwealth
of Pennsylvania.
16. Language. Whenever used in this Plan, the singular number shall include the
plural, the plural the singular and the use of any gender shall include all
genders.
17. Effective Rate. This Plan shall be effective beginning April 20, 1993.
C-COR ELECTRONICS, INC.
By: Scott C. Chandler
President & CEO
Approved by C-COR Board of Directors on April 20, 1993.
<TABLE>
April 20,1993
APPENDIX A
NUMBER OF EARLY RETIREMENT
YEARS PRIOR TO FACTOR
NORMAL RETIREMENT
DATE
<S> <C>
1 0.9145
2 0.8372
3 0.7670
4 0.7034
5 0.6456
6 0.5932
7 0.5454
8 0.5020
9 0.4625
10 0.4264
11 0.3935
12 0.3635
13 0.3360
14 0.3108
15 0.2877
16 0.2665
17 0.2471
18 0.2292
19 0.2127
20 0.1976
21 0.1836
22 0.1707
23 0.1588
24 0.1479
25 0.1377
26 0.1283
27 0.1196
28 0.1116
29 0.1041
30 0.0972
31 0.0908
32 0.0848
33 0.0793
34 0.0741
35 0.0694
<FN>
SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
</FN>
</TABLE>
<TABLE>
April 20, 1993
APPENDIX B
NUMBER OF YEARS BENEFIT
LESS THAN TEN YEARS PERCENTAGE
OF PARTICIPANT STATUS
<S> <C>
1 90%
2 80%
3 70%
4 60%
5 50%
<FN>
SOURCE: BASED ON A STRAIGHT-LINE PERCENTAGE REDUCTION
</FN>
</TABLE>
<TABLE>
April 20, 1993
APPENDIX C
NUMBER OF
YEARS AFTER LATE RETIREMENT
NORMAL RETIREMENT FACTOR
DATE
<S> <C>
1 1.0817
2 1.1714
3 1.2700
4 1.3787
5 OR MORE 1.4986
<FN>
SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
</FN>
</TABLE>
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT, dated February 23, 1998, by and between: C-COR ELECTRONICS,
INC., a Pennsylvania corporation (the "Company"),
-AND-
Lynn D. Hutcheson (the "Employee").
Recital
A. Employee is an executive of the Company with significant policy-making
and operational responsibilities in the conduct of its business.
B. The Company recognizes that Employee is a valuable resource for the
Company and the Company desires to be assured of the continued service of
Employee.
C. The Company is concerned that upon a possible or threatened change in
control Employee may have concerns about the continuation of his employment
and/or his status and responsibilities and may be approached by others with
employment opportunities, and desires to provide Employee some assurance as to
the continuation of his employment status and responsibilities on basis
consistent with that which he has earned in the event of such possible or
threatened change in control.
D. The Company desires to assure that if a possible change of control
situation should arise and Employee should be involved in deliberations or
negotiations in connection therewith that Employee would be in a secure position
to consider and/or negotiate such transaction as objectively as possible and
without implied threat to his financial well-being.
E. The Company is concerned about the possible effect on Employee of the
uncertainties created by any proposed change in control of the Company.
F. Employee is willing to continue to serve but desires that in the event
of such a change in control he will continue to have the responsibility, status,
income, benefits and perquisites that he received immediately prior to that
event.
Agreements
The parties do hereby agree as follows:
1. Change of Control. The provisions of Section 2 and 3 of this Agreement
shall become operative upon a change in control of the Company, as hereinafter
defined. For purposes of this Agreement, a "change in 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 the Company representing
30% or more of the total voting power of the Company, or
(b) The Company shall have merged into or consolidated with another
corporation, or merged another corporation into the Company, on a basis whereby
less than 50% of the total voting power of the surviving corporation is
represented by shares held by former shareholders of the Company prior to such
merger or consolidation, or
(c) The Company shall have sold more than 50% 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 the Company before such transaction
cease to constitute a majority of Directors of the Company.
2. Termination Within Eighteen (18) Months. In the event that the
employment of Employee with the Company is terminated involuntarily within
eighteen (18) months after a change in 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 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 the Company'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 company was matching prior to Change of Control)
(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 average of the Profit Incentive Plan ("PIP") payments of the last two
years awarded to him under the PIP of the company, pursuant to the terms of such
Plan as in effect immediately prior to such change of control. Such amount will
be paid to the Employee within ten (10) days after termination of employment.
(c) Employee shall continue for a period of 24 months from the date of his
termination to be covered at the expense of the Company 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 the Company's cost of
providing such coverages during such period.
(d) If on the date of termination of employment, Employee were a
participant in the Company's Supplemental Retirement Plan, Employee shall become
eligible for the benefits payable under such Plan and such benefits shall be
paid to Employee, or, if applicable, Employee's beneficiary, 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 the
Company. If Employee has not attained age fifty-five (55) on the date of his
termination of employment due to a change of control, Employee shall be deemed
to have attained age fifty-five (55) for the purpose of determining his
eligibility for benefits under the Supplemental Retirement Plan, and only for
this purpose.
(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.
3. Other Events. If Employee resigns from the Company within eighteen (18)
months of a change of control, Employee shall be entitled to receive all
payments and enjoy all of the benefits specified in Section 2 hereof should one
or more of the following events occur within eighteen (18) months following a
change in control:
(a) If Employee determines that there has been a significant change in his
responsibilities or duties with the Company and, for that reason, Employee
resigns from the Company; or
(b) If the base salary paid by the Company to Employee is reduced by more
than ten (10%) percent from his salary immediately prior to the change in
control; or
(c) If the Company requires Employee to relocate his principal place of
work to a location more than forty (40) miles from the Employee's former place
of work.
4. Agreements Not Exclusive. The specific agreements referred to herein are
not intended to exclude Employee's participation in other benefits available to
executive personnel generally or to preclude other compensation benefits as may
be authorized by the Board of Directors of the Company at any time, and shall be
in addition to the provisions of any other employment or similar agreements.
5. Enforcement Costs. The Company is aware that upon the occurrence of a
change in control the Board of Directors or a shareholder of the Company may
then cause or attempt to cause the Company to refuse to comply with its
obligations under this Agreement, or may cause or attempt to cause the Company
to institute, or may institute, litigation seeking to have this Agreement
declared unenforceable, or may take, or attempt to take, other action to deny
Employee the benefits intended under this Agreement. In these circumstances, the
purpose of this Agreement could be frustrated. It is the intent of the company
that Employee not be required to incur the expenses associated with the
enforcement of his rights under this agreement 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
the Company has failed to comply with any of its obligations under this
Agreement or in the event that the Company or any other person takes any action
to declare this Agreement void or unenforceable, or institutes 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 Employee's employment with
the Company, the Company irrevocably authorizes Employee from time to time to
retain counsel of his choice at the direct expense and liability of the company
as provided in this Section 5, to represent Employee in connection with the
initiation or defense of any litigation or other legal action, whether by or
against the Company or any director, officer, shareholder or other person
affiliated with the Company, in any jurisdiction. Notwithstanding any existing
or prior attorney-client relationship between the Company and such counsel, the
Company irrevocably consents to Employee entering into an attorney-client
relationship with such counsel, and in that connection the Company 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
the Company 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.
6. No Set-off. The Company 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 the Company, 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 Agreement 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
Agreement. However, a set-off may be taken by the Company 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
2(c) of this Agreement if such benefit is paid for the Employee by the Employer
to which the Employee may join after termination by the Company or after
resignation as defined in Section 3 of this Agreement.
7. Termination. This Agreement has no specific term, but shall terminate
if, prior to a change in control of the Company, the employment of Employee with
the Company shall terminate, so long as such termination was not in anticipation
of or related to Change of Control.
8. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the Company and its successors and assigns, and shall be
binding upon and inure to the benefit of Employee and his legal representatives,
heirs, and assigns.
9. Severability. In the event that any section, paragraph, clause or other
provision of this Agreement shall be determined to be invalid or unenforceable
in any jurisdiction for any reason, such Section, paragraph, clause or other
provision shall be enforceable in any other jurisdiction in which valid and
enforceable and, in any event, the remaining Sections, paragraphs, clauses and
other provisions of this Agreement shall be unaffected and shall remain in full
force and effect to the fullest extent permitted by law.
10. Governing Law. This Agreement shall be interpreted, construed and
governed by the laws of the Commonwealth of Pennsylvania.
11. Headings. The headings used in this Agreement are for ease of reference
only and are not intended to affect the meaning or interpretation of any of the
terms hereof.
12. Gender and Number. Whenever the context shall require, all words in
this Agreement in the male gender shall be deemed to include the female or
neuter gender, all singular words shall include the plural, and all plural words
shall include the singular.
IN WITNESS WHEREOF, this Agreement has been executed the date and year
first above written.
ATTEST:
C-COR ELECTRONICS, INC.
Edwin S. Childs By: Scott C. Chandler
President and CEO
L. D. HUTCHESON 2/23/98
Employee
Attachment E
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the 23rd day of February, 1998 between C-COR
ELECTRONICS, INC., a Pennsylvania corporation ("Corporation") and Lynn D.
Hutcheson with an address at Middlebury, Connecticut ("Officer").
WITNESSETH:
WHEREAS, Officer is an officer of Corporation and in such capacity is
performing a valuable service for Corporation; and
WHEREAS, the stockholders of Corporation have adopted Bylaws (the "Bylaws")
providing for the indemnification of the officers and directors of Corporation
to the fullest extent now or hereafter permitted by law ("the "Law"); and
WHEREAS, the Bylaws and the Law provide specifically that they are not
exclusive, and thereby contemplate that contracts may be entered into between
Corporation and its officers with respect to indemnification of such officers;
and
WHEREAS, in accordance with the authorization provided by the Bylaws and
the Law, Corporation has purchased and presently maintains a policy or policies
of Directors' and Officers' Liability Insurance ("D&O Insurance"), covering
certain liabilities which may be incurred by its directors and officers in the
performance of their services for corporation; and
WHEREAS, recent developments with respect to the terms and availability of
D&O Insurance and with respect to the application, amendment and enforcement of
statutory and bylaw indemnification provisions generally have raised questions
concerning the adequacy and reliability of the protection afforded to officers
thereby; and
WHEREAS, in order to resolve such questions and thereby induce officer to
continue to serve as an officer of Corporation, Corporation has determined and
agreed to enter into this contract with officer.
NOW, THEREFORE, in consideration of Officer's continued service as an
officer after the date hereof, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Indemnity of Officer. Corporation hereby agrees to hold harmless and
indemnify Officer to the full extent authorized or permitted by the provisions
of the Law, or by any amendment thereof or other statutory provisions
authorizing or permitting such indemnification which is adopted after the date
hereof.
2. Maintenance of Insurance and Self-Insurance.
(a) Corporation represents that it presently has in force and effect
policies of, D&O Insurance in insurance companies and amounts as follows (the
"Insurance Policies"):
Insurer Amount Deductible
Gulf Insurance Company $10,000,000 $250,000 Insured Organization
Tamarack American $10,000,000 $250,000 Insured Organization
excess of
$10,000,000
Subject only to the provisions of Section 2(b) hereof, Corporation hereby
agrees that, so long as Officer shall continue to serve as an officer of
Corporation (or shall continue at the request of Corporation to serve as an
officer, director, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise) and thereafter so long as Officer 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 Officer was an officer of Corporation (or served in any of said other
capacities), Corporation will purchase and maintain in effect for the benefit of
Officer 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 policies
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 2(b)
hereof, Corporation agrees to hold harmless and indemnify Officer to the full
extent of the coverage which would otherwise have been provided for the benefit
of officer pursuant to the Insurance Policies.
3. Additional Indemnity. Subject only to the exclusions set forth in
Section 4 hereof, Corporation hereby further agrees to hold harmless and
indemnify Officer:
(a) Against any and all expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by Officer
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 Officer is, was or at
any time becomes a party, or is threatened to be made a party, by reason of the
fact that Officer is, was or at any time becomes an officer, director, employee
or agent of Corporation, or is or was serving or at any time serves at the
request of Corporation as an officer, director, 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 Officer by
Corporation under the non-exclusivity provisions of Section 7-1 of the Bylaws of
Corporation and the Law.
4. Limitations on Additional Indemnity,. No indemnity pursuant to section 3
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
Officer is indemnified either pursuant to Sections 1 or 2 hereof or pursuant to
any D&O Insurance purchased and maintained by the Corporation;
(b) In respect to remuneration paid to Officer 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 Officer
for an accounting of profits made from the purchase or sale by Officer 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 Officer'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; and
(e) If a final decision by a court of competent jurisdiction shall
determine that such indemnification is not lawful.
5. Continuation of Indemnity. All agreements and obligations of Corporation
contained herein shall continue during the period Officer is an officer,
director, employee or agent of Corporation (or is or was serving at the request
of Corporation as an officer, director, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise) and shall
continue thereafter so long as Officer 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 Officer was an officer of
Corporation or serving in any other capacity referred to herein.
6. Notification and Defense of Claim. Promptly after receipt by Officer of
notice of the commencement of any action, suit or proceeding, Officer will, if a
claim in respect thereof is to be made against Corporation under this Agreement,
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 Officer
otherwise than under this Agreement. With respect to any such action, suit or
proceeding as to which Officer 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 Officer.
After notice from Corporation to Officer of its election so to assume the
defense thereof, Corporation will not be liable to Officer under this Agreement
for any legal or other expenses subsequently incurred by Officer in connection
with the defense thereof other than reasonable costs of investigation or as
otherwise provided below. Officer shall have the right to employ its 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 Officer unless (i) the employment of counsel by
officer has been authorized by Corporation, (ii) Officer shall have reasonably
concluded that there may be a conflict of interest between Corporation and
officer 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
Officer shall have made the conclusion provided for in (ii) above.
(c) Corporation shall not be liable to indemnify Officer under this
Agreement 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 Officer without
Officer's written consent. Neither Corporation or Officer will unreasonably
withhold its or his consent to any proposed settlement.
7. Repayment of Expenses. Officer will reimburse Corporation for all
reasonable expenses paid by Corporation in defending any civil or criminal
action, suit or proceeding against Officer in the event and only to the extent
that it shall be ultimately determined that Officer is not entitled to be
indemnified by Corporation for such expenses under the provisions of the Law,
the Bylaws, this Agreement or otherwise.
8. Enforcement. (a) Corporation expressly confirms and agrees that it has
entered into this Agreement and assumed the obligations imposed on Corporation
hereby in order to induce Officer to continue as an officer of Corporation, and
acknowledges that Officer is relying upon this Agreement in continuing in such
capacity.
(b) In the event Officer 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 Officer for all of Officer's reasonable fees and
expenses in bringing and pursuing such action.
9. Separability. Each of the provisions of this Agreement is a separate and
distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid or unenforceable for any reason, such
invalidity or unenforceability shall not affect the validity or enforceability
of the other provisions hereof.
10. Governing Law; Binding Effect; Amendment and Termination. (a) This
Agreement shall be interpreted and enforced in accordance with the laws of the
Commonwealth of Pennsylvania.
(b) This Agreement shall be binding upon Officer and upon Corporation, its
successors and assigns, and shall inure to the benefit of Officer, his heirs,
personal representatives and assigns and to the benefit of Corporation, its
successors and assigns.
(c) No amendment, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by both parties hereto.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
C-COR ELECTRONICS, INC.
By: Scott C. Chandler
President and CEO
L. D. HUTCHESON
Employee
EMPLOYMENT AGREEMENT
THIS AGREEMENT, made this 22nd day of June, 1998, 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-
DAVID A. WOODLE, an individual, of 110 Berwick Drive, Boalsburg,
Pennsylvania 16827 ("Employee").
BACKGROUND
A. Corporation desires to employ Employee as its President and Chief
Executive Officer 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 July 20, 1998 and
ending on July 19, 2000 (the "Term").
1.02. Capacity. During the Term, Employee shall serve as Corporation's
Chief Executive Officer and President, or in such other offices or capacities as
shall be determined by Corporation's Board of Directors. Further, if elected by
Corporation's shareholders, Employee shall, without additional compensation
therefor, serve as a member of 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 Chief Executive Officer and President and of such
other duties as may be determined by the Board of Directors of Corporation.
