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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 25, 1999
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( ) 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
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C-COR.net Corp.
(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
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None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.10 par value
Series A Junior Participating Preferred Stock Purchase Rights
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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 ((S)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 21, 1999, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was $370,620,624.
As of September 21, 1999, the Registrant had 12,312,162 shares of Common Stock
outstanding.
Documents Incorporated by Reference:
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1) 1999 Annual Report to Shareholders (Parts I, II and IV)
2) Proxy Statement dated September 21, 1999 (Part III)
PART I
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Item 1. Business
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Some of the information presented in this report contains forward-looking
statements made pursuant to the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995. These forward looking statements include, among
others, statements regarding the Corporation's ability to provide complete
network solutions, the demand for network integrity, the trend toward more fiber
in the network, global demand for the Corporation's products and services,
statements relating to the Corporation's business strategy and the Corporation's
ability to integrate Convergence.com Corporation ("Convergence" or
"Convergence.com") and Silicon Valley Communications, Inc. ("SVCI" or "Silicon
Valley Communications"). Forward-looking statements represent the Corporation's
judgement regarding future events. Although the Corporation believes it has a
reasonable basis for these forward looking statements, the Corporation cannot
guarantee their accuracy and actual results may differ materially from those the
Corporation anticipated due to a number of uncertainties, many of which we are
not aware. Factors which could cause actual results to differ from expectations
include, among others, capital spending patterns of the communications industry,
the Corporation's ability to develop new and enhanced products, if the AT&T
field trials with the Corporation's fiber optic products are not successful,
continued industry consolidation, the development of competing technology, the
Corporation's ability to achieve its strategic objectives and the Corporation's
ability to assimilate Convergence and SVCI. For additional information
concerning these and other important factors which may cause the Corporation's
actual results to differ materially from expectations and underlying
assumptions, please refer to the reports filed by the Corporation with the
Securities and Exchange Commission.
Introduction
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C-COR.net Corp. (the "Corporation) designs, manufactures and markets network
transmission products and provides services and support to information service
providers. The Corporation's principal customers are cable television system
operators who operate hybrid fiber coax ("HFC) networks for delivering video,
voice and data services. The Corporation's principal products are network
transmission equipment, including radio frequency ("RF") amplifiers and AM fiber
optic systems and nodes. The Corporation's services include network design,
activation, optimization, management and maintenance. The cable television
industry is undergoing both significant growth and change as a result of the
deregulation of the communications industry and demand by consumers for more and
better information services. The Corporation's strategy is to provide complete
network solutions to enable the Corporation's customers to meet the growing
demand for interactive broadband communication services, including high-speed
Internet access, telephony, and video on demand.
In fiscal years 1999 and 1998, the Corporation operated in one industry segment
broadly defined as the Electronics Distribution Products segment, which
represents the Corporation's continuing operations. In order to expand the
Corporation's product offering in the Electronics Distribution Products segment,
on September 17, 1999, the Corporation consummated a merger with SVCI, a
California corporation, whereby SVCI became a wholly-owned subsidiary of the
Corporation. This acquisition will enable the Corporation to broaden and
strengthen its network distribution product offering by adding advanced fiber
optic products to its existing RF and fiber optic equipment.
In addition, on July 9, 1999, the Corporation consummated a merger with
Convergence, whereby Convergence became a wholly-owned subsidiary of the
Corporation. The merger with Convergence will enable the Company to offer an
integrated package of network management and support services and products. As
a result of this merger with Convergence, in the next fiscal year, the
Corporation will operate in a business segment called Broadband Management
Services, which will provide Internet enabling technical services and support to
broadband operators in the United States.
In fiscal year 1997, the Corporation operated in two industry segments: the
Electronics Distribution Products segment and the Digital Fiber Optics
Transmission Products segment, which has been
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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-cable television markets. On July 10,
1997, the Corporation announced the discontinuance of its Digital Fiber Optics
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 Electronics Distribution Products
segment and Broadband Management Services 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, Santa
Clara, California, and Tijuana, Mexico. The Corporation operates a Network
Operations Center in Suwanee, Georgia, and administrative offices in Toronto,
Canada and Almere, The Netherlands. The Corporation also maintains 9 regional
sales offices throughout the United States and Asia.
Industry Overview
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Cable television system networks consist of a headend to receive television
signals, a transmission network to distribute the signal throughout the network
and connections from the transmission network to the subscribers. Historically,
these systems offered one-way only video service. Recently, the cable
television industry, like other parts of the communications industry, has been
undergoing substantial change as a result of:
. Deregulation that allows competition among communications companies,
including wireline and wireless telephone companies and cable operators, for
communications services;
. Demand by consumers for two-way, high-speed broadband communications to
accommodate Internet, telephony and other new information services; and
. Multiple technologies that attempt to address the need for high-speed local
loop connections, such as dense wave division multiplexing (DWDM), digital
subscriber lines (DSL) and local multipoint distribution service (LMDS).
For the cable television industry, these factors are resulting in:
. Upgrading existing cable networks to two-way, interactive broadband networks
to provide new services and to compete against other communications
technologies including DSL, LMD and direct broadcast satellite (DBS);
. Greater utilization of fiber optic technology, including DWDM into the
network;
. Consolidation among cable operators driven by the increased capital needs
of the system upgrades;
. Investments in cable operators by non-cable operators in an effort to compete
for both new and existing services and to provide a full range of
communication services; and
. Increased demand for more reliable cable networks resulting from the new
services being offered.
Strategy Overview
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The Corporation's comprehensive product line allows it to offer end-to-end
equipment for the three HFC network segments. The Corporation's Broadband
Management Services business segment provides its customers with a wide array of
services which work in conjunction with its equipment product line as well as
other product lines, such as network design, activation and performance
management.
The Corporation has been providing HFC distribution products and services and
customer support to cable operators for over 45 years. The Corporation's
customers include the largest cable multiple
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systems operators in the United States, many of the smaller domestic cable
operators, and several large cable operators internationally. As the
Corporation's customers upgrade their HFC networks to accommodate the Internet,
telephony and advanced digital services, its core business strategy is to
leverage its over 45 year legacy for quality and service, its strong customer
relationships and its extensive installed base of transmission equipment to
provide a full line of flexible, reliable and cost-effective network solutions.
The Corporation is seeking to implement this strategy through both internal
development of new products and services as well as acquisitions. Specific
aspects of the Corporation's strategy include:
Provide Comprehensive HFC Network Product Line. The Corporation's principal
product has been RF amplifiers which increase the power of an RF signal so that
it can be transmitted further in the network and used from "the headend to the
curb." The Corporation has undertaken initiatives to broaden its product line
to capture the additional investment being made by cable operators. First, in
December 1998, the Corporation introduced its NAVICOR family of optical node
products. Second, in July 1999, the Corporation acquired Convergence.com, which
allows the Corporation to resell headend and network equipment such as servers,
routers and cable modem termination systems that are required to transmit high-
speed data across cable networks. Third, in September, 1999, the Corporation
acquired Silicon Valley Communications which added advanced fiber optic headend
equipment and optical transmitters and receivers. The Corporation has delivered
these new products to enable next generation, fiber-rich, two-way HFC
architectures such as that being deployed in field trials by AT&T.
Leverage Extensive Installed Base of Equipment for Upgrade and Rebuild Sales.
The Corporation intends to leverage its large installed base of transmission
equipment in its customers' networks through upgrades, rebuilds and node size
reductions. Over the past four years the Corporation has shipped approximately
1 million RF amplifiers. The Corporation provides a more cost effective upgrade
path for its customers due to its ability to upgrade existing components for its
installed products base rather than requiring all new equipment. As the
Corporation's customers continue to upgrade their networks, the Corporation
believes that this path will provide it with a competitive advantage in
providing this equipment.
Provide Next Generation Network Management Services to Enhance Network
Integrity. The requirement for HFC network integrity and reliability has become
much greater as traffic and complexity increased and as networks become
increasingly used for critical communications such as telephony and electronic
commerce. However, current approaches to managing HFC networks focus on
monitoring limited, individual elements of the network such as the cable modem
or power supplies. Through the Corporation's network management software and
Network Operations Center, the Corporation can provide a comprehensive,
proactive view of the network from the set top box and/or modem to the headend.
The Corporation intends to continue developing its network management services
to address the various types of equipment and the unique characteristics of the
different information types that will be delivered over future HFC networks.
Deliver Total Network Solutions to Meet Cable Operator's Emerging Broadband
Needs. The Corporation believes that it is able to offer a broad network
solution to cable operators by delivering a comprehensive line of equipment and
the network services that these cable operators need to offer additional and
improved services to their subscribers. The Corporation is able to design the
network to enhance reliability, deliver the equipment and software, furnish
installation and activation services, and provide ongoing network management and
support services.
Increase International Sales. The Corporation is currently supplying products
and services to a number of large international customers, including cable
operators in Canada, Europe, Asia and Latin America. The Corporation intends to
invest in further developing its international distribution channels and in
providing localized versions of our products. With its broadened product and
service offering, the Corporation intends to supply comprehensive network
solutions to these and other operators in various international markets who
generally prefer to purchase products and services from suppliers offering a
more complete product line.
Products and Services
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HFC Products
An HFC network connects a central information source, typically referred to as
the headend, to individual residential users through a physical plant of fiber
optic and coaxial cables and a variety of electrical and fiber optic devices
that transmit, receive, modulate, and amplify the signals as they move through
the network. A typical HFC network consists of three major segments: the
headend, the node and the RF plant. The Corporation offers a full range of
products for each of these segments.
Headend Equipment
The headend receives information from a satellite transmission, gateway to the
Internet or telephony network or other source and converts this information to
laser modulated optical signals for transmission across the network. Larger
networks feature both primary headends and a series of secondary headends or
hubs. The Corporation offers a broad range of headend equipment that features
advanced technology.
Nodes
The general function of the node in the HFC network architecture is to convert
information from optical signals to RF signals to prepare the information for
distribution to the home. The Corporation offers a family of node products
under the NAVICOR brand name that are upgradeable, scalable, modular and fully
integrated with our RF amplifiers. This allows RF amplifiers to be upgraded to
become nodes and simple nodes to be upgraded to become telecommunication nodes
with narrowcasting and redundant configurations. Narrowcasting refers to
tailoring content for certain subscribers by dedicating wavelengths to that
content. The optical components of the nodes are designed to fit into the lid
or cover of the housing so that upgrades from amplifiers to nodes are easily
accomplished by replacing the lid.
Recently, the Corporation introduced a new family of fiber optic nodes, the
MuxNode and the MiniNode, that are used in architecture designed for node sizes
of 50 to 100 homes
RF Plant
The RF plant is comprised of the products that transmit information between the
nodes and the residential users. These products are essentially RF amplifiers
that come in various configurations such as trunks, bridgers, and line
extenders. A trunk is used to handle a large amount of information in a network
in which the node is further from the home. A bridger splits the signal to send
it to a greater number of destinations. Line extenders move the information to
the home.
The following table summarizes our major products and their primary functions
and features:
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Product
Segment Our Products Function and Features
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Headend Universal Chassis . Houses components of the headend equipment
. Features modular one and three rack design
. Compact design maximizes limited headend rack space
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1310nm and 1550nm Transmitters . Convert RF signals to laser modulated optical signals
. Incorporate predistortion and linearization technology
. Satisfy primary channel requirements for North America,
Latin America and parts of Asia and Europe
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Erbium Doped Fiber . Used to amplify optical signals
Amplifiers (EDFA) . Suitable for wave division multiplexing (WDM) and dense
wave division multiplexing (DWDM)
. Used for both analog and digital applications
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Forward Path Receiver . Converts optical signals to RF signals
. Features low noise contribution for clear signal conversion
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Return Path Transmitter . Conveys digital and video return path signals
. Used for data monitoring and other interactive applications
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Dual Return Path Receiver . Plug in module that includes two independent return path receivers
. Receives digital and video return path signals
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Nodes NAVICOR Quadrant Node/Bridger . Provides four optical transmitters and four optical receivers
. Includes a variety of reverse path transmitters for data,
telephony and video services
. Modular design increases operating flexibility
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NAVICOR Flexnet Nodes . Can be configured with single or dual optical receivers and
transmitters
. Available in cost effective version for less complex networks
Node Reverse Path . Available in Fabry-Perot and distributed feedback versions
Transmitters For analog and digital applications.
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RF Plant FlexNet Trunk . High performance, high capacity amplifier splitter
with three outputs
. Configurable for a variety of applications in the network
. Available in 750 and 862 MHz bandwidth versions
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FlexNet Terminating . Amplifier/splitter with two distribution outputs
Bridger . Configurable for a variety of applications in the network
. Available in 750 and 862 MHz bandwidth versions
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NAVICOR and FlexNet . Used to transmit information at the end of the line to
Line Extenders residential users
. Available in 750 and 862 MHz bandwidth versions
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I-Flex Amplifiers . European version of the FlexNet product line
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New HFC Products
MuxNode and MiniNode. The Corporation has introduced two new fiber optic
products, which have recently begun field trials with AT&T's LightWire(TM)
Neighborhood Broadband System in Salt Lake City, Utah. The Corporation believes
these two products, the MuxNode and the MiniNode, are key components of the next
generation of HFC architecture. This architecture provides for the broader
deployment of fiber into the network, thereby providing increased bandwidth and
greater network reliability. The MuxNode is an advanced, scalable, bi-
directional fiber optic network device. The MuxNode is used to transmit and
receive fiber optic signals to up to twelve MiniNodes. The MiniNode is a high
output receiver, which replaces many of the amplifiers in the network and is
designed to serve approximately 50 to 100 homes. The MiniNodes feature multiple
forward and reverse paths that support analog video, digital video, high-speed
data and telephone applications. This new architecture is designed to
facilitate high-speed, interactive broadband communications, that allow
operators to provide new and enhanced services to customers with greater network
reliability.
The MuxNode and MiniNode feature DWDM technology which allows multiple signal
wavelengths to be transmitted at the same item across the network. This
increases the volume of information that can be conveyed over the network. It
also allows cable operators flexibility in tailoring content for individual
subscribers by dedicating certain wavelengths to that content, for example,
video on demand.
Broadband Management Services
The Corporation also offers a broad array of services to assist our customers in
operating reliable networks with high integrity. These services include design,
activation, network management and optimization, and ongoing support, repair and
maintenance.
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Network Design. Network design involves providing a customized plan for high-
reliability and cost-effective HFC network upgrades and rebuilds. The
customized plan takes into account the current state of the network and the
target applications including such factors as channel capacity, two-way
requirements, performance specifications, powering needs, high-speed data
transmission, Internet access and network management options. The plan details
the quantity, type and configuration of equipment required in the headend as
well as throughout the remainder of the network. Deliverables include design
services, highly accurate maps, bill-of-materials and custom drafting.
Activation Services. Activation services are required for a newly installed or
upgraded network to become operational. They include activation/energizing,
sweep and balance and proof of performance testing. The purpose of these
services is to identify and correct any problems that may exist within the newly
configured system and to validate that the construction is sound and the system
is operating optimally.
Network Management Software. The Corporation's network management software
offering, CNM System 2, is a third generation product that automatically
identifies new units in the network and receives signals from intelligent agents
that provide early notice of equipment and other network related problems. CNM
System 2 is based on industry standards, which facilitate use with numerous
network elements and maximize interoperability with other software applications.
The Corporation's NAVICOR and I-Flex product lines are fully integrated with CNM
System 2.
The Corporation has implemented additional network management software in its
Network Operations Center in Suwanee, Georgia. This software facilitates
proactive monitoring and management of networks by identifying usage trends,
pinpointing customers that consume large amounts of bandwidth for special
billing, and providing real-time fault detection and provisioning advice. The
Center's software collects data and other information from cable modems
installed in the home thereby increasing the amount and reliability of data
available to proactively manage the network. The Corporation is currently
working to integrate its CNM System 2 software with the Network Operations
Center software to provide a more comprehensive network management product both
for use in its Network Operations Center and for licensing to customers.
Network Management Services. Through its Network Operations Center, the
Corporation is currently providing a number of network management services to
smaller cable operators. These services include server management, RF
technician help-desk support and end-user help-desk support as well as the basic
monitoring the overall network integrity. Server management monitors the
servers and routers installed in the customer headend that control the flow of
high-speed data traffic. This service includes remote backups, problem
diagnosis and secondary service. RF technician help-desk support uses the cable
modems as telemetry devices and aids the operator in troubleshooting, problem
diagnosis and maintenance of the RF cable plant. End-user help-desk services
take inbound calls from cable company subscribers with problems and questions on
Internet service and browser network applications.
Network Operations Center Consulting and System Integration Services. The
Corporation provides program management, engineering and technical resources to
cable operators to assist them in the design, development, implementation and
operation of their own network operations centers. Typical deliverables during
the planning and design phase include the site survey, business process
assessment, services architecture planning, customer capability assessment,
concept of operations document, systems architecture document and detailed bill-
of-materials. The Corporation will also procure and install all equipment and
software, including third party as well as the Corporation's equipment and
software. The Corporation offers customized software development to integrate
the network management software with other customer applications such as
billing, dispatching and geographic information systems.
Equipment Services Center. The Corporation's Equipment Service Center provides
repair and maintenance services on transmission equipment from all
manufacturers. Repair services include documentation of parts, labor and
problem identification. Upgrade services include such activities as bandwidth
increases and frequency changes.
Customers
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During the past fiscal year, the Corporation's cable television customers have
included almost all of the largest system operators in the United States. The
Corporation's largest customers during the fiscal year ended June 25, 1999, were
Time Warner and AT&T accounting for 28% and 17%, respectively, of net sales. 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. No other customers accounted for
10% or more of net sales during fiscal years 1997, 1998, and 1999, respectively.
Sales and Distribution
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Sales efforts are conducted from the Corporation's headquarters; from offices in
Europe; from 10 regional sales offices located throughout the United States,
Canada and Asia; and through numerous distributors around the world.
The Corporation sells its products and services in the United States through its
direct sales force, which is geographically organized. The Corporation
approaches its customers at both the corporate level and in their individual
cable systems. A highly qualified technical staff supports the Corporation's
sales force. They work closely with customers to design systems, develop
technical proposals and assist with installation and post-sale support.
International sales in Canada, Europe, Asia and Latin America are made through
the Corporation's direct sales force and through distributors.
Additionally, the Corporation provides 24 hours per day, 7 days per week,
technical support, both directly and through distributors, as well as training
for customers and distributors, as required, both in the Corporation's
facilities and on-site.
The Corporation's marketing organization develops strategies for product lines
and, in conjunction with the sales force, identifies evolving technical and
application needs of customers so that product development resources can be most
effectively and efficiently deployed to meet anticipated product requirements.
The marketing organization is also responsible for demand forecasting and
general support of the sales force, particularly at major accounts. The
Corporation has many programs in place to heighten industry awareness of the
Corporation and its products, including participation in technical conferences,
publication of articles in industry journals and exhibiting at trade shows.
For the fiscal year ended June 25, 1999, the Corporation's international sales
represented 11% of net sales. In the fiscal years ended June 26, 1998, and June
27, 1997, international sales were 21% and 19%, respectively, of net sales. See
the discussion of segment information in the Corporation's 1999 Annual Report to
Shareholders, Note R, incorporated herein by reference.
At June 25, 1999, the Corporation's backlog of orders was $52.8 million. At June
26, 1998, the Corporation's backlog of orders was $24.0 million, and at June 27,
1997, it was $34.9 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 page 17 of the Registrant's 1999
Annual Report to Shareholders.
Research and Product Development
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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 anticipate 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. During the past fiscal year, research and
product development expenditures were primarily directed at expanding the
Corporation's AM fiber optic technology, network management systems and RF
amplifier line. The
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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 25, 1999, June 26, 1998, and June 27, 1997,
the Corporation spent approximately $9,038,000, $7,459,000, and $5,681,000,
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 mentioned above
have been capitalized.
Competition
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The broadband communications markets are dynamic and highly competitive,
requiring of those companies that compete in these markets substantial
resources, skilled and experienced personnel and a capability to anticipate and
capitalize on change. The Corporation competes with other companies in each of
the markets in which it operates including, General Instrument, Scientific-
Atlanta, ADC Telecommunications, Antec International and Harmonics, some of
which are large publicly traded companies that may have greater financial,
technical and marketing resources than we do.
The Corporation's products are marketed with emphasis on their quality and are
generally priced competitively with other manufacturers' product lines. Product
reliability and performance, superior and responsive customer service, breadth
of product offering and an enhanced warranty program are several of the key
criteria for competition. Other bases for competition include pricing and
technological innovation.
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, however, 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.
Industry sources estimate that U.S. cable systems pass 97% of TV households in
the United States and in excess of 65% of those households are subscribers. In
face of this high consumer market penetration, there are alternative methods of
distributing entertainment video or information services to subscribers. All of
the methods compete, to a limited extent, with conventional Cable TV services.
The alternative distribution technologies include off-air broadcast service,
Multipoint Multichannel Distribution Service (MMDS), LMDS, Satellite Master
Antenna Television (SMATV), DSL and DBS.
Employees
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The Corporation had approximately 1,947 employees as of September 20, 1999, of
which approximately 68% 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 160 engineers with baccalaureate or more advanced
degrees and an additional 315 persons with at least two years of technical
college or military education equivalent to a two-year degree.
Suppliers
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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. Some components,
subassemblies and modules necessary for the manufacture and integration of our
product are obtained from a sole supplier or a limited group of suppliers. The
reliance on sole or limited suppliers, particularly foreign suppliers, involves
several risks, including a potential inability to obtain an adequate supply of
required components or subassemblies and reduced control over pricing, quality
and timely delivery of components. The Corporation has experienced no
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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.
Business Combinations
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On July 9, 1999, the Corporation consummated a merger with Convergence, a
Georgia corporation, whereby Convergence became a wholly-owned subsidiary of the
Corporation. The merger will enable the Corporation to offer an integrated
package of network management and support services and products. The expertise
of Convergence in enabling high-speed digital data transmission and Internet
access over HFC networks by providing network design, activation and support
services will augment the Corporation's existing technical service capabilities.
In the merger, each outstanding share of common stock of Convergence was
converted into one share of the Corporation's common stock for an aggregate of
1,433,323 shares of the Corporation's common stock. Each outstanding warrant to
acquire Convergence common stock was converted into a warrant to acquire the
Corporation's common stock for an aggregate of warrants to acquire 366,930
shares of the Corporation's common stock. The merger was accounted for under the
pooling-of-interests method of accounting.
On September 17, 1999, the Corporation consummated a merger with SVCI, a
California corporation, whereby SVCI became a wholly-owned subsidiary of the
Corporation. This acquisition will enable the Corporation to broaden and
strengthen its network distribution product offering by adding advanced fiber
optic products to its existing radio frequency (RF) and fiber optic products.
In particular, the product offering will be strengthened with respect to head-
end fiber optic equipment. As consideration in the merger, each outstanding
share of common stock of SVCI was converted into the right to receive .094534
shares of the Corporation's common stock for an aggregate of 1,542,215 shares of
the Corporation's common stock (subject to reduction pursuant to certain escrow
arrangements). Outstanding stock options and warrants to acquire SVCI common
stock were converted into stock options and warrants to acquire the
Corporation's common stock, using the same conversion ratio (with appropriate
adjustment to the exercise price) for an aggregate of stock options and warrants
to acquire 387,227 shares of the Corporation's common stock. The merger was
accounted for under the pooling-of-interests method of accounting.
For additional information on Business Combinations, see the subsequent event
discussion in the Corporation's 1999 Annual Report to Shareholders, Note S,
incorporated herein by reference.
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 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 telephone companies, 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 in fiscal
year 1997.
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 22 through 25 of the Registrant's 1999 Annual
Report to Shareholders.
10
<PAGE>
Additional information regarding discontinued operations and segment performance
is incorporated by reference to Notes B (Discontinued Operations) and R (Segment
Information) on pages 28, 29, and 37 of the Registrant's 1999 Annual Report to
Shareholders.
Item 2. Properties
- -------------------
The Corporation operates the following principal facilities:
<TABLE>
<CAPTION>
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 Manufacturing 61,900 L
Santa Clara, California(2) Development Engineering
and Manufacturing 24,500 L
Suwanee, Georgia(3) Network Operations Center 13,650 L
Almere, The Netherlands Administrative Offices 5,100 L
</TABLE>
(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) On September 17, 1999, the Corporation consummated its merger with SVCI. As
a result of the merger, the Corporation operates a leased facility in Santa
Clara, California.
(3) On July 9, 1999, the Corporation consummated its merger with Convergence.
As a result of the merger, the Corporation operates a leased facility in
Suwanee, Georgia.
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.
Item 3. Legal Proceedings
- --------------------------
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
11
<PAGE>
Draft
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 25, 1999.
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 offices for
the next succeeding year and until their successors are duly elected and
qualified. The listing immediately following this paragraph gives certain
information about the Corporation's executive officers, including the age,
present position, and business experience during the past five years.
Name Age Position/Experience
---- --- ------------------------------------------------
Richard E. Perry 69 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 43 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.
David R. Ames 50 Sr. Vice President - Strategic Development and
Corporate Marketing since July 1999; Chairman,
President, and Chief Executive Officer and co-
founder, Convergence.com Corporation from May
1994 to July 1999.
Mary G. Beahm 39 Vice President - Human Resources since November
1998; Human Resources Consultant, Westinghouse
Electric Corporation from August 1987 to
November 1998.
David J. Eng 46 Sr. Vice President - Worldwide Sales since March
1997; Vice President-Sales, North, Central and
South America from August 1996 to March 1997;
Vice President-Sales & Marketing from August
1994 to August 1996. Director, Regional
Telephony Sales, Scientific Atlanta, Inc. from
March 1993 to July 1994; Regional Sales Manager,
Scientific Atlanta, Inc. from April 1985 to
February 1993.
Lawrence R. Fisher, Jr. 49 Vice President - Science and Technology since
July 1999. Vice President - Engineering from
August 1996 to July 1999; 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.
William T. Hanelly 43 Vice President - Finance, Secretary and
Treasurer since October 1998; Division
Controller, Raytheon E-Systems from May 1998 to
October 1998; Vice President-Finance, HRB
Systems from June 1994 to May 1998.
12
<PAGE>
Draft
Chris A. Miller 46 Vice President - Services since October 1998;
Vice President -Finance, Secretary and Treasurer
from July 1995 to October 1998; 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 57 Vice President - Operations & Manufacturing since
August 1995; Plant Manager from September 1987 to
August 1995.
Gerhard B. Nederlof 51 Sr. Vice President - Broadband Management
Services since July 1999, Sr. Vice President -
Marketing from September 1998 to July 1999; 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.
Terry L. Wright 49 Sr. Vice President-Technology since July 1999;
Chief Technology Officer and co-founder,
Convergence.com Corporation from May 1994 to July
1999.
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 43 of the Registrant's 1999 Annual Report to Shareholders under the caption
"Stock Listing."
There were no sales of unregistered securities during fiscal year 1999.
Item 6. Selected Financial Data
- --------------------------------
The information required by this item is incorporated herein by reference to
page 3 of the Registrant's 1999 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 16 through 21 of the Registrant's 1999 Annual Report to Shareholders.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
- --------------------------------------------------------------------
Not Applicable.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The following consolidated financial statements are filed as part of this
report.
(1) The information with respect to Consolidated Financial Statements of C-
COR.net Corp.(without reflecting the pooling-of-interest combinations
with Convergence and SVCI), required by this item is incorporated
herein by reference to pages 22 through 41 of the Registrant's 1999
Annual Report to Shareholders.
Item 9. Changes and Disagreements on Accounting and Financial Disclosure
- -------------------------------------------------------------------------
13
<PAGE>
Draft
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 3 and 4 of the Registrant's Proxy Statement dated
September 21, 1999.
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 25, 1999, its officers,
directors, and ten-percent shareholders complied with all applicable Section
16(a) filing requirements, with the exception of those filings listed on page 20
of the Registrant's Proxy Statement dated September 21, 1999, incorporated by
reference herein.
Item 11. Executive Compensation
- --------------------------------
The information required by this item is incorporated herein by reference to
pages 11 through 19 of the Registrant's Proxy Statement dated September 21,
1999.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this item is incorporated herein by reference to
pages 8 and 10 of the Registrant's Proxy Statement dated September 21, 1999.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information related to transactions or relationships requiring disclosure
under Regulation S-K, Item 404, during the fiscal year is incorporated herein
by reference to page 20 of the Registrant'' Proxy Statement dated September 21,
1999.
PART IV
-------
Item 14. Exhibits, Financial Statements and Reports on Form 8-K
- ----------------------------------------------------------------
(a) The following documents are filed as part of this report:
14
<PAGE>
Draft
(1) As indicated in Item 8 of Part II, the following financial statements
of the Registrant included in the Registrant's 1999 Annual Report to
Shareholders for the year ended June 25 1999, are incorporated by
reference to pages 22 through 41 of the Registrant's Annual Report to
Shareholders.
Consolidated Balance Sheets -- Years ended June 25, 1999, and June 26,
1998.
Consolidated Statements of Operations -- Years ended June 25, 1999,
June 26, 1998, and June 27, 1997.
Consolidated Statements of Cash Flows -- Years ended June 25, 1999,
June 26, 1998, and June 27, 1997.
Consolidated Statements of Shareholders' Equity -- Years ended June
25, 1999, June 26, 1998, and June 27, 1997.
Notes to Consolidated Financial Statements.
Report of KPMG 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 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
NUMBER DESCRIPTION OF DOCUMENTS
------ ------------------------
(2) (a) Agreement and Plan of Merger dated May 15, 1999 among C-COR
Electronics, Inc., C-COR Acquisition Corp. and Convergence.com
Corporation (incorporated by reference to the Registrant's 8-K
filed on July 26, 1999).
(2) (b) Agreement and Plan of Merger dated July 13, 1999 among C-COR.net
Corp., C-COR.net Acquisition Corp. and Silicon Valley
Communications, Inc.
(3) (a) Amended and Restated Articles of Incorporation of Registrant (the
"Articles of Incorporation") filed with the Secretary of State of
the Commonwealth of Pennsylvania on February 19, 1981.
(3) (b) Amendment to the Articles of Incorporation of Registrant filed with
the Secretary of State of the Commonwealth of Pennsylvania on
November 14, 1986.
(3) (c) Amendment to the Articles of Incorporation filed with the Secretary
of State of the Commonwealth of Pennsylvania on September 21, 1995.
(3) (d) Amendment to the Articles of Incorporation filed with the Secretary
of State of the Commonwealth of Pennsylvania on July 9, 1999.
15
<PAGE>
Draft
(3) (e) Bylaws of Registrant, as amended through August 17, 1999.
(4) (a) 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).
(4) (b) Rights Agreement, dated as of August 17, 1999, between C-COR.net
Corp. and American Stock Transfer and Trust Co, as Rights Agent,
including the Form of Statement with Respect to Shares as Exhibit
A, the Form of Right Certificate as Exhibit B, and the Summary of
Rights as Exhibit C (incorporated by Reference to Registrant's 8-K
filed on August 30, 1999.
(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
16
<PAGE>
Draft
(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) 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) (r) 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) (s) 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) (t) 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) (u) Amended and Restated Employment Agreement dated October 16, 1995,
between the Registrant and Richard E. Perry (incorporated by
reference to Exhibit
17
<PAGE>
Draft
(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) (v) 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) (w)(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) (w)(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) (x)(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) (x)(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) (y) 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 Comission
File No. 0-10726).
(10) (z) 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 Comission
File No. 0-10726).
(10) (aa) Note 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) (bb) 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) (cc) 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) (dd) 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).
18
<PAGE>
Draft
(10) (ee) Supplemental Retirement Plan Participation Agreement dated
February 23, 1998, between the Registrant and Lynn D. Hutcheson
(incorporated by reference to Exhibit (10) (oo) to the
Registrant's Form 10-K for the year ended June 26, 1998,
Securities and Exchange Comission File No. 0-10726).
(10) (ff) Employment Agreement dated June 22, 1998, between the Registrant
and David A. Woodle (incorporated by reference to Exhibit (10)
(rr) to the Registrant's Form 10-K for the year ended June 26,
1998, Securities and Exchange Comission File No. 0-10726).
(10) (gg) Fiscal Year 1999 Profit Incentive Plan (incorporated by
reference to Exhibit (10) (ss) to the Registrant's Form 10-K for
the year ended June 26, 1998, Securities and Exchange Comission
File No. 0-10726).
(10) (hh) C-COR Electronics, Inc. Incentive Plan (incorporated by
reference to Exhibit (10) (tt) to the Registrant's Form 10-K for
the year ended June 26, 1998, Securities and Exchange Comission
File No. 0-10726).
(10) (ii) Supplemental Retirement Plan Participation Agreement dated
November 9, 1998, between the Registrant and Mary G. Beahm.
(10) (jj) Change of Control Agreement dated November 9, 1998, between the
Registrant and Mary G. Beahm.
(10) (kk) Form of Indemnification Agreement dated November 9, 1998,
between the Registrant and Mary G. Beahm.
(10) (ll) Supplemental Retirement Plan Participation Agreement dated
October 19, 1998, between the Registrant and William T. Hanelly.
(10) (mm) Change of Control Agreement dated October 19, 1998, between the
Registrant and William T. Hanelly.
(10) (nn) Form of Indemnification Agreement dated October 19, 1998,
between the Registrant and William T. Hanelly.
(10) (oo) Credit Agreement dated August 9, 1999, between the Registrant
and Broadband Capital Corporation as borrowers, and The Banks
Parties Hereto From Time to Time and Mellon Bank, N.A. as Agent.
(10) (pp) Fiscal Year 2000 Profit Incentive Plan (PIP).
(10) (qq) Amended and Restated Employment Agreement dated September 14,
1999 between the Registrant and David A. Woodle.
(10) (rr) Employment Agreement dated July 9, 1999 between the Registrant
and David R. Ames.
(10) (ss) Employment Agreement dated July 9, 1999 between the Registrant
and Terry L. Wright.
(11) Statement re Computation of Earnings Per Share.
(13) Annual Report to Shareholders for the year ended June 25, 1999.
(21) Subsidiaries of the Registrant.
(23) (a) Consent of Independent Auditors of C-COR.net Corp.
19
<PAGE>
Draft
(23) (b) Consent of Independent Auditors of Silicon Valley
Communications, Inc.
(27) Financial Data Schedule.
(b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 1999:
On May 24, 1999, the Registrant filed a Form 8-K with the Securities and
Exchange Commission reporting that it had entered into an Agreement and
Plan of Merger with Convergence.com Corporation ("Convergence"), under
which Convergence will become a wholly-owned subsidiary of the
Corporation.
On May 26, 1999, the Registrant filed a Form 8-K with the Securities and
Exchange Commission reporting that it had executed a letter of intent to
acquire Silicon Valley Communication, Inc.
(c) Exhibits: See (a) (3) above.
20
<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.net Corp.
(Registrant)
September 23, 1999 /s/ DAVID A. WOODLE
---------------------------
David A. Woodle, President and
Chief Executive Officer
(principal executive 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 23rd day of September 1999.
/s/ RICHARD E. PERRY /s/ JOHN J. OMLOR
- ------------------------------------ -------------------------------
Richard E. Perry, Director, Chairman John J. Omlor, Director
/s/ DONALD M. COOK, JR. /s/ FRANK RUSINKO JR.
- ------------------------------------ -------------------------------
Donald M. Cook, Jr., Director Frank Rusinko, Jr., Director
/s/ I.N. RENDALL HARPER, JR. /s/ J.J TIETJEN
- ------------------------------------ -------------------------------
I. N. Rendall Harper, Jr., Director James J. Tietjen, Director
/s/ ANNE P. JONES /s/ WILLIAM T. HANELLY
- ------------------------------------ -------------------------------
Anne P. Jones, Director William T. Hanelly, Vice
President-Finance, Secretary and
Treasurer (principal financial
officer)
/s/ Joseph E. Zavacky
--------------------------------
Joseph E. Zavacky, Controller
(principal accounting officer0
21
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
COL. A COL. B COL. C
- ----------------------------------------------------------------------------------------------------------
ADDITIONS
-----------------------------
DESCRIPTION Balance at Charged Charged to
Beginning to Costs Costs Accounts-
of Period and Expenses Describe
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended June 25, 1999
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 430,000 $ 253,000 $0
Inventory Reserve - Continuing Operations 1,987,000 1,549,000 0
Inventory Reserve - Discontinued Operations 845,000 0 0
--------------------------------------------
$ 3,262,000 $ 1,802,000 $0
============== ============= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,716,000 $ 1,083,000 $0
Product Warranty Reserve - Discontinued Operations 2,291,000 (301,000) 0
Workers' compensation self-insurance 1,319,000 837,000 0
Allowance for Discontinued Operations 600,000 (475,000) 0
--------------------------------------------
$ 5,926,000 $ 1,144,000 $0
============== ============= ==============
Year ended June 26, 1998
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 510,000 $ (79,000) $0
Inventory Reserve - Continuing Operations 1,233,000 1,674,000 0
Inventory Reserve - Discontinued Operations 3,630,000 (1,573,000) 0
--------------------------------------------
$ 5,373,000 $ 22,000 $0
============== ============= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 2,185,000 $ 966,000 $0
Product Warranty Reserve - Discontinued Operations 3,429,000 1,283,000 0
Workers' compensation self-insurance 1,162,000 921,000 0
Allowance for Discontinued Operations 3,375,000 0 0
--------------------------------------------
$ 10,151,000 $ 3,170,000 $0
============== ============= ==============
Year ended June 27, 1997
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 355,000 $ 157,000 $0
Inventory Reserve - Continuing Operations 1,112,000 1,323,000 0
Inventory Reserve - Discontinued Operations 305,000 3,418,000 0
--------------------------------------------
$ 1,772,000 $ 4,898,000 $0
============== ============= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,724,000 $ 2,310,000 $0
Product Warranty Reserve - Discontinued Operations 0 4,028,000 0
Workers' compensation self-insurance 704,000 1,068,000 0
Allowance for Discontinued Operations 0 3,375,000 0
--------------------------------------------
$ 2,428,000 $10,781,000 $0
============== ============= ==============
</TABLE>
<TABLE>
<CAPTION>
COL. A COL. D COL. E
- ------------------------------------------------------------------------------------------------
DESCRIPTION Deductions- Balance at
Describe End
of Period
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Year ended June 25, 1999
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 13,000 (1) $ 670,000
Inventory Reserve - Continuing Operations 1,513,000 (2) 2,023,000
Inventory Reserve - Discontinued Operations 845,000 (2) 0
-------------------------------------
$ 2,371,000 $ 2,693,000
============= ======= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,175,000 (3) $ 1,624,000
Product Warranty Reserve - Discontinued Operations 1,580,000 (3) 410,000
Workers' compensation self-insurance 432,000 (4) 1,724,000
Allowance for Discontinued Operations 0 (5) 125,000
------------------------------------
$ 3,187,000 $ 3,883,000
============= ======= ==============
Year ended June 26, 1998
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 1,000 (1) $ 430,000
Inventory Reserve - Continuing Operations 920,000 (2) 1,987,000
Inventory Reserve - Discontinued Operations 1,212,000 (2) 845,000
-------------------------------------
$ 2,133,000 $ 3,262,000
============= ======= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,435,000 (3) $ 1,716,000
Product Warranty Reserve - Discontinued Operations 2,421,000 (3) 2,291,000
Workers' compensation self-insurance 764,000 (4) 1,319,000
Allowance for Discontinued Operations 2,775,000 (5) 600,000
$ 7,395,000 $ 5,926,000
============= ======= ==============
Year ended June 27, 1997
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 2,000 (1) $ 510,000
Inventory Reserve - Continuing Operations 1,202,000 (2) 1,233,000
Inventory Reserve - Discontinued Operations 93,000 (2) 3,630,000
-------------------------------------
$ 1,297,000 $ 5,373,000
============= ======= ==============
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,849,000 (3) $ 2,185,000
Product Warranty Reserve - Discontinued Operations 599,000 (3) 3,429,000
Workers' compensation self-insurance 610,000 (4) 1,162,000
Allowance for Discontinued Operations 0 3,375,000
$ 3,058,000 $10,151,000
============= ======= ==============
(1)Uncollectible accounts written off, net of recoveries. (4)Workers compenstation claims paid.