Employee acknowledges that during the period of his employment pursuant to this
Agreement as the Chief Executive Officer and President 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 Chief
Executive Officer and President (irrespective of such other offices or titles as
may be held by Employee) the Corporation shall pay to Employee a salary at an
annual rate of Two Hundred Thousand and No/100 ($200,000.00) Dollars, payable
bi-weekly, for services rendered. The amount of Employee's salary shall be
reviewed annually by the Compensation Committee of the Board of Directors.
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 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. Employee shall be granted an option to purchase Fifty
Thousand (50,000) shares of C-COR common stock (the "Stock Option"). The Stock
Option shall be a non-qualified stock option. The exercisability of the Fifty
Thousand (50,000) shares shall vest over a period of four (4) years (commencing
on the date of grant of the Stock Option) at the rate of Twelve Thousand Five
Hundred (12,500) shares per year. The Stock Option shall be granted under and be
subject to all of the terms and conditions of the C-COR Electronics, Inc. 1988
Incentive Plan and a Nonqualified Stock Option Granting Agreement.
2.05. 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.
2.06. Automobile Allowance. During the Term, Corporation shall pay
Employee, on or about the first of each month, a monthly allowance of Eight
Hundred and No/100 ($800.00) Dollars to be used to defray Employee's automobile
expenses.
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 and No/100
($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 but not less than three (3) weeks per year.
2.10. Club Memberships. Corporation agrees to reimburse Employee for annual
dues he is required to pay as a condition of membership at the Centre Hills
Country Club during the Term of this Agreement.
2.11. 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 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 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 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
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 and
Performance Achievement Plan of the Corporation, 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 one hundred (100%) percent 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.
(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) 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.
(e) 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.
(f) Corporation shall for a period of twenty-four (24) months continue to
pay Employee Eight Hundred and No/100 ($800.00) Dollars per month for expenses
of operating an automobile owned by 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 in 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 Employee's 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. Notwithstanding 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 Five Hundred Thousand
and No/100 ($500,000.00) Dollars, 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(e); or for expenses related to monthly
automobile allowance as set forth in Section 5.02(f) 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 and Officer
6.01. Indemnity of Employee. Should Employee serve Corporation as a
director or officer during the Term, Corporation shall hold harmless and
indemnify Employee as a director or officer 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"):
Insurer Amount
Gulf Insurance Co. $10,000,000
Tamarack American, a division $10,000,000 in excess of the
of Great American Insurance Company above $10,000,000
Subject only to the provisions of Section 6.02(b) hereof, Corporation
hereby agrees that, so long as Employee shall serve as a director or officer 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 or officer of Corporation (or served in any of said
other capacities), Corporation will purchase and maintain in effect for the
benefit of Employee one 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 policies
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(b) 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 Bylaws of
Corporation and the State Statute.
6.04. Limitations on 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 One Thousand and No/100 ($1,000.00) Dollars 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
corporations, 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 of 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 Bylaws 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, if elected, serve as a director of Corporation, and
acknowledges that Employee is relying upon this Section VI in agreeing to serve
Corporation in such capacity.
(b) In the event Employee is required to bring any action to enforce rights
or to collect monies 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 beheld invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect 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 terms
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 Corporation 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.
C-COR ELECTRONICS, INC.
By: Richard E. Perry
Title: Chairman
David A. Woodle
C-COR ELECTRONICS, INC.
PROFIT INCENTIVE PLAN (PIP)
FISCAL YEAR 1999
1. Conceptual Basis of the Plan
The PIP plan is based on achieving and improving on the Company's pre-incentive,
pre-tax earnings relative to the Annual Financial Plan endorsed by the Board of
Directors at the beginning of each fiscal year. The plan initiates payments
based on the achievement of 90% of the pre-incentive, pre-tax earnings reflected
in the Annual Financial Plan. The basic payment formula is as follows:
Pre-PIP, Pre-tax earnings X PIP % (see Item 3. below) = Total PIP Payment Pool
PIP Payment Pool X Sub-pool Apportionment % (see Item 5. Below) = Sub-pool
Payment Pool
Sub-pool Payment Pool X (base wages / total base wages paid to sub-pool members)
= Payment
2. Participant Eligibility
- - Full-time, active employees of C-COR Electronics, Inc. and C-COR Electronics
Canada are eligible.
- - Employees of C-COR Europe, B.V. are not eligible.
- - Employees of C-COR de Mexico, S.A. de C.V. are not eligible.
- - Employees on Sales or Marketing Commission or Incentive Plans are not
eligible.
- - Employees who are provided a specifically identified, alternative incentive
bonus program are not eligible.
- - Temporary Agency Employees, Independent Contractors, Co-op and Intern
(part-time) Employees are not eligible.
New Hires within the Fiscal Year and / or Terminated Employees -
An employee is eligible for a quarterly PIP payment only if they have worked the
full fiscal quarter.
An employee is eligible to receive a year-end PIP payment if they worked at
least one full fiscal quarter during the 12-month period and were on the payroll
at the end of the fiscal year.
Note: The formula for calculating a PIP payment takes into account the
pro-rationing of the payment amount to reflect the amount of time the individual
was actively employed during the payment period.
Employees on Leave (Disability; Workers' Compensation; FMLA; Military Leave) -
An employee must be active and full-time in order to be eligible for a payment.
The individual would be eligible for a payment on a pro-rata basis for the
portion of FY 1999 in which they were an active, full-time employee.
3. Calculation of Total PIP Payment Pool
Pre-incentive, pre-tax profits must be at least 90% of those reflected in the
Company's Annual Financial Plan in order to generate a PIP payment pool.
Achievement of the following percentages of pre-incentive, pre-tax profits
relative to the Annual Financial Plan generates the following PIP payment pool
percentages:
Less than 90% of Plan 0% PIP payment pool 90% to < 100% of Plan 7.5% PIP
payment pool 100% of Plan 10.0% PIP payment pool More than 100% of Plan (a)
(a) All earnings up to 100% of Plan would generate a PIP payment pool percentage
of 10%. All incremental earnings, in excess of the 100% level, would generate a
PIP payment pool percentage of 20%.
The PIP payment pool is calculated by taking the appropriate percentage from
above and multiplying it times the actual pre-incentive, pre-tax income of the
Company.
4. Frequency and Timing of Payments
After the completion of each fiscal quarter, a PIP payment will be calculated
based on the actual pre-incentive, pre-tax profitability of the fiscal quarter
(assumes that the figure exceeds 90% of the pre-incentive, pre-tax profitability
reflected in the quarterly Financial Plan). Each quarter is independent from the
standpoint of the quarterly PIP payment calculation. The PIP payment pool
percentage will be derived from the above table and will be based on the actual
pre-incentive, pre-tax earnings for the quarter as a percentage of the Financial
Plan pre-incentive, pre-tax earnings projected for the quarter. C-COR's rolling
financial forecast will be consulted with respect to the projected
pre-incentive, pre-tax earnings for the entire fiscal year. If the rolling
forecast reflects a lower PIP payment pool percentage for the year relative to
the actual results for the quarter, the lower percentage corresponding to the
rolling forecast results will be used to calculate the PIP payment pool. If the
rolling forecast reflects a higher PIP payment pool percentage for the year
relative to the actual results for the quarter, the lower percentage dictated by
the actual quarterly results will be used to calculate the PIP payment pool.
If sufficient pre-incentive, pre-tax earnings have been generated to warrant a
quarterly PIP payment, each eligible employee will be paid one-half of the PIP
payment calculated for them for the fiscal quarter. The payment will be made as
soon as practically possible, immediately after the Company's Board of Directors
reviews the quarterly financial results and agrees to the payment. The Board
generally reviews the financial results at mid-month following the end of each
fiscal quarter, except at fiscal year-end. Note that the Board of Directors has
complete discretion in administering and interpreting the PIP Plan.
The remaining one-half payment from each of the first three fiscal quarters will
be accrued (held back) through the end of the fiscal year. After the financial
audit has been completed for the fiscal year and the Board of Directors has
reviewed the annual financial results (mid-August), a payment (assuming the
financial results support one) will be disbursed to all eligible employees as
soon as practically possible. The payment will consist of the following:
a. The remaining 1/2 payment "held back" from the first quarter of the
fiscal year
b. The remaining 1/2 payment "held back" from the second quarter of the
fiscal year
c. The remaining 1/2 payment "held back" from the third quarter of the
fiscal year
d. The fourth quarter payment as well as the amounts "held back" over the
first three quarters.
Note that improvement or deterioration of financial results in subsequent
quarters can either positively or negatively impact the year-end payment with
respect to the amount(s) "held back" from earlier quarters.
5. Apportionment of total PIP Payment Pool Between Sub-pools
The total PIP payment pool is allocated between two sub-pools for distribution
as follows:
PIP Pool Apportionment %
-------------------------------------------
Officers 2.0% per Officer
Non-officers Total Pool less Officer apportionment above
6. Apportionment of Sub-pool Amounts to Individuals
In general, the apportionment of the PIP sub-pool to the individuals within the
sub-pool is based on the following: (base wages of employee paid during period /
(total base wages paid to all employees in the sub-pool during period)). This
percentage is multiplied by the sub-pool apportionment total. Note that
non-exempt base wages exclude overtime. They do however include shift
differential.
The apportionment of the Officer sub-pool is based on equal shares. An exception
is made for the President and CEO, who receives the equivalent of a
triple-share. As an example, assume that the Company has 10 officers, including
the President and CEO. In essence, the PIP sub-pool would be divided into 12
equal shares with each officer receiving one share, except for the President and
CEO, who would receive three shares. If an Officer is hired during the fiscal
year, their total share payment amount is pro-rated based on the time actually
employed as a percentage of the total time during the fiscal period. The equal
share portion, not paid to the partial-year Officer, would be distributed to the
Officers who were employed a full-year consistent with the share apportionment
described above. The President and CEO will review each Officer's performance
before awarding the shares.
Officer PIP payments are capped at 60% of their base salary. All other
employees' PIP payments are capped at 40% of their base salary or if non-exempt,
40% of their hourly base pay rate X 2080 hours.
PHL_A 1008029 v 1
C-COR ELECTRONICS, INC.
INCENTIVE PLAN
ARTICLE I
Purpose
The purpose of this Incentive Plan (the "Plan") is to enable C-COR Electronics,
Inc. (the "Company") to offer certain officers, key employees and directors of
the Company equity interests in the Company and other incentive awards,
including performance-based stock incentives, thereby attracting, retaining and
rewarding such persons, and strengthening the mutuality of interests between
such persons and the Company's shareholders.
ARTICLE II
Definitions
For purposes of this Plan, the following terms shall have the following
meanings:
2.1 "Award" shall mean an award under this Plan of Stock Options, Restricted
Stock, Performance Shares or Performance Units.
2.2 "Board" shall mean the Board of Directors of the Company.
2.3 "Change of Control" shall mean the occurrence of any one of the following:
(a) 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 the Company representing 30% or more of the total voting power of the
Company, or
(b) The Company shall have merged into or consolidated with another corporation,
or merged another corporation into the Company, on a basis whereby less than 50%
of the total voting power of the surviving corporation is represented by shares
held by former shareholders of the Company prior to such merger or
consolidation, or
(c) The Company shall have sold more than 50% 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 the Company before such transaction cease to
constitute a majority of Directors of the Company.
2.4 "Code" shall mean the Internal Revenue Code of 1986, as amended.
2.5 "Common Stock" shall mean the Common Stock, par value $.10 per share, of the
Company.
2.6 "Director" shall mean a member of the Board.
2.7 "Disability" shall mean Total Disability as defined in the Company's
long-term disability plan.
2.8 "Fair Market Value" for purposes of this Plan, unless otherwise required by
any applicable provision of the Code or any regulations issued thereunder, shall
mean, as of any date, the closing sale price of a share of Common Stock for the
preceding business day as reported on the principal national securities exchange
on which the Common Stock is listed or admitted to trading, or, if not listed or
traded on any such exchange, the Nasdaq Stock Market ("Nasdaq"), or, if such
sale price is not available, the average of the bid and asked prices per share
reported on Nasdaq for such day, or, if such quotations are not available, the
fair market value as determined by the Board, which determination shall be
conclusive.
2.9 "Participant" shall mean an individual to whom an Award has been made
pursuant to this Plan.
2.10 "Performance Cycle" shall have the meaning set forth in Section 9.1.
2.11 "Performance Period" shall have the meaning set forth in Section 8.1.
2.12 "Performance Share" shall mean an Award made pursuant to Article VIII of
this Plan of the right to receive Common Stock at the end of a specified
Performance Period if specified performance goals are met.
2.13 "Performance Unit" shall mean an Award made pursuant to Article IX of this
Plan of the right to receive a fixed dollar amount, payable in cash or Common
Stock or a combination of both, at the end of a specified Performance Cycle if
specified performance goals are met.
2.14 "Restricted Stock" shall mean an Award of shares of Common Stock under this
Plan that is subject to forfeiture under Article VII.
2.15 "Restriction Period" shall have the meaning set forth in Section 7.2(c).
2.16 "Retirement" shall mean retirement from employment with the Company or one
of its subsidiaries, provided that the employee at such time has been employed
by the Company or a subsidiary of the Company for at least five years and is at
least 55 years old.
2.17 "Stock Option" or "Option" shall mean any option to purchase shares of
Common Stock granted pursuant to Article VI.
2.18 "Termination of Employment" shall mean (a) termination of an employee's
employment with the Company and all of its subsidiaries for reasons other than a
military or personal leave of absence granted by the Company or (b) the date on
which a Director ceases to be a member of the Board for any reason.
ARTICLE III
Administration
3.1 Administration. The Plan shall be administered and interpreted by the Board;
provided, however, that the Board may delegate this responsibility to a
committee comprised of two or more members of the Board.
3.2 Awards. The Board shall have full authority to grant, pursuant to the terms
of this Plan, to persons eligible under Article V: (i) Stock Options, (ii)
Restricted Stock, (iii) Performance Shares and (iv) Performance Units. In
particular, the Board shall have the authority:
(a) to select the persons eligible under Article V to whom Stock Options,
Restricted Stock, Performance Shares and Performance Units may from time to time
be granted hereunder;
(b) to determine whether and to what extent Stock Options, Restricted Stock,
Performance Shares and Performance Units, or any combination thereof, are to be
granted hereunder to one or more persons eligible under Article V;
(c) to determine the number of shares of Common Stock to be covered by each
Award granted hereunder; and
(d) to determine the terms and conditions, not inconsistent with the terms of
this Plan, of any Award granted hereunder (including, but not limited to, the
term, the option or purchase price, any restriction or limitation, any vesting
schedule or acceleration thereof, or any forfeiture restrictions or waiver
thereof, regarding any Award and the shares of Common Stock relating thereto,
based on such factors as the Board shall determine, in its sole discretion).
3.3 Guidelines. Subject to Article X hereof, the Board shall have the authority
to adopt, alter and repeal such administrative rules, guidelines and practices
governing this Plan as it shall, from time to time, deem advisable; to interpret
the terms and provisions of this Plan and any Award granted under this Plan (and
any agreements relating thereto); and to otherwise supervise the administration
of this Plan. The Board may correct any defect, supply any omission or reconcile
any inconsistency in this Plan or in any Award granted in the manner and to the
extent it shall deem necessary to carry this Plan into effect. Notwithstanding
the foregoing, no action of the Board under this Section 3.3 shall impair the
rights of any Participant without the Participant's consent.
3.4 Decisions Final. Any decision, interpretation or other action made or taken
in good faith by the Board arising out of or in connection with the Plan shall
be final, binding and conclusive on the Company, all Participants and their
respective heirs, executors, administrators, successors and assigns.
ARTICLE IV
Share Limitation
4.1 Shares. The maximum aggregate number of shares of Common Stock that may be
issued under this Plan shall be 1,000,000 shares (subject to any increase or
decrease pursuant to Section 4.2), plus an additional number of shares equal to
the number of shares remaining available for grant under the 1988 Stock Option
Plan and the 1989 Non-Employee Directors' Non-Qualified Stock Option Plan as of
the effective date of this Plan pursuant to Section 13.1 hereof. The shares of
Common Stock issued under this Plan may be either authorized and unissued Common
Stock or issued Common Stock reacquired by the Company. If any Option granted
under this Plan shall expire, terminate or be cancelled for any reason without
having been exercised in full, the number of unpurchased shares shall again be
available for the purposes of the Plan. Further, if any shares of Restricted
Stock granted hereunder are forfeited or any Award of Performance Shares
terminates without the delivery of such shares, the shares subject to such
Award, to the extent of such forfeiture or termination, shall again be available
under this Plan.
4.2 Changes. In the event of any merger, reorganization, consolidation,
recapitalization, dividend (other than a regular cash dividend), stock split, or
other change in corporate structure affecting the Common Stock, such
substitution or adjustment shall be made in the maximum aggregate number of
shares that may be issued under this Plan, in the maximum aggregate number of
shares with respect to which Options or Performance Shares may be granted under
this Plan to any individual during any calendar year, in the number and option
price of shares subject to outstanding Options granted under this Plan, and in
the number of shares subject to other outstanding Awards granted under this
Plan, as may be determined to be appropriate by the Board, in its sole
discretion, provided that the number of shares subject to any Award shall always
be a whole number.
ARTICLE V
Eligibility
5.1 Employees. Officers and other employees of the Company and its subsidiaries
are eligible to be granted Awards under this Plan.
5.2 Directors. Directors of the Company who are not employees of the Company or
any of its subsidiaries are eligible to be granted Awards under this Plan.
ARTICLE VI
Stock Options
6.1 Options. Each Stock Option granted under this Plan shall be a non-qualified
stock option (i.e., a stock option that is not intended to be an "incentive
stock option" within the meaning of Section 422 of the Code).
6.2 Grants. The Board shall have the authority to grant to any person eligible
under Article V one or more Stock Options; provided, however, that no individual
may be granted Stock Options for more than 100,000 shares of Common Stock
(subject to any increase or decrease pursuant to Section 4.2) during any
calendar year.
6.3 Terms of Options. Options granted under this Plan shall be subject to the
following terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of this Plan, as the Board shall
deem desirable:
(a) Stock Option Certificate. Each Stock Option shall be evidenced by, and
subject to the terms of, a Stock Option Certificate executed by the Company. The
Stock Option Certificate shall specify the number of shares of Common Stock
subject to the Stock Option, the option price, the option term, and the other
terms and conditions applicable to the Stock Option.
(b) Option Price. The option price per share of Common Stock purchasable upon
exercise of a Stock Option shall be determined by the Board at the time of grant
but shall be not less than 100% of the Fair Market Value of a share of Common
Stock on the date of grant.
(c) Option Term. The term of each Stock Option shall be fixed by the Board, but
no Stock Option shall be exercisable more than eight (8) years after the date it
is granted.
(d) Exercisability. Stock Options shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the Board at the
time of grant. The Board may waive any installment exercise or waiting period
provisions, in whole or in part, at any time after the date of grant, based on
such factors as the Board shall, in its sole discretion, deem appropriate.
(e) Method of Exercise. Subject to such installment exercise and waiting period
provisions as may be imposed by the Board, Stock Options may be exercised in
whole or in part at any time during the option term, by giving written notice of
exercise to the Company specifying the number of shares of Common Stock to be
purchased and the option price therefor. Such notice shall be accompanied by
payment in full of the option price in such form as the Board may accept and, if
requested, by the representation described in Section 12.4. Unless otherwise
determined by the Board in its sole discretion at or after grant, payment in
full or in part may be made in the form of Common Stock duly owned by the
Participant (and for which the Participant has good title free and clear of any
liens and encumbrances), based on the Fair Market Value of the Common Stock on
the date of exercise, or through a broker-assisted cashless exercise. Upon
payment in full of the option price, as provided herein, stock certificates
representing the number of shares of Common Stock to which the Participant is
entitled shall be issued and registered in the name of, and delivered to, the
Participant.
(f) Death. Upon a Participant's death, unless otherwise determined by the Board
at the time of grant, all Stock Options held by such Participant shall become
fully exercisable and may thereafter be exercised by the legal representative of
the Participant's estate for a period of one year from the date of the
Participant's death or until the expiration of the stated term of such Stock
Option, whichever period is shorter.
(g) Disability. Upon a Participant's Termination of Employment as a result of a
Disability (as determined by the Board, in its sole discretion), any Stock
Option held by such Participant that was exercisable on the date of such
Termination of Employment may thereafter be exercised by the Participant for a
period of one year from the date of such Termination of Employment or until the
expiration of the stated term of such Stock Option, whichever period is shorter;
provided, however, that, if the Participant dies within such one-year period,
any unexercised Stock Option held by such Participant shall thereafter be
exercisable by the legal representative of the Participant's estate to the
extent to which it was exercisable at the time of death, for a period of one
year from the date of the Participant's death or until the expiration of the
stated term of such Stock Option, whichever period is shorter.
(h) Retirement. Upon a Participant's Retirement, unless otherwise determined by
the Board at the time of grant, all Stock Options held by such Participant shall
become fully exercisable and may thereafter be exercised for a period of one
year from the date of the Participant's Retirement or until the expiration of
the stated term of such Stock Option, whichever period is shorter.
(i) Termination of Employment. Unless otherwise determined by the Board at the
time of grant, upon a Participant's Termination of Employment for any reason
other than death, Disability or Retirement, any Stock Option held by such
Participant that was exercisable on the date of such Termination of Employment
may thereafter be exercised by the Participant for a period of 30 days or until
the expiration of the stated term of such Stock Option, whichever period is
shorter. Any Stock Option that was not exercisable on the date of such
Termination of Employment shall terminate as of such date.
(j) Board Discretion. Notwithstanding any other provision of this Plan, upon a
Participant's Termination of Employment for any reason (including death,
Disability or Retirement), the Board may, in its sole discretion, accelerate the
exercisability of any outstanding Stock Option held by such Participant and/or
extend the post-termination exercise periods set forth in subsections (f), (g),
(h) and (i) of this Section 6.3, provided that such post-termination exercise
period may not extend beyond the expiration of the stated term of such Stock
Option.
ARTICLE VII
Restricted Stock
7.1 Awards of Restricted Stock. The Board shall have the authority to grant
Restricted Stock to any person eligible under Article V. The Board shall
determine to whom, and the time or times at which, grants of Restricted Stock
will be made, the number of shares to be included in each Award, the time or
times within which such Awards may be subject to forfeiture, the vesting
schedule and rights to acceleration thereof, and the other terms and conditions
of the Awards, in addition to those set forth in Section 7.2.
The provisions of Restricted Stock Awards need not be the same with respect to
each Participant, and such Awards to individual Participants need not be the
same in subsequent years.
7.2 Terms and Conditions. Restricted Stock awarded pursuant to this Article VII
shall be subject to the following terms and conditions and such other terms and
conditions, not inconsistent with the terms of this Plan, as the Board shall
deem desirable:
(a) Award Certificate. Each Restricted Stock Award shall be evidenced by, and
subject to the terms of, a Restricted Stock Award Certificate executed by the
Company. The Restricted Stock Award Certificate shall specify the number of
shares of Common Stock subject to the Award, the time or times within which such
Restricted Stock is subject to forfeiture and the other terms, conditions and
restrictions applicable to such Award.
(b) Stock Certificates. When a Participant receives a Restricted Stock Award, a
stock certificate or stock certificates representing the number of shares of
Common Stock covered by such Restricted Stock Award shall be issued and
registered in the name of the Participant. Such stock certificates shall be held
in custody by the Company as long as the Restricted Stock is subject to
forfeiture. When a Restricted Stock Award, or any portion thereof, ceases to be
subject to forfeiture, the stock certificate or stock certificates representing
such shares shall be released from custody and delivered to the Participant. The
Participant shall have all of the rights of a holder of Common Stock with
respect to shares subject to a Restricted Stock Award, including the right to
vote such shares and to receive dividends thereon, except that the Participant
shall not be permitted to sell, transfer, pledge or assign shares of Restricted
Stock as long as such shares are held in custody by the Company.
(c) Restriction Period. Subject to the provisions of this Plan and the
Restricted Stock Award Certificate, shares of Restricted Stock will be forfeited
to the Company upon a Participant's Termination of Employment during a period
set by the Board commencing with the date of such Award (the "Restriction
Period"). Subject to the provisions of this Plan, the Board, in its sole
discretion, may provide for the lapse of such restrictions in installments. The
Board may waive such restrictions, in whole or in part, at any time after the
date of grant, based on such factors as the Board shall, in its sole discretion,
deem appropriate.
(d) Termination of Employment. Subject to the provisions of this Plan and the
Restricted Stock Award Certificate, upon a Participant's Termination of
Employment during the Restriction Period due to death or Disability or
Retirement, restrictions will lapse with respect to a percentage of the
Restricted Stock Award granted to the Participant that is equal to the
percentage of the Restriction Period that has elapsed as of the date of the
Participant's Termination of Employment, and stock certificates representing
such shares of Common Stock shall be released from custody and delivered to the
Participant or the Participant's estate, as the case may be. Upon a
Participant's Termination of Employment for any reason other than death,
Disability or Retirement, all outstanding Restricted Stock Awards shall be
forfeited to the Company.
(e) Distributions. In the event of a dividend or distribution payable in stock
or a reclassification, stock split or split-up, the shares issued or declared in
respect of Restricted Stock shall be subject to the same terms and conditions
relating to forfeiture as the Restricted Stock to which they relate.
ARTICLE VIII
Performance Shares
8.1 Award of Performance Shares. The Board shall have the authority to grant
Performance Shares to any person eligible under Article V. The Board shall
determine the persons to whom, and the time or times at which, Performance
Shares shall be awarded, the number of Performance Shares to be included in each
Award, the duration of the period (the "Performance Period") during which, and
the conditions under which, receipt of the shares of Common Stock will be
deferred, and the other terms and conditions of the Award in addition to those
set forth in Section 8.2.
The provisions of Performance Share Awards need not be the same with respect to
each Participant, and such Awards to individual Participants need not be the
same in subsequent years.
8.2 Terms and Conditions. Performance Shares awarded pursuant to this Article
VIII shall be subject to the following terms and conditions and such other terms
and conditions, not inconsistent with the terms of this Plan, as the Board shall
deem desirable:
(a) Conditions. The Board, in its sole discretion, shall specify the Performance
Period during which, and the conditions under which, the receipt of shares of
Common Stock covered by the Performance Share Award will be deferred. The
receipt of shares of Common Stock pursuant to a Performance Share Award shall be
conditioned upon the attainment of one or more pre-established objective
performance goals. Such goals must be established by the Board in writing not
later than 90 days after the commencement of the Performance Period, provided
that the outcome is substantially uncertain at the time the goal is established.
The performance goals may be based on the Company's stock price, return on
assets, return on capital employed, return on shareholders' equity, earnings,
earnings per share, total shareholder return, sales, costs, or such other
objective performance goals as may be established by the Board from time to
time.
(b) Award Certificate. Each Performance Share Award shall be evidenced by, and
subject to the terms of, a Performance Share Certificate executed by the
Company. The Performance Share Certificate shall specify the number of shares of
Common Stock subject to the Award, the applicable Performance Period, the
applicable performance goals, and the other terms and conditions applicable to
such Award.
(c) Stock Certificates. If the Board determines, after the expiration of the
Performance Period, that the performance goals specified in the Performance
Share Certificate and all other material terms of the Award have been satisfied,
stock certificates representing the number of shares of Common Stock covered by
the Performance Share Award shall be issued and registered in the name of, and
delivered to, the Participant.
(d) Termination of Employment. Unless otherwise determined by the Board at the
time of grant, the Performance Shares will be forfeited upon a Participant's
Termination of Employment during the Performance Period for any reason
(including death, Disability or Retirement).
8.3 Individual Limit. The maximum number of shares of Common Stock that may be
subject to Performance Share Awards granted to any individual during any
calendar year shall be 100,000 shares (subject to any increase or decrease
pursuant to Section 4.2).
ARTICLE IX
Performance Units
9.1 Award of Performance Units. The Board shall have the authority to grant
Performance Units to any person eligible under Article V. The Board shall
determine the persons to whom, and the time or times at which, Performance Units
shall be awarded, the number of Performance Units to be included in each Award,
the duration of the period (the "Performance Cycle") during which, and the
conditions under which, a Participant's right to Performance Units will be
vested, the ability of Participants to defer the receipt of payment of such
Units, and the other terms and conditions of the Award in addition to those set
forth in Section 9.2.
A Performance Unit shall have a fixed dollar value.
The provisions of Performance Unit Awards need not be the same with respect to
each Participant, and such Awards to individual Participants need not be the
same in subsequent years.
9.2 Terms and Conditions. The Performance Units awarded pursuant to this Article
IX shall be subject to the following terms and conditions and such other terms
and conditions, not inconsistent with the terms of this Plan, as the Board shall
deem desirable:
(a) Conditions. The Board, in its sole discretion, shall specify the Performance
Cycle during which, and the conditions under which, the Participant's right to
Performance Units will be vested. The vesting of Performance Units shall be
conditioned upon the attainment of one or more pre-established objective
performance goals. Such goals must be established by the Board in writing not
later than 90 days after the commencement of the Performance Cycle, provided
that the outcome is substantially uncertain at the time the goal is established.
The performance goals may be based on the Company's stock price, return on
assets, return on capital employed, return on shareholders' equity, earnings,
earnings per share, total shareholder return, sales, costs, or such other
objective performance goals as may be established by the Board from time to
time.
(b) Award Certificate. Each Performance Unit Award shall be evidenced by, and
subject to the terms of, a Performance Unit Certificate executed by the Company.
The Performance Unit Certificate shall specify the dollar value of the Award,
the applicable Performance Cycle, the applicable performance goals, and the
other terms and conditions applicable to such Award.
(c) Vesting; Payment. If the Board determines, after the expiration of the
Performance Cycle, that the performance goals specified in the Performance Unit
Certificate and all other material terms of the Award have been satisfied, the
Performance Units will be vested and the Participant will receive payment of the
amount specified in the Performance Unit Certificate as soon as practicable
thereafter. Payment may be made in cash, shares of Common Stock or a combination
of both, as determined by the Board, in its sole discretion.
(d) Termination of Employment. Unless otherwise determined by the Board at the
time of grant, the Performance Units will be forfeited upon a Participant's
Termination of Employment during the Performance Cycle for any reason (including
death, Disability or Retirement).
9.3 Individual Limit. The maximum dollar amount of Performance Unit Awards that
may be granted to any individual during any calendar year shall be $ 100,000.
ARTICLE X
Termination or Amendment
10.1 Termination or Amendment of Plan. The Board may at any time amend,
discontinue or terminate this Plan or any part hereof (including any amendment
deemed necessary to ensure that the Company may comply with any regulatory
requirement referred to in Article XII); provided, however, that, unless
otherwise required by law, the rights of a Participant with respect to Awards
granted prior to such amendment, discontinuance or termination may not be
impaired without the consent of such Participant and, provided further, that the
Company will seek the approval of the Company's shareholders for any amendment
if such approval is necessary to comply with the Code, Federal or state
securities law or any other applicable rules or regulations.
10.2 Amendment of Awards. The Board may amend the terms of any Award previously
granted, prospectively or retroactively, but, subject to Article IV, no such
amendment or other action by the Board shall impair the rights of any holder
without the holder's consent. The Board may also substitute new Stock Options
for previously granted Stock Options having higher option prices.
ARTICLE XI
Unfunded Plan
11.1 Unfunded Status of Plan. This Plan is intended to constitute an "unfunded"
plan for incentive and deferred compensation. With respect to any payment not
yet made to a Participant by the Company, nothing contained herein shall give
any such Participant any rights that are greater than those of a general
creditor of the Company.
ARTICLE XII
General Provisions
12.1 Nonassignment. Except as otherwise provided in this Plan, Awards made
hereunder and the rights and privileges conferred thereby shall not be sold,
transferred, assigned, pledged or hypothecated in any way (whether by operation
of law or otherwise), and shall not be subject to execution, attachment or
similar process. Upon any attempt to sell, transfer, assign, pledge, hypothecate
or otherwise dispose of such Award, right or privilege contrary to the
provisions hereof, or upon the levy of any attachment or similar process
thereon, such Award and the rights and privileges conferred hereby shall
immediately terminate and the Award shall immediately be forfeited to the
Company.