(2)Inventory disposals. (5)Expenses for Discontinued Operations incurred from
(3)Warranty claims honored during year. measurement date to disposal date.
Note: Unless otherwise indicated, reserves relate to
continuing operations.
</TABLE>
<TABLE>
<CAPTION>
Year ended June 26, 1998
Reserves deducted from assets to which they apply
<S> <C> <C> <C>
Allowance for Doubtful Accounts $ 1,000 (1) $ 430,000
Inventory Reserve - Continuing Operations 920,000 (2) 1,987,000
Inventory Reserve - Discontinued Operations 1,212,000 (2) 845,000
------------------------------------
2,133,000 $ 3,262,000
====================================
Reserves not deducted from assets
Product Warranty Reserve - Continuing Operations $ 1,435,000 (3) $ 1,716,000
Product Warranty Reserve - Discontinued Operations 2,421,000 (3) 2,291,000
Workers' compensation self-insurance 764,000 (4) 1,319,000
Allowance for Discontinued Operations 2,775,000 (5) 600,000
------------------------------------
$ 7,395,000 $ 5,926,000
====================================
Year ended June 27, 1997
Reserves deducted from assets to which they apply:
Allowance for Doubtful Accounts $ 2,000 (1) $ 510,000
Inventory Reserve - Continuing Operations 1,202,000 (2) 1,233,000
Inventory Reserve - Discontinued Operations 93,000 (2) 3,630,000
------------------------------------
$ 1,297,000 $ 5,373,000
====================================
Reserves not deducted from assets:
Product Warranty Reserve - Continuing Operations $ 1,849,000 (3) $ 2,185,000
Product Warranty Reserve - Discontinued Operations 599,000 (3) 3,429,000
Workers' compensation self-insurance 610,000 (4) 1,162,000
Allowance for Discontinued Operations 0 3,375,000
------------------------------------
$ 3,058,000 $ 10,151,000
====================================
</TABLE>
<PAGE>
Independent Auditors' Report
The Board of Directors and Stockholders
C-COR.net Corp:
Under date of August 16, 1999, we reported on the consolidated balance sheets of
C-COR.net Corp. as of June 25, 1999 and June 26, 1998, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the years in the three-year period ended June 25, 1999, which are
incorporated by reference herein. In connection with our audits of the
aforementioned consolidated financial statements, we also audited the related
consolidated financial statement schedule included herein. 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.
KPMG LLP
State College, Pennsylvania
August 16, 1999
<PAGE>
Exhibit 2(b)
AGREEMENT AND PLAN OF MERGER
Dated as of July 13, 1999
among
C-COR.net Corp.
C-COR.net Acquisition Corp.
and
Silicon Valley Communications, Inc.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE I THE MERGER
SECTION 1.1 The Merger.................................................................... 1
SECTION 1.2 Effective Time of the Merger.................................................. 1
ARTICLE II THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation..................................................... 2
SECTION 2.2 Bylaws........................................................................ 2
SECTION 2.3 Officers...................................................................... 2
ARTICLE III CONVERSION OF SHARES
SECTION 3.1 Consideration................................................................. 2
SECTION 3.2 Conversion of Company Securities in the Merger................................ 3
SECTION 3.3 Escrow Agreement.............................................................. 4
SECTION 3.4 Exchange of Certificates...................................................... 5
SECTION 3.5 Dissenting Shareholders....................................................... 7
SECTION 3.6 Closing....................................................................... 7
SECTION 3.7 Closing of the Company's Transfer Books....................................... 8
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND SUBSIDIARY
SECTION 4.1 Organization and Qualification................................................ 8
SECTION 4.2 Capitalization................................................................ 9
SECTION 4.3 Authority; Non-Contravention; Approvals....................................... 10
SECTION 4.4 Reports and Financial Statements.............................................. 11
SECTION 4.5 Investment.................................................................... 11
SECTION 4.6 Events Subsequent to Last Form 10-Q........................................... 12
SECTION 4.7 Pooling and Tax Deferred Reorganization Matters............................... 12
SECTION 4.8 Disclosure.................................................................... 12
SECTION 4.9 Brokers....................................................................... 13
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 5.1 Organization and Qualification................................................ 13
SECTION 5.2 Capitalization................................................................ 14
SECTION 5.3 Employees..................................................................... 14
SECTION 5.4 Subsidiaries.................................................................. 14
SECTION 5.5 Authority; Non-Contravention; Approvals....................................... 15
SECTION 5.6 Financial Statements.......................................................... 16
SECTION 5.7 Events Subsequent to Year End Financial Statements............................ 16
SECTION 5.8 Books of Account.............................................................. 18
SECTION 5.9 Absence of Undisclosed Liabilities............................................ 18
SECTION 5.10 Proxy Statement............................................................... 19
SECTION 5.11 Litigation.................................................................... 19
SECTION 5.12 No Violation of Law........................................................... 19
SECTION 5.13 Compliance with Agreements.................................................... 20
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
SECTION 5.14 Taxes........................................................................ 20
SECTION 5.15 Employee Benefit Plans; ERISA................................................ 21
SECTION 5.16 Labor Matters; Labor Controversies........................................... 22
SECTION 5.17 Environmental Matters........................................................ 23
SECTION 5.18 Title to Assets.............................................................. 25
SECTION 5.19 Company Shareholders' Approval............................................... 25
SECTION 5.20 No Excess Parachute Payments................................................. 25
SECTION 5.21 Trademarks and Intellectual Property......................................... 26
SECTION 5.22 Contracts, Obligations and Commitments....................................... 28
SECTION 5.23 Year 2000 Compliance......................................................... 29
SECTION 5.24 Pooling and Tax Deferred Reorganization Matters.............................. 30
SECTION 5.25 Transactions with Related Parties............................................ 31
SECTION 5.26 Insurance.................................................................... 31
SECTION 5.27 Guaranties................................................................... 32
SECTION 5.28 Bank Accounts................................................................ 32
SECTION 5.29 Business Relations........................................................... 32
SECTION 5.30 Potential Conflicts of Interest.............................................. 32
SECTION 5.31 Inventory.................................................................... 33
SECTION 5.32 Suppliers and Customers...................................................... 33
SECTION 5.33 Indebtedness................................................................. 33
SECTION 5.34 Minute Books................................................................. 34
SECTION 5.35 Assets and Properties Complete............................................... 34
SECTION 5.36 Powers of Attorney........................................................... 34
SECTION 5.37 Investors.................................................................... 34
SECTION 5.38 Brokers...................................................................... 34
SECTION 5.39 Disclosure................................................................... 34
SECTION 5.40 Affiliates................................................................... 35
ARTICLE VI CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger........................ 35
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending
the Merger................................................................... 36
SECTION 6.3 Control of the Company's Operations.......................................... 37
SECTION 6.4 Control of Parent's or Subsidiary's Operations............................... 37
SECTION 6.5 Negotiations With Others..................................................... 37
ARTICLE VII ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information........................................................ 39
SECTION 7.2 Shareholders' Approvals...................................................... 39
SECTION 7.3 ASR 135 Agreement............................................................ 40
SECTION 7.4 Expenses and Fees............................................................ 40
SECTION 7.5 Agreement to Cooperate....................................................... 40
SECTION 7.6 Public Statements............................................................ 40
SECTION 7.7 Notification of Certain Matters.............................................. 41
SECTION 7.8 Directors' and Officers' Indemnification..................................... 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
SECTION 7.9 Mandatory Registration........................................................ 41
SECTION 7.10 Parent Common Stock........................................................... 42
SECTION 7.11 Acquisition of Common Stock................................................... 43
SECTION 7.12 Exhibits and Schedules........................................................ 43
SECTION 7.13 Transition.................................................................... 43
SECTION 7.14 Company Warrants.............................................................. 43
SECTION 7.15 Company Options............................................................... 44
SECTION 7.16 Confidentiality and Noncompetition Agreements................................. 44
SECTION 7.17 Compliance with Securities Law................................................ 44
ARTICLE VIII CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the Merger.................... 44
SECTION 8.2 Conditions to Obligation of the Company to Effect the Merger.................. 45
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to Effect
the Merger.................................................................... 46
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination................................................................... 48
SECTION 9.2 Effect of Termination......................................................... 49
SECTION 9.3 Waiver........................................................................ 49
ARTICLE X REMEDIES FOR BREACHES
SECTION 10.1 Survival of Representations and Warranties.................................... 49
ARTICLE XI GENERAL PROVISIONS
SECTION 11.1 Notices....................................................................... 49
SECTION 11.2 Interpretation................................................................ 50
SECTION 11.3 Entire Agreement; Miscellaneous............................................... 51
SECTION 11.4 Governing Law................................................................. 51
SECTION 11.5 Counterparts.................................................................. 51
SECTION 11.6 Parties In Interest........................................................... 51
SECTION 11.7 Exhibits and Schedules........................................................ 51
SECTION 11.8 Amendment of Agreement........................................................ 51
SECTION 11.9 Severability.................................................................. 51
SECTION 11.10 Assignment.................................................................... 52
SECTION 11.11 Gender and Number............................................................. 52
SECTION 11.12 No Third-Party Beneficiaries.................................................. 52
</TABLE>
-iii--
<PAGE>
SCHEDULES
Schedule 2.3 Officers and Directors of Surviving Corporation
Schedule 3.1(b) Capital Leases
Schedule 5.2(b) Unexpired Warrants
Schedule 4.2(d) Litigation
Schedule 4.2(c) Rights
Schedule 4.3(b) Authority; Non-Contravention; Approvals
Schedule 4.6 Subsequent Events
Schedule 5.1(a) Organization and Qualification
Schedule 5.2(a) Capital Stock of Company
Schedule 5.2(b) Rights
Schedule 5.3 Employees
Schedule 5.4 Subsidiaries
Schedule 5.5(b) Authority; Non-Contravention; Approvals
Schedule 5.7 Subsequent Events
Schedule 5.8 Books of Account
Schedule 5.9 Absence of Undisclosed by Liabilities
Schedule 5.11 Litigation
Schedule 5.12 No Violation of Law
Schedule 5.15 Employee Benefit Plans
Schedule 5.16(a) Employment Agreements
Schedule 5.16(b) Labor Controversies
Schedule 5.16(e) Arrears of Wages
Schedule 5.18 Title to Assets
Schedule 5.20 Severance Payments
Schedule 5.21(b) Intellectual Property Rights Infringements
Schedule 5.21(c) Company Intellectual Property Rights
Schedule 5.21(d) Company Intellectual Property
Schedule 5.22(a)(i) Contracts
Schedule 5.22(a)(ii) Status of Contracts
Schedule 5.22(b) Year 2000 Notices
Schedule 5.23 Year 2000
Schedule 5.25 Transactions with Related Parties
Schedule 5.26 Insurance
Schedule 5.28 Bank Accounts
Schedule 5.30 Conflicts of Interest
Schedule 5.32 Suppliers and Customers
Schedule 5.33 Indebtedness
Schedule 5.37(b) Investors
Schedule 7.3 Affiliates
Schedule 8.3(g) Resignations
-iv-
<PAGE>
EXHIBITS
Exhibit 1.2 Articles of Merger
Exhibit 3.2(a) Conversion Example
Exhibit 3.3 Escrow Agreement
Exhibit 7.3 ASR 135 Agreement
Exhibit 7.16 Confidentiality and Noncompetition Agreements
Exhibit 8.2(b) Matters to be Addressed in Opinion of Ballard Spahr Andrews
& Ingersoll, LLP
Exhibit 8.2(e) Tax Certificate of Parent and Subsidiary
Exhibit 8.3(b) Matters to be Addressed in Opinion of Fenwick & West LLP
Exhibit 8.3(i) Investor Questionnaire and Representation Agreement
Exhibit 8.3(m) Tax Certificate of Company
-v-
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of July 13, 1999 (the
"Agreement"), among C-COR.net Corp., a Pennsylvania corporation ("Parent"), C-
--------- ------
COR.net Acquisition Corp. a California corporation and a wholly owned subsidiary
of Parent ("Subsidiary") and Silicon Valley Communications, Inc., a California
----------
corporation (the "Company").
-------
W I T N E S S E T H:
WHEREAS the Boards of Directors of Parent, Subsidiary and the Company
have determined that the merger of the Subsidiary with and into the Company (the
"Merger") is consistent with and in furtherance of the long-term business
------
strategy of Parent and the Company and is fair to, and in the best interests of,
Parent and the Company and their respective shareholders; and
WHEREAS, Parent, Subsidiary and the Company intend the Merger to
qualify as a tax deferred reorganization under the provisions of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"), and to be treated as
----
a pooling of interests under Accounting Principles Board Opinion No. 16 ("APB
---
16"); and
- --
WHEREAS, in contemplation of the Merger, Parent has made loans to the
Company and has entered into a loan agreement with the Company to make
additional loans.
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements contained herein and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto, intending to be legally bound hereby, agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the conditions
of this Agreement, at the Effective Time (as defined in Section 1.2) in
accordance with the California General Corporation Law (the "CGCL"), Subsidiary
----
shall be merged with and into the Company and the separate existence of
Subsidiary shall thereupon cease. The Company shall be the surviving
corporation in the Merger and is hereinafter sometimes referred to as the
"Surviving Corporation."
---------------------
SECTION 1.2 Effective Time of the Merger. The Merger shall become
effective at such time (the "Effective Time") as shall be stated in Articles of
--------------
Merger, substantially in the form attached hereto as Exhibit 1.2 or such form as
-----------
is acceptable to the parties, to be filed with the Secretary of State of
<PAGE>
the State of California in accordance with the CGCL (the "Merger Filing"). The
-------------
Merger Filing shall be made simultaneously with or as soon as practicable after
the closing of the transactions contemplated by this Agreement in accordance
with Section 3.6.
ARTICLE II
THE SURVIVING CORPORATION
SECTION 2.1 Articles of Incorporation. The Articles of Incorporation
of the Surviving Corporation shall be amended and restated at and as of the
Effective Time to read as the Articles of Incorporation of the Subsidiary read
immediately prior to the Effective Time (except that the name of the Surviving
Corporation shall remain unchanged).
SECTION 2.2 Bylaws. The bylaws of the Surviving Corporation shall be
amended and restated at and as of the Effective Time to read as the bylaws of
the Subsidiary read immediately prior to the Effective Time (except that the
name of the Surviving Corporation shall remain unchanged).
SECTION 2.3 Officers. The officers and directors of the Surviving
Corporation shall be as designated in Schedule 2.3, and such officers and
------------
directors shall serve in accordance with the bylaws of the Surviving Corporation
until their respective successors are duly elected or appointed and qualified.
ARTICLE III
CONVERSION OF SHARES
SECTION 3.1 Consideration.
(a) Subject to the provisions of the Escrow Agreement to be dated as
of the Closing Date provided for in Section 3.3 (the "Escrow Agreement") among
----------------
Parent, the Company, the Representative and First Union National Bank, as escrow
agent (the "Escrow Agent"), the aggregate consideration to be paid by Parent in
------------
the merger has been calculated on the basis of the issuance by Parent of the
lesser of (a) 1,800,000 shares of its common stock, par value $0.10 per share
(the "Parent Common Stock") and (b) the number of shares of Parent Common Stock
-------------------
having a value of $45 million (based on the average closing price of the Parent
Common Stock for the 20 trading days prior to the date hereof), but in no event
less than 1,200,000 shares, in exchange for all of the Company Common Stock
currently outstanding plus the Company Common Stock issuable upon conversion of
the Company Preferred Stock currently outstanding and the Company Common Stock
issuable upon exercise of all options currently outstanding which vest on or
prior to June 30, 2001, all on the assumption that the Debt (as hereinafter
defined) of the Company does not exceed $7 million at the Effective Date.
(b) For purposes of this Agreement, the term "Debt" shall include any
----
debt for borrowed money, all remaining payments due under capital leases (except
for the capital leases listed on
2
<PAGE>
Schedule 3.1(b) attached hereto, conditional sales or title retention agreements
- ---------------
or any accounts payable in the ordinary course of business that are beyond
contractual terms or any employment compensation owing which is past due.
SECTION 3.2 Conversion of Company Securities in the Merger. At the
Effective Time, by virtue of the Merger and without any action on the part of
any holder of any shares of common stock, no par value, of the Company (the
"Company Common Stock"), upon the terms and subject to the conditions of this
--------------------
Agreement, and in accordance with applicable provisions of the laws of the
Commonwealth of Pennsylvania and State of California:
(a) Conversion of Shares. Each share of Company Common Stock, other
than shares, if any, for which dissenters' rights have been or will be perfected
in compliance with applicable law, shall be converted into shares of fully paid
and nonassessable Parent Common Stock at a conversion ratio of 0.098931 shares
of Parent Common Stock for each share of Company Common Stock, provided that if
the Debt of the Company exceeds $7 million on the Effective Date, the Conversion
Ratio shall be adjusted by multiplying it by a fraction equal to 1 minus a
fraction equal to the difference between the Debt of the Company at the
Effective Time and $7 million divided by $45 million. For clarification, an
example of the adjustment of the conversion ratio is included as Exhibit 3.2(a)
--------------
hereto. The conversion ratio calculated pursuant to this section is hereinafter
referred to as the "Conversion Ratio". Of the total shares of Parent Common
----------------
Stock issuable upon conversion of the Company Common Stock, 181,744 shares of
Parent Common Stock (the Escrow Securities (as defined below)) shall be issued
to the Escrow Agent and be subject to the terms of the Escrow Agreement and the
remainder shall be issuable to the holders of the Company Common Stock.
(b) Conversion of Company Warrants. Each unexpired warrant listed on
Schedule 5.2(b) (collectively, the "Company Warrants") to purchase Series B
- --------------- ----------------
Preferred Stock shall be converted into a warrant (the "Parent Warrants") to
---------------
purchase the number of shares of Parent Common Stock determined by multiplying
the number of shares of Company Common Stock that would have been issuable upon
exercise of such Company Warrants and the immediate conversion of the Series B
Preferred Stock received thereupon by the Conversion Ratio, and the exercise
price per share of Parent Common Stock for each such Warrant will equal the
exercise price of the Company Warrant immediately prior to the Effective Time
divided by the Conversion Ratio. If the foregoing calculation results in an
assumed Company Warrant being exercisable for a fraction of a share, then the
number of shares of Parent Common Stock subject to such warrant will be rounded
down to the nearest whole number with no cash being payable for such fractional
share. Other than as provided herein, the term, exercisability and all other
terms of the Company Warrants shall otherwise be unchanged.
(c) Conversion of Company Options. Each outstanding option
(collectively, the "Company Options") to purchase Company Common Stock granted
---------------
under Company's 1995 Stock Option Plan, as amended (the "Company Stock Option
--------------------
Plan"), and listed on Schedule 5.2(b) shall be converted into an option to
- ---- ---------------
purchase the number of shares of Parent Common Stock, determined by multiplying
the number of shares of Company Common Stock subject to such Company Option at
the Effective Time by the Conversion Ratio, and the exercise price per share for
each such Option will equal
3
<PAGE>
the exercise price of the Company Option immediately prior to the Effective Time
divided by the Conversion Ratio. If the foregoing calculation results in an
assumed option being exercisable for a fraction of a share, then the number of
shares of Parent Common Stock issuable upon exercise of such option will be
rounded down to the nearest whole number with no cash being payable for such
fractional share. Other than as provided herein, the term, exercisability,
vesting schedule and all other terms of the Company Options shall otherwise be
unchanged. Continuous employment with Company will be credited to an optionee
for purposes of determining the number of shares subject to exercise after the
Effective Time. Any option designated as an "incentive stock option" under
Section 422 of the Code ("ISO") shall retain such designation, and the parties
---
intend that, subject at all times to the actions of holders thereof, all options
bearing such designation shall continue to qualify as ISOs under the Code
notwithstanding any other provision of this Agreement. Parent will cause the
Parent Common Stock issuable upon exercise of the assumed Company Options to be
registered on Form S-8 of the Securities and Exchange Commission ("SEC") within
---
30 days (or such later date if required to comply with the federal securities
laws relating to the disclosure of financial statements) after the Effective
Time, will use its reasonable best efforts to maintain the effectiveness of such
registration statement for so long as such assumed Company Options remain
outstanding and will reserve a sufficient number of shares of Parent Common
Stock for issuance upon exercise thereof. Parent will administer the Company
Plan assumed pursuant to this Section 3.2 in a manner that complies with Rule
16b-3 promulgated by the SEC under the Securities Exchange Act of 1934
("Exchange Act").
------------
(d) Adjustments for Capital Changes. If prior to the Merger, Parent
or the Company recapitalizes through a split-up of its outstanding shares into a
greater number, or a combination of its outstanding shares into a lesser number,
reorganizes, reclassifies or otherwise changes its outstanding shares into the
same or a different number of shares of other classes (other than through a
split-up or combination of shares provided for in the previous clause), or
declares a dividend on its outstanding shares payable in shares or securities
convertible into shares, the number of shares of Parent Common Stock into which
the Company Common Stock are to be converted will be adjusted appropriately so
as to maintain the proportionate interests of the holders of the Company Common
Stock and the holders of Parent Common Stock.
(e) No share of Company Common Stock shall be deemed to have any
rights other than those set forth in this Section 3.2 after the Effective Time.
SECTION 3.3 Escrow Agreement.
(a) At the Closing of the Merger, Parent, the Company, the
Representative (as defined below) and the Escrow Agent will execute and deliver
the Escrow Agreement in substantially the form of Exhibit 3.3, and Parent will
-----------
issue and deliver to the Escrow Agent the number of shares of Parent Common
Stock equal to the sum of (i) the total number of shares issuable to the holders
of the Company Common Stock (the "Company Shareholders") multiplied by the 10%
--------------------
and (ii) 217,000 multiplied by the Conversion Ratio (such sum of (i) and (ii)
shall be rounded down to the nearest whole number of shares to be issued to each
such holder). The Parent Common Stock issuable to the Escrow Agent upon the
Closing of the
4
<PAGE>
Merger shall be referred to as the "Escrow Securities". The Escrow Securities
-----------------
will be represented by certificates issued in the name of the Escrow Agent.
(b) In the event that the Merger is approved by the Company
Shareholders as provided herein, the Company Shareholders shall, without any
further act, be deemed to have consented to and approved (i) the deposit of the
Escrow Securities with the Escrow Agent in accordance with the terms of the
Escrow Agreement, (ii) the appointment of Mary Fong as representative of the
Company Shareholders (the "Representative") under the Escrow Agreement and as
--------------
the attorney-in-fact and agent for and on behalf of each Company Shareholder
(other that Dissenting Shareholders (defined below)), and the taking by the
Representative of any and all actions and the making of any decisions required
or permitted to be taken by him under the Escrow Agreement (including, without
limitation, the exercise of the power to: authorize delivery to Parent of Escrow
Securities in satisfaction of claims by Parent; demand arbitration, agree to,
negotiate and enter into settlements and compromises and comply with orders of
courts and awards of arbitrators with respect to such claims; resolve any claim
made pursuant to the Escrow Agreement; and take all actions necessary in the
judgment of the Representative for the accomplishment of the foregoing) and
(iii) to all of the other terms, conditions and limitations in the Escrow
Agreement.
SECTION 3.4 Exchange of Certificates.
(a) From and after the Effective Time, all Company Common Stock shall
no longer be outstanding and shall automatically be cancelled and retired and
shall cease to exist, and each holder of a certificate representing shares of
Company Common Stock shall cease to have any rights with respect thereto, except
the right to receive in exchange therefor (subject to the provisions of the
Escrow Agreement), upon surrender thereof to American Stock Transfer & Trust
Company or such other agent designated by Parent (the "Exchange Agent"), a
--------------
certificate or certificates representing the number of whole shares of Parent
Common Stock to which such holder is entitled pursuant to Section 3.2.
(b) Notwithstanding any other provision of this Agreement, (i) until
holders or transferees of certificates theretofore representing shares of
Company Common Stock have surrendered them for exchange as provided herein, no
dividends shall be paid with respect to any Parent Common Stock represented by
such certificates, and (ii) without regard to when such certificates
representing shares of Company Common Stock are surrendered for exchange as
provided herein, no interest shall be paid on any Parent Common Stock dividends
(including the Escrow Securities (as defined in Section 3.3)). Upon surrender of
a certificate which immediately prior to the Effective Time represented shares
of Company Common Stock, there shall be paid to the holder of such certificate
the amount of any dividends which theretofore became payable since Closing, but
which were not paid by reason of the foregoing, with respect to the number of
whole shares of Parent Common Stock represented by the certificate or
certificates issued upon such surrender.
(c) Notwithstanding any other provision of this Agreement, no
certificates or scrip for fractional shares of Parent Common stock shall be
issued in the Merger and no Parent Common Stock dividend, stock split or
interest rate shall relate to any fractional security, and such fractional
interests shall not entitle the owner thereof to vote or to any other rights of
a security holder. The aggregate number of
5
<PAGE>
shares being issued to each holder of Company Common Stock shall be rounded down
to the nearest whole number.
(d) If any certificate for shares of Parent Common Stock is to be
issued in a name other than that in which the certificate for shares of Company
Common Stock surrendered in exchange therefor is registered, it shall be a
condition of such exchange that the certificate so surrendered shall be properly
endorsed and otherwise in proper form for transfer and the person requesting
such exchange shall have paid to Parent or its transfer agent any applicable
transfer or other taxes required by reason of such issuance; provided that, any
such transfer shall require the prior written consent of Parent.
(e) Promptly after the Effective Time, Parent shall make available to
the Exchange Agent the certificates representing shares of Parent Common Stock
required to effect the exchanges referred to in paragraph (a) above.
(f) Promptly after the Effective Time, the Exchange Agent shall mail
to each holder of record of a certificate or certificates that immediately prior
to the Effective Time represented outstanding shares of Company Common Stock
(the "Company Certificates") (i) a letter of transmittal (which shall specify
--------------------
that delivery shall be effected, and risk of loss and title to the Company
Certificates shall pass, only upon actual delivery of the Company Certificates
to the Exchange Agent), and (ii) instructions for use in effecting the surrender
of the Company Certificates in exchange for certificates representing shares of
Parent Common Stock. Upon surrender of Company Certificates for cancellation to
the Exchange Agent, together with a duly executed letter of transmittal and such
other documents as the Exchange Agent shall reasonably require, the holder of
such Company Certificates shall be entitled to receive in exchange therefor a
certificate representing that number of whole shares of Parent Common Stock into
which the shares of Company Common Stock theretofore represented by the Company
Certificates so surrendered shall have been converted pursuant to the provisions
of Section 3.2, less the number of shares of Parent Common Stock of such holder
deposited with the Escrow Agent, and the Company Certificates so surrendered
shall be cancelled. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto shall be liable to a holder of shares of Company Common
Stock for any shares of Parent Common Stock or dividends or distributions
thereon delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Promptly following the date which is nine months after the
Effective Time, the Exchange Agent shall deliver to Parent all certificates
(including certificates representing shares of any Parent Common Stock),
property and other documents in its possession relating to the transactions
described in this Agreement, and the Exchange Agent's duties shall terminate.
Thereafter, each holder of a Company Certificate may surrender such Company
Certificate to Parent and (subject to applicable abandoned property, escheat and
similar laws) receive in exchange therefor the Parent Common Stock to which such
person is entitled, without any interest thereon. Notwithstanding the foregoing,
none of the Exchange Agent, Parent, Subsidiary or the Surviving Corporation
shall be liable to a holder of Company Common Stock for any Parent Common Stock
delivered to a public official pursuant to applicable abandoned property,
escheat and similar laws.
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<PAGE>
(h) In the event any Company Certificate shall have been lost, stolen
or destroyed, upon the making of an affidavit of that fact by the person
claiming such Company Certificate to be lost, stolen or destroyed, the Surviving
Corporation shall issue in exchange for such lost, stolen or destroyed Company
Certificate the Parent Common Stock deliverable in respect thereof determined in
accordance with this Section 3.4. When authorizing such payment in exchange
therefor, the Board of Directors of Parent may, in its discretion and as a
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Company Certificate to give Parent such indemnity as it may
reasonably direct as protection against any claim that may be made against
Parent or the Surviving Corporation with respect to the Company Certificate
alleged to have been lost, stolen or destroyed.
SECTION 3.5 Dissenting Shareholders. Shares of Company Common Stock
held by Company Shareholders who have, prior to the taking of the vote of the
Company Shareholders on the Merger, filed with the Company written demand for
the appraisal of their shares of Company Common Stock in accordance with the
applicable provisions of the CGCL, (the "Dissenting Shareholders") shall not be
-----------------------
deemed to be converted into Parent Common Stock at the Conversion Ratio (such
nonconverting shares, the "Dissenting Shares") unless, and until such time as,
-----------------
such shareholders shall have withdrawn, failed to perfect, or shall have
effectively lost, their right to appraisal of or payment for their shares of
Company Common Stock under the CGCL, at which time such shares shall be
converted into the right to receive Parent Common Stock as provided in Section
3.2. The Company shall give Parent prompt notice of any demand received by the
Company for payment for shares of Company Common Stock from Dissenting
Shareholders, and Parent shall have the right to participate in all negotiations
and proceedings with respect to such demand. The Company agrees that it will
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demand for payment. Each
Dissenting Shareholder who becomes entitled, pursuant to the provisions of the
CGCL, to the payment of the value of his, her or its Dissenting Shares shall
receive payment therefor from Parent or Subsidiary (but only after the value
thereof shall have been agreed upon or finally determined pursuant to the terms
of this Agreement and as provided in the CGCL). In the event that any Dissenting
Shareholder shall have withdrawn, failed to perfect, or shall have effectively
lost, his right to appraisal of and payment for his, her or its Dissenting
Shares, Parent shall issue and deliver, upon surrender by such Dissenting
Shareholder of his, her or its certificate or certificates representing shares
of Company Common Stock, the shares of Parent Common Stock of which such
Dissenting Shareholder may then be entitled under and pursuant to this Agreement
minus the Escrow Securities attributable to such Dissenting Shareholder, which
shall be held by the Escrow Agent pursuant to the Escrow Agreement.
SECTION 3.6 Closing. The closing (the "Closing") of the transactions
-------
contemplated by this Agreement shall take place at the offices of Ballard Spahr
Andrews & Ingersoll, LLP, 1735 Market Street, 51/st/ Floor, Philadelphia,
Pennsylvania 19103 on the date and time specified by Parent and the Company that
the parties intend to be on or before the fifth business day after the
satisfaction or waiver of the last of the conditions set forth in Article VIII
and in no event later than November 30, 1999. The parties may agree in writing
to postpone the Closing Date and/or the Effective Time one time for a period of
up to 30 days (the date on which the Closing occurs is referred to in this
Agreement as the "Closing Date").
------------
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SECTION 3.7 Closing of the Company's Transfer Books. At and after
the Effective Time, holders of Company Common Stock immediately prior to the
Effective Time shall cease to have any rights as shareholders of the Company,
except for the right to receive shares of Parent Common Stock pursuant to
Section 3.2 and the Escrow Securities (if any) pursuant to Section 3.3 and the
terms of the Escrow Agreement. At the Effective Time, the stock transfer books
of the Company shall be closed and no transfer of shares of Company Common Stock
which were outstanding immediately prior to the Effective Time shall thereafter
be made. If, after the Effective Time, subject to the terms and conditions of
this Agreement, Company Certificates formerly representing Company Common Stock
are presented to Parent or the Surviving Corporation, they shall be cancelled
and exchanged for Parent Common Stock in accordance with this Article III.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PARENT AND SUBSIDIARY
Parent and Subsidiary each represent and warrant to the Company as of
the date hereof as follows:
SECTION 4.1 Organization and Qualification. Each of Parent and
Subsidiary is a corporation duly organized, validly existing and in good
standing or the local equivalent thereof under the laws of the state of its
incorporation and has the requisite power and authority to own, lease and
operate its assets and properties and to carry on its business as it is now
being conducted. Each of Parent and Subsidiary is qualified to do business and
is in good standing in each jurisdiction in which the properties owned, leased
or operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and be in
good standing will not, when taken together with all other such failures of
qualification have a material adverse effect on the business, operations,
properties, assets, condition (financial or other) or results of operations of
Parent and its subsidiaries, taken as a whole (a "Parent Material Adverse
-----------------------
Effect"). For purposes of this Agreement, "Parent Material Adverse Effect"
- ------ ------------------------------
shall not include (a) a change in the market price or trading volume of the
Parent Common Stock or (b) a failure by Parent to meet any published securities
analyst estimates of revenue or earnings for any period ending or for which
earnings are released on or after the date of this Agreement. True, accurate
and complete copies of each of Parent's and Subsidiary's Articles of
Incorporation and bylaws, in each case as in effect on the date hereof,
including all amendments thereto, have been delivered to the Company.
SECTION 4.2 Capitalization.
(a) As of the date of this Agreement, the authorized capital stock of
Parent consists of (i) 24,000,000 shares of Parent Common Stock, of which
10,629,919 shares were outstanding (which includes 1,433,323 shares of Parent
Common Stock which became issuable on July 9, 1999 in connection with Parent's
acquisition of Convergence.com Corporation) and (ii) 2,000,000 shares of
preferred stock, no par value, none of which is outstanding. As of the date of
this Agreement, there are issued and
8
<PAGE>
outstanding options to acquire 2,066,623 shares of Parent Common Stock. The
options to acquire 2,066,623 shares of Parent Common Stock described in the
previous sentence include options granted by Parent as of June 23, 1999 to
acquire up to 577,000 shares of Parent Common Stock, which is currently under
review by Parent's management, and options to acquire up to 125,000 shares of
Parent Common Stock which may be awarded to recently hired employees of Parent
and its subsidiaries. As of the date of this Agreement, there are outstanding
warrants to acquire 366,930 shares of Parent Common Stock. Also as of the date
of this Agreement, Parent is obligated to issue up to 11,000 shares of Parent
Common Stock upon achievement of certain performance objectives and 2,000 shares
of Parent Common Stock in connection with restricted stock grants under the C-
COR Electronics, Inc. Incentive Plan. All of the issued and outstanding shares
of Parent Common Stock are validly issued and are fully paid, nonassessable and
free of preemptive rights.
(b) The authorized capital stock of Subsidiary consists of 100 shares
of Subsidiary Common Stock, of which 100 shares are issued and outstanding,
which shares are owned beneficially and of record by Parent.
(c) Except pursuant to a shareholder rights plan, pursuant to Parent's
existing stock option plans, as set forth in Schedule 4.2(c) or as disclosed in
---------------
Parent SEC Reports (as defined in Section 4.4), as of the date hereof there are
(i) no outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion of exchange under any outstanding security, instrument or
other agreement, obligating Parent or any subsidiary of Parent to issue, deliver
or sell, or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of Parent or obligating
Parent or any subsidiary of Parent to grant, extend or enter into any such
agreement or commitment, and (ii) no voting trusts, proxies or other agreements
or understandings to which Parent and any subsidiary of Parent is a party or is
bound with respect to the voting of any shares of capital stock of Parent or any
subsidiary and there are no such trusts, proxies, agreements or understandings
by, between or among any of Parent's shareholders with respect to Parent Common
Stock. There are no outstanding or authorized stock appreciation rights, phantom
stock, profit participation stock purchase rights or similar rights to acquire
Parent Common Stock with respect to Parent.
(d) The shares of Parent Common Stock to be issued pursuant to this
Agreement have been duly authorized and when issued and delivered in accordance
with the terms and conditions of this Agreement will be validly issued, fully
paid and nonassessable and free of any pre-emptive rights.
SECTION 4.3 Authority; Non-Contravention; Approvals.
(a) Parent and Subsidiary each have all necessary corporate power and
authority to enter into this Agreement and, subject to the Parent Required
Statutory Approvals (as defined in Section 4.3(c)), to consummate the
transactions contemplated hereby. This Agreement has been approved by the
Boards of Directors of Parent and Subsidiary and the sole shareholder of
Subsidiary, and no other corporate proceedings on the part of Parent or
Subsidiary are necessary to authorize the execution and delivery of this
Agreement or the consummation by Parent and Subsidiary of the transactions
contemplated
9
<PAGE>
hereby. This Agreement has been duly executed and delivered by each of Parent
and Subsidiary and, assuming the due authorization, execution and delivery
hereof by the Company, constitutes a valid and legally binding agreement of each
of Parent and Subsidiary enforceable against each of them in accordance with its
terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by each of Parent and
Subsidiary do not violate, conflict with or result in a breach of any provision
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any lien, security interest,
charge or encumbrance upon any of the properties or assets of Parent or
Subsidiary under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of Parent or Subsidiary, (ii) any statute, law,
ordinance, rule, regulation, judgment, decree, order, injunction, writ, permit
or license of any court or governmental authority applicable to Parent or
Subsidiary or any of their respective properties or assets, or (iii) any note,
bond, mortgage, indenture, deed of trust, license, franchise, permit,
concession, contract, lease or other instrument, obligation or agreement of any
kind to which Parent or Subsidiary is now a party or by which Parent or
Subsidiary or any of their respective properties or assets may be bound. Except
as set forth in Schedule 4.3(b), the consummation by Parent and Subsidiary of
---------------
the transactions contemplated hereby will not result in any violation, conflict,
breach, termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence. Excluded from the foregoing sentences of this paragraph (b), insofar
as they apply to the terms, conditions or provisions described in clauses (ii)
and (iii) of the first sentence of this paragraph (b), are such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
liens, security interests, charges or encumbrances that would not, in the
aggregate, have a Parent Material Adverse Effect.
(c) Except for the making of the Merger Filing with the Secretary of
State of the State of California in connection with the Merger (the filing
referred to above as the "Parent Required Statutory Approvals"), no declaration,
-----------------------------------
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by Parent or Subsidiary or the
consummation by Parent or Subsidiary of the transactions contemplated hereby,
other than such declarations, filings, registrations, notices, authorizations,
consents or approvals which, if not made or obtained, as the case may be, would
not, in the aggregate, have a Parent Material Adverse Effect or affect
Subsidiary's ability to consummate the Merger.
(d) Except as disclosed in the Parent SEC Reports and on Schedule
--------
4.3(d), (i) there are no claims, suits, actions, or proceedings pending or, to
- ------
the knowledge of Parent, threatened, against, relating to or affecting the
Parent or any of its subsidiaries, before any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator that seek to
restrain the consummation of the Merger or which could reasonably be expected,
either alone or in the aggregate with all such claims, actions or proceedings,
to cause a Parent Material Adverse Effect, and (ii) neither the Parent nor any
of its subsidiaries is subject to any judgment, decree, injunction, rule or
order of any court, governmental
10
<PAGE>
department, commission, agency, instrumentality or authority, or any arbitrator
which prohibits or restricts the consummation of the transactions contemplated
by the Merger Agreement or would have any Parental Material Adverse Effect.
SECTION 4.4 Reports and Financial Statements. Since June 26, 1998,
Parent has filed with the SEC all forms, statements, reports and documents
(including all exhibits, amendments and supplements thereto) required to be
filed by it under each of the Securities Act of 1933, as amended (the
"Securities Act"), the Exchange Act, and the respective rules and regulations
---------------
thereunder, all of which, as amended if applicable, complied in all material
respects with all applicable requirements of the appropriate act and the rules
and regulations thereunder. Parent has previously delivered to the Company
copies of its (a) Annual Report on Form 10-K for the fiscal year ended June 26,
1998, as filed with the SEC, (b) proxy and information statements relating to
(i) all meetings of its shareholders (whether annual or special), and (ii)
actions by written consent in lieu of a shareholders' meeting from June 26, 1998
until the date hereof, and (c) all other reports, including quarterly reports,
or registration statements filed by Parent with the SEC since June 26, 1998
(other than Registration Statements filed on Form S-8) (clauses (a), (b) and (c)
are herein collectively referred to as the "Parent SEC Reports"). As of their
------------------
respective dates, the Parent SEC Reports did not contain any untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The audited consolidated financial
statements and unaudited interim consolidated financial statements of Parent
included in such reports (collectively, the "Parent Financial Statements") have
---------------------------
been prepared in accordance with generally accepted accounting principles
applied on a consistent basis (except as may be indicated therein or in the
notes thereto) and fairly present the financial position of Parent and its
subsidiaries as of the dates thereof and the results of their operations and
changes in financial position for the periods then ended, subject, in the case
of the unaudited interim financial statements, to normal year-end and audit
adjustments and any other adjustments described therein and the absence of
footnotes.
SECTION 4.5 Investment. Parent is not acquiring the Company Common
Stock with the view to or for sale in connection with any distribution thereof
within the meaning of the Securities Act.
SECTION 4.6 Events Subsequent to Last Form 10-Q. Except as set forth
on Schedule 4.6 and in the Parent SEC Reports, since the date of the last report
------------
filed by Parent on Form 10-Q there has not been any change which would have a
Parent Material Adverse Effect.
SECTION 4.7 Pooling and Tax Deferred Reorganization Matters.
(a) To Parent's knowledge, neither Parent nor any of its affiliates
has taken or agreed to take any, or will take any, action that would affect the
ability of Parent to account for the business combination to be effected by the
Merger as a pooling-of-interests or to treat the Merger as a tax deferred
reorganization pursuant to Section 368(a)(2)(E) of the Code.
11
<PAGE>
(b) There is no plan or intention by Parent or a person related to
Parent (within the meaning of Treas. Reg. (S) 1.368-1(e)(3)) to redeem (or to
acquire by means of purchase, exchange, or other transaction) any shares of
Parent Common Stock issued in the Merger.
(c) Following the Merger, the Surviving Corporation will hold at least
90 percent of the fair market value of Subsidiary's net assets and at least 70
percent of the fair market value of the gross assets held by Subsidiary as of
the Effective Time. For purposes of this representation, amounts paid by
Subsidiary to shareholders (if any) who receive cash or other property, amounts
used by Subsidiary to pay reorganization expenses, and all redemptions and
distributions (except for regular, normal dividends) made by Subsidiary after
the commencement of negotiations by the parties to this Agreement will be
included and treated as assets held by Subsidiary as of the Effective Time.
(d) As of the Effective Time, Subsidiary will not have outstanding any
warrants, options, convertible securities, or any other type of right pursuant
to which any person could acquire stock in Subsidiary that, if exercised or
converted, would affect Parent's retention of "control" of the Surviving
Corporation, as defined in Section 368(c) of the Code.
(e) Parent is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code and is not under the jurisdiction of a
court in a title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
(f) As of the Effective Time, the fair market value of the assets of
Parent and Subsidiary will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
SECTION 4.8 Disclosure. No representations and warranties by Parent
contained in this Agreement, and no statement made by Parent in this Agreement
or in any document listed in any Exhibit or Schedule to this Agreement or any
document or certificate furnished or to be furnished to the Company by Parent at
or prior to Closing pursuant hereto, contains or will contain on the Closing
Date any untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances in which they were made.
SECTION 4.9 Brokers. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the Merger or the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Parent other than Warburg Dillon Reed
LLC.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Subsidiary that the
statements contained in this Article V are correct and complete as of the date
of this Agreement and will be correct and complete as of the Closing Date (as
though made then and as though the Closing Date were substituted for the date of
this Agreement throughout this Article V), except as set forth in the various
Schedules identified below in this Article V delivered by the Company to the
Parent and Subsidiary on the date hereof (the "Disclosure Schedule"). Nothing
-------------------
in the Disclosure Schedule shall be deemed adequate to disclose an exception to
a representation or warranty made herein, unless the Disclosure Schedule
identifies the exception with particularity and describes the relevant facts in
detail. Without limiting the generality of the foregoing, the mere listing (or
inclusion of a copy) of a document or other item shall not be deemed adequate to
disclose an exception to a representation or warranty made herein (unless the
representation or warranty has to do with the existence of the document or other
item itself). As provided below, the Disclosure Schedule will be arranged in
paragraphs corresponding to the Sections and lettered paragraphs contained in
this Article V.
The Company represents and warrants to Parent and Subsidiary as
follows:
SECTION 5.1 Organization and Qualification.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of its incorporation and has the
requisite corporate power and authority to own, lease and operate its assets and
properties and to carry on its business as it is now being conducted. Except as
set forth on Schedule 5.1(a), the Company is qualified to do business and is in
---------------
good standing in each jurisdiction in which the properties owned, leased or
operated by it or the nature of the business conducted by it makes such
qualification necessary, except where the failure to be so qualified and in good
standing will not, when taken together with all other such failures, have a
Company Material Adverse Effect (as defined below). True, accurate and complete
copies of the Company's Amended and Restated Articles of Incorporation, as
amended, and bylaws, in each case as in effect on the date hereof, including all
amendments thereto, have been delivered to Parent.
(b) For purposes of this Agreement, "Company Material Adverse Effect"
-------------------------------
shall mean a material adverse effect in the business, operations, properties,
assets, condition (financial or other), results of operations of the Company and
its subsidiaries, taken as a whole or which will prevent (or would reasonably
be expected to prevent) the fundamental and basic operation of such business
after giving effect to the Merger contemplated by this Agreement.
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<PAGE>
SECTION 5.2 Capitalization.
(a) The authorized capital stock of the Company consists of (i)
21,000,000 shares of Company Common Stock, of which 4,855,746 shares are issued
and outstanding, (ii) 14,000,000 shares of preferred stock (the "Preferred
---------
Stock"), of which (A) 4,000,000 shares are designated as Series A Preferred
- -----
Stock, all of which are issued and outstanding and (B) 10,000,000 shares are
designated as Series B Preferred Stock, 7,345,000 of which are issued and
outstanding. All authorized capital stock and the holders of such capital stock
of the Company are set forth on Schedule 5.2(a). All issued and outstanding
---------------
shares of Company Common Stock and Preferred Stock are validly issued and are
fully paid, nonassessable and free of preemptive rights, and are held of record
as set forth in Schedule 5.2(a). Each holder of capital stock of the Company,
---------------
other than Parent, shall be referred to as a "Company Shareholder" and
-------------------
collectively as the "Company Shareholders." Neither the Company nor any
--------------------
subsidiary of the Company holds any shares of the capital stock of the Company.
(b) Except as set forth on Schedule 5.2(b), there are (i) no
---------------
outstanding subscriptions, options, calls, contracts, commitments,
understandings, restrictions, arrangements, rights or warrants, including any
right of conversion or exchange under any outstanding security, instrument or
other agreement and also including any rights plan or other anti-takeover
agreement, obligating the Company or any subsidiary of the Company to issue,
deliver or sell, or cause to be issued, delivered or sold or otherwise to become
outstanding, additional shares of the capital stock of the Company or obligating
the Company or any subsidiary of the Company to grant, extend or enter into any
such agreement or commitment, and (ii) no voting trusts, proxies or other
agreements or understandings to which the Company or any subsidiary of the
Company is a party or is bound with respect to the voting of any shares of
capital stock of the Company and there are no such trusts, proxies, agreements
or understandings by, between or among any of the Company's shareholders with
respect to Company Common Stock. There are no outstanding or authorized stock
appreciation rights, phantom stock, profit participation or similar rights with
respect to the Company.
SECTION 5.3 Employees. Schedule 5.3 sets forth each employee of the
------------
Company, each employment agreement that provides for the receipt of certain
consideration by an employee for his or her securities of the Company in the
event of a merger and each employment agreement that provides for any other
special rights which shall inure to an employee in the event of a merger;
SECTION 5.4 Subsidiaries. Schedule 5.4 sets forth the name and state
------------
of incorporation of each direct and indirect subsidiary (as defined below) of
the Company. Each direct and indirect subsidiary of the Company is duly
organized, validly existing and in good standing under the laws of its
jurisdiction of incorporation or organization and has the requisite power and
authority to own, lease and operate its assets and properties and to carry on
its business as it is now being conducted. Each subsidiary of the Company is
qualified to do business, and is in good standing, in each jurisdiction in which
the properties owned, leased or operated by it or the nature of the business
conducted by it makes such qualification necessary, except where the failure to
be so qualified and in good standing will not, when taken together with all such
other failures, have a Company Material Adverse Effect. All of the outstanding
shares of capital stock of each subsidiary of the Company are validly issued,
fully paid, nonassessable and
14
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free of preemptive rights and are owned directly or indirectly by the Company
free and clear of any liens, claims, encumbrances, security interests, equities,
charges and options of any nature whatsoever except as set forth in Schedule
--------
5.4. There are no subscriptions, options, warrants, rights, calls, contracts,
- ---
voting trusts, proxies or other commitments, understandings, restrictions or
arrangements relating to the issuance, sale, voting, transfer, ownership or
other rights with respect to any shares of capital stock of any subsidiary of
the Company, including any right of conversion or exchange under any outstanding
security, instrument or agreement.
As used in this Agreement, the term "subsidiary" shall mean, when used
----------
with reference to any person or entity, any corporation, partnership, joint
venture or other entity which such person or entity, directly or indirectly,
controls or of which such person or entity (either acting alone or together with
its other subsidiaries) owns, directly or indirectly, 50% or more of the stock
or other voting interests, the holders of which are entitled to vote for the
election of a majority of the board of directors or any similar governing body
of such corporation, partnership, joint venture or other entity.
SECTION 5.5 Authority; Non-Contravention; Approvals.
(a) The Company has all necessary corporate power and authority to
enter into this Agreement and, subject to the Company Shareholders' Approval (as
defined in Section 7.2) and the Company Required Statutory Approvals (as defined
in Section 5.5(c)), to consummate the transactions contemplated hereby. This
Agreement has been approved by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize the execution and delivery of this Agreement or, except for the
Company Shareholders' Approval, the consummation by the Company of the
transactions contemplated hereby. This Agreement has been duly executed and
delivered by the Company, and, assuming the due authorization, execution and
delivery hereof by Parent and Subsidiary, constitutes a valid and legally
binding agreement of the Company, enforceable against the Company in accordance
with its terms, except that such enforcement may be subject to (i) bankruptcy,
insolvency, reorganization, moratorium or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
(b) The execution and delivery of this Agreement by the Company do not
violate, conflict with or result in a breach of any provision of, or constitute
a default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of the Company or any of its
subsidiaries under any of the terms, conditions or provisions of (i) the
respective charters or bylaws of the Company or any of its subsidiaries, (ii)
any statute, law, ordinance, rule, regulation, judgment, decree, order,
injunction, writ, permit or license of any court or governmental authority
applicable to the Company or any of its subsidiaries or any of their respective
properties or assets, or (iii) any note, bond, mortgage, indenture, deed of
trust, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind to which the Company or any of
its subsidiaries is now a party or by which the Company or any of its
subsidiaries or any of their respective properties or assets may be bound.
Except as set forth in Schedule 5.5(b), the consummation by the Company of the
---------------
transactions
15
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contemplated hereby will not result in any violation, conflict, breach,
termination, acceleration or creation of liens under any of the terms,
conditions or provisions described in clauses (i) through (iii) of the preceding
sentence.
(c) Except for the making of the Merger Filing with the Secretary of
State of the State of California in connection with the Merger (the filing is
referred to as the "Company Required Statutory Approvals"), no declaration,
------------------------------------
filing or registration with, or notice to, or authorization, consent or approval
of, any governmental or regulatory body or authority is necessary for the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, other than such
declarations, filings, registrations, notices, authorizations, consents or
approvals which, if not made or obtained, as the case may be, would not, in the
aggregate, have a Company Material Adverse Effect.
SECTION 5.6 Financial Statements. The audited consolidated financial
statements of the Company for the year ended June 30, 1998 and unaudited interim
consolidated financial statements of the Company for the nine-month period ended
March 31, 1999 (collectively, the "Company Financial Statements") have been
----------------------------
prepared in accordance with generally accepted accounting principles applied on
a consistent basis (except as may be indicated therein or in the notes thereto)
and fairly present the financial position of the Company and its subsidiaries as
of the dates thereof and the results of their operations, cash flows and changes
in financial position for the periods then ended, subject, in the case of the
unaudited interim financial statements, to normal year-end and audit adjustments
and any other adjustments described therein and the absence of footnotes.
SECTION 5.7 Events Subsequent to Year End Financial Statements.
Except as set forth on Schedule 5.7, since the date of the Financial Statements
------------
for the Company and its subsidiaries for the year ended June 30, 1998, there has
not been any change which would have a Company Material Adverse Effect. Without
limiting the generality of the foregoing, since June 30, 1998:
(a) none of the Company or its subsidiaries has sold, leased,
transferred or assigned any of its assets, tangible or intangible, other than
for a fair consideration in the ordinary course of business;
(b) none of the Company or its subsidiaries has entered into any
agreement, contract, lease or license (or series of related agreements,
contracts, leases and licenses) either involving more than $250,000 or outside
the ordinary course of business;
(c) no party (including the Company or its subsidiaries) has
accelerated, terminated, modified or canceled any agreement, contract, lease or
license (or series of related agreements, contracts, leases and licenses)
involving more than $100,000 to which the Company or its subsidiaries is a party
or by which any of them is bound;
(d) none of the Company or its subsidiaries has imposed any security
interest, mortgage, pledge, lien, restriction, covenant, charge or encumbrance
of any kind or any character upon any of its assets, tangible or intangible,
involving more than $5,000 singly or $50,000 in the aggregate;
16
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(e) none of the Company or its subsidiaries has made any capital
expenditure (or series of related capital expenditures) either involving more
than $250,000 or outside the ordinary course of business;
(f) none of the Company or its subsidiaries has made any capital
investment in, any loan to or any acquisition of the securities or assets of,
any other person (or series of related capital investments, loans and
acquisitions);
(g) none of the Company or its subsidiaries has issued any note, bond
or other debt security or created, incurred, assumed or guaranteed any
indebtedness for borrowed money or capitalized lease obligations;
(h) none of the Company or its subsidiaries has canceled, compromised,
waived or released any right or claim (or series of related rights and claims);
(i) there has been no change made or authorized in the articles of
incorporation or bylaws of the Company or its subsidiaries;
(j) none of the Company or its subsidiaries has issued, sold or
otherwise disposed of any of its capital stock, or granted any options, warrants
or other rights to purchase or obtain (including upon conversion, exchange or
exercise) any of its capital stock;
(k) none of the Company or its subsidiaries has declared, set aside or
paid any dividend or made any distribution with respect to its capital stock
(whether in cash or in kind) or redeemed, purchased or otherwise acquired any of
its capital stock;
(l) none of the Company or its subsidiaries has experienced any
material damage, destruction or loss (whether or not covered by insurance) to
its property;
(m) none of the Company or its subsidiaries has made any loan to, or
entered into any other transaction with, any of its directors, officers and
employees outside the ordinary course of business;
(n) none of the Company or its subsidiaries has entered into any
employment contract or collective bargaining agreement, written or oral, or
modified in any material respect the terms of any existing such contract or
agreement;
(o) none of the Company or its subsidiaries has granted any bonuses or
a greater than five percent (5%) increase in the base compensation of any of its
directors, officers and employees outside the ordinary course of business;
(p) none of the Company or its subsidiaries has adopted, amended,
modified or terminated any bonus, profit-sharing, incentive, severance or other
plan, contract or commitment for the
17
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benefit of any of its directors, officers and employees (or taken any such
action with respect to any other Company Plans (as defined in Section 5.14(a));
(q) none of the Company or its subsidiaries has made any other change
in employment terms for any of its directors, officers and employees outside the
ordinary course of business;
(r) none of the Company or its subsidiaries has made or pledged to
make any charitable or other capital contribution outside the ordinary course of
business; and
(s) there has not been any other occurrence, event, incident, action,
failure to act or transaction outside the ordinary course of business involving
the Company or its subsidiaries; and
(t) there has been no notice received by the Company or any subsidiary
from any supplier, customer or other entity with which the Company or such
subsidiary has a material contractual relationship or whose non-performance of
any obligation or duty to the Company would have a Company Material Adverse
Effect, indicating that such relationship or contract would likely be modified
or terminated as a result of any failure of the Company, any subsidiary or any
of their respective Systems (as defined in Section 5.23) to be Year 2000
Compliant (as defined in Section 5.23) in any respect.
SECTION 5.8 Books of Account. The books of account of the Company
and its subsidiaries accurately and fairly reflect, in reasonable detail and in
all material respects, the Company's and its subsidiaries' transactions and the
disposition of their assets. Except as set forth on Schedule 5.8, all notes and
------------
accounts receivable of the Company and its subsidiaries are reflected in
accordance with generally accepted accounting principles on their books and
records, are valid receivables subject to no known material setoffs or
counterclaims, are, to the best of the Company's knowledge, current and
collectible in accordance with their terms at their recorded amounts subject
only to normal adjustments in the ordinary course of business and the reserves
for contractual allowances and bad debts set forth in the balance sheet
contained in the most recent Company Financial Statements as adjusted for the
passage of time through the Closing Date in accordance with past custom and
practice of the Company and its subsidiaries. The Company and its subsidiaries
have filed all reports and returns required by any material law or regulation to
be filed by them, and have paid all taxes, duties and charges due on the basis
of such reports and returns.
SECTION 5.9 Absence of Undisclosed Liabilities. Except as set forth
on Schedule 5.9, neither the Company nor any of its subsidiaries had at June 30,
------------
1998, or has incurred since that date, any liabilities or obligations (whether
absolute, accrued, contingent or otherwise) of any nature, except: (a)
liabilities, obligations or contingencies (i) which are accrued or reserved
against in the Company Financial Statements or reflected in the notes thereto,
or (ii) which were incurred after June 30, 1998 and were incurred in the
ordinary course of business and consistent with past practices; (b) liabilities,
obligations or contingencies which (i) would not, in the aggregate, have a
Company Material Adverse Effect, or (ii) have been discharged or paid in full
prior to the date hereof; or (c) liabilities and obligations which are of a
nature not required to be reflected or reserved against in the consolidated
financial statements of the
18
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Company and its subsidiaries prepared in accordance with generally accepted
accounting principles consistently applied and which were incurred in the
ordinary course of business.
SECTION 5.10 Proxy Statement. None of the information supplied or to
be supplied by the Company or its subsidiaries for inclusion in the notice of
meeting (other than information about Parent and Subsidiary supplied by Parent
and Subsidiary), written consent and/or proxy statement to be distributed in
connection with the approval and adoption by the Company Shareholders of this
Agreement and the transactions contemplated hereby (the "Proxy Statement") or
---------------
any amendments thereof or supplements thereto will, at the time of the mailing
of the Proxy Statement and any amendments thereof or supplements thereto, and at
the time of the meeting of the Company Shareholders to be held in connection
with the transactions contemplated by this Agreement, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they are made, not misleading.
SECTION 5.11 Litigation. Except as set forth on Schedule 5.11, there
-------------
are no claims, suits, actions or proceedings pending, or to the best knowledge
of the Company threatened, or any reasonable basis therefor, against, relating
to or affecting the Company or any of its subsidiaries, before any court,
governmental department, commission, agency, instrumentality or authority, or
any arbitrator that seek to restrain the consummation of the Merger or which
could reasonably be expected, either alone or in the aggregate with all such
claims, actions or proceedings, to have a Company Material Adverse Effect.
Neither the Company nor any of its subsidiaries is subject to any judgment,
decree, injunction, rule or order of any court, governmental department,
commission, agency, instrumentality or authority, or any arbitrator which
prohibits or restricts the consummation of the transactions contemplated hereby
or would have any Company Material Adverse Effect.
SECTION 5.12 No Violation of Law. Except as set forth in Schedule
--------
5.12, neither the Company nor any of its subsidiaries is in violation of or has
- ----
been given notice or been charged with any violation of, any law, statute,
order, rule, regulation, ordinance or judgment (including, without limitation,
any applicable environmental law, ordinance or regulation) of any governmental
or regulatory body or authority, except for violations which, in the aggregate,
could not reasonably be expected to have a Company Material Adverse Effect. As
of the date of this Agreement, no investigation or review by any governmental or
regulatory body or authority is pending, or to the best knowledge of the Company
threatened, nor has any governmental or regulatory body or authority indicated
to the Company an intention to conduct the same, other than, in each case, those
the outcome of which, as far as reasonably can be foreseen, will not have a
Company Material Adverse Effect. The Company and its subsidiaries have all
permits, licenses, franchises, variances, exemptions, orders and other
governmental authorizations, consents and approvals necessary to conduct their
businesses as presently conducted (collectively, the "Company Permits"), except
---------------
for permits, licenses, franchises, variances, exemptions, orders,
authorizations, consents and approvals the absence of which, alone or in the
aggregate, would not have a Company Material Adverse Effect. The Company and its
subsidiaries are not in violation of the terms of any Company Permit, or any
judgment, decree, injunction, rule or order of any court, governmental
department, commission, agency, instrumentality or authority, or any arbitrator
or mediator, except for delays in filing reports or violations which, alone or
in the aggregate, would not have a Company Material Adverse Effect.
19
<PAGE>
SECTION 5.13 Compliance with Agreements. The Company and each of its
subsidiaries are not in breach or violation of or in default in the performance
or observance of any term or provision of, and no event has occurred which, with
notice or lapse of time or action by a third party, could result in a default
under, (a) the respective charters, bylaws or similar organizational instruments
of the Company or any of its subsidiaries; or (b) any contract, commitment,
agreement, indenture, mortgage, loan agreement, note, lease, bond, license,
approval or other instrument to which the Company or any of its subsidiaries is
a party or by which any of them is bound or to which any of their property is
subject except where such breach, violation or default would not have a Company
Material Adverse Effect.
SECTION 5.14 Taxes.
(a) The Company and its subsidiaries have (i) duly filed with the
appropriate governmental authorities all Tax Returns (as defined below) required
to be filed by them prior to the Effective Time, other than those Tax Returns
the failure of which to file would not have a Company Material Adverse Effect,
and such Tax Returns are true, correct and complete in all material respects,
and (ii) duly paid in full or made adequate provision in the Company Financial
Statements for the payment of all Taxes for all periods ending at or prior to
the Effective Time (whether or not shown on any Tax Return), except where the
failure to pay such Taxes would not have a Company Material Adverse Effect. The
liabilities and reserves for Taxes reflected in the Company balance sheet
included in the most recent Company Financial Statements are adequate to cover
all Taxes for all periods ending at or prior to the Effective Time and there are
no material liens for Taxes upon any property or asset of the Company or any
subsidiary thereof, except for liens for Taxes not yet due. There are no
unresolved issues of law or fact arising out of a notice of deficiency, proposed
deficiency or assessment from the Internal Revenue Service or any other
governmental taxing authority with respect to Taxes of the Company or any of its
subsidiaries which, if decided adversely, singly or in the aggregate, would have
a Company Material Adverse Effect. Neither the Company nor any of its
subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes with any entity that is not, directly or indirectly, a wholly-owned
corporate subsidiary of Company or has any liability for the Taxes of any such
entity under Treas. Reg. (S)1.1502-6 (or any similar provision of state, local,
or foreign law). Neither the Company nor any of its corporate subsidiaries has,
with regard to any assets or property held, acquired or to be acquired by any of
them, filed a consent to the application of Section 341(f) of the Code. The
Company is not and has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Code during the
applicable period specified in Section 897(c)(1)(A)(ii) of the Code. The Company
has not agreed, nor is it required, to make any adjustment under Section 481(a)
of the Code by reason of a change in accounting method or otherwise. There are
no limitations on the use of the Company's net operating loss carryforward of
$9,000,000 which would arise due to a change of control transaction by the
Company prior to the date hereof.
(b) For purposes of this Agreement, the term "Taxes" shall mean all
-----
taxes, including, without limitation, income, gross receipts, excise, property,
sales, withholding, social security, occupation, use, service, service use,
license, payroll, franchise, transfer and recording taxes, fees and charges,
windfall profits, severance, customs, import, export, employment or similar
taxes, charges, fees, levies or other assessments imposed by the United States,
or any state, local or foreign government or subdivision or agency thereof,
whether computed on a separate, consolidated, unitary, combined or any other
basis, and
20
<PAGE>
such term shall include any interest, fines, penalties or additional amounts and
any interest in respect of any additions, fines or penalties attributable or
imposed or with respect to any such taxes, charges, fees, levies or other
assessments.
(c) For purposes of this Agreement, the term "Tax Return" or "Tax
---------- ---
Returns" shall mean any return, report or other document or information required
- -------
to be supplied to a taxing authority in connection with Taxes.
SECTION 5.15 Employee Benefit Plans; ERISA.
(a) Schedule 5.15 lists all employee benefit plans and collective
-------------
bargaining, employment or severance agreements or other similar arrangements to
which the Company, or any Controlled Group Affiliate, is or ever has been a
party or by which any of them is or ever has been bound, legally or otherwise,
including, without limitation, (i) any "employee welfare benefit plan" or
"employee pension benefit plan" (within the meaning of Sections 3(1) or 3(2) of
ERISA) (the "Company Plans"), (ii) any profit-sharing, deferred compensation,
-------------
bonus, stock option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement, (iii) any plan,
agreement or arrangement providing for "fringe benefits" or perquisites to
employees, officers, directors or agents, including, but not limited to benefits
relating to Company automobiles, clubs, vacation, child care, parenting,
sabbatical, sick leave, medical, dental, hospitalization, life insurance and
other types of insurance, or (iv) any employment agreement not terminable on 30
days (or less) written notice or providing for an annual salary in excess of
$140,000. The plans, agreements and contractual arrangements described in this
Section 5.15 may be referred to herein as the "Benefit Arrangements." None of
--------------------
the Benefit Arrangements is (i) a plan intended to be tax-qualified under
Section 401(a) of the Code, except for the 401(k) Plan listed on Schedule 5.15,
-------------
(ii) a plan subject to Title IV of ERISA or (iii) a "multiemployer plan" (within
the meaning of Section 3(37) of ERISA). Neither the Company nor any Controlled
Group Affiliate has ever contributed to or had an obligation to contribute to
any multiemployer plan. The Company has delivered to Parent and Subsidiary true
and complete copies of all documents and summary plan descriptions of the
Benefit Arrangements or summary descriptions relating to any such Benefit
Arrangement not otherwise in writing. The Company has delivered to Parent and
Subsidiary true and complete copies of the IRS Form 5500 filed in the most
recent plan year with respect to any Benefit Arrangement, including all
schedules thereto and financial statements with attached opinions of independent
accountants.
(b) No "prohibited transaction" (within the meaning of Section 4975 of
the Code or Sections 406 and 408 of ERISA) has occurred with respect to any
Benefit Arrangement.
(c) There is no negotiation, demand or proposal that is pending or has
been made which concerns matters now covered, or that would be covered, by any
Benefit Arrangement.
(d) All Benefit Arrangements are in full compliance with the relevant
provisions of ERISA and the Code, the regulations and published authorities
thereunder, and all other Laws applicable with respect to all such Benefit
Arrangements. All Benefit Arrangements have been operated in accordance with
their terms, and the Company and the Controlled Group Affiliates have performed
all of their
21
<PAGE>
obligations under all Benefit Arrangements. There are no actions, suits or
claims (other than routine claims for benefits in the ordinary course) pending
or threatened against any Benefit Arrangement or arising out of any Benefit
Arrangement and no fact exists which could give rise to any such actions, suits
or claim (other than routine claims for benefits in the ordinary course).
(e) The 401(k) Plan listed on Schedule 5.15 and related trust
-------------
agreement, annuity contract, insurance contract or other funding mechanism is
qualified and tax exempt under the provisions of Code Sections 401(a) and 501(a)
and is the subject of a currently effective favorable determination letter
issued by the Internal Revenue Service . The Company has delivered to Parent and
Subsidiary a true and complete copy of such determination letter. The 401(k)
Plan listed on Schedule 5.15 has never been the subject of a corrective
-------------
procedure under the Internal Revenue Service's Employee Plans Compliance
Resolution System, or any similar administrative procedure
(f) Each of the Benefit Arrangements can be terminated by the Company
within a period of 30 days following the Closing Date, without any additional
contribution to such Benefit Arrangement or the payment of any additional
compensation or amount or the additional vesting or acceleration of any
benefits.
(g) All insurance premiums required with respect to any Benefit
Arrangement as of the Closing Date have been paid.
(h) For purposes of this Section 5.14, the Company's "Controlled Group
----------------
Affiliate" means any corporation, trade or business which is affiliated with the
- ---------
Company, in the manner described in Section 414(b), (c), (m) and (o) of the Code
or Section 4001(a)(14) of ERISA.
SECTION 5.16 Labor Matters; Labor Controversies.
(a) Schedule 5.16(a) sets forth all written employment agreements
----------------
between the Company and its employees.
(b) Except as set forth on Schedule 5.16(b), there are no material
----------------
controversies pending, or to the knowledge of the Company threatened, between
the Company or its subsidiaries and any of their employees.
(c) There are no material organizational efforts presently being made
involving any of the presently unorganized employees of the Company or its
subsidiaries.
(d) The Company and its subsidiaries have, complied in all material
respects with all laws relating to the employment of labor, including, without
limitation, any provisions thereof relating to wages, employee benefits, hours,
equal employment opportunity/non-discrimination, occupational safety and health
and the payment of social security and similar taxes.
22
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(e) Except as set forth on Schedule 5.16(e) no person has asserted
----------------
that the Company or any of its subsidiaries is liable in any material amount for
any arrears of wages or any taxes or penalties for failure to comply with any of
the foregoing.
(f) To the knowledge of the Company or the directors and officers (and
employees with responsibility for employment matters) of the Company and its
subsidiaries, (i) no executive, key employee, or group of employees has any
plans to terminate employment with the Company or its subsidiaries, none of the
Company and its subsidiaries is a party to or bound by any collective bargaining
agreement, nor has any of them experienced any strikes, grievances, claims of
unfair labor practices, except for purposes of clauses (a)-(e) such
controversies, organizational efforts, non-compliance and liabilities which,
singly or in the aggregate, could not reasonably be expected to cause a Company
Material Adverse Effect and (ii) there is no unfair labor practice charge or
complaint against the Company or any of its subsidiaries pending or threatened
before the National Labor Relations Board or any similar state agency and there
are no complaints pending or threatened in any forum by or on behalf of any
present or former employee of the Company or any of its subsidiaries alleging
breach of any express or implied contract of employment, any law or regulation
governing employment or the termination thereof or other discriminatory,
wrongful or tortious conduct in connection with the employment relationship.
SECTION 5.17 Environmental Matters.
(a) (i) The Company and its subsidiaries have conducted their
respective businesses in compliance with all applicable Environmental Laws (as
defined below), including, without limitation, having all permits, licenses and
other approvals and authorizations necessary for the operation of their
respective businesses as presently conducted, (ii) none of the properties owned,
leased or operated by the Company or any of its subsidiaries contain any
Hazardous Substance (as defined below) as a result of any activity of the
Company or any of its subsidiaries in amounts exceeding the levels permitted by
applicable Environmental Laws, (iii) neither the Company nor any of its
subsidiaries has received any notices, demand letters or requests for
information from any Federal, state, local or foreign governmental entity or
third party indicating that the Company or any of its subsidiaries may be in
violation of, or liable under, any Environmental Law in connection with the
ownership or operation of their businesses, (iv) there are no civil, criminal or
administrative actions, suits, demands, claims, hearings, investigations or
proceedings pending or threatened against the Company or any of its subsidiaries
relating to any violation, or alleged violation, of, or liability under, any
Environmental Law, (v) no reports have been filed, or are required to be filed,
by the Company or any of its subsidiaries concerning the release of any
Hazardous Substance or the threatened or actual violation of any Environmental
Law, (vi) no Hazardous Substance has been disposed of, or released at, on or
from any properties presently owned, leased or operated by the Company or any of
its subsidiaries, or at, on of from any properties previously owned, leased or
operated by the Company or any of its subsidiaries during the time such
properties were owned, leased or operated by the Company or any of its
subsidiaries, (vii) the Company and its subsidiaries have not disposed of, or
arranged for the disposal of Hazardous Substances at properties not owned,
leased or operated by the Company; (viii) there have been no environmental
investigations, studies, audits, tests, reviews or other analyses regarding
compliance or noncompliance with any applicable Environmental Law conducted by
or which are in the possession of the Company or its subsidiaries relating to
the activities of the Company or its
23
<PAGE>
subsidiaries, (ix) there are no underground storage tanks on, in or under any
properties owned, leased or operated by the Company or any of its subsidiaries
and no underground storage tanks have been closed or removed from any of such
properties during the time such properties were owned, leased or operated by the
Company or any of its subsidiaries, (x) there is no asbestos or asbestos
containing material present in any of the properties owned, operated or leased
by the Company and its subsidiaries, and no asbestos has been removed from any
of such properties during the time such properties were owned, leased or
operated by the Company or any of its subsidiaries, and (xi) neither the
Company, its subsidiaries nor any of their respective properties (whether owned,
leased or operated) are subject to any material liabilities or expenditures
(fixed or contingent) relating to any suit, settlement, court order,
administrative order, regulatory requirement, judgment or claim asserted or
arising under any Environmental Law, except for violations of the foregoing
clauses (i) through (xi) that, singly or in the aggregate, would not reasonably
be expected to have a Company Material Adverse Effect.
(b) For purposes of this Agreement, "Environmental Law" or
-----------------
"Environmental Laws" means any Federal, state, local or foreign law, statute,
------------------
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction, requirement or
agreement with any governmental entity relating to (x) the protection,
preservation or restoration of public health or safety or the environment
(including, without limitation, air, water vapor, surface water, groundwater,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource) or (y) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Substances, in each case
as amended and as in effect on the Closing Date. The term Environmental Law
includes, without limitation, (i) the Federal Comprehensive Environmental
Response Compensation and Liability Act of 1980, the Superfund Amendments and
Reauthorization Act, the Federal Water Pollution Control Act of 1972, the
Federal Clean Air Act, the Federal Clean Water Act, the Federal Resource
Conservation and Recovery Act of 1976 (including the Hazardous and Solid Waste
Amendments thereto), the Federal Solid Waste Disposal Act, the Federal Toxic
Substances Control Act, the Federal Insecticide, Fungicide and Rodenticide Act,
the Federal Occupational Safety and Health Act of 1970, each as amended and as
in effect on the Closing Date, or any state counterpart thereof, and (ii) any
common law or equitable doctrine (including, without limitation, injunctive
relief and tort doctrines such as negligence, nuisance, trespass and strict
liability) that may impose liability or obligations for injuries, damages or
penalties due to, or threatened as a result of, the presence of, effects of or
exposure to any Hazardous Substance.