12.2 Change of Control. In the event of a Change of Control, all outstanding
Stock Options shall immediately become fully exercisable and restrictions will
lapse with respect to a percentage of each outstanding Restricted Stock Award
equal to the percentage of the Restriction Period that has elapsed as of the
date of the Change of Control. Stock certificates representing the Common Stock
covered by any outstanding Restricted Stock Award as to which restrictions have
lapsed shall be released from custody and delivered to the Participants as soon
as practicable following the Change of Control. Stock certificates representing
the Common Stock covered by any outstanding Stock Option shall be issued and
registered in the name of, and delivered to, the Participants as soon as
practicable following exercise of such Option and payment by the Participant of
the option price and, if requested, delivery of the representation described in
Section 12.4. Unless otherwise provided in a Participant's Performance Share
Certificate or Performance Unit Certificate, a Change of Control shall not
accelerate or otherwise change the terms of outstanding Performance Shares or
Performance Units, which shall continue to be governed by the applicable
provisions of Articles VIII and IX, respectively.
12.3 Rights as Shareholder. A Participant shall not be deemed to be the holder
of Common Stock, or to have the rights of a holder of Common Stock, with respect
to shares subject to an Award unless and until stock certificates representing
such shares of Common Stock have been issued and registered in the name of such
Participant.
12.4 Legend. The Board may require each person acquiring shares pursuant to an
Award under the Plan to represent to the Company in writing that the Participant
is acquiring the shares without a view to distribution thereof. The stock
certificates representing such shares may include any legend that the Board
deems appropriate to reflect any restrictions on transfer.
All certificates representing shares of Common Stock delivered under the Plan
shall be subject to such stock transfer orders and other restrictions as the
Board may deem advisable under the rules, regulations and other requirements of
the Securities and Exchange Commission, any stock exchange or stock market on
which the Common Stock is then listed or traded, any applicable Federal or state
securities law, and any applicable corporate law, and the Board may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
12.5 Other Plans. Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to shareholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
12.6 No Right to Employment. Neither this Plan nor the grant of any Award
hereunder shall give any Participant or other person any right with respect to
continuance of employment by the Company or any subsidiary, nor shall there be a
limitation in any way on the right of the Company or a subsidiary to terminate a
Participant's employment at any time. Neither this Plan nor the grant of any
Award hereunder shall give any Director any right to continue as a member of the
Board or obligate the Company to nominate any Director for re-election by the
Company's shareholders.
12.7 Withholding of Taxes. The Company shall have the right to reduce the number
of shares of Common Stock otherwise deliverable pursuant to this Plan by an
amount that would have a Fair Market Value equal to the amount of all Federal,
state and local taxes required to be withheld, or to deduct the amount of such
taxes from any cash payment to be made to a Participant, pursuant to this Plan
or otherwise. In connection with such withholding, the Board may make such
arrangements as are consistent with the Plan as it may deem appropriate.
12.8 Listing and Other Conditions.
(a) If the Common Stock is listed on a national securities exchange or the
Nasdaq Stock Market, the issuance of any shares of Common Stock pursuant to an
Award shall be conditioned upon such shares being listed on such exchange or
stock market. The Company shall have no obligation to issue such shares unless
and until such shares are so listed, and the right to exercise any Option or to
receive shares pursuant to any other Award shall be suspended until such listing
has been effected.
(b) If at any time counsel to the Company shall be of the opinion that any sale
or delivery of shares of Common Stock pursuant to an Award is or may in the
circumstances be unlawful or result in the imposition of excise taxes under the
statutes, rules or regulations of any applicable jurisdiction, the Company shall
have no obligation to make such sale or delivery, or to make any application or
to effect or to maintain any qualification or registration under the Securities
Act of 1933, as amended, or otherwise with respect to shares of Common Stock or
Awards, and the right to exercise any Option or to receive shares pursuant to
any other Award shall be suspended until, in the opinion of such counsel, such
sale or delivery shall be lawful or shall not result in the imposition of excise
taxes.
(c) Upon termination of any period of suspension under this Section 12.8, any
Award affected by such suspension which shall not then have expired or
terminated shall be reinstated as to all shares available before such suspension
and as to shares which would otherwise have become available during the period
of such suspension, but no such suspension shall extend the term of any Option.
12.9 Governing Law. This Plan and actions taken in connection herewith shall be
governed and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
12.10 Construction. Wherever any words are used in this Plan in the masculine
gender they shall be construed as though they were also used in the feminine
gender in all cases where they would so apply, and wherever any words are used
herein in the singular form they shall be construed as though they were also
used in the plural form in all cases where they would so apply.
12.11 Liability. No member of the Board nor any employee of the Company or any
of its subsidiaries shall be liable for any act or action hereunder, whether of
omission or commission, by any other member or employee or by any agent to whom
duties in connection with the administration of this Plan have been delegated
or, except in circumstances involving bad faith, gross negligence or fraud, for
anything done or omitted to be done by himself.
12.12 Other Benefits. No payment pursuant to an Award under this Plan shall be
deemed compensation for purposes of computing benefits under any retirement plan
of the Company nor affect any benefits under any other benefit plan now or
hereafter in effect under which the availability or amount of benefits is
related to the level of compensation.
12.13 Costs. The Company shall bear all expenses incurred in administering this
Plan, including expenses of issuing Common Stock pursuant to Awards hereunder.
12.14 Severability. If any part of this Plan shall be determined to be invalid
or void in any respect, such determination shall not affect, impair, invalidate
or nullify the remaining provisions of this Plan which shall continue in full
force and effect.
12.15 Successors. This Plan shall be binding upon and inure to the benefit of
any successor or successors of the Company.
12.16 Headings. Article and section headings contained in this Plan are included
for convenience only and are not to be used in construing or interpreting this
Plan.
ARTICLE XIII
Term of Plan
13.1 Effective Date. This Plan shall be effective as of the date of its approval
by the Board.
13.1 Termination. No Award shall be granted pursuant to this Plan on or after
the tenth anniversary of its approval by the Board, but Awards granted prior to
<TABLE>
<CAPTION>
Year Ended
June 26, June 27, June 28,
1998 1997 1996
------------ ------------ ------------
(000's omitted, except per share data)
<S> <C> <C> <C>
Basic:
Weighted average shares outstanding 9,148 9,504 9,554
------------ ------------ ------------
Total 9,148 9,504 9,554
Income from continuing operations $ 7,317 $ 4,257 $ 9,014
Gain (loss) from discontinued
operations 928 (10,435) (3,095)
------------ ------------ ------------
Net income (loss) $ 8,245 $ ( 6,178) $ 5,919
------------ ------------ ------------
Net income (loss) per share
Continuing operations $ 0.80 $ 0.45 $ 0.94
Discontinued operations 0.10 (1.10) (0.32)
------------ ------------ ------------
Net income (loss) per share $ 0.90 $ (0.65) $ (0.62)
------------ ------------ ------------
Diluted:
Weighted average shares outstanding 9,148 9,504 9,554
Weighted average common stock
equivalents 253 134 314
------------ ------------ ------------
Total 9,401 9,638 9,868
Income from continuing operations $ 7,317 $ 4,257 $ 9,014
Gain (loss) from discontinued
operations 928 (10,435) (3,095)
------------ ------------ ------------
Net income (loss) $ 8,245 $ ( 6,178) $ 5,919
------------ ------------ ------------
Net income (loss) per share
Continuing operations $ 0.78 $ 0.44 $ 0.91
Discontinued operations 0.10 (1.08) (0.31)
------------ ------------ ------------
Net income (loss) per share $ 0.88 $ (0.64) $ (0.60)
------------ ------------ ------------
</TABLE>
1998 C-COR ANNUAL REPORT
F|U|T|U|R|E F|O|C|U|S|E|D
NAVIGATING THE GLOBAL COMMUNITY
<TABLE>
C|O|N|T|E|N|T|S
<S> <C>
CORPORATE PROFILE 1
SELECTED FINANCIAL DATA 2
SHAREHOLDERS' LETTER 3
FUTURE FOCUSED
CUSTOMER FOCUSED 7
TECHNOLOGY FOCUSED 9
INTERNATIONAL FOCUSED 11
FOUNDATIONS 12
MANAGEMENT'S DISCUSSION AND
ANALYSIS 13
CONSOLIDATED BALANCE SHEETS 17
CONSOLIDATED STATEMENTS OF
OPERATIONS 18
CONSOLIDATED STATEMENTS OF
CASH FLOWS 19
CONSOLIDATED STATEMENTS OF
SHAREHOLDERS' EQUITY 20
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS 21
REPORTS 30
DIRECTORS & OFFICERS 31
CORPORATE DATA 32
MISSION STATEMENT 33
</TABLE>
P|R|O|F|I|L|E
For over four decades, C-COR has provided the products and support our customers
need to plan, design, build and maintain complex communications networks. In
doing so, we have created a niche as an innovator, developer and supplier of
robust, high-quality distribution electronics for two-way hybrid fiber/coax
(HFC) networks around the world.
More than simply keeping pace with customer requirements, we have anticipated
industry changes and responded accordingly. We had the foresight to create fiber
optic and coax products that are two-way capable, even before the need for an
expanded return path became evident. Today, the Internet, telephony and advanced
digital services have created demand for active, two-way architectures. C-COR
has answered with a full line of flexible, reliable and cost-effective network
solutions.
Our principal customers include cable television operators, telephone companies
and installers of broadband communications networks. Sales efforts are conducted
from headquarters in State College, Pennsylvania; from regional offices
throughout the United States, in Canada and in the Netherlands; and through
numerous distributors worldwide.
<TABLE>
S|E|L|E|C|T|E|D F|I|N|A|N|C|I|A|L D|A|T|A(in thousands of dollars except
per share data)
Fiscal Year Ended: 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Statements of operations(1):
Net Sales $ 152,144 $ 131,941 $ 139,539 $ 121,269 $ 60,207
Income from continuing operations 7,317 4,257 9,014 8,528 3,177
Gain (loss) from discontinued operations - (6,605) (3,095) (213) 855
Gain (loss) from disposal of discontinued operations 928 (3,830) - - -
Net income (loss) 8,245 (6,178) 5,919 8,315 4,032
Net income (loss) per share - (basic)(2,3):
Continuing operations $ 0.80 $ 0.45 $ 0.94 $ 0.91 $ 0.35
Discontinued operations - (0.70) (0.32) (0.02) 0.09
Disposal of discontinued operations 0.10 (0.40) - - -
Net income (loss) per share - basic 0.90 (0.65) 0.62 0.89 0.44
Net income (loss) per share - (diluted)(2,3):
Continuing operations $ 0.78 $ 0.44 $ 0.91 $ 0.86 $ 0.34
Discontinued operations - (0.68) (.31) (0.02) 0.09
Disposal of discontinued operations 0.10 (0.40) - - -
Net income (loss) per share - diluted 0.88 (0.64) 0.60 0.84 0.43
Balance sheet data (at period end)(1):
Working capital $ 27,313 $ 22,745 $ 35,452 $ 24,442 $ 25,061
Total assets 75,518 71,119 77,278 85,868 47,499
Total long-term obligations 6,367 7,201 8,030 2,172 501
Shareholders' equity 50,190 41,678 53,317 44,725 34,139
<FN>
(1) Certain amounts have been reclassified for comparability with fiscal year
1998 presentation. (2) The Company adopted Statement of Financial Accounting
Standards No. 128 "Earnings Per Share" effective December 15, 1997. Accordingly,
all prior per share amounts have been restated. (3) Adjusted to reflect a
two-for-one stock split effective December 5, 1994. </FN> </TABLE>
<TABLE>
NET SALES
IN THOUSANDS OF DOLLARS
<S> <C>
1994 60,207
1995 121,269
1996 139,539
1997 131,941
1998 152,144
</TABLE>
<TABLE>
INCOME FROM CONTINUING OPERATIONS
IN THOUSANDS OF DOLLARS
<S> <C>
1994 3,177
1995 8,528
1996 9,014
1997 4,257
1998 7,317
</TABLE>
<TABLE>
NET INCOME PER SHARE FROM CONTINUING OPERATIONS
IN DOLLARS
<S> <C>
1994 0.34
1995 0.86
1996 0.91
1997 0.45
1998 0.80
</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, economic conditions
affecting domestic and international markets, 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 on
Form 10-K and other reports filed with the Securities and Exchange Commission.
T|O O|U|R S|H|A|R|E|H|O|L|D|E|R|S
C-COR has much to celebrate as we reflect on the accomplishments of this past
year and on the prospects for the future. Amid a rapidly changing global
communications market, we take a moment to remember how it all started, 45 years
ago for C-COR and 50 years ago for the cable industry. Back then, the simple
desire to view a few snow-free channels of news and entertainment drove industry
pioneers to devise the first cable networks. Now, five decades later, the
cost-effective delivery of hundreds of video channels, high-speed Internet
services and cable telephony prompt network operators worldwide to seek
technologically advanced products and specialized support services. With this
dynamic global backdrop, C-COR looks forward to participating in the exciting
conclusion of one century and the rapid approach of another.
In fiscal year 1998, C-COR's financial results were encouraging, as both revenue
and earnings grew. Net sales rose 15% to $152 million, from $132 million in
fiscal year 1997. Net income per share from continuing operations increased
dramatically to $.78 in fiscal year 1998 from $.44 in fiscal year 1997. The
gross margin percentage in fiscal year 1998 improved to 22.7% from 20.6% the
previous year. Operating expenses as a percentage of net sales, declined,
excluding restructuring charges. At the same time, we maintained our commitment
to product development, enabling the introduction of a host of new products,
particularly optoelectronics, and funding for the study and implementation of
new technologies and resources to enhance C-COR's growth opportunities.
GLOBAL CLOSE-UP
During the past 12 months, the means for global information exchange have
evolved dramatically. Most importantly for C-COR, we have seen the further
validation of the hybrid fiber/coax (HFC) architecture as the most powerful,
cost-effective pipeline to homes and businesses. In North America, the year
could be summed up with the simple statement, "the industry is standing tall,
buoyed by its superior technology, wealth of programming and bold new business
opportunities.(1)" Consolidation and clustering of cable properties continued,
resulting in economies of scale for cable operators as they offered advanced
services to their customers. This environment provided significant opportunity
for equipment suppliers like C-COR to offer pace-setting, technologically
advanced products and services. Another industry trend has been standardization,
viewed as a necessity for technology experts working together to achieve a set
of common goals.
Key moves by industry leaders signaled further validation of HFC architectures
and support for the concept of a single pipe to carry information to the
end-user. First, came an announcement in the spring of 1997 that was summarized
best with the statement, "a modern era of the cable industry dawned when Bill
Gates made a billion-dollar investment in Comcast...this was viewed as a signal
that the promised convergence of cable with the Internet and digital technology
was near.(2)" Midway through 1998, a former computer industry executive
announced his intent to purchase two major cable operations, Marcus
Communications and Charter Communications. At about the same time, the
bellwether event occurred when AT&T announced that it would purchase major cable
operator TeleCommunications, Inc. Combined, these events helped create a healthy
environment for companies like C-COR looking to identify and implement growth
opportunities for the future.
Elsewhere around the world, communication infrastructure development and
enhancement continued to progress. Both the European and Latin American markets
steadily grew and developed. In Europe, we saw solid activity, particularly in
the eastern regions, and we are poised for participation in the pending
extensive network deployment in Spain. In Latin America, demand for HFC network
products continued to be solid, particularly in Argentina and Chile, and new
opportunities are expected in the emerging markets of Brazil, Columbia and
Bolivia. The Asia Pacific region was slow, but we are maintaining our strategic
commitment to this key market.
OVER THE HORIZON
We began fiscal year 1998 with a clear set of strategic goals and initiatives: -
expansion within our traditional area of expertise...HFC - exploration of
diversification opportunities outside our historical markets - expansion of
international growth as a percent of total sales - improved profitability
through continued process improvements leading to
higher productivity and improved gross margins
- - renewed commitment to our highly capable employees
We have made significant progress on these objectives this past year. We focused
on a number of initiatives directed at productivity enhancements, new process
improvements, capacity realignment and global procurement. Additionally,
continuous improvements in the areas of quality and reliability have been
designed to achieve our increasingly aggressive standards for the benefit of our
customers.