(c) For purposes of this Agreement, "Hazardous Substance" means any
-------------------
substance presently or hereafter listed, defined, designated or classified as
hazardous, toxic, radioactive, or dangerous, or otherwise regulated, under any
Environmental Law. Hazardous Substance includes any substance to which exposure
is regulated by any government authority or any Environmental Law including,
without limitation, any toxic waste, pollutant, contaminant, hazardous
substance, toxic substance, hazardous waste, special waste, industrial substance
or petroleum or any derivative or by-product thereof, radon, radioactive
material, asbestos or asbestos containing material, urea formaldehyde foam
insulation, lead or polychlorinated biphenyls.
24
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SECTION 5.18 Title to Assets. Schedule 5.18 sets forth a list of all
-------------
real property leased or owned by the Company and its subsidiaries. The Company
and each of its subsidiaries has good title to all its leasehold interests and
other properties, as reflected in the most recent balance sheet included in the
Company Financial Statements, except for properties and assets that have been
disposed of in the ordinary course of business since the date of such balance
sheet, free and clear of all mortgages, liens, pledges, charges or encumbrances
of any nature whatsoever, except (i) the lien for current Taxes, payments of
which are not yet delinquent, (ii) such imperfections in title and easements and
encumbrances, if any, as are not material in character, amount or extent and do
not materially and adversely affect the value or interfere with the present use
of the property subject thereto or affected thereby, or otherwise materially
impair the Company's business operations (in the manner presently carried on by
the Company), or (iii) mortgages incurred in the ordinary course of business,
and except for such matters which, singly or in the aggregate, could not
reasonably be expected to cause a Company Material Adverse Effect. All leases
under which the Company leases real or personal property have been delivered to
Parent and are in good standing, valid and effective in accordance with their
respective terms, and there is not, under any of such leases, any existing
default or event which with notice or lapse of time or both would become a
default other than defaults under such leases which in the aggregate will not
have a Company Material Adverse Effect.
SECTION 5.19 Company Shareholders' Approval. The affirmative vote of
shareholders of the Company required for approval and adoption of this
Agreement, the Merger and the Transactions contemplated thereby is a majority of
the outstanding shares of Company Common Stock and of Preferred Stock voting as
separate classes ( the "Company Shareholders' Approval").
------------------------------
SECTION 5.20 No Excess Parachute Payments. Except as set forth on
Schedule 5.20 the Company has no contracts, arrangements or understandings
- -------------
pursuant to which any person may receive any amount or entitlement from the
Company or any of its subsidiaries (including cash or property or the vesting of
property) that may be characterized as an "excess parachute payment" (as such
term is defined in Section 280G(b)(1) of the Code) (any such amount being an
"Excess Parachute Payment") as a result of any of the transactions contemplated
- -------------------------
by this Agreement. No person is entitled to receive any additional payment from
the Company, its subsidiaries or any other person (a "Parachute Gross-up
------------------
Payment") in the event that the 20% parachute excise tax of Section 4999(a) of
- -------
the Code is imposed on such person. The board of directors of the Company has
not during the six months prior to the date of this Agreement granted to any
officer, director or employee of the Company any right to receive any Parachute
Gross-Up Payment.
SECTION 5.21 Trademarks and Intellectual Property.
(a) The Company and its subsidiaries own or have the right to use,
without any material payment to any other party, all of the patents, trademarks
(registered or unregistered), trade names, service marks, copyrights and
applications applicable to all inventions, names, marks, designs and works of
authorship of any nature used or held by the Company ("Company Intellectual
--------------------
Property"), and the consummation of the transactions contemplated hereby will
- --------
not alter or impair such rights in any material respect. No claims are pending
by any person with respect to the ownership, validity, enforceability or use of
any Company Intellectual Property that could reasonably be expected to have a
Company Material
25
<PAGE>
Adverse Effect. The Company has taken all necessary action to maintain and
protect all Company Intellectual Property.
(b) Except as set forth in Schedule 5.21(b), to the best of the
-----------------
Company's knowledge, none of the Company, its shareholders or its directors,
officers or employees has interfered with, infringed upon, misappropriated, or
otherwise come into conflict with or violated any intellectual property rights
of third parties, and none of the shareholders and the directors and officers
(and employees with responsibility for Company Intellectual Property matters) of
the Company and its subsidiaries has received any charge, complaint, claim,
demand, or notice alleging any such interference, infringement,
misappropriation, or violation (including any claim that any of the Company and
its subsidiaries must license or refrain from using any Company Intellectual
Property). To the knowledge of the Company (and employees with responsibility
for Company Intellectual Property matters) and its subsidiaries, no third party
has interfered with, infringed upon, misappropriated, or otherwise come into
conflict with or violated any Company Intellectual Property.
(c) Schedule 5.21(c) identifies each patent or registration that has
----------------
been issued to any of the Company and its subsidiaries with respect to any of
the Company Intellectual Property, identifies each pending patent application or
application for registration which any of the Company and its subsidiaries has
made with respect to any of the Company Intellectual Property, and identifies
each license, agreement, or other permission which any of the Company and its
subsidiaries has granted to any third party with respect to any of the Company
Intellectual Property (together with any exceptions). The Company has delivered
to Parent and Subsidiary correct and complete copies of all such patents,
registrations, applications, licenses, agreements, and permissions (as amended
to date) and has made available to Parent and Subsidiary correct and complete
copies of all other written documentation evidencing ownership and prosecution
(if applicable) of each such item. Schedule 5.21(c) also identifies each trade
----------------
name or unregistered trademark or servicemark used by any of the Company and its
subsidiaries in connection with any of its businesses. With respect to each
item of Company Intellectual Property identified or required to be identified in
Schedule 5.21(c):
- ----------------
(i) the Company and its subsidiaries possess all right, title,
and interest in and to the item, free and clear of any security
interest, license, or other restriction;
(ii) the item is not subject to any outstanding injunction,
judgment, order, decree, ruling, or charge;
(iii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand is pending, or to the knowledge of
any of the Company is threatened, which challenges the legality,
validity, enforceability, use, or ownership of the item; and
(iv) none of the Company and its subsidiaries has ever agreed to
indemnify any person for or against any interference, infringement,
misappropriation, or other conflict with respect to the item.
26
<PAGE>
(d) Schedule 5.21(d) identifies each item of Company Intellectual
----------------
Property that any third party owns and that any of the Company and its
subsidiaries uses pursuant to license, sublicense, agreement, or permission.
The Company has delivered to Parent and subsidiary correct and complete copies
of all such licenses, sublicenses, agreements, and permissions (as amended to
date). With respect to each item of Company Intellectual Property Rights
required to be identified in Schedule 5.21(d):
----------------
(i) the license, sublicense, agreement, or permission covering
the item is legal, valid, binding, enforceable, and in full force and
effect as to the Company and to the best of the Company's knowledge,
as to the other parties thereto;
(ii) the license, sublicense, agreement, or permission will
continue to be legal, valid, binding, enforceable, and in full force
and effect on identical terms following the consummation of the
transactions contemplated hereby;
(iii) no party to the license, sublicense, agreement, or
permission is in breach or default, and no event has occurred which
with notice or lapse of time would constitute a breach or default or
permit termination, modification, or acceleration thereunder;
(iv) no party to the license, sublicense, agreement, or
permission has repudiated any provision thereof;
(v) with respect to each sublicense, the representations and
warranties set forth in subsections (i) through (iv) above are true
and correct with respect to the underlying license;
(vi) the underlying item of Company Intellectual Property
Rights is not subject to any outstanding injunction, judgment, order,
decree, ruling, or charge;
(vii) no action, suit, proceeding, hearing, investigation,
charge, complaint, claim, or demand about which the Company has
received notice is pending, or to the knowledge of the Company and its
subsidiaries is threatened, which challenges the legality, validity,
or enforceability of the underlying item of Company Intellectual
Property Rights; and
(viii) none of the Company and its subsidiaries has granted any
sublicense or similar right with respect to the license, sublicense,
agreement, or permission.
(e) On the date hereof the Company and its subsidiaries has no
knowledge of any new products, inventions, procedures, methods of manufacturing
or processing or work of authorship that any competitors or other third parties
have developed which reasonably could be expected to supersede or make obsolete
any product or process of any of the Company and its subsidiaries.
27
<PAGE>
SECTION 5.22 Contracts, Obligations and Commitments.
(a) Schedule 5.22 (a)(i) sets forth an accurate and complete list of
--------------------
all material contracts, agreements, options, leases (other than leases referred
to in Section 5.18), commitments and instruments involving average payment or
receipt by the Company of value equal to or greater than $25,000 ("Contracts")
---------
entered into by the Company or its subsidiaries. The Company and its
subsidiaries have provided Parent with complete and correct copies of all such
items listed on Schedule 5.22(a)(i). Except for such items listed on Schedule
------------------- --------
5.22(a)(i), there are no other material contracts or other arrangements under
- ----------
which goods, equipment or services are provided, leased or rendered by, or are
to be provided, leased or rendered to, the Company and its subsidiaries. Except
as set forth in Schedule 5.22(a)(ii): (i) the Contracts have not been modified,
--------------------
pledged, assigned or amended in any material respect, are legally valid, binding
and enforceable in accordance with their respective terms and are in full force
and effect with respect to the Company and, to the best of the Company's
knowledge, the other parties thereto; (ii) there are no material defaults by the
Company and its subsidiaries and, to the best of the Company's knowledge, by any
other party to the Contracts; (iii) the Company and its subsidiaries have not
received notice of any material default, offset, counterclaim or defense under
any Contract; (iv) no condition or event has occurred which with the passage of
time or the giving of notice or both would constitute a default or breach by the
Company and its subsidiaries of the terms of any Contract, except for any
consents required to consummate the transactions contemplated by this Agreement;
and (v) there does not now, and at Closing will not, exist any material security
interest, mortgage, pledge, restriction, charge, lien, encumbrance or claim of
others on any interest created under any Contract. None of the Contracts is
subject to termination from and after the Closing Date and prior to the
expiration of its stated term by any party to such Contract, except as stated in
each such Contract.
(b) Schedule 5.22(b) contains a list and description of all notices,
----------------
statements, certificates, representations, warranties, questionnaires and
responses relating to problems associated with failures to be Year 2000
Compliant (as defined in Section 5.23), whether oral or written, made, executed
or completed by the Company or any subsidiary or any of their respective
officers, directors, employees, agents or representatives, and whether sent to
or received from any third party ("Year 2000 Certificates"). A true and correct
----------------------
copy or summary of each Year 2000 Certificate has previously been made available
to Purchaser.
SECTION 5.23 Year 2000 Compliance. To the best of the Company's
knowledge, each system comprised of software, hardware, databases, or embedded
control systems (microprocessor controlled, robotic or other device)
(collectively, a "System"), that constitutes any part of, or is used in
------
connection with the use, operation or enjoyment of any material tangible or
intangible asset or real property of the Company and its subsidiaries (i) is
designed (or has been modified) to be used prior to and after January 1, 2000,
(ii) will operate without error arising from the creation, recognition,
acceptance, calculation, display, reporting, storage, retrieval, accessing,
comparison, sorting, manipulation, processing or other use of dates, or date-
based, date-dependent or date-related data, including but not limited to century
recognition, day-of-the-week recognition, leap years, date values and interfaces
of date functionalities, and (iii) will not be adversely affected by the advent
of the year 2000 or subsequent years, the advent of the twenty-first century or
the transition from the twentieth century through the year 2000 and
28
<PAGE>
into the twenty-first century (collectively, items (i) through (iii) are
referred to herein as "Year 2000 Compliant"). To the best of Company's knowledge
-------------------
and except as set forth on Schedule 5.23, no System that is material to the
-------------
business, finances or operations of the Company or any subsidiary receives data
from or communicates with any component or system external to itself (whether or
not such external component or system is the Company's, any subsidiary's or any
third party's) that is not itself Year 2000 Compliant excepting the parts of the
external component or system within which noncompliance will have no effect on
the data or communications sent to the Company or its subsidiaries, nor on the
Systems of the Company or its subsidiaries. To the best of Company's knowledge
and except as set forth on Schedule 5.23, all licenses for the use of any
-------------
System-related software, hardware, databases or embedded control system are
certified by the manufacturer to be Year 2000 Compliant and to contain the
capabilities required to enable them to be Year 2000 Compliant within Company
and subsidiary computer Systems (hardware and software), or the licenses permit
the Company or its subsidiaries or a third party to make all modifications,
bypasses, de-bugging, work-arounds, repairs, replacements, conversions or
corrections necessary to permit the System to operate compatibly, in conformance
with their respective specifications, and to be Year 2000 Compliant. Except as
set forth on Schedule 5.23, neither the Company nor any of its subsidiaries has
-------------
received any notice from any supplier, customer or other entity with which the
Company or its Subsidiary has a material contractual relationship or whose non-
performance of any obligation or duty to the Company or its Subsidiary would
have a Company Material Adverse Effect, indicating that such relationship or
contract would likely be modified or terminated as a result of any failure of
such supplier, customer or other entity to be Year 2000 Compliant. Except as set
forth on Schedule 5.23, neither the Company nor any of its subsidiaries has any
-------------
reason to believe that it may incur material expenses arising from or relating
to the failure of any of its Systems as a result of not being Year 2000
Compliant.
SECTION 5.24 Pooling and Tax Deferred Reorganization Matters.
(a) The Company has not, during the two years preceding the earlier of
the date of this Agreement or the date the plan of combination was initiated,
been a subsidiary or division of another corporation or a part of an acquisition
which was later rescinded and, within the past two years, there has not been any
sale or spin-off of a significant amount of assets of the Company or any
affiliate of the Company. Neither the Company, nor any of the persons listed on
Schedule 7.3 (the "Principal Shareholders") owns any capital stock of Parent or
- ------------ ----------------------
Subsidiary. The Company has not acquired any of its own capital stock during
the past two years. Except for the Series A Preferred Stock and the Series B
Preferred Stock, which are expected to be converted to Company Common Stock, the
Company has no obligation (contingent or otherwise) to purchase, redeem or
otherwise acquire any of the shares of its own common stock or any interest
therein or to pay any dividend or make any distribution in respect thereof.
Neither the voting capital structure of the Company nor the relative ownership
of shares among any of the holders of capital stock or other securities of the
Company has been altered or changed within the last two years in contemplation
of the transactions contemplated hereby. No shares of capital stock or other
securities of the Company were issued and are outstanding pursuant to awards,
grants or bonuses under the terms of any plan which was adopted less than two
years prior to the date the combination was initiated. Prior to the Closing or
the earlier termination of this Agreement pursuant to the terms thereof, neither
the Company nor its affiliates have purchased nor will they purchase or
otherwise acquire directly or indirectly any Parent Common Stock other than as
provided herein. Any indebtedness owed or incurred
29
<PAGE>
by the Company to any of the Company Shareholders has been incurred and repaid
on commercially reasonable and customary terms. There are no related businesses
or business assets owned or controlled by the Company Shareholders which are
integral to this business and thus should be included as a part of this
transaction pursuant to the pooling-of-interest rules. There have not been any
dividends to Company Shareholders during the two years prior to the date the
Merger was initiated, or up to the date of Merger.
(b) There is no plan or intention by any Company Shareholder to engage
in a sale, exchange, redemption, pledge, or other transaction with Parent or
with a person related (within the meaning of Treas. Reg. (S)1.368-1(e)(3),
hereinafter "Parent Related Person") to Parent in which such Company Shareholder
would dispose of a number of shares of Parent Common Stock received in the
Merger that, in the aggregate (taking into account all such sales, exchanges,
redemptions, pledges and other transactions with Parent or a Parent Related
Person to which the Company Shareholders are parties but disregarding
transactions between the Company Shareholders and other persons), would reduce
the ownership of shares of Parent Common Stock by the Company Shareholders to a
number of shares having a value, as of the Effective Time, of less than 50% of
the aggregate value of all of the outstanding shares of the Company as of the
Effective Time. For purposes of this representation, shares of the Company held
by shareholders of the Company that, prior to the Merger, (i) have been redeemed
or sold, exchanged or otherwise transferred to Company for consideration other
than shares of the Company, (ii) with respect to which an extraordinary
distribution (within the meaning of Treas. Reg. (S)1.368-1T(e)(1)(ii)(A)) has
been made, (iii) have been sold, exchanged, or otherwise transferred to a person
related to the Company (within the meaning of Treas. Reg. (S)1.368-1(e)(3) but
without regard to Treas. Reg. (S)1.368-1(e)(3)(i)(A)) for consideration other
than shares of the Company or Parent Common Stock, and (iv) have been sold,
exchanged, or otherwise transferred to Parent or a Parent Related Person for
consideration other than shares of the Company or Parent Common Stock have been
treated, and taken into account, as outstanding shares of the Company as of the
Effective Time.
(c) Immediately following the Merger, the Company will hold at least
90 percent of the fair market value of its net assets and at least 70 percent of
the fair market value of its gross assets held as of the Effective Time. For
purposes of this representation, amounts paid by the Company to shareholders
(including shareholders invoking dissenting rights), amounts used by the Company
to pay reorganization expenses, and all redemptions and distributions (except
for regular, normal dividends) made by the Company after the commencement of
negotiations by the parties to this Agreement will be included and treated as
assets held by the Company as of the Effective Time.
(d) As of the Effective Time, the Company will not have outstanding
any warrants, options, convertible securities, or any other type of right
pursuant to which any person could acquire stock in the Company that, if
exercised or converted, would affect Parent's acquisition or retention of
"control" of the Surviving Corporation, as defined in Section 368(c) of the
Code.
(e) The Company is not an "investment company" as defined in Section
368(a)(2)(F)(iii) and (iv) of the Code and is not under the jurisdiction of a
court in a title 11 or similar case within the meaning of Section 368(a)(3)(A)
of the Code.
30
<PAGE>
(f) As of the Effective Time, the fair market value of the assets of
the Company will exceed the sum of its liabilities, plus the amount of
liabilities, if any, to which the assets are subject.
SECTION 5.25 Transactions with Related Parties. Except as set forth
on Schedule 5.25, (a) there have been no transactions by the Company or its
-------------
subsidiaries with any officer or director of the Company or its subsidiaries,
any beneficial owner of more than 5% of the Company Common Stock or their
affiliates ("Related Parties") since the date of the most recent Company
---------------
Financial Statements, and (b) there are no agreements or understandings now in
effect between the Company or its subsidiaries and any Related Parties except
for employment agreements or understandings with Related Parties who are
employees of the Company and agreements or understandings with Related Parties
who are shareholders of the Company relating to their rights as shareholders of
the Company, all of which have been delivered to Parent.
SECTION 5.26 Insurance. All of the Company's and its subsidiaries'
liability, theft, life, health, fire, title, worker's compensation and other
forms of insurance, surety bonds and umbrella policies, insuring the Company and
its subsidiaries and their directors, officers, employees, independent
contractors, properties, products, assets and business, are valid and in full
force and effect and without any premium past due or pending notice of
cancellation, are, in the reasonable judgment of the Company, adequate for the
business of the Company and its subsidiaries as now conducted, and there are no
claims, singly or in the aggregate, under such policies in excess of $200,000,
which, in any event, are not in excess of the limitations of coverage set forth
in such policies. The Company and its subsidiaries have taken all actions
reasonably necessary to insure that their independent contractors obtain and
maintain adequate insurance coverage. All of the insurance policies referred to
in this Section 5.26 are "occurrence" policies and no such policies are "claims
made" policies. The Company has no knowledge of any fact indicating that such
policies will not continue to be available to the Company and its subsidiaries
upon substantially similar terms subsequent to the Effective Time. The
provision and/or reserves in the most recent Company Financial Statements are
adequate for any and all self insurance programs maintained by the Company or
its subsidiaries. Except as set forth on Schedule 5.26, neither the Company nor
-------------
any of its subsidiaries has received with respect to its insurance policies, any
notice of actual or proposed cancellation of or reduction in coverage of, or of
any material increase in premium under, or of any exclusion of or intent to
exclude coverage of actual or potential claims by or against the Company or any
subsidiary, or their respective officers, directors or employees, arising from
or relating to any failure of the Company or any subsidiary or any System of any
of them to be Year 2000 Compliant.
SECTION 5.27 Guaranties. None of the Company or its subsidiaries is
a guarantor or otherwise is liable for any liability or obligation (including
indebtedness) of any other person.
SECTION 5.28 Bank Accounts. Schedule 5.28 sets forth all banks or
-------------
other financial institutions with which the Company has an account or maintains
a safe deposit box, showing the type and account number of each such account and
safe deposit box and the names of the persons authorized as signatories thereon
or to act or deal in connection therewith.
31
<PAGE>
SECTION 5.29 Business Relations. On the date hereof the Company does
not know and has no reason to believe that any customer or supplier of the
Company or the subsidiaries of the Company will cease to do business with the
Company or the subsidiaries of the Company after the consummation of the
transactions contemplated hereby in the same manner and at the same levels as
previously conducted with the Company or the subsidiaries of the Company as the
case may be except where such loss of a customer or supplier would not have a
Company Material Adverse Effect.
SECTION 5.30 Potential Conflicts of Interest.
(a) Except as set forth on Schedule 5.30, no current or former
-------------
officer, director, or shareholder of the Company or any of its subsidiaries (i)
to the Company's best knowledge owns, directly or indirectly, any interest
(excepting not more than 1% stock holdings for investment purposes in securities
of publicly held and traded companies) in, or is an officer, director, employee,
or consultant of, any person or entity that is a competitor, lessor, lessee,
customer, or supplier of the Company or any of its subsidiaries; (ii) owns,
directly or indirectly, in whole or in part, any tangible or intangible property
that the Company or any of its subsidiaries is using or the use of which is
necessary for the business of the Company or any of its subsidiaries; or (iii)
has any cause of action or other claim whatsoever against, or owes any amount
to, the Company or any of its subsidiaries, except for claims in the ordinary
course of business, such as for accrued vacation pay, accrued benefits under
employee benefit plans, and similar matters and agreements.
(b) To the best of the Company's knowledge, no officer, director,
employee, or consultant of the Company or any of its subsidiaries is presently
obligated under or bound by any agreement or instrument, or any judgment,
decree, or order of any court of administrative agency, that (i) conflicts or
may conflict with his or her agreements and obligations to use his or her best
efforts to promote the interests of the Company or any of its subsidiaries, (ii)
conflicts or may conflict with the business or operations of the Company or any
of its subsidiaries as presently conducted or as proposed to be conducted in the
short term, or (iii) restricts or may restrict the use or disclosure of any
information that may be useful to the Company or any of its subsidiaries.
SECTION 5.31 Inventory. The inventory and supplies of the Company
and its subsidiaries are adequate for their present needs, and are in usable or
saleable condition in the ordinary course of business, subject only to such
reserves for obsolescence, if any, as are reflected in their respective
accounting records.
SECTION 5.32 Suppliers and Customers. Schedule 5.32 sets forth the
-------------
five largest suppliers and ten largest customers of the Company and its
subsidiaries as of the date hereof. The relationships of the Company and such
subsidiaries with their respective suppliers and customers are good commercial
working relationships, and no supplier or customer of material importance to the
Company and its subsidiaries, taken as a whole, has canceled or otherwise
terminated, or threatened in writing to cancel or terminate, its relationship
with the Company or such subsidiary or has during the last 12 months decreased
materially, or threatened to decrease or limit materially, its services,
supplies, or materials to the Company or such subsidiary or its usage or
purchase of the services or products of the Company or such subsidiary, except
for normal cyclical changes related to customers' businesses. The Company has
no
32
<PAGE>
knowledge that any such supplier or customer intends to cancel or otherwise
substantially modify its relationship with the Company or any of such
subsidiaries or to decrease materially or limit its services, supplies, or
materials to them or its usage or purchase or their services or products, and
the consummation of the transactions contemplated hereby will not, to the best
knowledge of the Company, adversely affect the relationship of the Company or
any of such Subsidiaries with any such supplier or customer.
SECTION 5.33 Indebtedness. Except as set forth on Schedule 5.33, at
-------------
the date hereof, neither the Company nor any of its subsidiaries has any
indebtedness for borrowed money, including any capital lease or conditional sale
or title retention agreement ("Indebtedness") outstanding. Neither the Company
------------
nor any of its subsidiaries is in default with respect to any outstanding
Indebtedness or any agreement, instrument, or other obligation relating thereto
and no such Indebtedness or any agreement, instrument or other obligation
relating thereto purports to limit the issuance of any securities by the Company
or any of its subsidiaries or the operation of their respective businesses.
Complete and correct copies of all agreements, instruments, and other
obligations (including all amendments, supplements, waivers, and consents)
relating to any Indebtedness of the Company or any of its subsidiaries have been
furnished to Parent.
SECTION 5.34 Minute Books. The copies of the minute books of the
Company and its subsidiaries made available to Parent for inspection accurately
record therein all material action taken by their respective Board of Directors
and shareholders.
SECTION 5.35 Assets and Properties Complete. The assets and
properties of the Company and each of its subsidiaries are and as of the Closing
Date shall be adequate and sufficient to conduct the business of the Company or
the relevant subsidiary as currently conducted.
SECTION 5.36 Powers of Attorney. There are no outstanding powers of
attorney executed on behalf of the Company or its subsidiaries, except for tax
or litigation powers of attorney.
SECTION 5.37 Investors.
(a) To the best of the Company's knowledge, each Company Shareholder
who will receive Parent Common Stock under this Agreement pursuant to Regulation
S promulgated under the Securities Act (the "Regulations S Offering") is not a
----------------------
U.S. person within the meaning of Regulation S.
(b) Except as set forth on Schedule 5.37(b), to the best of the
----------------
Company's knowledge, each Company Shareholder who will receive Parent Common
Stock under this Agreement pursuant to Section 4(2) of the Securities Act and/or
Regulation D promulgated thereunder (the "Private Placement") is an accredited
------------------
investor within the meaning of Rule 501 of Regulation D.
SECTION 5.38 Brokers. The Company represents and warrants that no
broker, finder or investment banker is entitled to any brokerage, finder's or
other fee or commission in connection with the Merger or the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company and the Company Shareholders.
33
<PAGE>
SECTION 5.39 Disclosure. No representations and warranties by the
Company contained in this Agreement, and no statement made by the Company in
this Agreement or in any document listed in any Exhibit or Schedule to this
Agreement or any document or certificate furnished or to be furnished to Parent
at or prior to Closing pursuant hereto, contains or will contain on the Closing
Date any untrue statements of a material fact or omits or will omit on the
Closing Date to state a material fact necessary in order to make the statements
therein not misleading in light of the circumstances in which they were made.
The Company represents and warrants that the Principal Shareholders and the
directors and officers of the Company and its subsidiaries have made due and
reasonable inquiry and investigation concerning the matters to which
representations and warranties of the Company under this Agreement pertain.
SECTION 5.40 Affiliates. Set forth on Schedule 7.3 is a list
------------
identifying all persons who may be deemed affiliates of the Company under Rule
145 of the Securities Act ("Rule 145"), including, without limitation, all
--------
directors and executive officers of the Company.
ARTICLE VI
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 6.1 Conduct of Business by the Company Pending the Merger.
Except as otherwise contemplated by this Agreement, after the date hereof and
prior to the Closing Date or earlier termination of this Agreement, unless
Parent shall otherwise agree in writing, the Company shall, and shall cause its
subsidiaries to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice (except changes in its
business and operations which have been approved in writing by Parent);
(b) not (i) amend or propose to amend their respective charters or
bylaws, (ii) split, combine or reclassify their outstanding capital stock; or
(iii) declare, set aside or pay any dividend or distribution payable in cash,
stock, property or otherwise, except for the payment of dividends or
distributions by a wholly owned subsidiary of the Company;
(c) except for the conversion of the Company's Series A Preferred
Stock and Series B Preferred Stock to Company Common Stock or the issuance of
Company Common Stock pursuant to exercise of warrants or options which are
listed on Schedule 5.2(b), not issue, sell, pledge or dispose of, or agree to
---------------
issue, sell, pledge or dispose of or otherwise cause to become outstanding, any
additional shares of, or any options, warrants or rights of any kind to acquire
any shares of their capital stock of any class or any debt or equity securities
convertible into or exchangeable for such capital stock;
(d) not (i) incur or become contingently liable with respect to any
indebtedness for borrowed money in excess of $1,000,000, (ii) redeem, purchase,
acquire or offer to purchase or acquire any shares of its capital stock or any
options, warrants or rights to acquire any of its capital stock or any
34
<PAGE>
security convertible into or exchangeable for its capital stock, except for the
conversion of the Company's Series A Preferred Stock and Series B Preferred
Stock to Company Common Stock, (iii) take any action which would jeopardize the
treatment of the Merger as a pooling-of-interests under APB 16, (iv) take or
fail to take any action which action or failure would cause the Company or its
shareholders to recognize gain or loss for federal income tax purposes as a
result of the consummation of the Merger, (v) make any acquisition of any assets
or businesses other than expenditures for fixed or capital assets in the
ordinary course of business which, in such cases of $100,000 or more, shall be
on terms reasonably acceptable to Parent, (vi) sell, pledge, dispose of or
encumber any assets or businesses other than sales in the ordinary course of
business which, in such cases involving $100,000 or more, shall be on terms
reasonably acceptable to Parent, or (vii) enter into any contract, agreement,
commitment or arrangement with respect to any of the foregoing;
(e) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement;
(f) confer on a regular and frequent basis with one or more
representatives of Parent to report operational matters of materiality and the
general status of ongoing operations;
(g) not enter into or amend any employment (including any changes to
salaries in excess of five percent), severance, special pay arrangement with
respect to termination of employment or other similar arrangements or agreements
with any directors, officers or key employees, except in the ordinary course and
consistent with past practice;
(h) not adopt, enter into or amend any bonus, profit sharing,
compensation, stock option, pension, retirement, deferred compensation, health
care, employment or other employee benefit plan, agreement, trust, fund or
arrangement for the benefit or welfare of any employee or retiree, except as
required to comply with changes in applicable law;
(i) maintain with adequately capitalized insurance companies insurance
coverage for its assets and its businesses in such amounts and against such
risks and losses as are consistent with past practice;
(j) not enter into any new facility leases;
(k) not make any loans, advances, capital contributions or
investments;
(l) not extend credit to any customer which is not creditworthy in
excess of $100,000; and
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(m) not enter into an agreement with a supplier for material with a
value over the life of such agreement equal to the amount of such material
reasonably projected to be used during the next fiscal quarter.
SECTION 6.2 Conduct of Business by Parent and Subsidiary Pending the
Merger. Except as otherwise contemplated by this Agreement, after the date
hereof and prior to the Closing Date or earlier termination of this Agreement,
unless the Company shall otherwise agree in writing, Parent shall, and shall
cause Subsidiary to:
(a) conduct their respective businesses in the ordinary and usual
course of business and consistent with past practice provided that nothing
stated herein shall limit Parent from consummating its merger with
Convergence.com Corporation;
(b) preserve its business organization and not (i) except as necessary
to consummate the transactions contemplated hereby or to change Parent or
Subsidiary's name or to implement any anti-takeover device, or to provide for
any stock split or dividend permitted hereunder, amend or propose to amend their
respective charters or bylaws, (ii) stock split, or a dividend in the form of a
stock split (except where the Conversion Ratio is adjusted to reflect such
split), combine or reclassify their outstanding capital stock, (iii) declare,
set aside or pay any dividend or distribution payable in cash, stock, property
or otherwise, except as provided in clause (ii) above and for the payment of
dividends or distributions by a wholly owned subsidiary of Parent, or (iv)
except as provided in clauses (i) or (ii) above or in connection with the
potential acquisition discussed in clause (a) or in connection with Parent's
stock option or purchase plans issue any additional shares of its capital stock
or any security convertible into such stock; provided, however, that nothing
stated in this Agreement shall prohibit Parent from increasing its authorized
capital stock at its 1999 Annual Meeting of shareholders.
(c) use all reasonable efforts to preserve intact their respective
business organizations and goodwill, keep available the services of their
respective present officers and key employees, and preserve the goodwill and
business relationships with customers and others having business relationships
with them and not engage in any action, directly or indirectly, with the intent
to adversely impact the transactions contemplated by this Agreement; and
(d) maintain with adequately capitalized insurance companies insurance
coverage for its tangible assets and its businesses in such amounts and against
such risks and losses as are consistent with past practice.
SECTION 6.3 Control of the Company's Operations. Nothing contained
in this Agreement shall give to Parent, directly or indirectly, rights to
control or direct the Company's operations prior to the Effective Time. Prior
to the Effective Time, the Company shall exercise, consistent with and subject
to the terms and conditions of this Agreement, complete control and supervision
of its operations.
SECTION 6.4 Control of Parent's or Subsidiary's Operations. Nothing
contained in this Agreement shall give to the Company, directly or indirectly,
rights to control or direct Parent's or
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Subsidiary's operations prior to the Effective Time. Prior to the Effective
Time, Parent shall exercise, consistent with and subject to the terms and
conditions of this Agreement, complete control and supervision of its
operations.
SECTION 6.5 Negotiations With Others.
(a) After the date hereof and prior to the Effective Time or earlier
termination of this Agreement, the Company shall not, directly or indirectly,
take any of the following actions with any party other than Parent and its
designees: (i) solicit, initiate or participate in or encourage any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and properties or capital
stock whether by merger, purchase of assets, tender offer or otherwise, (ii)
disclose any information not customarily disclosed to any person concerning the
Company's business and properties or afford to any person or entity access to
its properties, books or records, (iii) assist or cooperate with any proposal
for a transaction of the type referred to in clause (i) or (iv) disclose the
terms or conditions of this Agreement or the Letter of Intent dated May 25, 1999
between the Company and Parent. In the event the Company shall receive any
offer or proposal, directly or indirectly, of the type referred to in clause (i)
or (iii) above, or any request for disclosure or access pursuant to clause (ii)
above, it shall promptly inform Parent as to any such offer or proposal and will
cooperate with Parent by furnishing copies of any such offer or proposal and any
information relating thereto Parent may reasonably request.
(b) Either party may refuse to close if in good faith it determines
that the transaction cannot be done as a pooling of interest transaction (a
"Permitted Termination"). If the transaction shall fail to close due to a party
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refusing to close after all of the conditions set forth in Article VIII have
been satisfied or waived by the party entitled to so waive and one of the
parties (for purposes of this paragraph Parent and Subsidiary shall constitute
one party) advises the other that it is ready, willing and able to effect the
Merger and the other party fails to effect the Merger for any reason other than
a Permitted Termination, then (x) if Parent refused to execute this Agreement or
close, Parent agrees to promptly pay to the Company $3,000,000 and in addition
make a loan promptly to the Company in a principal amount which, together with
the principal amount of all other loans by Parent to the Company then
outstanding, equals $3,000,000 and (y) if the Company refused to execute this
Agreement or close, the Company shall grant most favored nation status as to
both price and priority for sales of the Company's products to C-COR for a
period of one year from the date hereof, the Company shall promptly pay to
Parent $3,000,000 and the Company shall pay an additional $3,000,000 to Parent
in the event the Company directly or indirectly merges or sells substantially
all of its stock (including by supporting a tender offer for its shares) or
assets or agrees to do any of the foregoing prior to January 2001. Debt issued
to Parent pursuant to the foregoing sentence shall accrue interest at the prime
rate, shall be convertible into Company Common Stock immediately prior to a
change in control of the Company and shall mature on the earlier of a change in
control of the Company or January 2001.
(c) The Company and Parent each (i) acknowledge that a breach of any
of its covenants contained in Section 6.5 will result in irreparable harm to the
other party which will not be compensable in money damages, and (ii) agree that
such covenant shall be specifically enforceable and that
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specific performance and injunctive relief shall be a remedy properly available
to the other party for a breach of such covenant.
ARTICLE VII
ADDITIONAL AGREEMENTS
SECTION 7.1 Access to Information.
(a) The Company and its subsidiaries shall afford to Parent and
Subsidiary and their respective accountants, counsel, financial advisors and
other representatives (the "Parent Representatives") and Parent and its
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subsidiaries shall afford to the Company and its accountants, counsel, financial
advisors and other representatives (the "Company Representatives") full access
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during normal business hours throughout the period after the date hereof and
prior to the Effective Time to all of their respective properties, books,
contracts, commitments and records (including, but not limited to, Tax Returns)
and, during such period, shall furnish promptly to one another (i) a copy of
each report, schedule and other document filed or received by any of them
pursuant to the requirements of federal or state securities laws or filed by any
of them with the SEC or which may have a material effect on their respective
businesses, properties or personnel, and (ii) such other information concerning
their respective businesses, operations, properties, assets, condition
(financial or other) results of operations and personnel as Parent or Subsidiary
or the Company, as the case may be, shall reasonably request; provided that no
investigation pursuant to this Section 7.1 shall amend or modify any
representations or warranties made herein or the conditions to the obligations
of the respective parties to consummate the Merger. Parent and its subsidiaries
shall hold and shall use their reasonable best efforts to cause the Parent
Representatives to hold, and the Company and its subsidiaries shall hold and
shall use their reasonable best efforts to cause the Company Representatives to
hold, in strict confidence all non-public documents and information furnished to
Parent and Subsidiary or to the Company, as the case may be, in connection with
the transactions contemplated by this Agreement in accordance with the terms of
the Confidentiality and Exclusive Dealing Agreement dated May 3, 1999 between
Company and Parent, which is incorporated herein by reference and made a part
hereof (the "Confidentiality Agreement").
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(b) In the event that this Agreement is terminated in accordance with
its terms, each party shall promptly redeliver or destroy, as applicable, to the
other all non-public written material provided in connection with the
transactions contemplated herein in accordance with the terms of the
Confidentiality Agreement.
(c) The Company shall promptly advise Parent and Parent shall
promptly advise the Company in writing of any change or the occurrence of any
event after the date of this Agreement having, or which, insofar as can
reasonably be foreseen, in the future may have, a Company Material Adverse
Effect or a Parent Material Adverse Effect, as the case may be.
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SECTION 7.2 Shareholders' Approvals.
The Company shall, as promptly as practicable, submit this Agreement
and the transactions contemplated hereby for the approval of its shareholders
(i) at a meeting of shareholders, or (ii) by written consent of shareholders,
and, subject to the fiduciary duties of the board of directors of the Company
under applicable law, shall use its reasonable best efforts to obtain the
Company shareholders' approval as practicable following the date hereof. The
Company shall, through its board of directors, but subject to the fiduciary
duties of the members thereof, recommend to its shareholders approval of the
transactions contemplated by this Agreement. The Company (i) acknowledges that
a breach of the Company's covenants contained in this Section 7.2 to convene a
meeting of its shareholders and call for a vote thereat or to submit a written
consent to shareholders with respect to the approval of this Agreement and the
Merger will result in irreparable harm to Parent which will not be compensable
in money damages, and (ii) agrees that such covenants shall be specifically
enforceable and that specific performance and injunctive relief shall be a
remedy properly available to Parent for a breach of such covenants.
SECTION 7.3 ASR 135 Agreement. The Company has advised the persons
identified on Schedule 7.3 of the resale restrictions imposed by applicable
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securities laws, including Accounting Series Release No. 135 ("ASR 135") and
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obtained from such persons a written agreement dated the date hereof and
substantially in the form of Exhibit 7.3 (each an "ASR 135 Agreement"). The
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Company shall use its best efforts to obtain as soon as practicable, but prior
to Closing, any other person who may be deemed to have become an affiliate of
the Company after the date of this Agreement, a written ASR 135 Agreement.
SECTION 7.4 Expenses and Fees. Each party hereto agrees to bear its
own expenses, including reasonable and customary fees and expenses payable to
attorneys, accountants and investment bankers in connection with the
transactions contemplated hereby.
SECTION 7.5 Agreement to Cooperate.
(a) Subject to the terms and conditions herein provided and, subject
to the fiduciary duties of the board of directors of any party under applicable
law, each of the parties hereto shall use all reasonable efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary, proper or advisable pursuant to all agreements, contracts, indentures
or other instruments to which the parties hereto are a party, or under any
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including using its reasonable
efforts to (i) obtain all necessary or appropriate waivers, consents and
approvals from lenders, landlords, security holders or other parties whose
waiver, consent or approval is required to consummate the Merger, (ii) effect
all necessary registrations, filings and submissions, and (iii) lift any
injunction or other legal bar to the Merger (and, in such case, to proceed with
the Merger as expeditiously as possible).
(b) In the event any litigation is commenced by any person or entity
relating to the transactions contemplated by this Agreement, Parent shall have
the right, at its own expense, to participate
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therein, and the Company will not settle any such litigation without the consent
of Parent, which consent will not be unreasonably withheld.
SECTION 7.6 Public Statements. Unless required by law, the parties
(i) shall consult with each other prior to issuing any press release or any
written public statement with respect to this Agreement or the transactions
contemplated hereby, and (ii) shall not issue any such press release or written
public statement prior to such consultation.
SECTION 7.7 Notification of Certain Matters. Each of the Company,
Parent and Subsidiary agrees to give prompt notice to each other of, and to use
their respective reasonable best efforts to prevent or promptly remedy, (i) the
occurrence or failure to occur or the impending or threatened occurrence or
failure to occur, of any event which occurrence or failure to occur would be
likely to cause any of its representations or warranties in this Agreement to be
untrue or inaccurate in any material respect at any time from the date hereof to
the Effective Time, and (ii) any material failure on its part to comply with or
satisfy any covenant, condition or agreement to be complied with or satisfied by
it hereunder; provided, however, that the delivery of any notice pursuant to
this Section 7.7 shall not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
SECTION 7.8 Directors' and Officers' Indemnification. Parent and
Subsidiary agree that the articles of incorporation and bylaws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are currently set forth in Article VI of the Articles of
Incorporation, as amended, of the Company, which provisions shall not be
amended, repealed or otherwise modified for a period of two years from the
Effective Time in any manner that would affect adversely the rights thereunder
of individuals who at the Effective Time were directors or officers of the
Company unless such modification shall be required by law.
SECTION 7.9 Mandatory Registration. Within 45 days following the
Effective Time, Parent shall prepare and file with the SEC a registration
statement and such other documents, including a prospectus, as may be necessary
in order to comply with the provisions of the Securities Act so as to permit a
resale of the shares of Parent Common Stock issued to Company Shareholders
pursuant to this Agreement and the shares of Parent Common Stock underlying the
Company Warrants and the Company Options by the holders thereof ("Holders") for
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a consecutive period of two years or until the distribution described in the
registration statement has been completed, whichever is shorter, and Parent
shall use its reasonable best efforts to have such registration statement
declared effective by the SEC as soon as practicable after filing, provided
that, for not more than 30 consecutive trading days (or not more than 60
consecutive trading days if the event giving rise thereto is an acquisition
required to be reported in a Current Report on Form 8-K) or for a total of not
more than 90 trading days in any 12 month period, Parent may delay the
disclosure of material non-public information concerning Parent (as well as
prospectus or registration statement updating) the disclosure of which at the
time is not, in the good faith opinion of Parent, in the best interests of
Parent (an "Allowed Delay"); provided, further, that Parent shall promptly (i)
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notify the Holders in writing of the existence of (but in no event, without the
prior written consent of the Holders, shall Parent disclose to Holders any of
the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Holders, in writing to cease all
sales under such
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registration statement until the end of the Allowed Delay. Parent shall use its
reasonable best efforts to cause the registration statement to become effective
at the earliest possible time after filing with the SEC.
SECTION 7.10 Parent Common Stock.
(a) Each certificate representing Parent Common Stock received by a
Company Shareholder, holder of a Company Warrant or holder of a Company Option
pursuant to the Private Placement will be imprinted with a legend substantially
in the following form:
The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The securities have been
acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement for the securities under the Securities Act, or
an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, that registration
is not required under the Securities Act.
This certificate and the shares represented hereby
have been issued pursuant to a transaction governed by
Rule 145 ("Rule 145") promulgated under the Securities
Act, and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a
Registration Statement in effect at the time or unless
the proposed sale or disposition can be made in
compliance with Rule 145 or without registration in
reliance on another exemption therefrom.
(b) Each certificate representing Parent Common Stock received by a
Company Shareholder, holder of a Company Warrant or holder of a Company Option
pursuant to the Regulation S Offering will be imprinted with a legend
substantially in the following form:
The securities represented by this certificate have
not been registered under the Securities Act of 1933, as
amended (the "Securities Act"). The securities have been
acquired for investment and may not be sold, transferred
or assigned in the absence of an effective registration
statement for the securities under the Securities Act, or
an opinion of counsel, in form, substance and scope
reasonably acceptable to the Company, that such sale,
transfer or assignment is in compliance with Regulation S
promulgated under the Securities Act or that registration
is not required under the Securities Act. Hedging
transactions involving these securities may not be
conducted unless such hedging transaction complies with
the Securities Act.
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This certificate and the shares represented hereby
have been issued pursuant to a transaction governed by
Rule 145 ("Rule 145") promulgated under the Securities
Act, and may not be sold or otherwise disposed of unless
registered under the Securities Act pursuant to a
Registration Statement in effect at the time or unless
the proposed sale or disposition can be made in
compliance with Rule 145 or without registration in
reliance on another exemption therefrom.
(c) In addition to the legends set forth in paragraphs (a) and (b) of this
Section 7.10, each certificate representing shares of Parent Common Stock issued
to the persons listed on Schedule 7.3 shall have the following legend:
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The transfer of such shares is subject to certain restrictions set forth in
a letter agreement dated as of (insert date of ASR 135 Agreement) by and between
the issuer of such shares and the holder of this certificate. The issuer of such
shares will furnish a copy of these provisions to the holder hereof without
charge upon written request.
SECTION 7.11 Acquisition of Common Stock. Prior to the Closing or the
earlier termination of this Agreement pursuant to the terms hereof, the
Principal Shareholders, the Company and its subsidiaries and their affiliates
have not purchased and will not purchase or otherwise acquire directly or
indirectly any Parent Common Stock other than as provided in this Agreement.
SECTION 7.12 Exhibits and Schedules. The Company has made available
to Parent on or prior to the Closing Date, copies of all items set forth on
Exhibits or Schedules to this Agreement and any and all other consents,
documents or agreements to be delivered hereunder which have not previously been
delivered to Parent on the date hereof, which items and any such other consents,
documents or agreements shall be in form and substance reasonably satisfactory
to Parent and the Company. In addition, prior to the Closing the Company and
Parent may update the Schedules as necessary, subject to Parent's or the
Company's respective approval of any material updates of the Schedules.
SECTION 7.13 Transition. The Company shall not take any action that
is designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of the Company and its
subsidiaries from maintaining the same business relationships with the Company
and its subsidiaries after the Closing as it maintained with the Company and its
subsidiaries prior to the Closing unless such action is taken in accordance with
prudent business practices.
SECTION 7.14 Company Warrants. At the Effective Time, the Company and
Parent shall take such action as may be necessary to cause each Company Warrant,
whether currently exercisable or exercisable only after the date hereof, to be
automatically converted at the Effective Time into a Parent Warrant as provided
in Section 3.2. At the Effective Time, all references in the Company Warrants to
the Company shall be deemed to refer to Parent. At the Effective Time, Parent
shall assume all of the Company's obligations with respect to the Company
Warrants and Parent shall (i) reserve for issuance the number of shares of
Parent Common Stock that will become issuable upon the exercise of the Company
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Warrants and (ii) at the Effective Time, issue to each holder of a Company
Warrant a document evidencing Parent's assumption of the Company's obligations
under Company Warrants as set forth in Section 3.2.
SECTION 7.15 Company Options. At the Effective Time, the Company and
Parent shall take such action as may be necessary to cause each Company Option,
whether currently exercisable or exercisable only after the date hereof, to be
automatically converted at the Effective Time into a Parent Option as provided
in Section 3.2. At the Effective Time, all references in the stock option
agreements to the Company shall be deemed to refer to Parent. At the Effective
Time, Parent shall assume all of the Company's obligations with respect to
Company Options as so amended and Parent shall (i) reserve for issuance the
number of shares of Parent Common Stock that will become issuable upon the
exercise of the Parent Options and (ii) at the Effective Time, issue to each
holder of a Company Option a document evidencing Parent's assumption of the
Company's obligations under the Company Options as set forth in Section 3.2.
SECTION 7.16 Confidentiality and Noncompetition Agreements. Prior to
Closing, each of Mary Fong, Abraham Jou and Ching Ho shall have entered into a
confidentiality and noncompetition agreement with Parent (each a
"Confidentiality and Noncompetition Agreement"), substantially in the form of
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Exhibit 7.16.
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SECTION 7.17 Compliance with Securities Law. The Parent Common Stock
to be issued in the Merger shall be issued in material compliance with the
Securities Act. Parent shall also take any action required to be taken under
any applicable state securities or "blue sky" laws in connection with the
issuance of the Parent Common Stock pursuant to this agreement.
ARTICLE VII
CONDITIONS
SECTION 8.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Closing Date of the following
conditions:
(a) this Agreement and the transactions contemplated hereby shall have
been approved and adopted by the requisite vote of the shareholders of the
Company (with the number of shareholders of the Company invoking dissenters'
rights limited to that which would permit the merger to proceed, in light of
such dissenters, and continue to qualify as both a pooling-of-interests
transaction under APB 16 and as a tax deferred reorganization under Section 368
of the Code) under applicable law;
(b) no preliminary or permanent injunction or other order or decree by
any federal or state court which prevents the consummation of the Merger shall
have been issued and remain in effect (each party agreeing to use its reasonable
efforts to have any such injunction, order or decree lifted);
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(c) no action shall have been taken, and no statute, rule or
regulation shall have been enacted, by any state or federal government or
governmental agency in the United States which would prevent the consummation of
the Merger or make the consummation of the Merger illegal;
(d) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Effective Time;
(e) all required consents and approvals of third parties to material
contracts with the Parent or the Company shall have been obtained and be in
effect at the Effective Time; provided, however, that the failure to obtain such
consents or approvals shall not be due to the default or delay of the party
responsible for obtaining such consents and approvals;
(f) KPMG LLP, as public accountants for Parent and Subsidiary, shall
have delivered a letter, dated the Closing Date, addressed to Parent stating
that, in their opinion, the Merger qualifies as a pooling-of-interests
transaction under APB 16;
(g) KPMG LLP, as public accountants for the Company, shall have
delivered a letter, dated the Closing Date, addressed to the Company stating
that, in their opinion, the Merger qualifies as a pooling-of-interests
transaction under APB 16;
(h) the Company, the Parent, the Representative and the Escrow Agent
shall have executed the Escrow Agreement; and
(i) Warburg Dillon Reed LLC shall issue a letter or opinion
indicating that loans made by Parent to the Company constitute debt issued on
commercially reasonable terms.
SECTION 8.2 Conditions to Obligation of the Company to Effect the
Merger. Unless waived by the Company, the obligation of the Company to effect
the Merger shall be subject to the fulfillment at or prior to the Closing Date
of the following additional conditions:
(a) Parent and Subsidiary shall have performed in all material
respects their agreements contained in this Agreement required to be performed
on or prior to the Closing Date and the representations and warranties of Parent
and Subsidiary contained in this Agreement shall be true and correct in all
material respects on and as of the date made and (except to the extent such
representation speaks as of an earlier date) on and as of the Closing Date as if
made at and as of such date, and the Company shall have received a certificate
of the Chief Executive Officer, the President or a Vice President of Parent and
of the Chief Executive Officer, the President or a Vice President of Subsidiary,
in form and substance reasonably satisfactory to the Company, to that effect;
(b) the Company shall have received an opinion from Ballard Spahr
Andrews & Ingersoll LLP, special counsel to Parent and Subsidiary, dated the
Closing Date, reasonably satisfactory to the Company setting forth the matters
set forth in Exhibit 8.2(b);
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(c) since the date hereof, there shall have been no changes that
constitute, and no event or events shall have occurred which have resulted in or
constitute a Parent Material Adverse Effect;
(d) no governmental authority shall have promulgated any statute, rule
or regulation which, when taken together with all such promulgations, would
materially impair the value to the Company of the Merger; and
(e) Parent and Subsidiary shall have signed a certificate in
substantially the form attached hereto as Exhibit 8.2(e) concerning certain
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factual matters relating to the qualification of the Merger as a tax deferred
reorganization under the provisions of Section 368 of the Code.
SECTION 8.3 Conditions to Obligations of Parent and Subsidiary to
Effect the Merger. Unless waived by Parent and Subsidiary, the obligations of
Parent and Subsidiary to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the additional following conditions:
(a) the Company shall have performed in all material respects its
agreements contained in this Agreement required to be performed on or prior to
the Closing Date and the representations and warranties of the Company contained
in this Agreement shall be true and correct in all material respects on and as
of the date made and on and (except to the extent such representation speaks as
of an earlier date) as of the Closing Date as if made at and as of such date,
and Parent shall have received a Certificate of the Chief Executive Officer,
President or a Vice President of the Company in form and substance reasonably
satisfactory to Parent, to that effect;
(b) Parent shall have received an opinion from Fenwick & West LLP,
special counsel to the Company, effective as of the Closing Date, reasonably
satisfactory to Parent setting forth the matters set forth in Exhibit 8.3(b);
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(c) there shall have been no changes that constitute, and no event or
events shall have occurred which have resulted in or constitute a Company
Material Adverse Effect;
(d) all governmental waivers, consents, orders and approvals legally
required for the consummation of the Merger and the transactions contemplated
hereby shall have been obtained and be in effect at the Closing Date, and no
governmental authority shall have promulgated any statute, rule or regulation
which, when taken together with all such promulgations, would materially impair
the value to Parent of the Merger;
(e) the ASR 135 Agreements described in Section 7.3 and the
Confidentiality and Noncompetition Agreements described in Section 7.16 shall
have been executed by the appropriate parties and delivered to Parent;
(f) all of the Series A Preferred Stock and Series B Preferred Stock,
as set forth on Schedule 5.2(a), shall have been converted to Company Common
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Stock in a manner consistent with APB
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16 requirements for treatment as a pooling of interests and except for the
Company Common Stock, the Company Options and the Company Warrants, as set forth
on Schedule 5.2(b), there shall be no shares of preferred stock or other capital
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stock or rights to acquire capital stock of the Company issued or outstanding or
owned by the Company or any of its subsidiaries;
(g) Parent shall have received the written resignations, effective as
of Closing, of each director and officer of the Company and its subsidiaries
listed on Schedule 8.3(g) at least five days prior to Closing;
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(h) each of the Company Shareholders, except for Yong Hong (Jenny)
Zhang, receiving shares of Parent Common Stock pursuant to the Private Placement
shall have executed an investor questionnaire and representation agreement in
substantially the form set forth as Exhibit 8.3(i) with such changes as are
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mutually acceptable to the parties (the "Shareholder Questionnaire and
-----------------------------
Agreement") and the information provided to Parent in connection with such
- ---------
documents shall indicate, in the opinion of counsel to Parent, that the issuance
of Parent Common Stock to the Company Shareholders pursuant to this Agreement
without registration will comply with state and federal securities laws;
(i) each of the Company Shareholders receiving shares of Parent Common
Stock pursuant to the Regulation S Offering shall have executed the Shareholder
Questionnaire and Agreement in substantially the form set forth as Exhibit
-------
8.3(i) and the information provided to Parent in connection with such documents
- ------
shall indicate, in the opinion of counsel to Parent, that the issuance of Parent
Common Stock to the Company Shareholders pursuant to this Agreement without
registration will comply with state and federal securities laws;
(j) each person who becomes a holder of Company Common Stock (each, a
"Subsequent Holder") after the date of this Agreement, but prior to the
-----------------
Effective Time, shall have executed the Shareholder Questionnaire and Agreement
in substantially the form set forth as Exhibit 8.3(i) and the information
--------------
provided to Parent in connection with such documents shall indicate, in the
opinion of counsel to Parent, that the issuance of Parent Common Stock to the
Company Shareholders and each and all of such Subsequent Holders pursuant to
this Agreement without registration will comply with state and federal
securities laws;
(k) the Company shall have executed a release or settlement agreement
satisfactory to Parent with each of (i) Ed Feghali and (ii) Harmonic, Inc.;
(l) each holder of a Company Warrant shall have executed a written
consent to the conversion of all of the Company Warrants held by such holder
into warrants to acquire Parent Common Stock in accordance with the terms of
Section 3.2;
(m) Krzysztof Pradzynski and Guy Sucharczuk each shall have executed
a release satisfactory to Parent with respect to the 1:1 stock option conversion
ratio in their respective employee agreement; and
46
<PAGE>
(n) Company shall have signed a certificate in substantially the form
attached hereto as Exhibit 8.3(m) concerning certain factual matters relating to
--------------
the qualification of the Merger as a tax deferred reorganization under the
provisions of Section 368 of the Code.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
SECTION 9.1 Termination. This Agreement may be terminated by the
mutual consent of the parties or at any time prior to the Closing Date, as
follows:
(a) The Company shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30, 1999 other
than on account of delay or default on the part of the Company;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of the Company or
any of its five percent shareholders or any of their affiliates or
associates;
(iii) if the Parent (A) fails to perform any of its covenants in
this Agreement, and (B) does not cure such default within 30 days
after written notice of such default is given to Parent by the
Company;
(iv) if Parent shall have breached any covenant hereunder, or
failed to perform any of its obligations hereunder, or any
representation or warranty of Parent shall be untrue, such that, in
any such case any of the conditions set forth in Section 8.2 could not
be satisfied on or before November 30, 1999.
(b) Parent shall have the right to terminate this Agreement:
(i) if the Merger is not completed by November 30, 1999 other
than on account of delay or default on the part of Parent;
(ii) if the Merger is enjoined by a final, unappealable court
order not entered at the request or with the support of Parent or
Subsidiary or any of its five percent shareholders or any of their
affiliates or associates;
(iii) if the Company (A) fails to perform any of its covenants in
this Agreement, and (B) does not cure such default within 30 days
after written notice of such default is given to the Company by
Parent;
47
<PAGE>
(iv) if the Company shall have breached any covenant
hereunder, or failed to perform any of its obligations hereunder, or
any representation or warranty of Company shall be untrue, such that,
in any such case any of the conditions set forth in Section 8.3 could
not be satisfied on or before November 30, 1999.
SECTION 9.2 Effect of Termination. In the event of termination of
this Agreement by either Parent or the Company as provided in 9.1, this
Agreement shall forthwith become void and there shall be no further obligation
on the part of the Company, Parent, Subsidiary or their respective officers or
directors (except those obligations set forth in Section 6.5, Section 7.1,
Section 7.4, this Section 9.2, Article X or Article XI, all of which shall
survive the termination). Nothing in this Section 9.2 shall relieve any party
from liability for any breach of this Agreement.
SECTION 9.3 Waiver. At any time prior to the Effective Time, the
parties hereto may (a) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (b) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant thereto, and (c) waive compliance with any of the
agreements or conditions contained herein. Any such waiver shall not be deemed
to be continuing or to apply to any future obligation or requirement of any
party hereto provided herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid if set forth in an instrument in
writing signed on behalf of such party.
ARTICLE X
REMEDIES FOR BREACHES
SECTION 10.1 Survival of Representations and Warranties. All of the
representations, warranties and covenants of the Company contained in this
Agreement shall survive the Closing even if the damaged party knew or had reason
to know of any misrepresentation or breach of warranty, representation or
covenant at the time and continue in full force and effect for a period of 12
months thereafter in accordance with the terms of the Escrow Agreement (the
"Survival Period") provided that Parent's exclusive remedy for any
---------------
misrepresentation or breach of warranty, representation or covenant by the
Company after the Closing shall be to pursue Parent's remedies under the Escrow
Agreement. Except for claims by the Parent against the Escrow Securities in
accordance with the Escrow Agreement, no Company Shareholder will have any
liability to Parent under this Agreement.
ARTICLE XI
GENERAL PROVISIONS
SECTION 11.1 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, mailed by
registered or certified mail (return receipt requested) or overnight courier, or
sent via facsimile to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
48
<PAGE>
(a) If to Parent or Subsidiary to:
C-COR.net Corp.
60 Decibel Road
State College, PA 16801
Attention: David A. Woodle
Facsimile Number: 814-231-4427
with a copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
Attention: Robert C. Gerlach, Esquire
Facsimile Number: 215-864-8999
(b) If to the Company, to:
Silicon Valley Communications, Inc.
3515 Monroe Street
Santa Clara, CA 95051
Attention: Mary Fong
Facsimile Number: 408-737-8900
with a copy to:
Fenwick & West LLP
Two Palo Alto Square
Palo Alto, CA 94306
Attention: Fred M. Greguras, Esquire
Facsimile Number: 650-494-1417
SECTION 11.2 Interpretation. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. In this Agreement, unless a contrary intention
appears, (i) the words "herein," "hereof" and "hereunder" and other words of
similar import refer to this Agreement as a whole and not to any particular
Article, Section or other subdivision, and (ii) reference to any Article or
Section means such Article or Section hereof. The parties have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties and no presumption or burden
of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. Any reference to any
federal, state, local, or foreign statute or law shall be deemed also to refer
to all rules and regulations promulgated thereunder, unless the context requires
otherwise. The word "including" shall mean including
49
<PAGE>
without limitation. The parties intend that each representation, warranty, and
covenant contained herein shall have independent significance. If any party has
breached any representation, warranty, or covenant contained herein in any
respect, the fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of the relative levels
of specificity) which the party has not breached shall not detract from or
mitigate the fact that the party is in breach of the first representation,
warranty, or covenant.
SECTION 11.3 Entire Agreement; Miscellaneous. This Agreement and the
Confidentiality Agreement and any other written agreements between the parties
dated the date hereof supersede any and all other agreements, either oral or in
writing, between the parties hereto with respect to the subject matter and
contain all the covenants and agreements between the parties with respect to the
subject matter of this Agreement in any manner whatsoever. Each party to this
Agreement acknowledges that no representations, inducements, promises or
agreements, orally or otherwise, have been made by any party, or anyone acting
on behalf of any party, which are not included herein, and that no other
agreement, statement or promise not contained in this Agreement or referred to
herein shall be valid or binding. This Agreement constitutes the entire
Agreement between the parties with respect to the subject matter hereof and
shall bind and inure to the benefit of the parties and their respective
successors, assigns, heirs and personal representatives, subject to the
restriction on assignment contained herein.
SECTION 11.4 Governing Law. THIS AGREEMENT SHALL BE GOVERNED IN ALL
RESPECTS, INCLUDING VALIDITY, INTERPRETATION AND EFFECT, BY THE INTERNAL LAWS OF
THE COMMONWEALTH OF PENNSYLVANIA APPLICABLE TO CONTRACTS EXECUTED AND TO BE
PERFORMED WHOLLY WITHIN SUCH STATE WITHOUT REGARD TO CONFLICTS OF LAWS
PRINCIPLES.
SECTION 11.5 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original, but all of
which shall constitute one and the same agreement. Each of the parties agrees
to accept and be bound by facsimile signatures hereto.
SECTION 11.6 Parties In Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 11.7 Exhibits and Schedules. All Exhibits and Schedules
referred to in this Agreement shall be attached hereto and are incorporated
herein by reference.
SECTION 11.8 Amendment of Agreement. No amendments or variations of
the terms or conditions of this Agreement shall be valid unless made in writing
signed by all parties hereto.
SECTION 11.9 Severability. If any term, provision, condition or
covenant of this Agreement or the application thereof to any party or
circumstances shall be held to be invalid or unenforceable to any extent in any
jurisdiction, then the remainder of this Agreement and the application
50
<PAGE>
of such term, provision, condition or covenant in any other jurisdiction or to
persons or circumstances other than those as to whom or which it is held to be
invalid or unenforceable, shall not be affected thereby, and each term,
provision, condition and covenant of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.
SECTION 11.10 Assignment. The parties hereto may not assign any of
their rights or obligations hereunder without obtaining the prior written
consent of the other parties hereto, which consent shall not be unreasonably
withheld, provided that in the case of any assignment or transfer under the
terms of this Section 11.10, this Agreement shall be binding upon and inure to
the benefit of the successor, and the successor shall discharge and perform all
of the obligations of Parent under this Agreement and such assignment or
transfer shall not act as a release of the obligation of Parent hereunder.
SECTION 11.11 Gender and Number. All references to the neuter gender
shall include the feminine or masculine gender and vice versa, where applicable,
and all references to the singular shall include the plural and vice versa,
where applicable.
SECTION 11.12 No Third-Party Beneficiaries. This Agreement shall not
confer any rights or remedies upon any person or entity other than the parties
and their respective successors and permitted assigns.
51
<PAGE>
IN WITNESS WHEREOF, Parent, Subsidiary and the Company have caused
this Agreement to be signed by their respective officers as of the date first
written above.
C-COR.net CORP.
By: /s/ David A. Woodle
----------------------------------------
Name: David A. Woodle
Title: President & CEO
C-COR.net ACQUISITION CORP.
By: /s/ David A. Woodle
----------------------------------------
Name: David A. Woodle
Title: President & CEO
SILICON VALLEY COMMUNICATIONS, INC.
By: /s/ Mary Mei-Li Fong
----------------------------------------
Name: Mary Mei-Li Fong
Title: Chairperson & SEO
52
<PAGE>
Exhibit 3 (a)
-------------
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
C-OR ELECTRONICS, INC.
The Articles of Incorporation of C-COR Electronics, Inc., as
heretofore amended or supplemented, are hereby amended and restated in their
entirety as follows:
1. The name of the corporation is:
C-COR Electronics, Inc.
2. The location and post office address of the registered office
of the corporation is:
60 Decibel Road
State College, Pa. 16801
3. The corporation has been incorporated for the following
purposes:
To have unlimited power to engage in and to do any
lawful act concerning any and all lawful business for
which corporations may be incorporated under the
Business Corporation Law, including, but not limited
to, design, manufacture, repair and provision of
service with respect to electronics components used
with cable television and other broadband
communications systems.
4. The term for which the corporation is to exist is:
Perpetual.
5.(a). The aggregate number of shares which the corporation should
have authority to issue is:
Eight Million (8,000,000) shares of Common Stock having
a par value of $.10 (ten cents) per share and Two
Million (2,000,000) shares of Preferred Stock, no par
value per share.
5.(b) The Board of directors may issue in one or more series, up to
2,000,000 shares of Preferred Stock, no par value, with full, limited, multiple,
fractional or no voting rights, and with such designations, preferences,
qualifications, privileges, limitations, restrictions, options, conversion
rights, and other special or relative rights as shall be fixed from time to time
by resolution of the Board of Directors.
Manner and Basis of Reclassifying Outstanding
Shares of Common Stock of the Corporation
-----------------------------------------
Upon the effectiveness of these Amended and Restated Articles of
Incorporation, each outstanding share of Common Stock, no par value, shall be
reclassified into 28 shares of Common Stock, $.10 par value.
<PAGE>
Exhibit 3 (b)
-------------
ARTICLES OF AMENDMENT - DOMESTIC BUSINESS CORPORATION
COMMONWEALTH OF PENNSYLVANIA
DEPARTMENT OF STATE
CORPORATION BUREAU
____________________________________________________________________
In compliance with the requirements of section 806 of the Business
Corporation Law, act of May 5, 1933 (P.L. 364) (13 P.S. (S)1806), the
undersigned corporation, desiring to amend this Articles, does hereby certify
that:
1. The name of the corporation is:
C-COR ELECTRONICS, INC.
-------------------------------------------------------------
2. The location of its registered office in this Commonwealth is (the
Department of State is hereby authorized to correct the following statement
to conform to the records of the Department):
60 Decibel Road
-------------------------------------------------------------
(Address) (Street)
STATE COLLEGE 16801
-------------------------------------------------------------
(City) (Zip Code)
3. The statute by or under which it was incorporated is:
ACT OF MAY 5, 1993, P.L. 364, AS AMENDED 16801
-------------------------------------------------------------
4. The date of its incorporation is JUNE 30, 1953
----------------------------
5. (Check, and if appropriate, complete one of the following):
x The meeting of the shareholders of the corporation at which the
-
amendment was adopted was held at the time and place and pursuant to the kind
and period of notice herein stated.
Time: The 22nd day of OCTOBER, 1986
---- ------- ----
Place: Nittany Lion Inn, State College, PA 16802
--------------------------------------------
Kind and period of notice: WRITTEN NOTICE MAILED SEPTEMBER 23, 1986
----------------------------------------
____________________________________________________________________
[_] The amendment was adopted by a consent in writing, setting
forth the action so taken, signed by all of the shareholders entitled to vote
thereon and filed with the Secretary of the corporation.
6. At the time of the action of shareholders:
<PAGE>
(a) The total number of shares outstanding was:
3,017,470 SHARES OF COMMON STOCK
-----------------------------------------------------------------
(b) The number of shares entitled to vote was:
3,017,470 SHARES OF COMMON STOCK
-----------------------------------------------------------------
7. In the action taken by the shareholders:
(a) The total number of shares voted in favor of the amendment was:
1,814,622
---------------------------------------------------------
(b) The number of shares voted against the amendment was:
456,892
---------------------------------------------------------
8. The amendment adopted by the shareholders set forth in full, is as follows:
RESOLVED that the Amended and Restated Articles of Incorporation, of
C-COR Electronics, Inc. shall be amended by adding new Articles 6 and 7 to read
as set forth in Appendix A to the proxy statement for this meeting, such
amendment to become effective upon the filing thereof.
See Appendix A attached hereto.
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer and it corporate seal,
duly attested by another such officer, to be hereunto affixed this 5/th/ day of
November, 1986.
C-COR ELECTRONICS, INC.
<PAGE>
APPENDIX A
6.A. The provisions of this Article 6 shall apply notwithstanding any
provisions of these Articles of Incorporation or of the By-Laws of the
Corporation to the contrary.
B. Except as otherwise expressly provided in Paragraph C of this
Article 6:
(i) any merger or consolidation of the Corporation with or into
any other corporation;
(ii) any sale, lease, exchange or other disposition of all or
substantial all of the assets of the Corporation to or with any other
corporation, person or other entity; or
(iii) any issuance or transfer by the Corporation to any other
corporation, person other entity, in a single transaction or group or
series of related transactions, of any shares of capital stock of the
Corporation entitled to vote generally in elections of directors (or
warrants or options or securities convertible into such capital stock), if
the holders of such shares would be entitled to cast 5% or more of the
votes which all holders of shares of all classes of capital stock of the
Corporation, outstanding immediately prior to such transaction and entitled
to vote generally in elections of directors, would be entitled to cast,
shall require the affirmative vote of shareholders entitled to cast at least 66
2/3% of the votes which all holders of shares of all classes of capital stock of
the Corporation entitled to vote generally in elections of directors, voting
together for this purpose as one class, would be entitled to cast at any annual
or special meeting duly convened after notice to the shareholders of that
purpose, if as of the date of any action taken by the Board of Directors of the
Corporation with respect to any transaction described in clause (i), (ii) or
(iii) of this Paragraph B or as of the record date for the determination of
shareholders entitled to notice thereof and to vote thereon, such other
corporation, person or other entity referred to above is the beneficial owner,
directly or indirectly, of 10% or more of the outstanding shares of any class of
capital stock of the Corporation. Such affirmative vote shall be required
notwithstanding the fact that no vote may be required, or that some lesser
percentage may be specified, by law, in any agreement with any national
securities exchange or otherwise.
C. The provisions of this Article 6 shall not apply to any transaction
described in clause (i), (ii) or (iii) of Paragraph B of this Article 6 (i) if
such transaction shall have been approved by the affirmative vote of a majority
of the whole Board of Directors of the Corporation prior to the time such other
corporation, person or other entity became the beneficial owner, directly or
indirectly, of 10% or more of the outstanding shares of any class of capital
stock of the Corporation or (ii) if such transaction shall have been approved by
the affirmative vote of at least 80% of the whole Board of Directors of the
Corporation, in each case at any regular or special meeting duly convened after
notice to the directors of that purpose.
D. For the purposes of this Article 6, a corporation, person or other
entity shall be deemed to be the beneficial owner of any shares of any class of
capital stock of the Corporation (i) which it has the right to acquire pursuant
to any agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, or (ii) which are beneficially owned, directly or indirectly
(including shares deemed owned through application of clause (i) of this
Paragraph D), by any other corporation, person or other entity (a) with which it
or its affiliate or associate has any agreement, arrangement or understanding
for the purpose of acquiring, holding, voting or disposing of any securities of
the Corporation or (b) which is its affiliate or associate. For the purposes of
this Article 6 the outstanding shares of any class of capital stock of the
Corporation shall include shares deemed owned through the application of clauses
(i) and (ii) of this Paragraph D but shall not include any
<PAGE>
other shares which may be issuable pursuant to any agreement or upon exercise of
conversion rights, warrants or options, or otherwise.
E. For purposes of this Article 6, the terms "affiliate" and
"associate" are defined as those terms are defined in Rule 12b-2 of the General
Rules and Regulations under the Securities Exchange Act of 1934 as in effect on
June 30, 1986.
F. The Board of Directors of the Corporation, by the affirmative vote
of at least 80% of the whole Board of Directors, shall have the power to
determine for the purposes of this Article 6 on the basis of information then
known to it, (i) whether (a) any corporation, person or other entity
beneficially own, directly or indirectly, 10% or more of the outstanding shares
of any class of capital stock of the Corporation, (b) any corporation, person or
other entity is an affiliate or an associate of another, (c) any proposed sale,
lease, exchange or other disposition of part of the assets of the Corporation
involves substantially all of the assets of the Corporation, and (d) the Board
of Directors of the Corporation has approved any transaction and (ii) when any
of the facts set forth in clause (i) of this sentence has occurred. Any such
determination by the Board shall be conclusive and binding for all purpose of
this Article 6.
7. The Corporation reserves the right to amend, alter, add to or
repeal any provision contained in these Articles of Incorporation, in the manner
now or hereinafter prescribed by statute, and all rights conferred upon
shareholders are herein granted subject to this reservation; provided, however,
that no amendment to these Articles of Incorporation shall amend, alter, add to
or repeal any of the provisions of Article 6 unless the resolution effecting
such amendment, alteration, addition or repeal shall receive the affirmative
vote of shareholders entitled to cast at least 66 2/3% of the votes which all
holders of shares of all clauses of capital stock of the Corporation entitled to
vote generally in elections of directors, voting together for this purpose as
one class, would be entitled to cast at any annual or special meeting duly
convened after notice to the shareholders of that purpose.
<PAGE>
Exhibit 3 (c)
-------------
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DBCB:15-1915 (Rev 80)
In compliance with the requirements of 15 Pa. C. S. ss. 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: C-COR Electronics, Inc.
-------------------------------------
- -------------------------------------------------------------------------
2. The (a) address of the corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and
the county of venue is (the Department is hereby authorized to correct the
following information to conform to the records of the Department):
<TABLE>
<S> <C> <C> <C> <C>
(a) 60 Decibel Road State College PA 16801 Centre
----------------------------------------------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o: -------------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county
in which the corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: Pennsylvania Business Corporation Law of 1933
--------------------------------------------------------------
4. The date of its incorporation is: June 30, 1953
------------------------------------------------------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment in the Department of State
---
--- The amendment shall be effective on: ----------------------- at ------------------------------
Date Hour
6. (Check one of the following):
X The amendment was adopted by the shareholders (or members) pursuant to 15 Pa. C.S.(S).1914(a) and (b).
---
--- The amendment was adopted by the board of directors pursuant to 15 Pa. C.S. (S). 1914(c).
7. (Check, and if appropriate complete, one of the following):
--- The amendment adopted by the corporation, set forth in full, is as follows:
X The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof.