There is still a challenging and exciting journey ahead. Many of the same
strategic initiatives will continue into the new year. We will aggressively seek
out ways to expand geographically; the opportunities are there. New products and
services will continue to be a priority. Global manufacturing and procurement
initiatives are being explored as we strive to remain highly competitive in
today's global economy. Of great importance are the people who are at the heart
of all we do...customers, shareholders and employees. Each plays a unique and
significant role in establishing and fulfilling our plan for the future.
Thank you for your continued interest. We look forward to communicating our
progress throughout the coming year.
Richard E. Perry
Chairman
David A. Woodle
President and CEO
August 12, 1998
(1) Cablevision, July 13, 1998, Page 4 (2) Buyside, June 1998, Page 76
NAVIGATING THE GLOBAL COMMUNITY
Members of C-COR's global sales team meet to discuss strategic plans.
F|U|T|U|R|E F|O|C|U|S|E|D
C|U|S|T|O|M|E|R F|O|C|U|S|E|D
As the global communications industry evolves, C-COR's long-standing commitment
to customers remains a constant. This is most evident in our continued
development and delivery of high quality, end-to-end solutions that respond to
specific customer needs. When coupled with our full array of specialized
services, our comprehensive product line enables cable operators to build for
today's requirements and still remain flexible for the future.
In fiscal year 1998, C-COR introduced over 20 new products - more than at any
other time in our 45-year history - and we expect these products to be available
for shipment beginning in fiscal year 1999. Fiber optic solutions dominated,
based on our new NAVICOR(TM) platform of nodes and headend products. With
NAVICOR, amplifiers can be transformed into nodes by simply changing the fiber
optic lid. The result is a cost-effective way for customers to rebuild or
upgrade their hybrid fiber/coax (HFC) networks to offer high-speed data, digital
services, video-on-demand and cable telephony as the market demands.
In addition to fiber optics, C-COR has remained steadfast in meeting the needs
of our RF customers. During fiscal year 1998, we advanced the standards for
performance by providing superior return path capability and optimal powering
options for customers delivering advanced services. Overlying the entire network
is C-COR's CNM(TM) System 2, a standards-compliant, network management system
that provides for the ultimate in operational confidence.
Customer service continues to stand for personal service at C-COR, with
customized design, training and network activation services leading the way. Add
to that full product certification before the sale, and our customer focus
becomes total customer satisfaction.
Guided by market requirements and a strategic goal to diversify our product line
within the HFC offering, C-COR has introduced the Navicor product platform.
Navicor is a new family of modular AM fiber optic nodes and lid upgrades for
C-COR's RF amplifier product line. Its unique common module concept enables
cable operators to quickly and easily improve system capacity and add high-value
services to meet the demands of their customers.
With Navicor, only the lid - rather than the entire piece of equipment - is
removed and replaced with a fiber optic lid during an upgrade. For new builds
and rebuilds, complete fiber nodes are available. Navicor's common module
approach minimizes inventory, decreases system downtime and increases cost
efficiency. Most importantly, Navicor affords cable operators the power,
scalability and network management capabilities to meet HFC network demands both
today and in the future.
T|E|C|H|N|O|L|O|G|Y F|O|C|U|S|E|D
Today, consolidation and geographic clustering are driving the demand for more
advanced HFC architectures. New services such as the Internet, digital video and
telephony are also increasing the need for greater bandwidth, higher performance
and total reliability. These factors, combined with cost-conscious budgets, have
led to a new way of building and managing networks. No longer are simple
bandwidth upgrades the case; network operators must build for today while also
planning for the future.
C-COR has responded to this dynamic marketplace with advanced technologies that
offer upgradability, scalability, flexibility and cost-effectiveness. A variety
of unique features and products - such as the common module concept, a new
quadrant node and an advanced network management system designed to
standards-based environments - add enhanced value by improving quality,
performance and dependability.
NAVICOR rack-mounted products deliver high performance and allow for headend
consolidation as needed. The 1550nm transmitter transports large amounts of
information over long distances, while erbium-doped fiber amplifiers (EDFA)
extend transmitter capability to reach broad segments of the network. The AM
headend rack system is a compact, easy-to-install package that plays a key role
in getting information to nodes serving 250-2000 homes. NAVICOR optical nodes
offer high performance for greater network flexibility and capability. Building
on C-COR's 45-year legacy, this product family can operate as complete nodes or
be used to upgrade existing FlexNet(R) amplifiers.
The I-Flex(TM) family of products, which includes an amplifier, node and network
management solution uniquely designed for the global market, offers many
benefits found in our strand-mounted products. I-Flex is used where
cabinet-mounted equipment is needed in an HFC architecture.
Network management systems were a cornerstone at C-COR long before it became
popular to offer network monitoring capabilities. CNM System 2 is a
standards-based system used to monitor and control network elements from a
central location, reducing operational costs, enhancing reliability and
improving the productivity of technical staff.
We have seen many of our customers grow into multi-million, and even billion
dollar companies. C-COR has provided the products and services to help them get
there.
F|U|T|U|R|E F|O|C|U|S|E|D
I|N|T|E|R|N|A|T|I|O|N|A|L|L|Y F|O|C|U|S|E|D
With a strong domestic foothold, C-COR continues to pursue growth opportunities
around the globe. In all areas of operations - including sales and marketing,
service, manufacturing and procurement - we are diversifying geographically to
improve profitability and more directly serve international markets. We
recognize that our continued success depends on international expansion, and we
have made it a strategic initiative to focus our efforts on achieving that goal.
Europe: Political changes, deregulation and private enterprise are paving the
way for expansion of the communications infrastructure throughout Europe. New
builds, particularly for telephony and digital video services, are driving
growth in Spain and Eastern Europe, while network upgrades are underway in much
of Western Europe. Overall, HFC is still the dominant technology, with 862 MHz
in cabinet-mounted equipment providing the most cost-effective way to meet
capacity demands. We have also expanded the I-Flex family of nodes, amplifiers
and network management to include an I-Flex line extender for cost-effective
delivery of services to homes and businesses.
Latin America: Like North America, HFC technology dominates in Latin America. We
anticipate high demand for AM fiber optics over the next three years, driven
primarily by telephony. In addition to an already-established base in Argentina
and Chile, the most promising markets include Brazil, Columbia and Bolivia where
privatization is opening new doors.
Asia Pacific: While economic issues continue to impact the volatile Asian
Pacific market, we still see enormous, long-term potential for broadband HFC
networks there. C-COR will maintain its presence throughout this market so that
we can immediately respond with advanced HFC and network management solutions
for providing services such as telephony, Internet access and cable television.
C-COR is proud of its part in Singapore ONE, which will provide the world's
first nationwide Internet access capability via cable modems. Offering high
speed and large capacity, the Singapore CableVision (SCV) broadband network
carries data, audio and video information nationwide. Our FlexNet 862 MHz
amplifiers are installed in this innovative, two-way HFC network, which serves
about 1000 homes per node.
C-COR...
F|O|C|U|S|E|D
on solid
F|O|U|N|D|A|T|I|O|N|S
for continued
S|U|C|C|E|S|S
Customer focus. Technological leadership. Global growth. At C-COR, these
strengths and more have established the foundation for our continued success
into the next millennium.
Looking forward, we will leverage our RF expertise with the goal of further
expanding our fiber optic product line, network management capabilities and
technical services. We will also continue to explore new opportunities inside
and outside the HFC network market, both domestically and internationally.
Ongoing cost containment and continuous improvement throughout the organization
position us to operate at peak efficiency. Just one example is NAVICOR's common
module concept, which is designed to help us reduce costs by improving
efficiency in development and manufacturing operations. Finally, we are
addressing staffing challenges through training, empowerment and other
initiatives aimed at retaining skilled employees.
With so much working in our favor, we anticipate a future full of opportunities
to further satisfy our customers, provide for employee development, increase our
profitability and build shareholder value.
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 increased spending on product
development, the continued availability of capital resources and the Company's
ability to assess the risks of the year 2000 issue, with respect to its
operations, and resolve them in a timely manner. 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, economic conditions affecting domestic and international markets,
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.
Results of Operations
Net sales in fiscal year 1998 were $152,144, an increase of 15% from net sales
of $131,941 in fiscal year 1997. The increase in sales was a result of increased
demand for hybrid fiber/coax (HFC) equipment, as well as technical services to
both domestic and international customers, primarily in the cable television
(CATV) industry. Net sales decreased 5% in fiscal year 1997 from net sales of
$139,539 in fiscal year 1996. The decrease in sales was primarily a result of
reduced sales to international customers compared to the previous year.
Domestic sales remained strong in fiscal year 1998, increasing 13% to $120,237
from $106,785 in fiscal year 1997. The Company believes that many domestic CATV
operators have continued to increase their capital spending, and, as a result,
the Company has experienced increased demand for HFC distribution equipment. The
Company believes the increased capital spending has been driven by customer
demands for improved services, affecting not only voice and video requirements,
but also demand for high-speed data transmission. This increased demand by CATV
operators for improved services has translated into an increased need for higher
bandwidth products in order to support these services. Domestic sales increased
26% in fiscal year 1997 from $84,792 in fiscal year 1996, also due to network
upgrade activities by CATV operators. Total domestic sales were 79% of
consolidated net sales for fiscal year 1998, as compared to 81% and 61% for
fiscal years 1997 and 1996, respectively.
International sales increased 27% to $31,907 in fiscal year 1998 from $25,156 in
fiscal year 1997. The increased demand resulted primarily from sales to Canada,
Europe and Latin America. International sales decreased 54% in fiscal year 1997
from $54,747 in fiscal year 1996, resulting from reduced demand by a significant
customer in Canada and customers in Asia and Latin America. The Company
continues to monitor its business activities in the Asian market and the effects
that current economic conditions may have on present and future order trends.
The Company believes the Asian market represents long-term potential for HFC
distribution equipment and will continue to maintain its presence throughout
this market. The international markets continue to represent distinct markets
for HFC distribution equipment, and, in general, demand can be highly variable.
The Company's total international sales were 21% of consolidated net sales in
fiscal year 1998, as compared to 19% and 39% for fiscal years 1997 and 1996,
respectively.
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 backlog of sales orders at June 26, 1998, was $24,025, compared to
$34,851 at June 27, 1997, and $24,333 at June 28, 1996. The backlog of sales
orders at June 26, 1998, was comprised of approximately 91% domestic and 9%
international orders, compared to approximately 72% domestic and 28%
international orders at June 27, 1997, and 86% domestic and 14% international
orders at June 28, 1996. In the domestic CATV market, certain cable operators
are beginning upgrade activities, while others are in various stages of
completion. As a result, demand patterns can vary, depending on the distinct
requirements for each customer. In addition, the Company believes recent trends
indicate that order patterns have also changed from customers providing longer
blanket orders to shorter lead-time orders, contributing to the backlog
reduction at fiscal year end. The Company's book-to-bill ratio was 0.93 for
fiscal year 1998, compared to 1.08 and 0.79 for fiscal years 1997 and 1996,
respectively.
Gross profit margin for fiscal year 1998 was 22.7%. This compares to 20.6% in
fiscal year 1997 and 24.9% in fiscal year 1996. The increase in the gross profit
margin in fiscal year 1998, relative to fiscal year 1997, was primarily
attributable to purchased material cost reductions, changes in customer and
product mix, and efficiencies resulting from higher production volumes. The
Company continued to experience pricing pressures in fiscal year 1998. The
Company has undertaken initiatives to lower manufacturing costs by improving
manufacturing processes in order to enhance efficiency and productivity, and by
redesigning products to enhance manufacturability and reduce material costs. In
fiscal year 1998, the Company began manufacturing the power supply component of
its RF amplifier products in Tijuana, Mexico. The Company substantially
completed the transfer of the power supply component production to this facility
as of June 26, 1998, and continues to ramp up production at this manufacturing
facility. The gross profit margin decrease in fiscal year 1997, relative to
fiscal year 1996, was attributed primarily to changes in product and customer
sales mix, as well as pricing pressures, particularly on RF coaxial cable
amplifiers.
Selling and administrative expenses for fiscal year 1998 were $15,020 or 10% of
net sales, compared to $15,787 or 12% of net sales for fiscal year 1997 and
$15,917 or 11% of net sales for fiscal year 1996. The decrease in selling and
administrative expense for fiscal year 1998 compared to fiscal year 1997 was due
primarily to reduced expenditures resulting from reconfiguration of the
Company's worldwide sales territories and the consolidation of the Company's
sales force implemented in the fourth quarter of fiscal year 1997. The decrease
in selling and administrative expenses for fiscal year 1997, compared to fiscal
year 1996, was due to various cost reduction initiatives, including personnel
reductions and decreases in various administrative expenses.
Research and product development expenses for fiscal year 1998 were $7,459 or 5%
of net sales, compared to $5,681 or 4% of net sales for fiscal year 1997 and
$4,857 or 3% of net sales for fiscal year 1996. The increase in research and
product development expense in fiscal year 1998 over fiscal years 1997 and 1996
was primarily due to the Company's strategic commitment to investments in new
products and technologies. The increased expenditures resulted from higher
personnel costs and additional expenses for development of NAVICOR(TM), an
entire family of modular AM fiber optic nodes and optical lid upgrades, as well
as CNM(TM) System 2, a new generation of its Cable Network Management (CNM)
platform. These products were introduced mid-year fiscal 1998, and the Company
anticipates production release of these products in several phases over the
first half of fiscal year 1999. The Company anticipates increased product
development expenditures in fiscal year 1999 related to ongoing product
development initiatives.
Included in the results from continuing operations for fiscal year 1998 is a
restructuring charge of $625 related to the Company's decision on June 25, 1998,
to close its manufacturing plant located in Reedsville, Pennsylvania. The
decision was made in order to reduce costs and improve productivity and asset
utilization. The restructuring charge represents salaries and benefits for
approximately 143 employees to be terminated. At June 26, 1998, no expenses had
been charged against this restructuring accrual.
For fiscal year 1998 other expense was $384. This compares to other income of
$250 and $341 for fiscal years 1997 and 1996, respectively. The increased
expense in fiscal year 1998 resulted from costs accrued in relation to the
settlement of certain litigation and foreign exchange losses resulting primarily
from the weakened Canadian dollar. The reduction in other income in fiscal year
1997, compared to fiscal year 1996, was primarily due to lower foreign currency
transaction gains.
The Company's effective income tax rate for fiscal year 1998 was 32%. This
compared to effective income tax rates of 25% and 32% for fiscal years 1997 and
1996, respectively. The higher effective tax rates for fiscal year 1998,
compared to fiscal year 1997, resulted from a tax benefit of approximately $593
that was recorded during the third quarter of fiscal year 1997. The tax benefit
resulted from reassessment of the Company's foreign sales transactions for the
prior three fiscal years and optimization of the tax benefits derived from the
Company's Foreign Sales Corporation (FSC). In addition, fluctuations in the
effective income tax rate from period to period reflect changes in
non-deductible amounts, the relative profitability related to both U.S. and
non-U.S. operations and differences in statutory rates.
Results of Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital Fiber
Optics Transmission Products segment located in Fremont, California, in a
nine-month wind-down process. Anticipated wind-down costs were recorded as a
loss on disposal of the discontinued segment in the results of discontinued
operations for the fiscal year ended June 27, 1997. The Company substantially
completed the wind-down of this operation as of March 1998. A gain on disposal
of the discontinued business segment of $928, which includes a net tax benefit
of $94, was recorded in fiscal year 1998. The gain represents an adjustment of
the estimated loss on the disposal of the business segment of $3,830, net of
applicable income tax benefit of $1,974, reported in fiscal year 1997. The gain
derived primarily from higher than anticipated proceeds associated with the
disposal of assets, primarily inventory, and lower than anticipated operating
costs from the measurement date to the disposal date.
The after-tax losses from operations of the discontinued business segment were
$6,605 and $3,095 for fiscal years 1997 and 1996, 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 during the fourth quarter of
fiscal year 1997.