---
8. (Check if the amendment restates the Articles):
--- The restated Articles of Incorporation supersede the original Articles and all amendments thereto.
</TABLE>
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 21st day of
September, 1995 .
C-COR ELECTRONICS, INC.
<PAGE>
EXHIBIT A
TO
ARTICLES OF AMENDMENT
OF
C-COR ELECTRONICS, INC.
7. The amendment adopted by the corporation, set forth in full is
as follows:
RESOLVED, that article 5(a) of C-COR Electronics, Inc.'s Amended and
Restated Articles of Incorporation which presently reads as follows:
5(a). The aggregate numbers of shares which the Corporation
should have authority to issue is:
Eight Million (8,000,000) shares of Common Stock having a par value of
$.10 (ten cents) per share and Two Million (2,000,000) shares of
Preferred Stock, no par value per share.be amended to read in full as
follows:
5(a). The aggregate number of shares which the corporation should have
authority to issue is:
Twenty Four Million (24,000,000) shares of Common Stock having a par
value of $.10 (ten cents) per share and Two Million (2,000,000) shares
of Preferred Stock, no par value per share.
<PAGE>
Exhibit 3 (d)
-------------
ARTICLES OF AMENDMENT-DOMESTIC BUSINESS CORPORATION
DBCB:15-1915 (Rev 80)
In compliance with the requirements of 15 Pa. C. S. (S) 1915 (relating to
articles of amendment), the undersigned business corporation, desiring to amend
its Articles, hereby states that:
1. The name of the corporation is: C-COR Electronics, Inc.
-------------------------------------
--------------------------------------------------------------------
2. The (a) address of the corporation's current registered office in this
Commonwealth or (b) name of its commercial registered office provider and the
county of venue is (the Department is hereby authorized to correct the following
information to conform to the records of the Department):
<TABLE>
<S> <C>
(a) 60 Decibel Road State College PA 16801 Centre
------------------------------------------------------------------------------------------------------------------
Number and Street City State Zip County
(b) c/o:------------------------------------------------------------------------------------------
Name of Commercial Registered Office Provider County
For a corporation represented by a commercial registered office provider, the county in (b) shall be deemed the county in
which the corporation is located for venue and official publication purposes.
3. The statute by or under which it was incorporated is: PA Business Corporation Law, Act of May 5, 1933, P L 364
----------------------------------------------------------------
4. The date of its incorporation is: June 30, 1953
-------------------------------------------------------------------------------------
5. (Check, and if appropriate complete, one of the following):
X The amendment shall be effective upon filing these Articles of Amendment in the Department of State
---
--- The amendment shall be effective on:------------------------------ at -----------------------------
Date Hour
6. (Check one of the following):
--- The amendment was adopted by the shareholders (or members) pursuant to 15 Pa. C.S. (S) 1914(a) and (b).
X The amendment was adopted by the board of directors pursuant to 15 Pa. C.S.(S) 1914(c).
---
7. (Check, and if appropriate complete, one of the following):
X The amendment adopted by the corporation, set forth in full, is as follows:
---
"1. The name of the Corporation is C-COR.net Corp."
-------------------------------------------------------------------------------------------------------
_______________________________________________________________________________________________
_______________________________________________________________________________________________
--- The amendment adopted by the corporation as set forth in full in Exhibit A attached hereto and made a part hereof.
8. (Check if the amendment restates the Articles):
--- The restated Articles of Incorporation supersede the original Articles and all amendments thereto.
</TABLE>
IN TESTIMONY WHEREOF, the undersigned corporation has caused these Articles
of Amendment to be signed by a duly authorized officer thereof this 9th day of
July, 1999.
C-COR ELECTRONICS, INC.
<PAGE>
Exhibit 3 (e)
-------------
BYLAWS
C-COR ELECTRONICS, INC.
----------------------
Adopted by the Board of Directors January 13, 1981,
as amended thereafter through August 17, 1999
ARTICLE I - OFFICES
- -------------------
Section 1-1. Registered Office. The registered office of the Corporation
----------- -----------------
shall be located within the Commonwealth of Pennsylvania, at such place as the
Board of Directors shall, from time to time, determine.
Section 1-2. Other Offices. The Corporation may also have offices at such
----------- -------------
other places within or without the Commonwealth of Pennsylvania, as the Board of
Directors may, from time to time, determine.
ARTICLE II - SHAREHOLDERS' MEETINGS.
- -----------------------------------
Section 2-1. Place of Shareholders' Meetings. Meetings of shareholders
----------- -------------------------------
shall be held at such places within or without the Commonwealth of Pennsylvania
as may be fixed by the Board of Directors, from time to time. If no such place
is fixed by the Board of Directors, meetings of the shareholders shall be held
at the registered office of the Corporation.
Section 2-2. Annual Meeting. A meeting of the shareholders of the
----------- --------------
Corporation shall be held in each calendar year, in the month of October or on
such date at such time as the Board of Directors may determine.
<PAGE>
Unless the Board of Directors shall deem it advisable, financial reports of
the Corporation's business need not be sent to the shareholders and need not be
presented at the annual meeting. If any report is deemed advisable by the Board
of Directors, such report may contain such information as the Board of Directors
shall determine and need not be certified by a Certified Public Accountant
unless the Board of Directors shall so direct.
Section 2-3. Special Meetings. Special meetings of the shareholders may
----------- ----------------
be called at any time:
(a) By the President of the Corporation; or
(b) By a majority of the Board of Directors; or
(c) By shareholders entitled to cast at least a majority of the votes
which all shareholders are entitled to cast at the meeting.
Upon the written request of any person or persons entitled to call a
special meeting, which request shall set forth the purpose for which the meeting
is desired, it shall be the duty of the Secretary to fix the date of such
meeting to be held at such time, not less than five nor more that sixty days
after the receipt of such request, as the Secretary may determine, and to give
due notice thereof. If the Secretary shall neglect or refuse to fix the date of
such meeting and to give notice thereof within five days after receipt of such
request, the person or persons calling the meeting may do so.
Section 2-4. Notices of Shareholders' Meetings. Written notice stating
----------- ---------------------------------
the date, place and hour and, if required by law or these Bylaws, the purpose,
of any meeting of the shareholders, shall be given to each shareholder of record
entitled to vote at the meeting at least five days prior to the day named for
the meeting, unless otherwise required by law. Such notices
<PAGE>
may be given at the discretion of, or in the name of, the Board of Directors,
President, Vice President, Secretary or Assistant Secretary. When a meeting is
adjourned, it shall not be necessary to give any notice of the adjourned meeting
or of the business to be transacted at an adjourned meeting, other than by
announcement at the meeting at which such adjournment is taken.
Section 2-5. Quorum of and Action by Shareholders. Unless otherwise
----------- ------------------------------------
provided in the Articles of Incorporation, or in a Bylaw adopted by the Board of
Directors, the presence, in person or by proxy, of shareholders entitled to cast
at least a majority of the votes which all shareholders are entitled to cast on
the particular matter shall constitute a quorum for the purpose of considering
such matter, and, unless otherwise specifically provided by law, the acts, at a
duly organized meeting, of the shareholders present, in person or by proxy,
entitled to cast at least a majority of the votes which all shareholders present
are entitled to cast, shall be the acts of the shareholders. The shareholders
present at a duly organized meeting can continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum. If a meeting cannot be organized because of quorum has not
attended, those present may, except as otherwise provided by law, adjourn the
meeting to such time and place as they may determine, but in the case of any
meeting called for the election of Directors, those shareholders who attend the
second of such adjourned meetings, although less than a quorum as fixed in this
Section, or in the Articles of Incorporation, shall nevertheless constitute a
quorum for the purpose of electing Directors.
Section 2-6. Voting. At least five days before any meeting of
----------- ------
shareholders, the officer or agent having charge of the transfer books of the
Corporation shall make a complete list of the
<PAGE>
shareholders entitled to vote at such meeting, arranged in alphabetical order
with the address of and the number of shares held by each, which list shall be
kept on file at the registered office of the Corporation and shall be subject to
inspection by any shareholder at any time during usual business hours. Such list
shall also be produced and kept open at the time and place of the meeting and
shall be subject to the inspection of any shareholder during the whole time of
the meeting.
At all shareholders' meetings, shareholders entitled to vote may attend and
vote either in person or by proxy. All proxies shall be in writing, executed by
the shareholder or by his duly authorized attorney in fact, and shall be filed
with the Secretary of the Corporation. A proxy, unless coupled with an
interest, shall be revocable at will, notwithstanding any other agreement or any
provision in the proxy to the contrary, but the revocation of a proxy shall not
be effective until the notice thereof has been given to the Secretary of the
Corporation. No unrevoked proxy shall be valid after eleven months from the
date of execution, unless a longer time is expressly provided therein; but in no
event shall a proxy, unless coupled with an interest, be voted on after three
years from the date of its execution.
Except as otherwise specifically provided by law, all matters coming before
the meeting shall be determined by a vote of shares. Such vote shall be taken
by voice unless a shareholder demands before the election begins that it be
taken by ballot, and the Judge or Judges of Election or, if none, the Secretary
of the Meeting, shall tabulate and certify the results of such vote.
Section 2-7. Participation in Meetings by Conference Telephone. Any
----------- --------------------------------------- ---------
shareholder who is otherwise entitled to participate in any meeting of the
shareholders may attend, be counted for the purposes of determining a quorum and
exercise all rights and privileges to which he may be
<PAGE>
entitled were he personally in attendance, including the right to vote, by means
of a conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other.
ARTICLE III - BOARD OF DIRECTORS
- --------------------------------
Section 3-1. Number and Term. The Board of Directors shall consist of
----------- ---------------
such number of directors not less than six nor more than 15 as shall be
determined from time to time by the Board of Directors. Except as otherwise
provided by law, the Articles of the Corporation or these Bylaws, Directors
shall be elected at the annual meeting of shareholders to serve until the end of
the term to which they are elected and until their successors are elected and
qualify. The Board of Directors shall be divided into three classes, as nearly
equal in number as the then total number of Directors constituting the whole
Board permits, it not being required that each class have the same number of
members if such is mathematically impossible, with the term of office of one
class expiring each year. At the annual meeting of shareholders in 1987,
Directors of the first class shall be elected to hold office for a term expiring
at the next succeeding annual meeting, Directors of the second class shall be
elected to hold office for a term expiring at the second succeeding annual
meeting and Directors of the third class shall be elected to hold office for a
term expiring at the third succeeding annual meeting. Thereafter, at each
annual meeting of shareholders the successors to the class of Directors whose
term shall then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting after such election. In the event of any
increase in the number of Directors of the Corporation, the additional Director
or Directors shall be so classified that all classes of Directors shall be as
nearly equal as may be
<PAGE>
possible. In the event of any decrease in the number of Directors of the
Corporation, all classes of Directors shall be decreased as nearly equally as
may be possible. A person who is age seventy (70) or more shall not be elected
or appointed to the Board of Directors, except that a Director elected at the
annual shareholder's meeting of October 20, 1981, may be elected or appointed
until age seventy-two (72).
Section 3-2. Place of Meeting. Meetings of the Board of Directors may be
----------- ----------------
held at such place within the Commonwealth of Pennsylvania or elsewhere as a
majority of the Directors may from time to time appoint or as may be designated
in the notice.
Section 3-3. Regular Meetings. A regular meeting of the Board of
----------- ----------------
Directors shall be held annually, immediately following the annual meeting of
shareholders at the place where such meeting of the shareholders is held or at
such other place, date and hour as a majority of the newly elected Directors may
designate. At such meeting the Board of Directors shall elect officers of the
Corporation. In addition to such regular meeting, the Board of Directors shall
have the power to fix by resolution the place, date and hour of other regular
meetings of the Board.
Section 3-4. Special Meetings. Special meetings of the Board of Directors
----------- ----------------
shall be held whenever ordered by the President, by a majority of the Executive
Committee, if any, or by a majority of the Directors in office.
Section 3-5. Participation in Meetings by Conference Telephone. Any
----------- -------------------------------------------------
director may participate in any meeting of the Board of Directors or of any
committee (provided he is otherwise entitled to participate), be counted for the
purpose of determining a quorum thereof and exercise all rights and privileges
to which he might be entitled were he personally in
<PAGE>
attendance, including the right to vote, by means of conference telephone or
other similar communications equipment by means of which all persons on the
meeting can hear each other.
Section 3-6. Notices of Meeting of Board of Directors.
----------- ----------------------------------------
(a) Regular Meetings. No notice shall be required to be given of any
----------------
regular meeting, unless the same is held at other than the time or place for
holding such meetings as fixed in accordance with Section 3-3 of these Bylaws,
in which event one day's notice shall be given of the time and place of such
meeting.
(b) Special Meetings. Written notice stating the date, place and hour
----------------
of any special meeting of the Board of Directors shall be given at least one day
prior to the date named for the meeting.
(c) Waiver of Notice. Attendance at any meeting of the Board of
----------------
Directors or committee thereof constitutes a waiver of notice of such meeting.
Waiver of notice of any such meeting may be made in writing at any time before
or after such meeting.
Section 3-7. Quorum. A majority of the Directors in Office shall be
----------- ------
necessary to constitute a quorum for the transaction of business. A majority of
the members of any committee of the Board of Directors shall constitute a quorum
of such committee. The acts of a majority of the Directors present at a meeting
of the Board of Directors (or committee thereof) at which a quorum is present
shall be considered as the acts of the Board of Directors (or of such
committee). If there is no quorum present at a duly convened meeting of the
Board of Directors (or committee thereof), the majority of those present may
adjourn the meeting from time to time and place to place.
<PAGE>
Section 3-8. Informal Action by the Board of Directors. Any action which
----------- -----------------------------------------
may be taken at a meeting of the Directors, or of the members of any committee
of the Board of Directors, may be taken without a meeting if a consent or
consents in writing, setting forth the action so taken, shall be signed by all
of the Directors, or members of the committee, as the case may be, and shall be
filed with the Secretary of the Corporation. Insertion in the minute book of
the Corporation shall be deemed filing with the Secretary regardless of whether
the Secretary or some other authorized person has actual possession of the
minute book. Written consents by all of the Directors or the members of any
committee of the Board of Directors executed pursuant to this Section 3-8 may be
executed in any number of counter parts and shall be deemed effective as of the
date set forth therein.
Section 3-9. Powers.
----------- ------
(a) General Powers. The Board of Directors shall have all the power
--------------
and authority granted by law to the Board, including all powers necessary or
appropriate to the management of the business and affairs of the Corporation.
(b) Specific Powers. Without limiting the general powers conferred by
---------------
the last preceding clause and the powers conferred by the Articles and these
Bylaws of the Corporation, it is hereby expressly declared that the Board of
directors shall have the following powers:
(1) To confer upon any officer or officers of the Corporation the
power to choose, remove or suspend assistant officers, agents or servants.
(2) To appoint any person, firm or corporation to accept and hold
in trust for the Corporation any property belonging to the Corporation or in
which it is interested,
<PAGE>
and to authorize any such person, firm or corporation execute any documents and
perform any duties that may be requisite in relation to any such trust.
(3) To appoint a person or persons to vote shares of another
corporation held and owned by the Corporation.
(4) By resolution adopted by a majority of the whole Board of
Directors, to designate one or more committees, each committee to consist of two
or more of the Directors of the Corporation. To the extent provided in any such
resolution and to the extent permitted by law, a committee so designated shall
have the right to exercise the authority of the Board of Directors in the
management of the business and affairs of the Corporation. The Board of
Directors may designate one or more Directors as alternate members of any
committee, who may replace any absent or disqualified member at any meeting of
the committee. If specifically granted this power by the Board in its
resolution establishing the committee, in the absence or disqualification of any
member and all designated alternates of such committee or committees or if the
whole Board of Directors has failed to designate alternate members, the member
or members thereof present at any meeting and not disqualified from voting,
whether or not he or they constitute a quorum, may unanimously appoint another
Director to act at the meeting in the place of any such absent or disqualified
member.
(5) To fix the place, time and purpose of meetings of
shareholders.
(6) To fix the compensation of Directors and officers for their
services.
Section 3-10. Removal of Directors by Shareholders. The entire Board of
------------ ------------------------------------
Directors or a class of the Board of Directors, where the Board of Directors is
classified with respect to the power to elect Directors, or any individual
Director may be removed from office, for cause by
<PAGE>
the vote of shareholders entitled to cast at least two-thirds of the votes which
all shareholders would be entitled to cast at any annual election of Directors
or such class of Directors. In case the Board of Directors or such class of the
Board of Directors or any one or more Directors is so removed, new Directors may
be elected at the same time. If the shareholders are entitled to vote
cumulatively for the Board of Directors or a class of the Board of Directors, no
individual Director shall be removed unless the entire Board of Directors or
class of the Board of Directors is removed in case the votes of a sufficient
number of shares are cast against the resolution for his removal which, if
cumulatively voted at an annual election of Directors would be sufficient to
elect one or more Directors to the Board of Directors or to the class. Directors
may not be removed from office without cause.
Section 3-11. Vacancies. Vacancies in the Board of Directors, including
------------ ---------
vacancies resulting from an increase in the number of Directors, may be filled
by a majority of the remaining members of the Board of Directors though less
than a quorum, and each person so elected shall be a Director until his
successor is duly elected by the shareholders, who may make such election at the
next annual meeting of the shareholders or at any special meeting duly called
for that purpose and held prior thereto, or until his earlier resignation or
removal.
Section 3-12. Liability of Directors. A Director of the Corporation shall
------------ ----------------------
not be personally liable for monetary damages for any action taken, or any
failure to take any action, on or after January 27, 1987 unless he has breached
or failed to perform the duties of his office as provided for under Section 8363
of the Pennsylvania Directors' Liability Act and the breach or failure to
perform constitutes self-dealing, willful misconduct or recklessness. Any
repeal, amendment, or modification of this Section shall be prospective only and
shall not increase, but
<PAGE>
may decrease, the liability of a Director with respect to actions or failures to
act occurring prior to such change.
Section 3-13. Nomination of Directors. Only persons who are nominated in
------------ -----------------------
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election to the Board of Directors at the
Annual Meeting may be made at a meeting of shareholders, by or at the direction
of the Board of Directors, by the Nominating Committee of the Board of
Directors, or by any shareholder of the Corporation entitled to vote for the
election of directors at the meeting who complies with the notice procedures
provided herein.
Such nominations, other than those made by or at the direction of the Board
of Directors, shall be made pursuant to timely notice in writing to the
Secretary of the Corporation. To be timely, a shareholder's notice shall be
delivered to or mailed and received at the principal executive offices of the
Corporation, addressed to the attention of the Secretary of the Corporation, not
less than 50 days nor more than 75 days prior to the meeting; provided, however,
that in the event that less than 65 days' notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be so received not later than the close of
business on the fifteenth day following the day on which such notice of the date
of the meeting was mailed or such public disclosure was made, whichever first
occurs. Such shareholder's notice to the Secretary shall set forth (a) as to
each person whom the shareholder proposes to nominate for election or reelection
as a director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii) the
class and number of shares of capital stock of the Corporation that are
beneficially owned by the person, and (iv) any other information relating to the
person that is
11
<PAGE>
required to be disclosed in solicitations for proxies for election of directors
pursuant to Section 14 of the Securities Exchange Act of 1934, as amended, and
the rules and regulations promulgated thereunder; and (b) as to the shareholder
giving the notice, (i) the name and record address of the shareholder and (ii)
the class, series and number of shares of capital stock of the Corporation that
are beneficially owned by the shareholder. The Corporation may require any
proposed nominee to furnish such other information as may reasonably by required
by the Corporation to determine the eligibility of such proposed nominee to
serve as a director of the Corporation. No person shall be eligible for election
as a director of the Corporation unless nominated in accordance with the
procedures set forth herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if the chairman should so determine, the chairman shall
so declare to the meeting and the defective nomination shall be disregarded.
ARTICLE IV - OFFICERS
- ---------------------
Section 4-1. Election and office. The Corporation shall have a President,
----------- -------------------
a Secretary and a Treasurer who shall be elected by the Board of Directors. The
Board of Directors may elect as additional officers a Chairman of the Board of
Directors, one or more Vice Presidents, and one or more other officers or
assistant officers. Any number of offices may be held by the same person.
Section 4-2. Term. The officers and assistant officers shall each serve
----------- ----
at the pleasure of the Board of Directors and until the annual meeting of the
Board of Directors following the next
12
<PAGE>
annual meeting of shareholders unless removed from office by the Board of
Directors during their respective tenures.
Section 4-3. Powers and Duties of the President. Unless otherwise
----------- ----------------------------------
determined by the Board of Directors, the President shall have the usual duties
of an executive officer with general supervision over and direction of the
affairs of the Corporation. In the exercise of these duties and subject to the
limitations of the laws of the Commonwealth of Pennsylvania, these Bylaws, and
the actions of the Board of Directors, he may appoint, suspend, and discharge
employees, agents and assistant officers, fix the compensation of all officers
and assistant officers shall preside at all meetings of the shareholders at
which he shall be present, and, unless there is a Chairman of the Board of
Directors, shall preside at all meetings of the Board of Directors. He shall
also do and perform such other duties as from time to time may be assigned to
him by the Board of Directors.
Unless otherwise determined by the Board of Directors, the President shall
have full power and authority on behalf of the Corporation to attend and to act
and to vote at any meeting of the shareholders of any corporation in which the
Corporation may hold stock, and, at any such meeting, shall possess and may
exercise any and all the rights and powers incident to the ownership of such
stock and which, as the owner thereof, the Corporation might have possessed and
exercised.
Section 4-4. Powers and Duties of the Secretary. Unless otherwise
----------- ----------------------------------
determined by the Board of Directors, the Secretary shall be responsible for the
keeping of the minutes of all meetings of the Board of Directors, shareholders
and all committees, in books provided for that purpose, and for the giving and
serving of all notices for the Corporation. He shall have charge
13
<PAGE>
of the corporate seal, the certificate books, transfer books and stock ledgers,
and such other books and papers as the Board of Directors may direct. He shall
perform all other duties ordinarily incident to the office of Secretary and
shall have such other powers and perform such other duties as may be assigned to
him by the Board of Directors.
Section 4-5. Powers and Duties of the Treasurer. Unless otherwise
----------- ----------------------------------
determined by the Board of Directors, the Treasurer shall have charge of all the
funds and securities of the Corporation which may come into his hands. When
necessary or proper, unless otherwise determined by the Board of Directors, he
shall endorse for collection on behalf of the Corporation checks, notes, and
other obligations, and shall deposit the same to the credit of the Corporation
in such banks or depositories as the Board of Directors may designate and shall
sign all receipts and vouchers for payments made to the Corporation. He shall
sign all checks made by the Corporation, except when the Board of Directors
shall otherwise direct. He shall be responsible for the regular entry in books
of the Corporation to be kept for such purpose, full and accurate account of all
funds and securities received and paid by him on account of the Corporation.
Whenever required by the Board of Directors, he shall render a statement of the
financial condition of the Corporation. He shall have such other powers and
shall perform such other duties as may be assigned to him from time to time by
the Board of Directors. He shall give such bond, if any, for the faithful
performance of his duties as shall be required by the Board of Directors and any
such bond shall remain in the custody of the President.
Section 4-6. Powers and Duties of the Chairman of the Board of Directors.
----------- ---------------------------------------------- ------------
Unless otherwise determined by the Board of Directors, the Chairman of the Board
of Directors, if any,
14
<PAGE>
shall preside at all meetings of Directors. He shall have such other powers and
perform such further duties as may be assigned to him by the Board of Directors.
Section 4-7. Powers and Duties of Vice President and Assistant Officers.
----------- --------------------------------------- ------------------
Unless otherwise determined by the Board of Directors, each Vice President and
each assistant officer shall have the powers and perform the duties of his
respective superior officer. Vice Presidents and assistant officers shall have
such rank as may be designated by the Board of Directors. Vice Presidents may be
designated as having responsibility for a specific area of the Corporation's
affairs, in which event such Vice President shall be superior to the other Vice
Presidents in relation to matters within his area. The President shall be the
superior officer of the Vice Presidents. The Treasurer and Secretary shall be
the superior officers of the Assistant Treasurers and Assistant Secretaries,
respectively.
Section 4-8. Delegation of Office. The Board of Directors may delegate
----------- --------------------
the powers or duties of any officer of the Corporation to any other person from
time to time.
Section 4-9. Vacancies. The Board of Directors shall have the power to
----------- ---------
fill any vacancies in any office occurring from whatever reason.
ARTICLE V - CAPITAL STOCK
- -------------------------
Section 5-1. Share Certificates. Every share certificate shall be signed
----------- ------------------
by the Chairman of the Board or the President or Vice President and by the
Treasurer, Assistant Treasurer, Secretary or Assistant Secretary and sealed with
the corporate seal, which may be a facsimile, engraved or printed, but where
such certificate is signed by a transfer agent or a registrar, the signature of
any corporate officer upon such certificate may be a facsimile, engraved or
printed.
15
<PAGE>
Section 5-2. Transfer of Shares. Transfer of shares shall be made on the
----------- ------------------
books of the Corporation only upon surrender of the share certificate, duly
endorsed or with duly executed stock powers attached and otherwise in proper
form for transfer, which certificate shall be cancelled at the time of the
transfer.
Section 5-3. Determination of Shareholders of Record and Closing Transfer
----------- ------------------------------------------------------------
Books. The Board of Directors may fix a time, not more than fifty days prior to
- -----
the date of any meeting of shareholders, or the date fixed for the payment of
any dividend or distribution, or the date for the allotment of rights, or the
date when any change or conversion or exchange of shares will be made or go into
effect, as a record date for the determination of the shareholders entitled to
notice of or to vote at any such meeting, or entitled to receive payment of any
such dividend or distribution, or to receive any such allotment of rights, or to
exercise the rights in respect to any such change, conversion or exchange of
shares or otherwise. In such case, only such shareholders as shall be
shareholders of record on the date so fixed shall be entitled to notice of or to
vote at such meeting, or to receive payment of such dividend, or to receive such
allotment of rights, or to exercise such rights, as the case may be,
notwithstanding any transfer of any shares on the books of the Corporation after
any record date fixed as aforesaid. The Board of Directors may close the books
of the Corporation against transfers of shares during the whole or any part of
such period, and in such case written or printed notice thereof shall be mailed
at least ten days before the closing thereof to each shareholder of record at
the address appearing on the records of the Corporation or supplied by him to
the Corporation for the purpose of notice. While the stock transfer books of
the Corporation are closed, no transfer of shares shall be made thereon. Unless
a record date is fixed by the Board of Directors for the determination of
16
<PAGE>
shareholders entitled to receive notice of, or vote at, a shareholders' meeting,
transferees of shares which are transferred on the books of the Corporation
within ten days next preceding the date of such meeting shall not be entitled to
notice of or to vote at such meeting. The Corporation may treat the registered
owner of each share of stock as the person exclusively entitled to vote, to
receive notifications and otherwise to exercise all the rights and powers of the
owner thereof.
Section 5-4. Lost Share Certificates. Unless waived in whole or in part
----------- -----------------------
by the Board of Directors, any person requesting the issuance of a new
certificate in lieu of an alleged lost, destroyed, mislaid or wrongfully taken
certificate, shall (1) give to the Corporation his bond of indemnity with an
acceptable surety; and (2) satisfy such other reasonable requirements as may be
imposed by the Corporation. Thereupon a new share certificate shall be issued
to the registered owner or his assigns in lieu of the alleged lost, destroyed,
mislaid or wrongfully taken certificate, provided that the request therefor and
issuance thereof have been made before the Corporation has notice that such
shares have been acquired by a bona fide purchaser.
ARTICLE VI - NOTICES; COMPUTING TIME PERIODS
- --------------------------------------------
Section 6-1. Contents of Notice. Whenever any notice of a meeting is
----------- ------------------
required to be given pursuant to these Bylaws or the Articles of Incorporation
or otherwise, the notice shall specify the place, day and hour of the meeting
and, in the case of a special meeting of shareholders or where otherwise
required by law, the general nature of the business to be transacted at such
meeting.
Section 6-2. Method of Notice. All notices shall be given to each person
----------- ----------------
entitled thereto, either personally or by sending a copy thereof through the
mail or by telegraph, charges prepaid,
17
<PAGE>
to his address appearing on the books of the Corporation, or supplied by him to
the Corporation for the purpose of notice. If notice is sent by mail or
telegraph, it shall be deemed to have been given to the person entitled thereto
when deposited in the United States Mail or with the telegraph office for
transmission.
Section 6-3. Computing Time Periods. In computing the number of days for
----------- ----------------------
purposes of these Bylaws, all days shall be counted, including Saturdays,
Sundays or holidays; provided, however, that if the final day of any time period
falls on Saturday, Sunday or holiday, then the final day shall be deemed to be
the next day which is not a Saturday, Sunday or holiday. In computing the number
of days for the purpose of giving notice of any meeting, the date upon which the
notice is given shall be counted but the day set for the meeting shall not be
counted. Notice given twenty-four hours before the time set for a meeting shall
be deemed one day's notice.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS AND OFFICERS AND OTHER PERSONS
- -------------------------------------------------------------------------
Section 7-1. Indemnification. The Corporation shall indemnify any
----------- ---------------
Director or officer of the Corporation against expenses (including legal fees),
judgments, fines and amounts paid in settlement, actually and reasonably
incurred by him, to the fullest extent now or hereafter permitted by law in
connection with any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative, brought or threatened
to be brought against him, including actions or suits by or-in the right of the
Corporation, by reason of the fact that he is or was a Director or officer of
the Corporation, its parent or any of its
18
<PAGE>
subsidiaries, or acted as a Director or officer or in any other capacity on
behalf of the Corporation, its parent or any of its subsidiaries or is or was
serving at the request of the Corporation as a Director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise.
The Board of Directors by resolution may similarly indemnify any person
other than a Director or officer of the Corporation to the fullest extent now or
hereafter permitted by law for liabilities incurred by him in connection with
services rendered by him for or at the request of the Corporation, its parent or
any of its subsidiaries.
The provisions of this section shall be applicable to all actions, suits or
proceedings commenced after its adoption, whether such arise out of acts or
omissions which occurred prior or subsequent to such adoption and shall continue
as to a person who has ceased to be a Director or officer or to render services
for or at the request of the Corporation and shall inure to the benefit of the
heirs, executors and administrators of such a person. The rights of
indemnification provided for herein shall not be deemed the exclusive rights to
which any Director, officer, employee or agent of the Corporation may be
entitled.
Section 7-2. Advances. The Corporation may pay the expenses incurred by
----------- --------
any person entitled to be indemnified by the Corporation in defending a civil or
criminal action, suit or proceeding in advance of the final disposition of such
action, suit or proceeding upon receipt of an undertaking, by or on behalf of
such person, to repay such amount unless it shall ultimately be determined that
he is entitled to be indemnified by the Corporation as authorized by law.
Section 7-3. Insurance. The Corporation may purchase and maintain
----------- ---------
insurance on behalf of any person who is or was a Director, officer, employee or
agent, of the Corporation or who is
19
<PAGE>
or was serving in any capacity in any other corporation or organization at the
request of the Corporation against any liability asserted against him or
incurred by him in any such capacity or arising out of his status as such,
whether or not the Corporation would have the power to indemnify him against
such liability under law.
ARTICLE VIII - FISCAL YEAR
- --------------------------
Section 8-1. The Board of Directors shall have the power by resolution to
-----------
fix the fiscal year of the Corporation. If the Board of Directors shall fail to
do so, the President shall fix the fiscal year.
ARTICLE IX - AMENDMENTS
- -----------------------
Section 9-1. These Bylaws may be altered, amended or repealed by (a) the
-----------
vote of shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast thereon, at any regular or special meeting,
duly convened after notice to the shareholders of such purpose, or (b) the Board
of Directors, by a majority vote of those voting at any regular or special
meeting duly convened after notice of such purpose, subject always to the power
of the shareholders to further alter, amend or repeal these Bylaws.
Notwithstanding the preceding sentence, the vote of the holders of at least 66
2/3% of the votes which all shareholders are entitled to cast thereon, at any
regular or special meeting, duly convened after notice to shareholders for such
purpose, shall be required to amend or repeal, or adopt any provision
inconsistent with Sections 3-1, 3-10 and 3-12 of these Bylaws, or this sentence.
20
<PAGE>
ARTICLE X - INTERPRETATION OF BYLAWS
- ------------------------------------
Section 10-1. All words, terms and provisions of these Bylaws shall be
------------
interpreted and defined by and in accordance with the Pennsylvania Business
Corporation Law, as amended, and as amended from time to time hereafter.
21
<PAGE>
Exhibit 10(ii)
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 a full-time employee 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.
l. "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
<PAGE>
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 Participation 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.
<PAGE>
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.
<PAGE>
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 Date. This Plan shall be effective beginning April 20,
1993.
C-COR ELECTRONICS, INC.
By: David A. Woodle
President and CEO
Approved by C-COR Board of Directors on April 20, 1993
<PAGE>
April 20, 1993
APPENDIX A
NUMBER OF
YEARS PRIOR TO
NORMAL RETIREMENT EARLY RETIREMENT
DATE FACTOR
----------------- ----------------
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
SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
<PAGE>
April 20, 1993
APPENDIX B
NUMBER OF YEARS
. LESS THAN TEN YEARS BENEFIT
OF PARTICIPANT STATUS PERCENTAGE
1 90%
2 80%
3 70%
4 60%
5 50%
SOURCE: BASED ON A STRAIGHT-LINE PERCENTAGE REDUCTION
April 20, 1993
APPENDIX C
. NUMBER OF
YEARS AFTER
NORMAL RETIREMENT LATE RETIREMENT
DATE FACTOR
----------------- ---------------
1 1.0817
2 1.1714
3 1.2700
4 1.3787
5 OR MORE 1.4986
SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
<PAGE>
"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
11/21/59. 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 Emp1oyment 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.
Primary Scott L. Beahm (Husband)
Contingent Devin M. Beahm and Trevor S. Beahm (Children)
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
8. This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
Dated: 11/9/98
Mary G. Beahm
Participant
C-COR ELECTRONICS, INC.
By: David A. Woodle
4/20/93
<PAGE>
EXHIBIT 10(JJ)
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT, dated 11/9/1998, by and between: C-COR ELECTRONICS,
INC., a Pennsylvania corporation (the "Company"),
AND
Mary G. Beahm (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 a 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:
l. 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
<PAGE>
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
<PAGE>
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.
<PAGE>
ATTEST: C-COR ELECTRONICS, INC.
Judith S. Ednie By: David A. Woodle
President and CEO
Mary G. Beahm
Employee
4/20/93
<PAGE>
EXHIBIT 10(KK)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the day of the 9th day of November, 1998
between C-COR ELECTRONICS, INC., a Pennsylvania corporation ("Corporation") and
Mary G. Beahm with an address at 155 Edgeneade Drive, Monroeville, PA
("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 here-of, 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
excess of Organization
$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
<PAGE>
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
<PAGE>
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 David Woodle
President and CEO
Mary G. Beahm
Employee
<PAGE>
EXHIBIT 10(LL)
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 a full-time employee 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.
l. "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 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
<PAGE>
actuarial equivalent of the Haneley 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, (l) 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.
<PAGE>
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 of 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.
<PAGE>
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 Date. This Plan shall be effective beginning April 20,
1993.
C-COR ELECTRONICS, INC.
By: David A. Woodle
President and CEO
Approved by C-COR Board of Directors on April 20, 1993.
<PAGE>
April 20, 1993
APPENDIX A
NUMBER OF
YEARS PRIOR TO EARLY RETIREMENT
NORMAL RETIREMENT FACTOR
DATE
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 0.1978
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
<PAGE>
SOURCE: MODIFIED UP-84 MORTALIY TABLE AT 625%
April 20, 1993
APPENDIX B
NUMBER OF YEARS BENEFIT
LESS THAN TEN YEARS PERCENTAGE
OF PARTICIPANT STATUS
1 90%
2 80%
3 70%
4 60%
5 50%
SOURCE: BASED ON A STRAIGHT-LINE PERCENTAGE REDUCTION
April 20, 1993
APPENDIX C
NUMBER OF
YEARS AFTER LATE RETIREMENT
NORMAL RETIREMENT FACTOR
DATE
1 1.0817
2 1.1714
3 1.2700
4 1.3787
5 OR MORE 1.4986
SOURCE: MODIFIED UP-84 MORTALITY TABLE AT 6.25%
<PAGE>
"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 $1500.00 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 7/23/56. 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.
Mary Anne Hanelly.
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.
8. This Agreement shall be governed by the laws of the Commonwealth
of Pennsylvania.
Dated: 10/19/98 WTH
William T. Hanelly
Participant
C-COR ELECTRONICS.
By: David A. Woodle
4/20/93
<PAGE>
EXHIBIT 10(MM)
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT, dated October 19th, (WTH), 1998, by and between:
C-COR ELECTRONICS, INC., a Pennsylvania corporation (the"Company"),
-AND-
W. T. Hanelly (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 a 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).
<PAGE>
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
<PAGE>
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 shal1 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 affect 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.
Judith S. Ednie By: David A. Woodle
President and CEO
W. T. Hanelly
Employee
<PAGE>
EXHIBIT 10(NN)
INDEMNIFICATION AGREEMENT
THIS AGREEMENT is made as of the 19TH (WTH) day of October, 1998, between
C-COR ELECTRONICS, INC., a Pennsylvania corporation ("Corporation") and W. T.
Hanelly, with an address at 2374 Oak Leaf Dr., State College, PA 16803
("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"):
<TABLE>
<CAPTION>
Insurer Amount Deductible
<S> <C> <C>
Gulf Insurance Company $10,000,000 $250, 000 Insured
Organization
Tamarack American $10,000,000 $250,000 Insured
excess of Organization
$10,000,000
</TABLE>
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
<PAGE>
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.
<PAGE>
(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 effect 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: David A. Woodle
President and CEO
W. T. Hanelly
Employee
<PAGE>
Exhibit 10(OO)
================================================================================
CREDIT AGREEMENT
dated as of August 9, 1999
by and among
C-COR.NET CORP.
(formerly known as C-Cor Electronics, Inc.) and
BROADBAND CAPITAL CORPORATION
as Borrowers
THE BANKS PARTIES HERETO FROM TIME TO TIME
and
MELLON BANK, N.A.,
as Agent.
================================================================================
<PAGE>
Table of Contents
<TABLE>
<CAPTION>
<S> <C>
Article I - Definitions; Construction............................................................................... 1
1.01. Certain Definitions..................................................................................... 1
1.02. Construction............................................................................................ 12
1.03. Accounting Principles................................................................................... 12
Article II - The Credits............................................................................................ 14
2.01. Revolving Credit Loans.................................................................................. 14
2.02 Swingline Subfacility................................................................................... 15
2.03. Term Loan............................................................................................... 18
2.04. Standby Facility Loans.................................................................................. 18
2.05. Interest Rates.......................................................................................... 20
2.06. Payments and Prepayments................................................................................ 25
2.07. Conversion or Renewal of Interest Rate Options; Prime Rate Fallback; Term Loan Interest Rate Swap....... 25
2.08. Interest Payment Dates.................................................................................. 26
2.09. Pro Rata Treatment and Payments......................................................................... 26
2.10. Additional Compensation in Certain Circumstances........................................................ 27
2.11. Funding by Branch, Subsidiary or Affiliate.............................................................. 28
2.12. Agent's Fee............................................................................................. 29
2.13. Payments Under Loan Documents........................................................................... 29
Article III - The Letters of Credit................................................................................. 29
3.01. Letter of Credit Subfacility............................................................................ 29
3.02 Procedure for Issuance and Amendment of Letters of Credit................................................ 30
3.03 Letter of Credit Participating Interests................................................................. 31
3.04 Letter of Credit Drawings and Reimbursements............................................................. 32
3.05 Obligations Absolute..................................................................................... 33
3.06 Further Assurances....................................................................................... 34
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
3.07 Cash Collateral for Letters of Credit.................................................................. 34
3.08 Certain Provisions Relating to the Issuing Bank.......................................................... 34
Article IV - Representations And Warranties......................................................................... 35
4.01. Organization and Qualification.......................................................................... 35
4.02. Authority and Authorization............................................................................. 35
4.03. Execution and Binding Effect............................................................................ 36
4.04. Authorizations and Filings.............................................................................. 36
4.05. Absence of Conflicts.................................................................................... 37
4.06. Financial Statements.................................................................................... 37
4.07. No Event of Default; Compliance with Instruments........................................................ 37
4.08. Litigation.............................................................................................. 37
4.09. Subsidiaries............................................................................................ 38
4.10. Pension-Related Matters................................................................................. 38
4.11. Title to Property....................................................................................... 38
4.12. Contracts............................................................................................... 39
4.13. Taxes................................................................................................... 39
4.14. Financial Accounting Practices.......................................................................... 39
4.15. Power To Carry On Business.............................................................................. 39
4.16. No Material Adverse Change.............................................................................. 40
4.17. Regulation U............................................................................................ 40
4.18. Compliance with Laws.................................................................................... 40
4.19. Patents, Licenses, Franchises........................................................................... 40
4.20. Ownership and Control................................................................................... 40
4.21. Accurate and Complete Disclosure........................................................................ 41
4.22. Investment Company...................................................................................... 41
4.23. Public Utility Holding Company.......................................................................... 41
4.24. Business................................................................................................ 41
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4.25. Proceeds................................................................................................ 41
4.26. Partnerships and Other Affiliated Entities.............................................................. 41
4.27. Regulation O............................................................................................ 41
4.28. Burdensome Obligations.................................................................................. 41
4.29. Insurance............................................................................................... 42
4.30. Hazardous Materials..................................................................................... 42
4.31. Solvency................................................................................................ 42
4.32 Year 2000 Considerations................................................................................. 42
4.33. Name Change............................................................................................. 42
Article V - Conditions Precedent.................................................................................... 43
5.01. Closing Date Conditions................................................................................. 43
5.02. Conditions to Loans and to Letters of Credit............................................................ 44
Article VI - Affirmative Covenants.................................................................................. 45
6.01. Reporting and Information Requirements.................................................................. 45
6.02. Preservation of Existence and Franchises................................................................ 49
6.03. Insurance............................................................................................... 49
6.04. Maintenance of Properties............................................................................... 50
6.05. Payment of Taxes and Other Potential Charges and Priority Claims; Payment of Other Current Liabilities.. 50
6.06. Financial Accounting Practices.......................................................................... 51
6.07. Compliance with Laws.................................................................................... 51
6.08. Use of Proceeds......................................................................................... 51
6.09. Government Authorizations, etc.......................................................................... 51
6.10. Contracts............................................................................................... 51
6.11. Environmental Matters................................................................................... 52
6.12 Matters Concerning Acquisitions, Mergers and Investments................................................. 52
Article VII - Negative Covenants.................................................................................... 53
7.01. Financial Covenants..................................................................................... 53
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
7.02. Liens................................................................................................... 53
7.03. Indebtedness............................................................................................ 54
7.04. Guarantees and Similar Liabilities...................................................................... 55
7.05. Loans and Investments................................................................................... 55
7.06. Distributions to Shareholders........................................................................... 56
7.07. Sale-Leasebacks......................................................................................... 56
7.08. Acquisitions; Mergers, Etc.............................................................................. 56
7.09. Dispositions of Assets.................................................................................. 57
7.10. Transactions with Affiliates............................................................................ 57
7.11. Continuation of or Change in Business................................................................... 57
7.12. Regulation U............................................................................................ 57
Article VIII - Defaults............................................................................................. 58
8.01. Events of Default....................................................................................... 58
8.02. Consequences of an Event of Default..................................................................... 60
8.03. Set-Off................................................................................................. 61
8.04. Equalization Among Banks and Participants............................................................... 61
Article IX - The Agent.............................................................................................. 62
9.01. Appointment; Administrative Fee......................................................................... 62
9.02. Delegation of Duties.................................................................................... 62
9.03. Nature of Duties; Independent Credit Investigation...................................................... 62
9.04. Actions in Discretion of Agent; Instructions from Banks................................................. 62
9.05. Exculpatory Provisions.................................................................................. 62
9.06. Reimbursement and Indemnification....................................................................... 63
9.07. Reliance by Agent....................................................................................... 63
9.08. Mellon Bank, N.A. in its Individual Capacity............................................................ 64
9.09. Holders of Notes........................................................................................ 64
9.10. Successor Agent......................................................................................... 64
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
9.11. Calculations............................................................................................ 64
Article X - Miscellaneous........................................................................................... 64
10.01. Holidays............................................................................................... 64
10.02. Records................................................................................................ 65
10.03. Amendments or Waivers.................................................................................. 65
10.04. No Implied Waiver; Cumulative Remedies................................................................. 66
10.05. Notices................................................................................................ 66
10.06. Expenses; Taxes; Attorneys' Fees....................................................................... 66
10.07. Severability........................................................................................... 67
10.08. Governing Law.......................................................................................... 67
10.09. Prior Understandings................................................................................... 67
10.10. Duration; Survival..................................................................................... 67
10.11. Counterparts........................................................................................... 67
10.12. Successors and Assigns; Participations; Assignments.................................................... 68
10.13. Personal Liability of Officers......................................................................... 70
10.14. Confession of Judgment................................................................................. 70
10.15. Additional Legal Matters............................................................................... 71
</TABLE>
ANNEXES
Annex 1 - Committed Amounts
EXHIBITS
Exhibit A Form of Revolving Credit Note
Exhibit B Form of Standard Notice (Borrowing)
Exhibit C Form of Term Loan Participation Certificate
Exhibit D Form of Amended and Restated Term Loan Note
Exhibit E Form of Standby Facility Note
Exhibit F Form of Standard Notice (Prepayment)
Exhibit G Form of Standard Notice (Conversion)
Exhibit H Form of Guaranty
Exhibit I Form of Legal Opinion
Exhibit J Form of Officer's Compliance Certificate
Exhibit K Form of Commitment Transfer Supplement
-v-
<PAGE>
SCHEDULES
Schedule 4.01 Organization and Qualification
Schedule 4.04 Authorizations and Filings
Schedule 4.05 Absence of Conflicts
Schedule 4.06 Financial Statements
Schedule 4.08 Litigation
Schedule 4.09 Subsidiaries
Schedule 4.10 Pension-Related Matters
Schedule 4.11 Title to Property
Schedule 4.12 Contracts
Schedule 4.18 Compliance with Laws
Schedule 4.19 Patents, Licenses, Franchises
Schedule 4.20 Ownership and Control
Schedule 4.24 Business
Schedule 4.26 Partnerships and Other Affiliated Entities
Schedule 4.29 Insurance
Schedule 4.30 Hazardous Materials
Schedule 7.02 Liens
Schedule 7.03 Indebtedness
Schedule 7.04 Guarantees and Contingent Liabilities
Schedule 7.05 Loans and Investments
-vi-
<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT, dated as of August 9, 1999, by and among C-
COR.NET CORP., f/k/a C-Cor Electronics, Inc., a Pennsylvania corporation ("C-
Cor"), BROADBAND CAPITAL CORPORATION, a Delaware corporation ("Broadband" and
together with C-Cor, the "Borrowers"), THE BANKS PARTIES HERETO FROM TIME TO
TIME (individually, a "Bank" and collectively, the "Banks") and MELLON BANK,
N.A., a national banking association, as agent for the Banks hereunder (in such
capacity, the "Agent");
Recitals:
WHEREAS, the Borrowers have requested the Agent and the Banks to enter
into this Agreement and extend credit as provided for herein; and
WHEREAS, on the terms and subject to the conditions set forth in this
Agreement, the Banks are willing to extend credit to the Borrowers and the
Issuing Bank is willing to issue Letters of Credit;
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree as follows:
Article I
Definitions; Construction
1.01. Certain Definitions. In addition to other words and terms
defined elsewhere in this Agreement, as used herein the following words and
terms shall have the following meanings, respectively:
"Affiliate" of a Person shall mean any Person which directly or
indirectly controls, or is controlled by, or is under common control with, such
Person, any Person which owns beneficially or of record 5% or more of any class
of capital stock of such Person or a Subsidiary of such Person or of which 5% or
more of any class of capital stock (or in the case of a Person that is not a
corporation, 5% or more of the equity interest) is owned beneficially or of
record by such Person or a Subsidiary of such Person, and for each individual
who is an Affiliate within the meaning of the foregoing, any other individual
related to such Affiliate by consanguinity within the third degree or in a step
or adoptive relationship within such third degree or related by affinity with
such Affiliate or any such individual, and any Person directly or indirectly
controlled by any of the foregoing. The term "control" means the possession,
directly or indirectly, of the power to direct or cause the direction of the
management or policies of a Person, whether through the ownership of voting
securities, by contract or otherwise.
"Affiliated Entity" shall mean any Person as to which the Borrowers
(i) are or have agreed or otherwise have a duty to become a general partner of
such Person or are otherwise generally liable for or on account of the
liabilities, acts or omissions of such Person, (ii) have agreed or otherwise
have a duty to acquire securities or other interests in or to make capital
contributions, loans or other investments to or on account of such Person, or
(iii) have an interest in such Person or have or may have a liability to or on
account of such Person that, in any case described in this clause (iii), would
reasonably be expected to be material to the business, operations, condition,
financial or otherwise, or prospects of the Borrowers or to the Borrowers'
ability to perform its obligations under this Agreement, the Notes or any Loan
Document, or an Affiliated Entity of any such Person.
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"Agent" shall mean Mellon Bank, N.A., a national banking association,
in its capacity as agent for the Banks hereunder.
"Agreement" shall mean this Credit Agreement, as the same may be
amended, modified or supplemented from time to time.
"Applicable Margin" shall have the meaning assigned to that term in
Section 2.05(a).
"Bank" shall mean any of the Banks that shall be parties hereto from
time to time, and "Banks" shall mean all such Banks collectively, including the
Agent in its capacity as a Bank.
"Borrowers" shall mean, collectively, C-COR.net Corp., f/k/a C-Cor
Electronics, Inc., a Pennsylvania corporation, and Broadband Capital
Corporation, a Delaware corporation, and "Borrower" shall mean either one of the
Borrowers, individually.
"Business Day" shall mean any day other than a Saturday, Sunday,
public holiday under the laws of the Commonwealth of Pennsylvania or other day
on which banking institutions are authorized or obligated to close in
Philadelphia, Pennsylvania.
"Capitalized Lease" shall mean at any time any lease which is required
to be capitalized on the balance sheet of the lessee at such time, and
"Capitalized Lease Obligation" of the Borrowers and their consolidated
Subsidiaries at any time shall mean the aggregate amount which is required to be
reported as a liability on the Borrowers' consolidated balance sheet at such
time as lessee under a Capitalized Lease.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List, as the same may be amended
from time to time.
"Closing Date" shall mean August 9, 1999.
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case as
in effect from time to time. References to sections of the Code shall be
construed also to refer to any successor sections.
"Commitment" shall mean the Revolving Credit Commitment (including as
subfacilities the Swingline Limit and the Letter of Credit Commitment), the
Standby Facility Commitment or the Term Loan Commitment, and "Commitments" shall
mean all such Commitments, collectively.
"Commitment Transfer Supplement" shall have the meaning set forth in
Section 10.12(c) hereof.
"Committed Amount" shall mean the Revolving Credit Committed Amount
(which includes the Swingline Limit and the Letter of Credit Limit), the Standby
Facility Committed Amount, or the Term Loan Committed Amount, and "Committed
Amounts" shall mean all such Committed Amounts, collectively.
"Controlled Group Member" means each trade or business (whether or not
incorporated) which together with the Borrowers is treated as a single employer
under Section 4001(b)(1) of ERISA or Section 414(b), (c), (m) or (o) of the
Code.
"Corresponding Source of Funds" shall mean, in the case of any Funding
Segment of any LIBOR Rate Portion, the proceeds of hypothetical receipts by a
Notional LIBOR Rate Funding Office or by a Bank through a Notional LIBOR Rate
Funding Office of one or more Dollar deposits in the interbank Eurodollar market
at the beginning of the LIBOR Rate Funding Period corresponding to
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such Funding Segment, having maturities approximately equal to such LIBOR Rate
Funding Period and in an aggregate amount approximately equal to such Funding
Segment.
"Current Assets" at any time shall mean the "current assets" of the
Borrowers and their consolidated Subsidiaries determined in accordance with GAAP
excluding prepaid expenses, advanced payments on goods not yet delivered, monies
held in environmental or reclamation escrow accounts to the extent included in
"current assets" in conformity with GAAP.
"Current Liabilities" at any time shall mean the "current liabilities"
of the Borrowers and their consolidated Subsidiaries determined in accordance
with GAAP, except that Current Liabilities shall include the aggregate amount of
Revolving Credit Loans to the extent not included in "current liabilities" in
conformity with GAAP, but shall exclude the aggregate amount of Standby Facility
Loans to the extent Borrowers have not elected to amortize such Loans.
"Current Ratio" at any time shall mean the ratio of the Current Assets
at such time to the Current Liabilities at such time.
"Defaulting Bank" shall have the meaning assigned to that term in
Section 2.02(e) hereof.
"Delinquent Payment" shall have the meaning assigned to that term in
Section 2.02(e) hereof.
"Dollar," "Dollars" and the symbol "$" shall mean lawful money of the
United States of America.
"EBITDA" for the Borrowers and their consolidated Subsidiaries shall
mean, for any period, the sum of (a) Net Income for such period, (b) Interest
Expense for such period, (c) Income Tax Expense for such period, (d)
depreciation for such period, (e) amortization for such period, and (f)
extraordinary losses to the extent included in determining such Net Income,
minus (g) extraordinary gains to the extent included in determining such Net
Income, all determined on a consolidated basis applying GAAP principles.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"Event of Default" shall mean any of the Events of Default described
in Section 8.01 hereof.
"Fed Funds Rate" or "Fed Funds Rate Option" shall have the meanings
assigned to those terms in Section 2.05(a).
"Fed Funds Rate Portion" of any Swingline Loans shall mean at any time
any portion, including the whole, of such Swingline Loans bearing interest at
such time under the Fed Funds Rate Option.
"Funded Indebtedness" at any time shall mean the sum of (a) all
indebtedness or liability for or on account of money borrowed by, or for or on
account of deposits with or advances to, the Borrowers and their consolidated
Subsidiaries (including Capitalized Lease Obligations, subordinated debt and
unreimbursed obligations under all letters of credit); and (b) all obligations
of the Borrowers and their consolidated Subsidiaries which obligations are
evidenced by bonds, debentures, notes or similar instruments.
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"Funded Indebtedness to EBITDA Ratio" at the end of any fiscal quarter
shall mean the ratio of (a) Funded Indebtedness as of the last day of such
fiscal quarter to (b) EBITDA for the four consecutive quarters ending on the
last day of such fiscal quarter.
"Funding Periods" shall have the meaning assigned to that term in
Section 2.05(b) hereof.
"Funding Segment" of the LIBOR Rate Portion, at any time shall mean
the entire principal amount of such Portion to which at such time there is
applicable a particular Funding Period beginning on a particular day and ending
on another particular day.
"GAAP" shall mean generally accepted accounting principles, as such
principles shall be in effect at the Relevant Date, subject to Section 1.03
hereof.
"Guaranty" shall have the meaning assigned to such term in Section
5.01(b) hereof.
"Hazardous Substances" shall mean hazardous wastes, hazardous
substances, hazardous materials, toxic substances, hazardous air pollutants or
toxic pollutants, as those terms are used in the Resource Conservation and
Recovery Act, 42 U.S.C. (S) 6901 et seq., the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. (S) 9601 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. (S) 1801 et seq., the Toxic
Substances Control Act, 15 U.S.C. (S) 2601 et seq., the Clean Air Act, 42 U.S.C.
(S) 7401 et seq., and the Clean Water Act, 33 U.S.C. (S) 1251 et seq., or in any
regulations promulgated pursuant thereto or in any other applicable state,
federal or local Law.
"Income Tax Expense" for any period shall mean the charges against
income of the Borrowers and their Subsidiaries for federal, state, local and
foreign income taxes for such period, determined on a consolidated basis in
accordance with GAAP.
"Indebtedness" of the Borrowers and their consolidated Subsidiaries
shall mean:
(a) all indebtedness or liability for or on account of money borrowed
by, or for or on account of deposits with or advances to, the Borrowers and
their consolidated Subsidiaries;
(b) all obligations of the Borrowers and their consolidated
Subsidiaries which obligations are evidenced by bonds, debentures, notes or
similar instruments;
(c) all indebtedness or liability for or on account of property or
services purchased or acquired by the Borrowers and their consolidated
Subsidiaries;
(d) any amount secured by a Lien on property owned by the Borrowers
and their consolidated Subsidiaries (whether or not assumed) and
Capitalized Lease Obligations of the Borrowers and their consolidated
Subsidiaries (without regard to any limitation of the rights and remedies
of the holder of such Lien or the lessor under such Capitalized Lease to
repossession or sale of such property);
(e) the face amount of all letters of credit issued for the account
of the Borrowers and their consolidated Subsidiaries and, without
duplication, the unreimbursed amount of all drafts drawn thereunder;
(f) obligations (in the nature of principal or interest) of the
Borrowers and their consolidated Subsidiaries in respect of acceptances or
similar obligations issued or created for the account of the Borrowers and
their consolidated Subsidiaries; and
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(g) the aggregate amount which is required to be reported as a
liability on the balance sheet of the Borrowers and their consolidated
Subsidiaries under a product financing or similar arrangement pursuant to
paragraph 8 of FASB Statement of Financial Accounting Standards No. 49 or
any similar requirement of GAAP.
"Indirect Guarantee" shall mean any liability of any Borrower or a
consolidated Subsidiary upon, or with respect to, any obligation or liability of
any other Person, including but not limited to an agreement, contingent or
otherwise:
(a) to reimburse banks, surety companies and other Persons in respect
of drawings and other payments under letters of credit, guarantees, surety
bonds and similar documents opened or issued by such other Persons for the
account of any Borrower or a consolidated Subsidiary;
(b) to purchase an obligation or assume a liability of such Person or
to supply funds for the payment or purchase of such obligation or
satisfaction of such liability;
(c) to make any loan, advance, capital contribution or other
investment in, or to purchase any property, services or securities from,
such Person so as to enable such Person to meet a minimum equity, net
worth, working capital or other financial condition or to enable such
Person to satisfy any obligation or liability or pay any dividend or stock
liquidation payment, or otherwise to supply funds to or in any manner
invest in such Person;
(d) to purchase, sell or lease (as lessee or lessor) property or
assets or to purchase or sell services (i) primarily for the purpose of
enabling such Person to satisfy such obligation or liability or of assuring
the owner of such Indebtedness or liability against loss, or (ii)
regardless of the nondelivery of such property or assets or the failure to
furnish such services, or (iii) in a transaction otherwise having the
characteristics of a take-or-pay or through put contract or as described in
paragraph 6 of FASB Statement of Financial Accounting Standards No. 47; or
(e) which is substantially equivalent in economic effect to any of
the foregoing or otherwise substantially equivalent in economic effect to
an assumption, guarantee, endorsement or other direct or contingent
liability upon or with respect to any obligation or liability of such
Person.
"Initial Revolving Credit Committed Amount" shall mean, with respect
to any Bank, the amount set forth as such Bank's Initial Revolving Credit Line
Committed Amount in Annex A hereto.
"Initial Standby Facility Committed Amount" shall have the meaning set
forth in Section 2.04(a) hereof.
"Interest Expense" for any period shall mean the amount of cash
interest (including any penalties for late payment) paid by any Borrower or its
consolidated Subsidiaries on Indebtedness during such period, determined in
accordance with GAAP.
"Issuing Bank" shall mean Mellon Bank, N.A. or any Affiliate in its
capacity as issuer of letters of credit.
"Law" shall mean any law (including common law), constitution,
statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or
award of any Official Body.
"Letter of Credit Application" shall have the meaning given in Section
3.02(a).
"Letter of Credit Collateral Account" shall have the meaning given
that term in Section 3.07.
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"Letter of Credit Commitment" shall have the meaning given that term
in Section 3.01(a).
"Letter of Credit Expiration Date" for any Letter of Credit shall mean
the date set forth in the Letter of Credit Application for such Letter of
Credit.
"Letter of Credit Exposure" of the Banks at any time shall mean the
sum of (a) the aggregate Letter of Credit Unreimbursed Draws and (b) the
aggregate Letter of Credit Undrawn Availability.
"Letter of Credit Fee" shall have the meaning given that term in
Section 3.01(d).
"Letter of Credit Limit " shall mean $2,000,000.
"Letter of Credit Participating Interest" shall have the meaning given
that term in Section 3.03(a).
"Letter of Credit Proportion" as to any Bank shall be equal to that
Bank's Revolving Credit Proportion.
"Letter of Credit Reimbursement Obligation" with respect to a Letter
of Credit means the obligation of the Borrowers to reimburse the Issuing Bank
for Letter of Credit Unreimbursed Draws, together with interest thereon.
"Letter of Credit Undrawn Availability" with respect to a letter of
credit issued by the Issuing Bank at any time shall mean the maximum amount
available to be drawn under such letter of credit at such time or thereafter,
regardless of the existence or satisfaction of any conditions or limitations on
drawing.
"Letter of Credit Unreimbursed Draws" with respect to a letter of
credit issued by the Issuing Bank pursuant to the Letter of Credit Agreements at
any time shall mean the aggregate amount at such time of all payments made by
the Issuing Bank under such letter of credit, to the extent not repaid by the
Borrowers.
"Letters of Credit" shall have the meaning assigned to that term in
Section 3.01(a), and "Letter of Credit" shall mean any one of them.
"LIBOR Rate" and "LIBOR Rate Option" shall have the meanings assigned
to those terms in Section 2.05(a) hereof.
"LIBOR Rate Funding Period" shall have the meaning assigned to that
term in Section 2.05(b) hereof.
"LIBOR Rate Portion" of any Set of Loans shall mean at any time the
part, including the whole, of such Set of Loans bearing interest at such time
under the LIBOR Rate Option or at a rate calculated by reference to the LIBOR
Rate under Section 2.05(a). If no Set of Loans is specified, "LIBOR Rate
Portion" shall refer to the LIBOR Rate Portion of all Loans outstanding at such
time.
"LIBOR Rate Reserve Percentage" shall have the meaning assigned to
that term in Section 2.05(a) hereof.
"Lien" shall mean any mortgage, deed of trust, pledge, lien, security
interest, charge or other encumbrance or security arrangement of any nature
whatsoever, including but not limited to any
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conditional sale or title retention arrangement, and any assignment, deposit
arrangement or lease intended as, or having the effect of, security.
"Loan" shall mean any loan made by a Bank to the Borrowers under this
Agreement, and "Loans" shall mean all Loans made by the Banks under this
Agreement.
"Loan Documents" shall mean collectively any and all instruments and
documents delivered by or on behalf of the Borrowers in connection with or
otherwise related to this Agreement, the Notes, the Letters of Credit, any
Guaranty, the Commitment Transfer Supplements and all other agreements and
instruments extending, renewing, refinancing or refunding any indebtedness,
obligation or liability arising under any of the foregoing, in each case as the
same may be amended, modified or supplemented from time to time hereafter.
"London Business Day" shall mean a day for dealing in deposits in
Dollars by and among banks in the London interbank market which also is a
Business Day.
"Material Adverse Effect" shall mean: (a) a material adverse effect on
the business, operations, condition (financial or otherwise) or prospects of the
Borrowers, (b) a material adverse effect on the ability of the Borrowers to
perform or comply with any of the terms and conditions of any Loan Document, or
(c) an adverse effect on the legality, validity, binding effect, enforceability
or admissibility into evidence of any Loan Document, or the ability of the Agent
or any Bank to enforce any rights or remedies under or in connection with any
Loan Document.
"Minority Investment" or "Minority Investments" shall have the
meanings assigned to such terms in Section 7.08 hereof.
"Month," with respect to a LIBOR Rate Funding Period, means the
interval between the Euro-Convention Dates in consecutive calendar months as to
such LIBOR Rate Funding Period. The "Euro-Convention Date" in a calendar month
at the end of any LIBOR Rate Funding Period shall mean the day in such calendar
month numerically corresponding to the first day of such LIBOR Rate Funding
Period, except (i) if there is no such numerically corresponding day in a
calendar month, the "Euro-Convention Date" for such calendar month shall mean
the last London Business Day of such calendar month, (ii) if the first day of
such LIBOR Rate Funding Period is the last day of a calendar month, the "Euro-
Convention Date" for any calendar month shall mean the last London Business Day
of such calendar month and (iii) otherwise, if a numerically corresponding day
in a given calendar month is not a London Business Day, the "Euro-Convention
Date" for such calendar month shall mean the next following day that is a London
Business Day but not later than the last London Business Day of such calendar
month.
"Multiemployer Plan" means any employee benefit plan which is a
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA and to
which a Borrower or any Controlled Group Member has or had an obligation to
contribute.
"Net Income" for any period shall mean the net earning (or loss) after
taxes of the Borrowers and their consolidated Subsidiaries, exclusive of
extraordinary items, for such period, determined in accordance with GAAP.
"Note" or "Notes" shall mean the Revolving Credit Note or the
Revolving Credit Notes, the Standby Facility Note or the Standby Facility Notes,
or the Term Loan Note or the Term Loan Notes, as the case may be, of the
Borrowers, executed and delivered under this Agreement, together with all
extensions, renewals, refinancings or refundings thereof in whole or in part.
"Notional LIBOR Rate Funding Office" shall have the meaning given to
that term in Section 2.11(a).
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"Office," when used in connection with the Agent, shall mean its
office located at 1735 Market Street, Philadelphia, Pennsylvania 19103, or such
other office or offices of the Agent or any branch, subsidiary or affiliate
thereof as may be designated in writing from time to time by the Agent to the
Borrowers.
"Official Body" shall mean any government or political subdivision or
any agency, authority, bureau, central bank, commission, department or
instrumentality of either, or any court, tribunal, grand jury or arbitrator in
each case whether foreign or domestic.
"Option" shall mean the Prime Rate Option, the LIBOR Rate Option or
the Fed Funds Rate Option, as the case may be.
"Participants" shall have the meaning assigned to that term in Section
10.12(b).
"PBGC" means the Pension Benefit Guaranty Corporation established
under Title IV of ERISA or any other governmental agency, department or
instrumentality succeeding to the functions of said corporation.
"Permitted Liens" shall have the meaning assigned to that term in
Section 7.02 hereof.
"Person" shall mean an individual, corporation, partnership, trust,
unincorporated association, joint venture, joint-stock company, government
(including political subdivisions), governmental authority or agency, or any
other entity.
"Plan" means any employee pension benefit plan (other than a
Multiemployer Plan) to which Section 4021 of ERISA applies and (i) which is
maintained for employees of a Borrower or any Controlled Group Member with
respect to said employees' employment with a Borrower or Controlled Group
Member; or (ii) to which a Borrower or any Controlled Group Member made, or was
required to make, contributions at any time within the preceding five (5) years.
"Portion" shall mean the Prime Rate Portion, the Fed Funds Rate
Portion or the LIBOR Rate Portion, as the case may be.
"Potential Default" shall mean any event or condition which with
notice, passage of time, a determination by the Agent or the Banks, or any
combination of the foregoing, would constitute an Event of Default.
"Prime Rate" and "Prime Rate Option" shall have the meanings assigned
to those terms in Section 2.05(a) hereof.
"Prime Rate Portion" of any Set of Loans shall mean at any time the
portion, including the whole, of such Set of Loans bearing interest at such time
under the Prime Rate Option or under Section 2.05(f)(iii). If no Set of Loans
is specified, "Prime Rate Portion" shall refer to the Prime Rate Portion of all
Loans outstanding at such time.
"Proportion" shall mean a Bank's Revolving Credit Proportion, the
Standby Facility Proportion, the Term Loan Proportion or Letter of Credit
Proportion, as the case may be.
"Purchasing Banks" shall have the meaning assigned to that term in
Section 10.12(c).
"Relevant Date" shall mean the date a relevant computation or
determination is to be made or the date of relevant financial statements.
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"Reportable Event" means (i) a reportable event described in Section
4043 of ERISA and regulations thereunder, (ii) a withdrawal by a substantial
employer from a Plan to which more than one employer contributes, as referred to
in Section 4063(b) of ERISA, (iii) a cessation of operations at a facility
causing more than twenty percent (20%) of Plan participants to be separated from
employment, as referred to in Section 4068(f) of ERISA or (iv) a failure to make
a required installment or other payment with respect to a Plan when due in
accordance with Section 412 of the Code or Section 302 of ERISA which causes the
total unpaid balance of missed installments and payments (including unpaid
interest) to exceed $750,000.
"Required Banks" shall mean, as of any date, Banks which have made
Loans, hold Letter of Credit Reimbursement Obligations or have interests in the
Letters of Credit constituting, in the aggregate, at least 66 and 2/3% in
principal amount of all such Loans, Letter of Credit Reimbursement Obligations
and other obligations outstanding on such date or, if no Loans or Letter of
Credit Reimbursement Obligations are outstanding and the Letter of Credit is not
outstanding on such date, Banks which have Committed Amounts and obligations to
participate in the Letter of Credit constituting, in the aggregate, at least 66
and 2/3% of the total Committed Amounts and obligations to participate in the
Letter of Credit of all the Banks on such date, provided, however, that
"Required Banks" shall mean the unanimous consent of all the Banks for the
amendments, waivers and consents enumerated in Sections 10.03(a) through (d),
6.12(b)(ii) and 7.06.
"Revolving Credit Commitment" shall have the meaning assigned to that
term in Section 2.01(a).
"Revolving Credit Committed Amount" shall have the meaning assigned to
that term in Section 2.01(a).
"Revolving Credit Exposure" of any Bank at any time shall mean the sum
at such time of the outstanding principal amount of such Bank's Revolving Credit
Loans plus such Bank's pro rata share of the aggregate Letter of Credit Exposure
of the Banks.
"Revolving Credit Expiration Date" shall mean December 31, 1999.
"Revolving Credit Loans" shall have the meaning assigned to that term
in Section 2.01(a).
"Revolving Credit Notes" shall mean the promissory notes of the
Borrowers executed and delivered under Section 2.02(c), any promissory note
issued in substitution therefor pursuant to Section 2.11(b) or 10.12(c),
together with all extensions, renewals, refinancings or refundings thereof in
whole or in part.
"Revolving Credit Proportion" shall have the meaning assigned to that
term in Section 2.01(a).
"Set of Loans" shall mean all Revolving Credit Loans and Standby
Facility Loans made at the same time by the Banks or all Revolving Credit Loans
and Standby Facility Loans the interest rate Option applicable to which is
converted from, converted to or renewed at the same time.
"Site Assessment" shall have the meaning set forth in Section 6.01(n).
"Site Reviewers" shall mean such Persons as the Agent may designate
pursuant to Section 6.01(n).
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"Standard Notice" shall mean an irrevocable notice provided to the
Agent on a Business Day which is
(i) at least one Business Day in advance in the case of selection of,
conversion to or renewal of the Prime Rate Option or the Fed Funds Rate
Option or prepayment of any Prime Rate Portion or the Fed Funds Rate
Portion; and
(ii) at least three London Business Days in advance in the case of
selection of, conversion to or renewal of the LIBOR Rate Option or
prepayment of any LIBOR Rate Portion.
Standard Notice must be provided no later than 10:00 a.m., Philadelphia time, on
the last day permitted for such notice.
"Standby Facility Commitment" shall have the meaning set forth in
Section 2.04(a) hereof.
"Standby Facility Committed Amount" shall have the meaning set forth
in Section 2.04(a) hereof.
"Standby Facility Expiration Date" shall mean August 6, 2000.
"Standby Facility Fee" shall have the meaning set forth in Section
2.04(g) hereof.
"Standby Facility Loan" or "Standby Facility Loans" shall have the
meaning set forth in Section 2.04(a) hereof.
"Standby Facility Notes" shall mean the promissory notes of the
Borrowers executed and delivered under Section 2.04(c), or any promissory notes
issued in substitution therefor pursuant to Sections 2.11(b) or 10.12, together
with all extensions, renewals, refinancings or refundings thereof in whole or
part.
"Standby Facility Proportion" shall have the meaning assigned to that
term in Section 2.04(a).
"Standby Facility Term Loans" shall have the meaning set forth in
Section 2.04(e) hereof.
"Standby Facility Term Loan Maturity Date" shall have the meaning set
forth in Section 2.04(e) hereof.
"Standby Loan Maturity Date" for any Standby Loan shall mean the
earlier of a date 180 days following the date such loan was made or the Standby
Facility Expiration Date.
"Stock" shall mean the issued and outstanding stock of the Borrowers.
"Subset of Loans" shall mean the Portion of a particular Set of Loans
which are either a Prime Rate Portion, an Fed Funds Rate Portion or LIBOR Rate
Portion and having the same Funding Period, or the Portion of a particular Set
of Loans made at the Prime Rate Option, the Fed Funds Rate Option or the Funding
Segment of a Portion made at the LIBOR Rate Option and having the same Funding
Period.
"Subsidiary" or "Subsidiaries" of a Person at any time shall mean any
Person (or Persons) of which such Person at such time controls a majority of the
securities having voting power. In the application of this definition,
"securities" means shares of stock or other securities, "control" with
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respect to any securities means to own directly or indirectly (through one or
more Subsidiaries), or to have voting power with respect to, such securities;
"voting power" means the ability or authority at the time in question to vote
for the election, appointment or other determination of who shall fill the
position of director (whether or not such power exists at the time by reason of
the happening of a contingency); and "director" of a Person means one of the
directors or comparable officials possessing the power to direct the management
and policies of the Person; provided, that, if the directors of a Person do not
all have equal voting power on a per capita basis, a "majority of the securities
having voting power" shall mean at least such number of securities as shall have
voting power to elect such number of directors as shall possess the power to
direct the management and policies of the Person.
"Swingline Limit" means Two Million Dollars ($2,000,000.00).
"Swingline Loan" and "Swingline Loans" has such meaning as provided
for in Section 2.02(a).
"Swingline Loan Participation Certificate" shall have the meaning
assigned in Section 2.02(c)(ii) hereof.
"Swingline Subfacility Expiration Date" shall mean the earlier of (i)
the resignation of Mellon Bank, N.A. as Agent in accordance with Section 9.10
and (ii) the Revolving Credit Expiration Date, subject, however, to the
limitations set forth in Section 2.02(a).
"Term Loan" shall have the meaning set forth in Section 2.03(a).
"Term Loan Commitment" shall have the meaning set forth in Section
2.03(a).
"Term Loan Committed Amount" shall have the meaning set forth in
Section 2.03(a).
"Term Loan Maturity Date" shall mean October 1, 2003.
"Term Loan Note" shall mean the promissory note of the Borrowers
executed and delivered under Section 2.03(c), or any promissory note issued in
substitution therefor pursuant to Sections 2.11(b) or 10.12(c), together with
all extensions, renewals, refinancings or refundings thereof in whole or part.
"Term Loan Participation Certificate" shall have the meaning set forth
in Section 2.03(a).
"Term Loan Proportion" shall have the meaning assigned to that term in
Section 2.03(a).
"Transfer Effective Date" shall have the meaning set forth in the
applicable Commitment Transfer Supplement.
"Transferee" shall have the meaning assigned to that term in Section
10.12(e).
"Workers' Compensation Letter of Credit" shall mean the standby letter
of credit dated July 1, 1994 in the face amount of $1,700,000, issued by the
Issuing Bank, for the benefit of the Borrowers, in favor of the Self-Insurance
Division of the Pennsylvania Bureau of Workers' Compensation, which letter of
credit has been extended through July 31, 2000.
"Year 2000 Compliant" means, with regard to any entity, that all
software, embedded microchips, and other processing capabilities utilized by,
and material to the business operations or financial condition of, such entity
are able to interpret and manipulate data on and involving all calendar
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dates correctly and without causing any abnormal ending scenario, including in
relation to dates in and after the year 2000.