Financial Condition
The Company's financial condition remains strong. The Company's working capital
increased $4,568 since June 27, 1997. Inventory decreased to $17,375 at June 26,
1998, from $19,140 at June 27, 1997, primarily related to reductions in raw
materials and work-in-process inventory levels. Accounts payable also decreased
to $5,784 at June 26, 1998, from $8,636 at June 27, 1997, due primarily to the
reductions in inventory purchases at year end. Accrued liabilities increased to
$10,245 at June 26, 1998, from $6,825 at June 27, 1997, due primarily to expense
accrued under the Company's profit incentive plan for the year and restructuring
costs accrued in relation to the closing of the Company's Reedsville,
Pennsylvania, manufacturing facility.
Recent Accounting Changes
In 1997, the Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130), which is effective for fiscal years beginning after December
15, 1997. This Statement establishes standards for reporting and classifying
components of comprehensive income in the financial statements and requires that
the accumulated balance of other comprehensive income be displayed separately
from retained earnings and additional paid-in-capital in the equity section of
the financial statements. The FASB also issued Statement of Financial Accounting
Standards No. 131, "Disclosures about Segments of an Enterprise and Related
Information" (Statement 131), which is effective for fiscal years beginning
after December 15, 1997. This Statement establishes standards for providing
disclosures related to products and services, geographic area, and major
customers. The Company anticipates adopting these Statements in its fiscal year
1999 financial statements as required. Implementation of these Statements is not
expected to have a material effect on the Company's consolidated financial
statements.
In 1998, the FASB issued Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
(Statement 132), which is effective for fiscal years beginning after December
15, 1997. This Statement standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on benefit obligations and plan assets, and suggests combined
formats for presentation of pension and other postretirement benefit
disclosures. The FASB also issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133), which is effective for fiscal years beginning after June 15,
1999. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company anticipates adopting
these Statements in its fiscal year 1999 and 2000 consolidated financial
statements as required. Implementation of these Statements is not expected to
have a material effect on the Company's consolidated financial statements.
Liquidity and Capital Resources
The Company's current ratio at June 26, 1998, was 2.6, as compared to 2.1 at
June 27, 1997. As of June 26, 1998, cash and cash equivalents totaled $2,313, up
from $452 at June 27, 1997. Net cash and cash equivalents provided by operating
activities generated $14,007 during fiscal year 1998, including working capital
changes of $1,051 related to discontinued operations. This compares to net cash
and cash equivalents provided by operating activities, including working capital
changes related to discontinued operations, of $9,440 and $18,673 in fiscal
years 1997 and 1996, respectively.
Net cash used in investing activities was $8,097 in fiscal year 1998, compared
to $6,551 fiscal year 1997 and $8,000 in fiscal year 1996. The increase of cash
used in investing activities in fiscal year 1998 was due primarily to higher
purchases and replacements of property, plant and equipment to support
manufacturing automation and operation efforts, including the start-up of the
Company's manufacturing operation in Tijuana, Mexico, as well as a higher level
of product development activities.
Net cash used in financing activities totaled $4,049 in fiscal year 1998,
compared to $3,911 and $10,744 in fiscal years 1997 and 1996, respectively.
Financing activities consist primarily of borrowings and payments on the
Company's line-of-credit and long-term debt. In fiscal year 1998, the Company
repurchased 10,342 shares of its common stock for $131 under a stock repurchase
program adopted in September 1997. 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 under both repurchase programs. The repurchased stock is
being held by the Company as treasury stock and is available to be used in
meeting the Company's obligations under its present and future stock option
plans and for other corporate purposes.
The Company maintains a line-of-credit with a bank pursuant to which it may
borrow the lesser of $23,000 or a percentage of eligible accounts receivable and
inventory. Accounts receivable and inventory secure borrowings under the
line-of-credit agreement. The line-of-credit is committed through October 30,
1998, and the Company anticipates renewing this line-of-credit annually. The
Company had no borrowings on the line-of-credit as of June 26, 1998, compared to
a balance of $3,466 at June 27, 1997. Based upon the Company's analysis of
eligible accounts receivable and inventory, approximately $17,740 was available
to borrow as of June 26, 1998.
Management believes that operating cash flow, as well as the line-of-credit,
will be adequate to provide for all cash requirements for the foreseeable
future, subject to requirements that additional growth or strategic development
might dictate.
Year 2000
The Company is aware of the issues associated with the limitations of the
programming code in many existing computer systems, whereby the computer systems
may not properly recognize date-sensitive information as the millennium (year
2000) approaches. The Company's computer systems include, but are not limited
to, computer systems embedded in production equipment, products containing
computer systems, business data processing systems, production management and
planning systems, and personal computers. Systems that do not properly recognize
such information could generate erroneous data or cause a system to fail. The
Company is currently engaged in the ongoing process of evaluating its
information technology infrastructure for year 2000. In addition, the Company
expects to correspond in the near future with its principal customers,
suppliers, vendors and subcontractors to ascertain their readiness for the year
2000. While the total estimated cost of these efforts is difficult to predict
with accuracy, based on a preliminary evaluation, the Company believes that
there should not be a material adverse impact on its operating results or
financial condition. However, year 2000 issues could have a significant impact
on the Company's operations and its financial results if modifications cannot be
completed on a timely basis, unforeseen needs or problems arise, or if there are
unforeseen compliance problems with the systems operated by its customers,
suppliers, vendors or subcontractors. Moreover, the change to the year 2000 may
negatively impact the Company's customers or the CATV industry as a whole,
causing reduced demand and market disruption in anticipation of, or following,
the year 2000. Upon final completion of the evaluation of its information
technology infrastructure for year 2000, the Company will establish a
contingency plan detailing how the Company will handle the most reasonably
likely worst case scenarios.
<TABLE>
Consolidated Balance Sheets
(in thousands of dollars except share data)
<S> <C> <C>
June 26, 1998 June 27, 1997
- --------------------------------------------------------------------------------------------------
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,313 $ 452
Marketable securities 356 359
Accounts receivable, less allowance of $430 in 1998; $510 in 1997 19,404 19,299
Inventories 17,375 19,140
Deferred taxes 2,797 2,616
Other current assets 2,468 1,893
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 44,713 43,759
PROPERTY, PLANT AND EQUIPMENT, NET 27,751 25,060
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $0 IN 1998; $224 IN 1997 1,295 -
OTHER LONG-TERM ASSETS 1,759 785
Net noncurrent assets of discontinued operations - 1,515
- --------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 75,518 $ 71,119
- --------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 5,784 $ 8,636
Accrued liabilities 10,245 6,825
Line-of-credit - 3,466
Current portion of long-term debt 854 834
Net current liabilities of discontinued operations 517 1,253
- --------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 17,400 21,014
LONG-TERM DEBT, less current portion 5,513 6,367
DEFERRED TAXES 1,374 1,311
OTHER LONG-TERM LIABILITIES 1,041 749
Commitments and Contingent Liabilities (See Notes H and O.)
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 25,328 29,441
- --------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Preferred Stock, no par; authorized 2,000,000 shares; issued, none - -
Common Stock, $.10 par; authorized shares 24,000,000;
issued shares of 9,672,128 in 1998 and 9,633,435 in 1997 967 963
Additional paid-in capital 20,341 19,963
Treasury stock at cost, shares of 510,342 in 1998 and 500,000 in 1997 (5,896) (5,765)
Retained earnings 34,877 26,632
Translation adjustment (92) (101)
Net unrealized loss on marketable securities (7) (14)
- --------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 50,190 41,678
- --------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 75,518 $ 71,119
- --------------------------------------------------------------------------------------------------
<FN>
- -See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Operations
(in thousands except per share data)
Year Ended
June 26, 1998 June 27, 1997 June 28, 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 152,144 $ 131,941 $ 139,539
COST AND EXPENSES
Cost of sales 117,557 104,702 104,852
Selling and administrative 15,020 15,787 15,917
Research and product development 7,459 5,681 4,857
Provision for restructuring costs 625 - -
Interest 335 318 960
Other expense (income), net 384 (250) (341)
- -----------------------------------------------------------------------------------------------------------------
141,380 126,238 126,245
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 10,764 5,703 13,294
INCOME TAX EXPENSE (BENEFIT)
Current 3,564 1,298 3,875
Deferred (117) 148 405
- -----------------------------------------------------------------------------------------------------------------
3,447 1,446 4,280
- -----------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 7,317 4,257 9,014
- -----------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued business segment, net of tax - (6,605) (3,095)
Gain (loss) on disposal of discontinued business segment, net of tax 928 (3,830) -
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 8,245 $ (6,178) $ 5,919
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (basic):
Continuing operations $ 0.80 $ 0.45 $ 0.94
Discontinued operations
Loss from operations - (0.70) (0.32)
Gain (loss) on disposal 0.10 (0.40) -
- -----------------------------------------------------------------------------------------------------------------
TOTAL $ 0.90 $ (0.65) $ 0.62
- -----------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (diluted):
Continuing operations $ 0.78 $ 0.44 $ 0.91
Discontinued operations
Loss from operations - (0.68) (0.31)
Gain (loss) on disposal 0.10 (0.40) -
- -----------------------------------------------------------------------------------------------------------------
TOTAL $ 0.88 $ (0.64) $ 0.60
- -----------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares and Common Share Equivalents
Basic 9,148 9,504 9,554
Diluted 9,401 9,638 9,868
<FN>
- -See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Cash Flows
(in thousands of dollars)
Year Ended
June 26, 1998 June 27, 1997 June 28, 1996
OPERATING ACTIVITIES
<S> <C> <C> <C>
NET INCOME (LOSS) $ 8,245 $ (6,178) $ 5,919
Adjustments to reconcile net income (loss) to net cash and cash equivalents
provided by (used in) operating activities:
Depreciation and amortization 6,100 4,910 3,972
(Gain) loss on disposal of discontinued operations, net of tax (928) 3,830 --
Provision for deferred retirement salary plan 292 252 129
Loss (gain) on sale of property, plant and equipment (14) 22 (3)
Changes in operating assets and liabilities:
Accounts receivable (105) 1,718 12,065
Inventories 1,765 (561) 3,491
Other assets (2,844) (197) (895)
Accounts payable (2,852) 2,784 (2,055)
Accrued liabilities 3,420 (243) (2,349)
Deferred income taxes (123) (133) 371
Discontinued operations - working capital changes and noncash charges 1,051 3,236 (1,972)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS PROVIDED BY
OPERATING ACTIVITIES 14,007 9,440 18,673
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (8,782) (5,884) (7,442)
Proceeds from sale of property, plant and equipment 14 15 3
Purchase of marketable securities -- (200) --
Proceeds from sale of marketable securities 15 216 25
Proceeds from (investing activities of) discontinued operations 656 (698) (586)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (8,097) (6,551) (8,000)
FINANCING ACTIVITIES
Payment of debt and capital lease obligations (834) (829) (594)
Proceeds from long-term debt borrowing -- -- 6,452
Proceeds from line-of-credit 52,818 21,936 39,029
Payment of line-of-credit (56,284) (19,617) (58,333)
Tax benefit deriving from exercise and sale of stock option shares 57 71 1,454
Issue common stock to employee stock purchase plan 51 88 107
Proceeds from exercise of stock options 274 205 1,141
Purchase of treasury stock (131) (5,765) --
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED IN FINANCING ACTIVITIES (4,049) (3,911) (10,744)
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,861 (1,022) (71)
Cash and cash equivalents at beginning of year 452 1,474 1,545
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,313 $ 452 $ 1,474
- ------------------------------------------------------------------------------------------------------------------------
<FN>
- -See notes to consolidated financial statements.
</FN>
</TABLE>
<TABLE>
Consolidated Statements of Shareholders' Equity
(in thousands of dollars)
Net Unrealized
Common Additional Treasury Retained Translation Gain (Loss) on
Stock Paid-In Capital Stock Earnings Adjustment Marketable Securities
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 30, 1995 $ 945 $16,915 $ - $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 - 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 gain on marketable securities 7
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1997 963 19,963 (5,765) 26,632 (101) (14)
Net income 8,245
Exercise of stock options 4 270
Tax benefit deriving from exercise
and sale of stock option shares 57
Issue shares to employee stock purchase plan 51
Purchase of treasury stock (131)
Foreign currency translation adjustment 9
Net unrealized gain on marketable securities 7
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1998 $ 967 $20,341 $(5,896) $34,877 $ (92) $ (7)
- ------------------------------------------------------------------------------------------------------------------------------------
<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 26, 1998, and June 27, 1997
- --------------------------------------------------------------------------------
Description of Business: The Company designs and manufactures high-quality
electronic equipment used in a variety of communication networks worldwide. In
fiscal year 1998, the Company operated in one industry segment, the Electronic
Distribution Products segment, which provides hybrid fiber/coax (HFC) equipment
for signal distribution applications primarily to the cable television (CATV)
market. In fiscal year 1997, the Company operated in two industry segments: the
Electronic Distribution Products segment and the Digital Fiber Optics
Transmission Products segment, which 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. On July
10, 1997, the Company announced that it would discontinue its Digital Fiber
Optics Transmission Products segment. For additional information regarding the
discontinued business segment, refer to Note B.
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 52-week reporting periods presented herein, the years
ended on June 26, 1998, June 27, 1997, and June 28, 1996.
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. The carrying value of
the Company's borrowings under its line-of-credit agreement and other long-term
borrowings approximates fair value.
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, $0 and $23 in
fiscal years 1998, 1997 and 1996, 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
Computer Software: Under Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or Otherwise
Marketed" (Statement 86), the Company is required to capitalize certain internal
and purchased software development and production costs once technological
feasibility has been achieved. For the fiscal year ended 1998, the Company
capitalized $670 of purchased software development costs, which is included in
other long-term assets in the consolidated financial statements. For the fiscal
years ended 1997 and 1996, the Company did not capitalize any software
development costs. Amortization will commence upon initial product release,
which has not occurred, and as such no amortization has been recorded in fiscal
year 1998.
Intangible Assets: Patents, trademarks and licenses are carried at cost less
accumulated amortization, which is calculated on a straight-line basis over the
estimated useful life of the assets. The patents, trademarks and license costs
relate to purchased product lines. Amortization will commence upon initial
product release, which has not occurred, and as such no amortization has been
recorded in fiscal year 1998.
In fiscal year 1997, intangible assets included 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 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
segment. 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 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 1998, the Company repurchased 10,342 shares
of its common stock for $131 under a stock repurchase program adopted in
September 1997. 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 under both repurchase programs. The repurchased stock is being held by
the Company as treasury stock and is available to be used in meeting 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 26, 1998, consisted of
municipal bonds and equity securities. The Company follows the provisions of
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" (Statement 115), in accounting for
marketable securities. 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: Statement of Financial Accounting Standards No.
128, "Earnings Per Share" (Statement 128), became effective for financial
statements issued for periods ending after December 15, 1997. The Company
adopted this Statement in the second quarter of fiscal year 1998 and has
restated prior periods presented as required. Implementation of Statement 128
did not have a material effect on the Company's consolidated financial
statements.
Basic earnings (loss) per share are computed based on the weighted average
number of common shares outstanding, excluding any dilutive options and awards.
Dilutive earnings (loss) per share are computed based on the weighted average
number of common shares outstanding plus the dilutive effect of options. The
dilutive effect of options is calculated under the treasury stock method using
the average market price for the period. Net income (loss) per share is
calculated as follows:
<TABLE>
- --------------------------------------------------------------------------------------------------------------------------------
Year ended
June 26, 1998 June 27, 1997 June 28, 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 7,317 $ 4,257 $ 9,014
Gain (loss) from discontinued operations 928 (10,435) (3,095)
- -------------------------------------------------------------------------------
Net income (loss) $ 8,245 $ (6,178) $ 5,919
- -------------------------------------------------------------------------------
Basic shares outstanding 9,148 9,504 9,554
Common stock equivalents 253 134 314
- -------------------------------------------------------------------------------
Dilutive potential common shares 9,401 9,638 9,868
- -------------------------------------------------------------------------------
Net income (loss) per share - (basic)
Continuing operations $ 0.80 $ 0.45 $ 0.94
Discontinued operations 0.10 (1.10) (0.32)
- -------------------------------------------------------------------------------
Total $ 0.90 $ (0.65) $ 0.62
- -------------------------------------------------------------------------------
Net income (loss) per share - (diluted)
Continuing operations $ 0.78 $ 0.44 $ 0.91
Discontinued operations 0.10 (1.08) (0.31)
- -------------------------------------------------------------------------------
Total $ 0.88 $ (0.64) $ 0.60
- -------------------------------------------------------------------------------
</TABLE>
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.
Restructuring Costs: In order to reduce costs and improve productivity and asset
utilization, on June 25, 1998, the Company announced the closing of its
manufacturing plant located in Reedsville, Pennsylvania. As a result of this
action, the Company incurred restructuring charges in the fourth quarter of its
fiscal year 1998 of $625. The restructuring charge represents salaries and
benefits for approximately 143 employees to be terminated. At June 26, 1998, no
expenses had been charged against this restructuring accrual.
At June 26, 1998, the Company had a Lease/Option to Purchase Agreement with the
Mifflin County Industrial Development Corporation (MCIDC) for the building and
improvements located in Reedsville, Pennsylvania. On August 10, 1998, subsequent
to fiscal year ended June 26, 1998, the Company purchased the facility using its
available capital resources and expects to sell the facility at a price in
excess of its net carrying value.
Recent Accounting Changes: In 1997, the Financial Accounting Standards Board
(FASB) issued Statement of Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (Statement 130), which is effective for fiscal years
beginning after December 15, 1997. This Statement establishes standards for
reporting and classifying components of comprehensive income in the financial
statements and requires that the accumulated balance of other comprehensive
income be displayed separately from retained earnings and additional
paid-in-capital in the equity section of the financial statements. The FASB also
issued Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" (Statement 131), which is
effective for fiscal years beginning after December 15, 1997. This Statement
establishes standards for providing disclosures related to products and
services, geographic area, and major customers. The Company anticipates adopting
these Statements in its fiscal year 1999 financial statements as required.
Implementation of these Statements is not expected to have a material effect on
the Company's consolidated financial statements.
In 1998, the FASB issued Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
(Statement 132), which is effective for fiscal years beginning after December
15, 1997. This Statement standardizes the disclosure requirements for pensions
and other postretirement benefits to the extent practicable, requires additional
information on benefit obligations and plan assets, and suggests combined
formats for presentation of pension and other postretirement benefit
disclosures. The FASB also issued Statement of Financial Accounting Standards
No. 133, "Accounting for Derivative Instruments and Hedging Activities"
(Statement 133), which is effective for fiscal years beginning after June 15,
1999. This Statement establishes accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities. The Company anticipates adopting
these Statements in its fiscal year 1999 and 2000 consolidated financial
statements as required. Implementation of these Statements is not expected to
have a material effect on the Company's consolidated financial statements.
Reclassification: Certain amounts have been reclassified for comparability with
fiscal year 1998 presentation.
B. Discontinued Operations
On July 10, 1997, the Company announced the discontinuation of its Digital Fiber
Optics Transmission Products segment, in a nine-month wind-down process. An
estimated loss on disposal, including write-offs of inventory and fixed assets,
and other costs from the measurement to the disposal date, was recorded in
fiscal year 1997. The estimated loss, net of tax benefit of $1,974 on the
disposal of the discontinued business segment, was $3,830 in fiscal year 1997.
The Company substantially completed the phase-down of this operation as of March
1998. The Company recorded a gain of $928, which includes a net tax benefit of
$94 on the disposal of the discontinued segment in fiscal year 1998. The gain
represents an adjustment of the estimated loss on the disposal of the business
segment of $3,830, net of applicable income tax benefit of $1,974 previously
reported in fiscal year 1997. The gain derived primarily from lower than
anticipated operating costs from the measurement date to the disposal date and
higher than anticipated proceeds associated with the disposal of assets,
primarily inventory.
The after-tax losses from operations of the discontinued business segment were
$6,605 and $3,095, for fiscal years 1997 and 1996, 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. Summarized information relating to the discontinued operations
for fiscal years 1997 and 1996 is as follows:
<TABLE>
Year ended
June 27, 1997 June 28, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net sales $ 7,994 $ 9,359
Costs and expenses (17,351) (13,959)
- ----------------------------------------------------------------------------------
Loss before income taxes (9,357) (4,600)
Income tax benefit 2,752 1,505
- ----------------------------------------------------------------------------------
Net loss $ (6,605) $ (3,095)
- ----------------------------------------------------------------------------------
</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 non-current assets related to
the discontinued operations. These net assets consist of net working capital,
net property, plant and equipment, other assets and intangible assets, less
related liabilities as follows as of June 26, 1998, and June 27, 1997:
<TABLE>
June 26, 1998 June 27, 1997
- --------------------------------------------------------------------------------
Current assets:
<S> <C> <C>
Accounts receivable $ 150 $ 817
Notes receivable 981 --
Inventory -- 1,181
Deferred tax assets 1,602 4,013
Other assets 156 4
- --------------------------------------------------------------------------------
2,889 6,015
- --------------------------------------------------------------------------------
Current liabilities:
Accounts payable -- (342)
Accrued warranty and other (2,806) (3,551)
Allowance for disposal of discontinued operations (600) (3,375)
- --------------------------------------------------------------------------------
(3,406) (7,268)
- --------------------------------------------------------------------------------
Net current liabilities of discontinued operations $ (517) $(1,253)
- --------------------------------------------------------------------------------
Noncurrent assets:
Property, plant and equipment $ -- $ 1,498
Other assets -- 17
- --------------------------------------------------------------------------------
-- 1,515
- --------------------------------------------------------------------------------
Noncurrent liabilities: -- --
- --------------------------------------------------------------------------------
Net noncurrent assets of discontinued operations $ -- $ 1,515
- --------------------------------------------------------------------------------
</TABLE>
C. Marketable Securities
Marketable securities as of June 26, 1998, and June 27, 1997, consisted of the
following:
<TABLE>
Gross
Amortized Unrealized Fair
Cost Holding Losses Value
- -------------------------------------------------------------------------------
June 26, 1998:
Available-for-sale:
<S> <C> <C> <C>
Municipal bonds $ 366 $ (12) $ 354
Equity securities 2 -- 2
- -------------------------------------------------------------------------------
$ 368 $ (12) $ 356
- -------------------------------------------------------------------------------
June 27, 1997:
Available-for-sale:
Municipal bonds $ 382 $ (24) $ 358
Equity securities 1 -- 1
- -------------------------------------------------------------------------------
$ 383 $ (24) $ 359
- -------------------------------------------------------------------------------
</TABLE>
Maturities of investment securities classified as available-for-sale at June 26,
1998, were as follows:
<TABLE>
Cost Value
- -------------------------------------------------------------------------------
Available-for-sale:
<S> <C> <C>
Due after one year through five years $ 366 $ 354
Equity securities 2 2
- -------------------------------------------------------------------------------
$ 368 $ 356
- -------------------------------------------------------------------------------
</TABLE>
D. Inventories
<TABLE>
June 26, 1998 June 27, 1997
- --------------------------------------------------------------------------
<S> <C> <C>
Finished goods $ 2,850 $ 1,436
Work-in-process 1,755 3,346
Raw materials 12,770 14,358
- --------------------------------------------------------------------------
$17,375 $19,140
- --------------------------------------------------------------------------
<FN>
Included in the amounts above are reserves of $1,987 at June 26, 1998, and
$1,233 at June 27, 1997.
</FN>
</TABLE>
<TABLE>
E. Property, Plant and Equipment
June 26, 1998 June 27, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Land $ 468 $ 468
Building and improvements under capital lease 1,727 1,727
Buildings 10,683 10,090
Machinery and equipment under capital lease 39 110
Machinery and equipment 41,515 33,586
Leasehold improvements 875 751
- ------------------------------------------------------------------------------
55,307 46,732
Less accumulated depreciation and amortization 27,556 21,672
- ------------------------------------------------------------------------------
$27,751 $25,060
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
F. Intangible Assets
June 26, 1998 June 27, 1997
- ------------------------------------------------------------------------------
Cost of intangibles:
<S> <C> <C>
Goodwill - DataCable B.V $ -- $ 224
Patents and trademarks 1,045 --
Licensing costs 250 --
- ------------------------------------------------------------------------------
1,295 224
- ------------------------------------------------------------------------------
Less accumulated amortization:
Goodwill - DataCable B.V $ -- $ 224
Patents and trademarks -- --
Licensing costs -- --
- ------------------------------------------------------------------------------
-- 224
- ------------------------------------------------------------------------------
Net book value $1,295 $ --
- ------------------------------------------------------------------------------
</TABLE>
G. Line-of-Credit
At June 26, 1998, the Company had no short-term borrowings outstanding on its
revolving line-of-credit. On this line-of-credit, the Company may borrow the
lesser of $23,000 or a percentage of eligible accounts receivable and inventory.
The borrowings bear interest at various rates generally equal to the London
Interbank Offered Rate (LIBOR) plus 1.10% and require compliance with certain
covenants. The weighted-average interest rates paid on the line-of-credit
borrowings were approximately 7.2% and 7.1% for fiscal years 1998 and 1997,
respectively. Interest is payable in 30 days as billed. The line-of-credit
agreement is committed through October 30, 1998. Accounts receivable and
inventory collateralize the borrowings. Based upon the Company's analysis of
eligible accounts receivable and inventory, approximately $17,740 was available
to borrow as of June 26, 1998. The line-of-credit balance at June 27, 1997, was
$3,466.
<TABLE>
H. Long-term Debt
June 26, 1998 June 27, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Notes payable $4,909 $5,646
Capital lease obligations 1,458 1,555
- ------------------------------------------------------------------------------
6,367 7,201
Less current portion 854 834
- ------------------------------------------------------------------------------
$5,513 $6,367
- ------------------------------------------------------------------------------
</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.
Certain property, plant and equipment collateralize the borrowing. The principal
balance at June 26, 1998, was $300.
The Company 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. Certain property, plant and equipment collateralize the
borrowing. The principal balance at June 26, 1998, was $1,647.
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 commitments. Two notes evidence the funding. 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. Certain equipment collateralizes the borrowing. The
principal balances at June 26, 1998, were $412 and $2,550, 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 Reedsville, 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.
Long-term debt at June 26, 1998, had scheduled maturities as follows:
<TABLE>
Fiscal year ending:
<S> <C>
1999 $ 854
2000 875
2001 895
2002 916
2003 529
Thereafter 2,298
- ------------------------------------------------------------------------------
$6,367
- ------------------------------------------------------------------------------
</TABLE>
Total interest paid on the line-of-credit (described in Note G) and long-term
debt was $335, $304 and $958 for fiscal years ended 1998, 1997 and 1996,
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>
1999 $ 440
2000 435
2001 427
2002 386
2003 313
Thereafter 773
- ------------------------------------------------------------------------------
$2,774
- ------------------------------------------------------------------------------
</TABLE>
Rent expense relating to continuing operations was $859, $748 and $682 for
fiscal years ended 1998, 1997 and 1996, 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 either 20 or 25
percent per year beginning one year after the date of grant. Options granted to
non-employee directors are exercisable one year after grant. Certain options
held by the Chairman are exercisable immediately.
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 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 123, the Company's
net income (loss) and net income (loss) per share would have been adjusted to
the pro forma amounts indicated below:
<TABLE>
Year ended
- ----------------------------------------------------------------------------------
June 26, 1998 June 27, 1997 June 28, 1996
- ----------------------------------------------------------------------------------
Net income (loss):
<S> <C> <C> <C>
As reported $ 8,245 $(6,178) $ 5,919
Pro forma $ 6,977 $(6,396) $ 5,614
Net income (loss) per share:
Basic
As reported $ 0.90 $ (0.65) $ 0.62
Pro forma $ 0.76 $ (0.67) $ 0.59
Diluted
As reported $ 0.88 $ (0.64) $ 0.60
Pro forma $ 0.74 $ (0.66) $ 0.57
</TABLE>
The per share weighted-average fair values of stock options granted during
fiscal years 1998, 1997 and 1996 were $9.81, $4.28 and $9.29, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighed-average assumptions: Fiscal year 1998-expected dividend yield
0%, risk-free interest rate of 5.72%, a volatility factor of the expected market
price of the Company's common stock of .4913, and a weighted-average expected
life of approximately 4 years: 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 1998, 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 26,
1998, June 27, 1997, and June 28, 1996, and changes during the years ended on
those dates is presented below: <TABLE> Fiscal years ended:
June 26, 1998 June 27, 1997 June 28, 1996
---------------------- ------------------------ ---------------------
Weighted-Average Weighted-Average Weighted-Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
---------------------- ------------------------ ---------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 751,449 $ 14.71 776,542 $ 15.08 752,460 $ 11.41
Granted 836,404 $ 12.86 118,000 $ 14.99 233,265 $ 22.33
Exercised (33,531) $ 7.80 (27,205) $ 8.32 (147,243) $ 7.82
Canceled (136,062) $ 15.35 (115,888) $ 19.02 (61,940) $ 15.02
---------- --------- ---------
Outstanding at end of year 1,418,260 $ 13.72 751,449 $ 14.71 776,542 $ 15.08
---------- --------- ---------
Options exercisable at end of year 470,950 433,292 344,841
</TABLE>
The following table summarizes information about the Company's stock option
plans as of June 26, 1998:
<TABLE>
Options Outstanding Options Exercisable
--------------------------------------------------------------------- -----------------------------------
Range of Number Outstanding Weighted-Avg. Weighted-Avg. Number Exercisable Weighted-Avg.
Exercise Prices at 06/26/98 Remaining Contractual Life Exercise Price at 06/26/98 Exercise Price
--------------------------------------------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C>
$2.75 to $8.38 229,910 4.6 years $ 6.61 227,620 $ 6.60
$8.50 to $14.13 401,066 7.0 years $10.30 60,986 $ 11.47
$14.375 to $19.75 545,269 7.9 years $14.87 39,655 $ 15.59
$20.12 to $25.50 166,600 7.6 years $21.85 100,956 $ 21.85
$25.75 to $31.25 75,415 7.0 years $27.35 41,733 $ 27.33
--------- -------
1,418,260 7.0 years $13.72 470,950 $ 13.10
--------- -------
</TABLE>
J. Income Taxes
The total income tax expense (benefit) is allocated as follows:
<TABLE>
Year ended
June 26, 1998 June 27, 1997 June 28, 1996
- -------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 3,447 $ 1,446 $ 4,280
Results of discontinued operations -- (2,752) (1,505)
Gain (loss) on disposal of
discontinued operations (94) (1,974) --
------- -------- -------
$ 3,353 $(3,280) $ 2,775
------- -------- -------
</TABLE>
Income tax expense (benefit) from continuing operations consists of the
following components:
<TABLE>
Year ended
June 26, 1998 June 27, 1997 June 28, 1996
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 3,262 $ 1,493 $ 3,426
State 263 (97) 167
Foreign 39 (98) 282
- -----------------------------------------------------------------------------
3,564 1,298 3,875
- -----------------------------------------------------------------------------
Deferred: Federal (105) 133 356
State (12) 15 49
- -----------------------------------------------------------------------------
(117) 148 405
$ 3,447 $ 1,446 $ 4,280
- -----------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 26, 1998, and
June 27, 1997, relating to continuing operations are presented below:
<TABLE>
June 26, 1998 June 27, 1997
- -------------------------------------------------------------------------------
Gross deferred tax assets:
<S> <C> <C>
Accounts receivable, due to allowance for
doubtful accounts $ 144 $ 101
Inventories, due to additional costs for
tax purposes 168 143
Inventories, due to accrual for obsolescence 628 315
Vacation expense accrual for accounting purposes 385 358
Workers' compensation expense accrual for
accounting purposes 449 395
Warranty expense accrual for accounting purposes 583 762
Employee benefit plan accrual for accounting purposes 224 190
Alternative minimum tax credit carryforward 228 378
State net operating loss carryforward 206 100
Other 140 45
- -------------------------------------------------------------------------------
Total gross deferred tax assets 3,155 2,787
Less valuation allowance - -
- -------------------------------------------------------------------------------
Net total deferred tax assets 3,155 2,787
- -------------------------------------------------------------------------------
Gross deferred tax liabilities:
Plant and equipment principally due to differences
in depreciation (1,732) (1,482)
- -------------------------------------------------------------------------------
Total gross deferred tax liabilities (1,732) (1,482)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 1,423 $ 1,305
- -------------------------------------------------------------------------------
Reflected on attached consolidated balance sheets as:
Current deferred asset $ 2,797 $ 2,616
Non-current deferred liability, net (1,374) (1,311)
- -------------------------------------------------------------------------------
Net deferred tax assets $ 1,423 $ 1,305
- -------------------------------------------------------------------------------
</TABLE>
At June 26, 1998, the Company had a state net operating loss carryforward of
approximately $4,500, which is available to offset future state taxable income
through the fiscal year 2008. In addition, the Company has an alternative
minimum tax (AMT) credit carryforward of approximately $228, 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 Company's historical
and current pretax income, future reversals of existing temporary differences
and estimates of future taxable income, management believes it is more likely
than not that the recorded deferred tax assets will be realized.