1.02. Construction. Unless the context of this Agreement otherwise
clearly requires, references to the plural include the singular, the singular
the plural and the part the whole, and "or" has the inclusive meaning
represented by the phrase "and/or." References in this Agreement to
"determinations" by the Agent or by any Bank mean good faith determinations or
good faith estimates by the Agent or such Bank (in the case of quantitative
determinations) and good faith determinations or good faith beliefs by the Agent
or such Bank (in the case of qualitative determinations). The words "hereof,"
"herein," "hereunder" and similar terms in this Agreement refer to this
Agreement as a whole and not to any particular provision of this Agreement. The
section and other headings contained in this Agreement and the Table of Contents
preceding this Agreement are for reference purposes only and shall not control
or affect the construction of this Agreement or the interpretation thereof in
any respect. Section, subsection and exhibit references are to this Agreement
unless otherwise specified.
1.03. Accounting Principles.
(a) Except as otherwise provided in this Agreement, all computations
and determinations as to accounting or financial matters and all financial
statements to be delivered pursuant to this Agreement shall be made and prepared
in accordance with GAAP (including principles of consolidation where
appropriate), and all accounting or financial terms shall have the meanings
ascribed to such terms by GAAP.
(b) If any change in GAAP after the date of this Agreement is or
shall be required to be applied to transactions then or thereafter in existence,
and a violation of one or more provisions of this Agreement shall have occurred
or in the reasonable judgment of the Agent, a Bank or the Borrowers would likely
occur which would not have occurred or be likely to occur if no change in
accounting principles had taken place,
(i) The parties agree that such violation shall not be considered to
constitute an Event of Default or a Potential Default for a period of
thirty (30) days from the date either a Bank or the Borrowers notify the
Agent or the Agent notifies the Borrowers of the application of this
subsection 1.03(b);
(ii) The parties agree in such event to negotiate in good faith an
amendment of this Agreement which shall approximate to the extent possible
the economic effect of the original financial covenants after taking into
account such change in GAAP; and
(iii) If the parties are unable to negotiate such an amendment within
such thirty (30) day period, the Borrowers shall have the option of (A)
prepaying the Loans (pursuant to applicable provisions hereof) and the
Letter of Credit Reimbursement Obligations and terminating the Letters of
Credit or providing cash collateral therefor as provided in Section 3.07 or
(B) submitting the drafting of such an amendment to a firm of independent
certified public accountants of nationally recognized standing acceptable
to the parties, which shall complete its draft of such amendment within 60
days of submission; if the parties cannot agree, the firm shall be selected
by binding arbitration in the City of Philadelphia, Pennsylvania in
accordance with the rules then obtaining of the American Arbitration
Association. If the Borrowers do not exercise either such option within
said period, then, as used in this Agreement, "GAAP" shall mean generally
accepted accounting principles in effect at the Relevant Date. The parties
agree that if the Borrowers elect the option in clause (B) above, until
such firm has been selected and completes drafting such amendment, no such
violation shall constitute an Event of Default or a Potential Default.
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(c) If any change in GAAP after the date of this Agreement is
required to be applied to transactions or conditions then or thereafter in
existence, and the Agent or the Banks shall assert that the effect of such
change is or likely shall be to distort materially the effect of any of the
definitions of financial terms in Article I or any of the covenants of the
Borrowers in Section 7.01 (the "Financial Provisions"), so that the intended
economic effect of any of the Financial Provisions will not in fact be
accomplished in any material respect,
(i) The Agent shall notify the Borrowers of such assertion,
specifying the change in GAAP which is objected to, and, until otherwise
determined as provided below, the specified change in GAAP shall not be
made by the Borrowers in their financial statements for the purpose of
applying the Financial Provisions; and
(ii) The parties shall follow the procedures set forth in subsection
(ii) and the first sentence of subsection (iii) of subsection (b) of this
Section. If the parties are unable to agree on an amendment as provided in
said subsection (ii) and if the Borrowers do not exercise either option set
forth in the first sentence of said subsection (iii) within the specified
period, then, as used in this Agreement, "GAAP" shall mean generally
accepted accounting principles in effect at the Relevant Date, except that
the specified change in GAAP which is objected to by the Agent or the Banks
shall not be made in applying the Financial Provisions. The parties agree
that if the Borrowers elect the option in clause (B) of the first sentence
of said paragraph (iii), until such independent firm has been selected and
completes drafting such amendment, the specified change in GAAP shall not
be made in applying the Financial Provisions.
(d) All expenses of compliance with this Section 1.03 shall be paid
by the Borrowers.
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Article II
The Credits
2.01. Revolving Credit Loans.
(a) The Revolving Credit Commitments. Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Bank, severally and not jointly, agrees (such agreements being herein
collectively called the "Revolving Credit Commitment") to make loans to the
Borrowers (the "Revolving Credit Loans") at any time or from time to time on or
after the date hereof to but not including the Revolving Credit Expiration Date.
A Bank shall have no obligation to make any Revolving Credit Loan to the extent
that such Bank's Revolving Credit Exposure at any time would exceed such Bank's
Revolving Credit Committed Amount at such time less the sum of such Bank's pro-
rata share of all outstanding Swingline Loans and such Bank's Letter of Credit
Exposure. Each Bank's "Revolving Credit Committed Amount" at any given time
shall be equal to the amount set forth as its "Initial Revolving Credit
Committed Amount" in Annex A, as such amount may have been reduced from time to
time under Section 2.04(h). The Revolving Credit Committed Amounts of the
several Banks shall at all times be in proportion to the Revolving Credit
Proportions. Each Bank's "Revolving Credit Proportion" at any given time shall
be equal to the Proportion set forth in Annex A at such time. The Borrowers
hereby covenant and agree that they shall not request, and the Banks shall not
be obligated to make, any Revolving Credit Loan (i) to the extent that the
aggregate Revolving Credit Exposures of the Banks at any time exceed the
aggregate Revolving Credit Committed Amounts of the Banks at such time, or (ii)
on or after the Revolving Credit Expiration Date.
(b) Nature of Revolving Credit. Within the limits of time and amount
set forth in this Section 2.01, and subject to the provisions of this Agreement,
the Borrowers may borrow, repay and reborrow Revolving Credit Loans made
hereunder.
(c) Revolving Credit Notes. The obligation of the Borrowers to repay
the unpaid principal amount of the Revolving Credit Loans made to them by each
Bank and to pay interest thereon shall be evidenced in part by promissory notes
of the Borrowers, one to each Bank, dated the date hereof (the "Revolving Credit
Notes"), each in substantially the form attached hereto as Exhibit A, with the
blanks appropriately filled, payable to the order of each such Bank in a face
amount equal to each such Bank's Initial Revolving Credit Committed Amount. The
executed Revolving Credit Notes shall be delivered by the Borrowers to the Agent
on the date hereof, and the Agent shall promptly deliver to each Bank its
Revolving Credit Note.
(d) Making of Revolving Credit Loans. Whenever the Borrowers desire
that the Banks make a Set of Revolving Credit Loans, the Borrowers shall provide
Standard Notice to the Agent, in the form attached hereto as Exhibit B, setting
forth the following information:
(i) The date, which shall be a Business Day, on which such Set
of Loans are to be made;
(ii) The interest rate Option or options selected in accordance
with Section 2.05(a) and the principal amounts selected in accordance
with Section 2.05(c) of the Prime Rate Portion and each Funding
Segment of the LIBOR Rate Portion, as the case may be, of such Set of
Loans;
(iii) The Funding Period for each Funding Segment of each
proposed Subset of Loans selected in accordance with Section 2.05(b);
and
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(iv) The aggregate principal amount of such Set of Loans
selected in accordance with Sections 2.05(c) and (d), which shall be
the sum of the principal amounts selected pursuant to this Section
2.01.
The Agent promptly shall give notice to each Bank of the information contained
in any notice received by it pursuant to this Section 2.01 and of the amount of
such Bank's requested Revolving Credit Loan. Standard Notice having been so
provided to the Agent, unless any applicable condition specified in Article V
has not been satisfied, on the date specified in such Standard Notice each Bank
shall make the proceeds of its Revolving Credit Loan available to the Agent at
the Agent's office no later than 12:00 o'clock Noon, Philadelphia time, in funds
immediately available at such Office, and the Agent will make the funds so
received immediately available to the Borrowers at such Office. Neither the
Agent nor any other Bank shall be obligated, for any reason whatsoever, to remit
the share of any other Bank.
(e) Maturity. To the extent not due and payable earlier, the
Revolving Credit Loans shall be due and payable on the Revolving Credit
Expiration Date.
(f) Optional Increase of the Revolving Credit Committed Amount. At
any time prior to the Revolving Credit Expiration Date, and so long as no Event
of Default or Potential Default exists, the Borrowers may elect to increase on a
pro rata basis the aggregate Revolving Credit Committed Amount. Any increase of
the Revolving Credit Committed Amount shall be in an integral multiple of
$500,000 and shall not exceed $7,500,000 in the aggregate. An increase of the
Revolving Credit Committed Amount shall result in a corresponding decrease of
the Standby Facility Committed Amount, and shall only be allowed (i) prior to
the Standby Facility Expiration Date, and (ii) if the sum of all outstanding
Standby Facility Loans and Standby Facility Term Loans would not exceed the
proposed decreased amount of the Standby Facility Committed Amount. An increase
of the Revolving Credit Committed Amount shall be made by providing to the Agent
not less than five (5) Business Days' notice, such notice to be accompanied by
executed Revolving Credit Notes and Standby Facility Notes for each Bank which
are amended and restated to evidence the corresponding increase or decrease of
their respective principal amounts.
2.02 Swingline Subfacility.
(a) Nature of Swingline Subfacility. Subject to the terms and
conditions hereof, Agent, in reliance on the agreements of the other Banks set
forth in Section 2.01, may, in its absolute discretion, make swing line loans
(all such swing line loans shall be collectively referred to as the "Swingline
Loans" and each such loan being referred to as a "Swingline Loan") to the
Borrowers at any time on or after the date hereof to but not including the
Swingline Subfacility Expiration Date, provided that Agent shall not make any
Swingline Loan if, after giving effect to any such Swingline Loan and the use of
the proceeds thereof, (i) the aggregate principal amount of all Swingline Loans
then outstanding would exceed the Swingline Limit, or (ii) the Agent's Revolving
Credit Exposure plus the Agent's Letter of Credit Exposure at such time would
exceed the Agent's Revolving Credit Committed Amount in effect at such time.
Prior to the Swingline Subfacility Expiration Date, the Borrowers may, subject
to the terms hereof, borrow, prepay and reborrow Swingline Loans in whole or in
part, all in accordance with the terms and conditions hereof. Agent may
terminate Swingline Loan availability at any time in its absolute discretion.
No Swingline Loan shall be made by Agent after the Swingline Subfacility
Expiration Date. The obligation of Borrowers to repay Swingline Loans shall be
evidenced by the Agent's Revolving Credit Note.
(b) Procedure for Swingline Borrowing.
(i) Subject to the other terms hereof, Borrowers may request a
Swingline Loan on any Business Day prior to the Swingline Subfacility Expiration
Date by delivering to the Agent Standard Notice in the form described in Section
2.01(d) hereof. All requests for a Swingline Loan must be received by Agent
prior to 2:00 P.M. (Philadelphia time) on the requested date of the Loan, and
the Agent will make the funds so received immediately available to the Borrowers
at such Office.
(ii) Each Swingline Loan (including all interest accrued thereon)
shall mature and be payable on the Revolving Credit Expiration Date. The
Borrowers may at any time and
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from time to time, prepay the Swingline Loans, in whole or in part, without
premium or penalty, by notifying (which notice may be given by telephone (to be
promptly confirmed in writing, including by facsimile)) Agent prior to 12:00
P.M., Philadelphia time, on any Business Day of the date and amount of
prepayment. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein.
(c) Refunding of a Swingline Loan; Participations in Swingline Loans.
(i) The Agent may, on behalf of the Borrowers (which hereby
irrevocably authorizes the Agent to act on their behalf in such regard), from
time to time, request each Bank to make a Revolving Credit Loan in an amount
equal to such Bank's pro rata share of the amount of the aggregate outstanding
principal amount of the Swingline Loans, or such portion thereof as Agent
desires to have repaid, regardless of whether the conditions set forth in
Article V have been satisfied in connection therewith. Unless any of the events
described in Section 8.01(k) or (l) shall have occurred with respect to the
Borrowers (in which event the procedures of Subparagraph (ii) of this Section
2.02(c) shall apply) each Bank shall make its Proportion of the requested
Revolving Credit Loan available to the Agent for the account of Agent at Agent's
Office prior to 11:00 A.M., Philadelphia time, in immediately available funds on
the Business Day next succeeding the date such notice is given. The proceeds of
such Revolving Credit Loans shall be immediately applied to repay the relevant
Swingline Loans. Effective on the day such Revolving Credit Loans are made, the
relevant Swingline Loans so paid shall no longer be outstanding as a Swingline
Loan. The Borrowers authorize Agent, upon written notice to the Borrowers, to
charge the Borrowers' accounts with Agent (up to the amount available in each
such account) in order to immediately pay the amount of the outstanding
Swingline Loans to the extent amounts received from the Banks are not sufficient
to repay in full such outstanding Swingline Loans.
(ii) If prior to the making of Revolving Credit Loans pursuant to
Subparagraph (i) of this Section 2.02(c) one of the events described in Section
8.01(k) or (l) shall have occurred and be continuing with respect to the
Borrowers, each Bank will, on the date such Revolving Credit Loan was to or
would have been made pursuant to the notice in Subparagraph (i) above, purchase
an undivided participating interest in the outstanding Swingline Loans in an
amount equal to (A) its Proportion times (B) the aggregate principal amount of
Swingline Loans then outstanding. Each Bank will immediately transfer to Agent,
in immediately available funds, the amount of its participation, and upon
receipt thereof Agent will deliver to such Bank a participation certificate (the
"Swingline Loan Participation Certificate") dated the date of receipt of such
funds and in such amount.
(iii) Whenever, at any time after any Bank has purchased a
participating interest in a Swingline Loan, Agent receives any payment on
account thereof, Agent will distribute to such Bank its participating interest
in such amount (appropriately adjusted, in the case of interest payments, to
reflect the period of time during which such Bank's participating interest was
outstanding and funded), provided, however, that in the event that such payment
received by Agent is required to be returned, such Bank will return to Agent any
portion thereof previously distributed by Agent to it.
(iv) Each Bank's obligation to make the Revolving Credit Loans
referred to in Subsection 2.02(c)(i) above and to purchase participating
interests pursuant to Subsection 2.02(c)(ii) above shall be absolute and
unconditional and shall not be affected by any circumstance, including, without
limitation, (A) any set-off, counterclaim, recoupment, defense or other right
which such Bank or the Borrowers may have against Agent, the Borrowers or any
Person for any reason whatsoever, (B) the occurrence or continuance of any Event
of Default, (C) any adverse change in the condition (financial or otherwise) of
the Borrowers, (D) any breach of this Agreement or any other Loan Document by
the Borrowers, any Bank or any other Person, or (E) any other circumstance,
happening or event whatsoever, whether or not similar to any of the foregoing.
Without limiting the foregoing, each such Revolving Credit Loan shall be made by
Banks notwithstanding that (A) the amount of the Revolving Credit Loans does not
meet the minimum amount required under Section 2.05(c), (B) any conditions to
Revolving Credit Loans under Article V may not be then satisfied, (C) any Event
of Default exists and/or (D) the
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Revolving Credit Loans are requested after the expiration of the Revolving
Credit Expiration Date. In no event, however, shall any Bank be required to make
Revolving Credit Loans under this Section 2.02(c) in excess of such Bank's
Revolving Credit Committed Amount.
(d) Payments Among Banks
(i) Amounts of principal paid to Agent by Borrowers in connection with
Revolving Credit Loans from time to time shall be applied first to repay
Swingline Loans and then to each Bank's respective Proportion of the Revolving
Credit Loans. Interest shall accrue and each Bank shall be entitled to receive
interest from Borrowers at the applicable rate on the outstanding dollar amount
of the Revolving Credit Loans actually funded by such Bank. Sums payable to
Banks as a result of such payments shall, subject to the rights of offset
otherwise described herein, be paid by Agent to the Banks in federal funds via
wire transfers.
(ii) If Agent does not receive each other Bank's Proportion of such
requested Revolving Credit Loan, and Agent elects, in its sole discretion,
without any obligation at any time to do so, to make the requested Revolving
Credit Loan on behalf of Banks, or any of them, Agent shall be entitled to
receive each Bank's Proportion of each Revolving Credit Loan, together with
interest at a per annum rate equal to the applicable interest rate set forth in
Section 2.05(a) below for such Revolving Credit Loan during the period
commencing on the date such Revolving Credit Loan is made and ending on (but
excluding) the date Agent recovers such amount. Each Bank is absolutely and
unconditionally obligated, without deduction or setoff of any kind, to forward
to Agent its Proportion of each Revolving Credit Loan made pursuant to the terms
of this Agreement. To the extent Agent is not reimbursed by such Bank,
Borrowers shall repay Agent immediately on demand, such amount.
(e) Defaulting Banks. To the extent and during the time period in which any
Bank fails to provide or delays providing its respective payment to Agent
pursuant to any of the provisions of Section 2.01(d) and Section 2.02(c) and
(d), or any other payment payable by a Bank to Agent under the terms of this
Agreement (any such Bank being referred to, during such period, as a "Defaulting
Bank" and any such payment being referred to as a "Delinquent Payment") , and
without limiting any other rights or remedies otherwise available to Agent or
another Bank hereunder, at law or in equity, Agent may (i) set off the
obligations of such Defaulting Bank against any distributions or payments of the
Borrowers to which such Defaulting Bank would otherwise be entitled at any time,
(ii) withhold such distributions or payments of such to which such Defaulting
Bank would otherwise be entitled and make such distributions or payments to
Agent or other applicable Person in an amount equal to, and as a repayment of,
the Delinquent Payment, and/or (iii) recover any and all actual losses and
damages Agent may incur (including without limitation, reasonable attorneys'
fees) from a Defaulting Bank. In addition, notwithstanding any definition or
other provision of this Agreement to the contrary, during any period in which a
Bank is a Defaulting Bank, all calculations for voting purposes among the Banks
shall be made as if the Defaulting Bank were not a Bank and not a party to this
Agreement. Further, a Defaulting Bank shall pay to Agent, interest on the
Delinquent Payment from the date due until paid at the Federal Funds Effective
Rate. Nothing contained in this Section 2.02(e) shall (i) require Agent or any
other Bank to make any Delinquent Payments for or on behalf of a Defaulting
Bank, or (ii) affect a Defaulting Bank's obligations to fund future Revolving
Credit Loans in accordance with its Revolving Credit Proportion as set forth on
Annex A.
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2.03. Term Loan.
(a) Term Loan Commitments. The Agent has extended to the Borrowers a
term loan (the "Term Loan"), the principal balance of which is $2,500,000 as of
the date of this Agreement, as evidenced by a Note and Security Agreement dated
as of October 21, 1998 and amended as of January 22, 1999. Subject to the terms
and conditions and relying upon the representations and warranties herein set
forth, each Bank, severally and not jointly, agrees (such agreement being herein
called such Bank's "Term Loan Commitment") to purchase a participating share of
the Term Loan in such principal amount equal to such Bank's Term Loan Committed
Amount. Each Bank's "Term Loan Committed Amount" at any time shall be equal to
the amount set forth as its "Term Loan Committed Amount" in Annex A. The Term
Loan Committed Amount of each Bank shall at all times be an amount equal to its
Term Loan Proportion multiplied by the outstanding principal amount due under
the Term Loan at such time. Each Bank's "Term Loan Proportion" at any given
time shall be equal to the Proportion set forth in Annex A at such time. On the
Closing Date, the Agent shall deliver to each Bank a participation certificate
(the "Term Loan Participation Certificate"), in the form attached hereto as
Exhibit C, in the amount of such Bank's Term Loan Committed Amount.
(b) Nature of Credit. The Borrowers may not reborrow amounts repaid
with respect to the Term Loan.
(c) Term Loan Note. The obligation of the Borrowers to repay the
unpaid principal amount of the Term Loan and to pay interest thereon shall be
evidenced by an Amended and Restated Term Loan Note (the "Term Loan Note"), in
substantially the form attached hereto as Exhibit D, with the blanks
appropriately filled, payable to the order of the Agent in a face amount equal
to $2,500,000.
(d) Prior Term Loan Documents. Within thirty (30) days of the
Closing Date, the Agent shall mark "Cancelled" and return to the Borrowers all
existing loan documents which evidence the Term Loan. From and after the
Closing Date, the terms and conditions of this Agreement, the Term Loan Note and
all other Loan Documents shall apply to the Term Loan.
(e) Scheduled Amortization; Maturity. Principal under the Term Loan
shall continue to be due and payable on the first day of each month in equal
monthly installments of $50,000. To the extent not due and payable earlier, the
Term Loan shall be due and payable on the Term Loan Maturity Date.
2.04. Standby Facility Loans.
(a) Standby Facility Commitments. Subject to the terms and
conditions and relying upon the representations and warranties herein set forth,
each Bank, severally and not jointly, agrees (such agreement being herein called
such Bank's "Standby Facility Commitment") to make loans (the "Standby Facility
Loans") to the Borrowers at any time or from time to time on or after the date
hereof to but not including the Standby Facility Expiration Date. A Bank shall
have no obligation to make any Standby Facility Loan in an amount exceeding such
Bank's Standby Facility Committed Amount at such time less all outstanding
Standby Facility Loans and all Standby Facility Term Loans. Each Bank's
"Standby Facility Committed Amount" at any time shall be equal to the amount set
forth as its "Initial Standby Facility Committed Amount" on Annex A, as such
amount may have been reduced from time to time under (i) subsection (e) of this
Section 2.04 hereof, or (ii) Section 2.01(f) hereof, and subject to transfer to
another Bank as provided in Section 10.12(c) hereof. The Standby Facility
Committed Amounts of the Banks shall at all times be equal to each Bank's
Standby Facility Proportion (as set forth in Annex A at such time) multiplied by
the Standby Facility Committed Amount.
(b) Nature of Credit. Within the limits of time and amount set
forth in this Section 2.04, and subject to the provisions of this Agreement, the
Borrowers may borrow, repay and reborrow Standby Facility Loans made hereunder.
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(c) Standby Facility Notes. The obligation of the Borrowers to repay
the unpaid principal amount of the Standby Facility Loans made to it by each
Bank and to pay interest thereon shall be evidenced in part by promissory notes
of the Borrowers, one to each Bank, dated the Closing Date (the "Standby
Facility Notes") in substantially the form attached hereto as Exhibit E, with
the blanks appropriately filled, payable to the order of such Bank in a face
amount equal to such Bank's Initial Standby Facility Committed Amount.
(d) Expiration; Maturity. In the absence of an Event of Default or
Potential Default, the Standby Loan Facility shall be available up to the
Standby Facility Expiration Date. To the extent not due and payable earlier,
each Standby Facility Loan shall be due and payable on its respective Standby
Loan Maturity Date, unless the Borrowers elect to amortize such Loan in
accordance with Section 2.04(e) below.
(e) Amortization of Standby Facility Loans; Maturity; Payments. Upon
funding of a Standby Facility Loan, the Borrowers may elect to amortize the
entire principal balance of such Standby Facility, or, alternatively, at any
time prior to the Standby Loan Maturity Date, the Borrowers shall amortize the
entire principal balance of such Standby Facility Loan (collectively, "Standby
Facility Term Loans"). To the extent not due and payable earlier, each Standby
Facility Term Loan shall be due and payable on a date prior to the seventh
anniversary of the Borrowers' election of the term out option with respect to
such Loan (a "Standby Facility Term Loan Maturity Date"). Principal under a
Standby Facility Term Loan shall be due and payable on the first day of each
month, up to its respective Standby Facility Term Loan Maturity Date, in equal
monthly installments based on a straight amortization schedule. Upon each
election to amortize, the Borrowers shall execute and deliver to each Bank its
respective Allonge to Standby Facility Note in the form attached hereto as
Exhibit E, with the blanks appropriately filled. Payments of principal on
Standby Facility Term Loans prior to the Standby Facility Expiration Date may be
reborrowed as Standby Facility Loans hereunder.
(f) Making of Standby Facility Loans. Whenever the Borrowers desire
that the Banks make a Standby Facility Loan, the Borrowers shall provide
Standard Notice to the Agent setting forth the following information:
(i) The date, which shall be a Business Day, on which such Loan
is to be made;
(ii) The interest rate Option or options selected in accordance
with Section 2.05(a) and the principal amounts selected in accordance
with Section 2.05(c) of the Prime Rate Portion and each Funding
Segment of the LIBOR Rate Portion, as the case may be, of the Loan;
(iii) The Funding Period for each Funding Segment of each
proposed Loan selected in accordance with Section 2.05(b);
(iv) The aggregate principal amount of the Loan selected in
accordance with Section 2.05(c) and (d); and
(v) Whether the Borrowers have elected to amortize the Loan in
accordance with Section 2.04(e) hereof.
The Agent promptly shall give notice to each Bank of the information contained
in any notice received by it pursuant to this Section 2.04 and of the amount of
such Bank's requested Standby Facility Loan. Standard Notice having been so
provided to the Agent, unless any applicable condition specified in Article V
has not been satisfied, on the date specified in such Standard Notice each Bank
shall make the proceeds of its Standby Facility Loan available to the Agent at
the Agent's office no later than 12:00 o'clock Noon, Philadelphia time, in funds
immediately available at such Office, and the Agent will make
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the funds so received immediately available to the Borrowers at such Office.
Neither the Agent nor any other Bank shall be obligated, for any reason
whatsoever, to remit the share of any other Bank.
(g) Standby Facility Fee. The Borrowers agree to pay to the Agent
for the account of each Bank a fee (the "Standby Facility Fee") equal to 0.10%
on the amount equal to such Bank's Proportion of any Standby Facility Term Loan.
Such Standby Facility Fee shall be due and payable upon the Borrowers' election
of the term out option.
(h) Optional Increase of the Standby Facility Commitment. At any
time prior to the Standby Facility Expiration Date, and so long as no Event of
Default or Potential Default exists, the Borrowers may elect to increase on a
pro rata basis the aggregate Standby Facility Committed Amount. Any increase of
the Standby Facility Committed Amount shall be in an integral multiple of
$500,000 and shall not exceed $7,500,000 in the aggregate. An increase in the
Standby Facility Committed Amount shall result in a corresponding decrease of
the aggregate Revolving Credit Committed Amount, and shall only be allowed (i)
prior to the Revolving Credit Expiration Date, and (ii) if the sum of all
outstanding Revolving Credit Loans, Swingline Loans and the face amount of all
issued and outstanding Letters of Credit would not exceed the proposed decreased
amount of the Revolving Credit Committed Amount. Any decrease in the aggregate
Revolving Credit Committed Amount shall not affect the Swingline Limit or the
Letter of Credit Limit. An increase of the Standby Facility Committed Amount
shall be made by providing to the Agent not less than five (5) Business Days'
notice, such notice to be accompanied by executed Revolving Credit Notes and
Standby Facility Notes for each Bank which are amended and restated to evidence
the corresponding increase or decrease of their respective principal amounts.
2.05. Interest Rates.
(a) Optional Bases of Borrowing. The unpaid principal amount of each
Set of Loans shall bear interest for each day until due on one or more bases
selected by the Borrowers from the interest rate Options set forth below, it
being understood that, subject to the provisions of this Agreement, the
Borrowers may select different options to apply simultaneously to different
Subsets of Loans and may select different Funding Segments to apply
simultaneously to different Subsets of the LIBOR Rate Portion:
(i) Prime Rate Option: A rate per annum (computed on the basis of a
year of 365 or 366 days, as the case may be) for each day equal to the
Prime Rate for such day plus the Applicable Margin, such interest rate to
change automatically from time to time effective as of the effective date
of each change in the Prime Rate. "Prime Rate," as used herein, shall mean
the interest rate per annum announced from time to time by the Agent as its
prime rate. The Borrowers may elect the Prime Rate Option in connection
with Revolving Credit Loans (including Swingline Loans) and Standby
Facility Loans.
(ii) LIBOR Rate Option: A rate per annum (computed on the basis of a
year of 360 days and actual days elapsed) for each day equal to the LIBOR
Rate for such day plus the Applicable Margin. "LIBOR Rate" for any day, as
used herein, shall mean for each proposed Subset of Loans corresponding to
a LIBOR Rate Funding Period the rate per annum determined by the Agent by
dividing (the resulting quotient to be rounded upward to the nearest 1/100
of 1%) (A) the rate of interest (which shall be the same for each day in
such LIBOR Rate Funding Period) determined in good faith by the Agent
(which determination shall be conclusive absent manifest error) to be the
average of the rates per annum for deposits in Dollars offered to major
money center banks in the London interbank market at approximately 11:00
o'clock a.m., London time, two London Business Days prior to the first day
of such LIBOR Rate Funding Period for delivery on the first day of such
LIBOR Rate Funding Period in amounts comparable to such Subset of Loans and
having maturities comparable to such LIBOR Rate Funding Period by (B) a
number equal to 1.00 minus the LIBOR Rate Reserve Percentage.
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<PAGE>
The "LIBOR Rate" may also be expressed by the following formula:
[average of the rates offered to major money]
[center banks in the London interbank market]
LIBOR Rate = [determined by the Agent per subsection (A) ]
---------------------------------------------
[1.00 - LIBOR Rate Reserve Percentage]
The "LIBOR Rate Reserve Percentage" for any day is the maximum effective
percentage (expressed as a decimal fraction, rounded upward to the nearest
1/100 of 1%), as determined in good faith by the Agent (which determination
shall be conclusive absent manifest error), which is in effect on such day
as prescribed by the Board of Governors of the Federal Reserve System (or
any successor) for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve requirements) with
respect to eurocurrency funding (currently referred to as "Eurocurrency
liabilities") of a member bank in such System. The LIBOR Rate shall be
adjusted automatically as of the effective date of each change in the LIBOR
Rate Reserve Percentage.
The Agent shall give prompt notice to the Borrowers and to the Banks of the
LIBOR Rate so determined or adjusted, which determination or adjustment, if
made in good faith, shall be conclusive absent manifest error.
The Borrowers may elect the LIBOR Rate Option in connection with Revolving
Credit Loans (excluding Swingline Loans), the Term Loan and Standby
Facility Loans. The Borrowers have previously elected the LIBOR Rate
Option in connection with the Term Loan for successive Funding Periods
through the Term Loan Maturity Date. With respect to each Set of Loans, if
the Borrowers fail to request the LIBOR Rate Option, such principal amount
shall be deemed to earn interest at the Prime Rate Option.
(iii) Fed Funds Rate Option. A rate for each day equal to the Fed
Funds Rate for such day plus the Applicable Margin. "Fed Funds Rate" for
any day is the rate per annum (rounded upward to the nearest 1/100 of 1%)
determined by the Agent (which determination shall be conclusive) to be the
rate per annum announced by the Federal Reserve Bank of New York (or any
successor) on such day as being the weighted average of the rates on
overnight Federal funds transactions arranged by Federal funds brokers on
the previous trading day, as computed and announced by such Federal Reserve
Bank (or any successor) in substantially the same manner as such Federal
Reserve Bank computes and announces the weighted average it refers to as
the "Federal Funds Effective Rate" as of the date of this Agreement;
provided, that if such Federal Reserve Bank (or its successor) does not
announce such rate on any day, the "Federal Funds Effective Rate" for such
day shall be the Federal Funds Effective Rate for the last day on which
such rate was announced.
"Applicable Margin" for any day shall mean, for each Set of Loans bearing
interest at each Interest Rate Option set forth below, the applicable percentage
set forth below opposite the Funded Indebtedness to EBITDA ratio in effect for
such day. The Applicable Margin shall be in effect on the fifth day following
the date on which the Agent shall have received from the Borrowers a quarterly
certificate in accordance with Section 6.01(d) hereof, duly completed and signed
on behalf of the Borrowers, accompanied by the Borrowers' financial statements
for the quarter most recently ended (or, if such most recently ended quarter is
the last of a fiscal year, for the fiscal year then ended), setting forth the
calculation of the Funded Indebtedness to EBITDA Ratio as of the last day of
such quarter and shall remain in effect until the earlier of (i) the fourth day
following the date on which the Borrowers' next annual or quarterly certificate
is delivered, or (ii) the last day of the calendar month in which the Borrowers'
next annual or quarterly certificate is required to be delivered under Section
6.01(d) hereof. If the Borrowers fail to deliver the foregoing certificate or
financial statements in a timely manner as required by Section 6.01(d), the
highest Applicable Margin shall be in effect so long as such failure continues.
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<PAGE>
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Applicable Margin
- ---------------------------------------------------------------------------------------------------------------------------
Funded Revolving Credit, Revolving Standby Standby Swingline Term Loan
Indebtedness Swingline Loan, Credit and Facility Term Facility Term Loan LIBOR
to EBITDA and Standby Standby Loan Loan Fed Funds Rate
Ratio Facility Loan Facility Loan Prime Rate LIBOR Rate Rate Option
Prime Rate Option LIBOR Rate Option Option Option
Option
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Less than 1.00 (0.50%) 0.75% (0.50%) 0.90% 1.15% 1.15%
- ---------------------------------------------------------------------------------------------------------------------------
Greater than (0.50%) 0.90% (0.50%) 1.05% 1.30% 1.15%
or equal to
1.00 and
less than
1.50
- ---------------------------------------------------------------------------------------------------------------------------
Greater than (0.25%) 1.05% (0.25%) 1.20% 1.45% 1.15%
or equal to
1.50 and
less than
2.00
- ---------------------------------------------------------------------------------------------------------------------------
Greater than (0.25%) 1.20% (0.25%) 1.35% 1.60% 1.15%
or equal to
2.00 and
less than
2.50
- ---------------------------------------------------------------------------------------------------------------------------
Greater than 0 1.35% 0 1.50% 1.75% 1.15%
or equal to
2.50 and
less than
3.00
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(b) Funding Periods. At any time that the Borrowers shall select the
LIBOR Rate Option to apply to any Subset of Loans, the Borrowers shall specify
one or more periods (the "Funding Periods") during which each such Option shall
apply, such periods being either one, two, three, four or six months with
respect to Revolving Credit Loans and Standby Facility Loans and one, two or
three months with respect to the Term Loan (a "LIBOR Rate Funding Period"),
provided, that:
(i) Each LIBOR Rate Funding Period shall begin on a London Business
Day, and the duration of each LIBOR Rate Funding Period shall be determined
in accordance with the definition of the term "month" herein; and
(ii) The Borrowers may not select a Funding Period that would end
after the Revolving Credit Expiration Date, the Term Loan Maturity Date or
a Standby Loan Maturity Date.
(c) Transactional Amounts. Every selection of, conversion from,
conversion to or renewal of an interest rate Option and every payment or
prepayment of any Loans shall be in a principal
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<PAGE>
amount such that after giving effect thereto the aggregate principal amount of
the Prime Rate Portion of the Revolving Credit Loans (including Swingline
Loans), the Term Loan and the Standby Facility Loans, respectively, or the Fed
Funds Rate Portion of the Swingline Loans, or the aggregate principal amount of
each Funding Segment of the LIBOR Rate Portion of the Revolving Credit Loans,
the Term Loan and the Standby Facility Loans, respectively, as the case may be,
shall be as set forth below:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------
Portion or Funding Segment Allowable Principal Amounts
- ------------------------------------------------------------------------------------------------------
<S> <C>
Prime Rate Portion Any;
- ------------------------------------------------------------------------------------------------------
Fed Funds Rate Portion (Swingline Loans only) Any; and
- ------------------------------------------------------------------------------------------------------
Each Funding Segment of a LIBOR Rate Portion $500,000 or $1,000,000.
- ------------------------------------------------------------------------------------------------------
</TABLE>
(d) Maximum Funding Segments. With respect to the LIBOR Rate Portion
of the Revolving Credit Loans, the Term Loan and the Standby Facility Loans,
respectively, as the case may be, the maximum number of Funding Segments
outstanding at any one time shall be not greater than that set forth below:
<TABLE>
<CAPTION>
Type of Loan Maximum Funding Segments
- ------------------------------------------------------------------------------------------------------
<S> <C>
Revolving Credit Loans Four (4) at $500,000 and eight (8) at
$1,000,000, or a combination thereof, but in
no event shall the maximum number exceed
eight (8)
- ------------------------------------------------------------------------------------------------------
Term Loan One (the entire outstanding principal
balance)
- ------------------------------------------------------------------------------------------------------
Standby Facility Loans Four (4) at $500,000 and eight (8) at
$1,000,000, or a combination thereof, but in
no event shall the maximum number exceed
eight (8)
- ------------------------------------------------------------------------------------------------------
</TABLE>
(e) Interest After Maturity. After the principal amount of any
Subset of the Prime Rate Portion shall have become due (by acceleration or
otherwise), such Subset shall bear interest for each day until paid (before and
after judgment) at a rate per annum (based on a year of 365 or 366 days, as the
case may be) which shall be two percent (2.0%) above the Prime Rate, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Prime Rate. After the principal amount of
any Subset of the LIBOR Rate Portion shall have become due (by acceleration or
otherwise), such Subset shall bear interest for each day until paid (before and
after judgment) at a rate per annum two percent (2.0%) above the rate otherwise
applicable to such Subset until the end of the applicable then current Funding
Period and thereafter at a per annum rate two percent (2.0%) above the Prime
Rate Option. After the principal amount of any Swingline Loan accruing interest
at the Fed Funds Rate shall have become due (by acceleration or otherwise), such
Loan shall bear interest for each day until paid (before and after judgment) at
a rate per annum two percent (2.0%) above the Prime Rate.
-23-
<PAGE>
Letter of Credit Unreimbursed Draws shall bear interest for each day until paid
(before and after judgment) at a rate per annum two percent (2.0%) above the
Prime Rate.
(f) LIBOR Rate or Fed Funds Rate Unascertainable; Impracticability. If
(i) on any date on which a LIBOR Rate or Fed