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 $900 at June 26, 1998.
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 26, 1998 June 27, 1997 June 28, 1996
- ----------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0 % 35.0% 35.0%
State income taxes, net of federal tax 1.5 (1.7) 1.0
Tax effect of foreign income and losses - (2.8) 2.4
Tax effect of foreign sales corporation (2.7) (11.6) (4.1)
Permanent differences 0.2 3.0 (0.3)
Other (2.0) 3.5 (1.8)
- ----------------------------------------------------------------------------------
32.0% 25.4% 32.2 %
- ----------------------------------------------------------------------------------
</TABLE>
A tax benefit of $593, deriving from the Company's Foreign Sales Corporation
(FSC), was recorded in the third quarter of 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 $1,914, $1,071 and $2,646 in fiscal years 1998,
1997 and 1996, 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 fiscal year 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 $382 and $190 at June 26, 1998,
and June 27, 1997, 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 $659 and $559 at June 26, 1998, and June 27, 1997,
respectively.
Total expenses for these plans were $1,349, $1,375 and $1,341 for fiscal years
ended 1998, 1997 and 1996, respectively.
<TABLE>
L. Accrued Liabilities
June 26, 1998 June 27, 1997
- ------------------------------------------------------------------------------
<S> <C> <C>
Accrued incentive plan expense $ 1,716 $ -
Accrued vacation expense 1,435 1,358
Accrued salary expense 719 569
Accrued salary and sales tax expense 903 555
Accrued warranty expense 1,716 2,185
Accrued workers' compensation self-insurance expense 1,319 1,162
Accrued restructuring costs 625 -
Accrued other 1,812 996
- ------------------------------------------------------------------------------
$ 10,245 $ 6,825
- ------------------------------------------------------------------------------
</TABLE>
<TABLE>
M. Other Expense (Income)
Year ended
June 26, 1998 June 27, 1997 June 28, 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment income $ (27) $ (110) $ (114)
Loss (gain) on foreign currency transactions 164 (58) (166)
Amortization of intangibles - 22 45
Other, net 247 (104) (106)
- -------------------------------------------------------------------------------------------
$ 384 $ (250) $ (341)
- -------------------------------------------------------------------------------------------
</TABLE>
N. Concentration of Credit Risk
The Company's customers are primarily in the CATV industry. The Company performs
periodic credit evaluations of its customers' financial conditions and generally
does not require collateral. At June 26, 1998, and June 27, 1997, accounts
receivable from customers in the CATV industry were approximately $19,286 and
$18,307, 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 $47,098 (31%) in fiscal year 1998. Sales to one
customer were $48,026 (36%) in fiscal year 1997. Sales to two customers were
$24,966 (18%) and $25,792 (18%), respectively, in fiscal year 1996.
O. Commitments and Contingencies
The Company had an established letter of credit of $1,400 at June 26, 1998, for
its self-insured workers' compensation program.
<TABLE>
P. Quarterly Results of Operations (Unaudited)
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter(1) 1998
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $37,065 $37,185 $40,248 $37,646 $152,144
Gross profit 8,592 8,061 8,674 9,260 34,587
Income from
continuing operations 1,881 1,586 1,877 1,973 7,317
Discontinued operations - - 363 565 928
Net income 1,881 1,586 2,240 2,538 8,245
- ------------------------------------------------------------------------------------
Net income per share - (basic):
Continuing operations $ 0.21 $ 0.17 $ 0.20 $ 0.22 $ 0.80
Discontinued operations - - 0.04 0.06 0.10
Net income per share $ 0.21 $ 0.17 $ 0.24 $ 0.28 $ 0.90
- ------------------------------------------------------------------------------------
Net income per share - (diluted):
Continuing operations $ 0.20 $ 0.17 $ 0.20 $ 0.21 $ 0.78
Discontinued operations - - 0.04 0.06 0.10
Net income per share $ 0.20 $ 0.17 $ 0.24 $ 0.27 $ 0.88
- ------------------------------------------------------------------------------------
First Second Third Fourth
1997 Quarter Quarter Quarter Quarter(2) 1997
- ------------------------------------------------------------------------------------
Net sales $31,844 $30,701 $32,801 $36,595 $131,941
Gross profit 7,197 5,982 6,434 7,626 $27,239
Income from
continuing operations 1,533 563 1,346 815 4,257
Discontinued operations (774) (228) (1,182) (8,251) (10,435)
Net income (loss) 759 335 164 (7,436) (6,178)
- ------------------------------------------------------------------------------------
Net income (loss) per share - (basic):
Continuing operations $ 0.16 $ 0.06 $ 0.14 $ 0.09 $ 0.45
Discontinued operations ( 0.08) (0.03) (0.12) (0.89) (1.10)
Net income (loss) per share $ 0.08 $ 0.03 $ 0.02 $ (0.80) $ (0.65)
- ------------------------------------------------------------------------------------
Net income (loss) per share - (diluted):
Continuing operations $ 0.16 $ 0.06 $ 0.14 $ 0.09 $ 0.44
Discontinued operations (0.08) (0.03) (0.12) (0.89) (1.08)
Net income (loss) per share $ 0.08 $ 0.03 $ 0.02 $ (0.80) $ (0.64)
- ------------------------------------------------------------------------------------
<FN>
(1) Results from continuing operations for the fourth quarter of fiscal year
1998 include a provision for restructuring costs of $625. (2) 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
As previously reported in the Company's Annual Report for the fiscal year ended
June 27, 1997, on or about March 31, 1995, certain shareholders of the Company
filed a complaint in the United States District Court for the Eastern District
of Pennsylvania against the Company and its Chief Executive Officer alleging
violations of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934
and common law. On September 27, 1997, a tentative settlement was reached with
respect to this litigation, and the settlement amount was recorded in the
financial statements during the first quarter of fiscal year 1998. On July 14,
1998, the United States District Court for the Eastern District of Pennsylvania
approved the settlement reached by the parties and dismissed the case with
prejudice.
R. Segment Information
In fiscal year 1998, the Company operated in one industry segment, the
Electronic Distribution Products segment, which provides HFC equipment for
signal distribution applications primarily to the CATV market. In fiscal years
1997 and 1996, the Company operated in two industry segments: the Electronic
Distribution Products segment 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. On July 10, 1997, the Company announced the discontinuation of
its Digital Fiber Optics Transmission Products segment.
Information about industry segments for fiscal years 1998, 1997 and 1996 is as
follows:
<TABLE>
Continuing Discontinued
Operations Operations Total
- ------------------------------------------------------------------------------------------
Year Ended June 26, 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total revenue $ 152,144 $ - $ 152,144
- ------------------------------------------------------------------------------------------
Operating income $ 11,099 $ - $ 11,099
Identifiable assets at June 26, 1998 $ 75,518 $ 2,889 $ 78,407
Capital Expenditures $ 8,575 $ - $ 8,575
Depreciation and amortization $ 5,946 $ - $ 5,946
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 $ 7,530 $ 77,134
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 $ 70,648 $ 7,759 $ 78,407
Capital Expenditures $ 7,442 $ 586 $ 8,028
Depreciation and amortization $ 3,972 $ 755 $ 4,727
- ------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
The Company and subsidiaries operate in various geographic areas as indicated by
the following:
U.S. Canada Europe Eliminations Total
- ----------------------------------------------------------------------------------------------
Year Ended June 26, 1998
- ----------------------------------------------------------------------------------------------
Sales to unaffiliated
customers:
<S> <C> <C> <C> <C> <C>
Domestic $120,237 $ 1,635 $ 146 $ - $122,018
Export 30,126 - - - 30,126
Transfers between
geographic areas 798 - - (798) -
- ----------------------------------------------------------------------------------------------
Total Revenue $151,161 $ 1,635 $ 146 $ (798) $152,144
- ----------------------------------------------------------------------------------------------
Operating income $ 10,620 $ 290 $ 189 $ - $ 11,099
- ----------------------------------------------------------------------------------------------
Identifiable assets at
June 26, 1998 $ 74,283 $ 954 $ 281 $ - $ 75,518
- ----------------------------------------------------------------------------------------------
Capital Expenditures $ 8,574 $ 1 $ - $ - $ 8,575
- ----------------------------------------------------------------------------------------------
Depreciation and
amortization $ 5,910 $ 12 $ 24 $ - $ 5,946
- ----------------------------------------------------------------------------------------------
Year Ended June 27, 1997
- ----------------------------------------------------------------------------------------------
Sales to unaffiliated
customers:
Domestic $106,785 $ 1,523 $ 751 $ - $109,059
Export 22,882 - - - 22,882
Transfers between
geographic areas (95) - - 95 -
- ----------------------------------------------------------------------------------------------
Total Revenue $129,572 $ 1,523 $ 751 $ 95 $131,941
- ----------------------------------------------------------------------------------------------
Operating income $ 5,842 $ 162 $ 17 $ - $ 6,021
- ----------------------------------------------------------------------------------------------
Identifiable assets at
June 27, 1997 $ 67,464 $ 1,542 $ 598 $ - $ 69,604
- ----------------------------------------------------------------------------------------------
Capital Expenditures $ 5,852 $ 6 $ 26 $ - $ 5,884
- ----------------------------------------------------------------------------------------------
Depreciation and
amortization $ 4,847 $ 12 $ 51 $ - $ 4,910
- ----------------------------------------------------------------------------------------------
Year ended June 28, 1996
- ----------------------------------------------------------------------------------------------
Sales to unaffiliated
customers:
Domestic $ 84,792 $ 6,223 $ 5,968 $ - $ 96,983
Export 42,556 - - - 42,556
Transfers between
geographic areas 9,570 - - (9,570) -
- ----------------------------------------------------------------------------------------------
Total Revenue $136,918 $ 6,223 $ 5,968 $ (9,570) $139,539
- ----------------------------------------------------------------------------------------------
Operating income $ 11,596 $ 2,210 $ 448 $ - $ 14,254
Identifiable assets at
June 28, 1996 $ 65,539 $ 3,464 $ 1,645 $ - $ 70,648
- ----------------------------------------------------------------------------------------------
Capital Expenditures $ 7,414 $ 10 $ 18 $ - $ 7,442
- ----------------------------------------------------------------------------------------------
Depreciation and
amortization $ 3,848 $ 15 $ 109 $ - $ 3,972
- ----------------------------------------------------------------------------------------------
</TABLE>
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 12, 1998
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 26, 1998, and June 27, 1997, and
the related consolidated statements of operations, cash flows and shareholders'
equity for each of the years in the three-year period ended June 26, 1998. 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 audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 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 26, 1998, and June 27, 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 26, 1998, in conformity with generally accepted accounting
principles.
/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
August 12, 1998
<TABLE>
DIRECTORS & OFFICERS
Year first elected
Directors a director
<S> <C>
Richard E. Perry 1985
Chairman of the Board (2,4,5)
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. (1,2,4,5)
Javad K. Hassan 1997
President, J. K. Hassan Assoc. LLC (1,4,6)
Anne P. Jones, Esq. 1989
Telecommunications Consultant (1,3,4,5)
John J. Omlor 1989
President and Chief Executive Officer,
John J. Omlor Associates, Ltd. (2,4,6)
Dr. Frank Rusinko, Jr. 1990
Senior Scientist and Director,
Consortium for Premium Carbon Products
from Coal and Carbon Research Center,
College of Earth and Mineral Sciences
of The Pennsylvania State University (1,4,5,6)
Dr. James J. Tietjen 1987
Dean, School of Technology Management,
The Stevens Institute of Technology (3,4,6)
<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
(6) Member of the Technology Innovation Committee
</FN>
</TABLE>
<TABLE>
Directors Emeriti
<S> <C>
Joseph C. Bates 1982
Dr. John L. McLucas 1982
Dr. Marsh W. White 1963
</TABLE>
Officers
David A. Woodle
President and Chief Executive Officer
Edwin S. Childs
Vice President
Human Resources
David J. Eng
Senior Vice President
Sales
Lawrence R. Fisher, Jr.
Vice President
Engineering
Lynn D. Hutcheson
Senior Vice President
Engineering and Technology
Chris A. Miller
Vice President
Finance, Secretary and Treasurer
Donald F. Miller
Vice President
Operations and Manufacturing
Gerhard B. Nederlof
Senior Vice President
Marketing and Services
Joseph E. Zavacky
Controller and Assistant Secretary
CORPORATE DATA
Annual Meeting of Shareholders
October 13, 1998 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:
Quarter Ending Price
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
Quarter Ending Price
September 30, 1997 High 16 3/4
Low 8 13/16
December 31, 1997 High 18 1/4
Low 14
March 31, 1998 High 16
Low 12 7/8
June 30, 1998 High 19
Low 12 7/8
C-COR Electronics, Inc. has never paid a dividend. As of June 26, 1998, there
were 599 shareholders of record of Common Stock.
General Counsel
McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc.
State College, Pennsylvania
SEC Counsel
Ballard Spahr Andrews & Ingersoll, LLP
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 contact 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.
C-COR On The Web
C-COR's web site (http://www.c-cor.com) provides a vast array of information,
including company profile, news, product information, investor relations and
more.
M|I|S|S|I|O|N
S|T|A|T|E|M|E|N|T
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, to 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
31-36-536 4199
Fax 31-36-536 4255
DENVER OFFICE
12742 East Caley Avenue, Suite A
Englewood, CO 80111
303-799-1100
Fax 303-643-1743
CANADIAN OFFICE 377 MacKenzie Avenue, Unit 5 Ajax, Ontario L1S 2G2, Canada
905-427-0366 Fax 905-428-0927
REGIONAL SALES OFFICES
California, Colorado, Georgia, Indiana, Minnesota, Pennsylvania, North Carolina,
and Texas
Printed in the U.S.A.
All rights reserved.
(C) 1996, 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 12, 1998, included the related
financial statement schedule as of June 26, 1998, and for each of the years in
the three-year period ended June 26, 1998, 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 report, related to the consolidated
balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 26, 1998
and June 27, 1997, and the related consolidated statements of operations, cash
flows and shareholders' equity and related financial statement schedule for each
of the years in the three-year period ended June 26, 1998, which report is
incorporated by reference in the June 26, 1998 annual report on Form 10-K of
C-COR Electronics, Inc. and Subsidiaries.
/s/ KPMG Peat Marwick LLP
State College, Pennsylvania
September 24, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-26-1998
<PERIOD-END> JUN-26-1998
<CASH> 2,313
<SECURITIES> 356
<RECEIVABLES> 19,834
<ALLOWANCES> 430
<INVENTORY> 17,375
<CURRENT-ASSETS> 44,713
<PP&E> 55,307
<DEPRECIATION> 27,556
<TOTAL-ASSETS> 75,518
<CURRENT-LIABILITIES> 17,400
<BONDS> 0
0
0
<COMMON> 967
<OTHER-SE> 49,223
<TOTAL-LIABILITY-AND-EQUITY> 75,518
<SALES> 152,144
<TOTAL-REVENUES> 152,144
<CGS> 117,557
<TOTAL-COSTS> 23,104
<OTHER-EXPENSES> 384
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 335
<INCOME-PRETAX> 10,764
<INCOME-TAX> 3,447
<INCOME-CONTINUING> 7,317
<DISCONTINUED> 928
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,245
<EPS-PRIMARY> 0.90
<EPS-DILUTED> 0.88
</TABLE>
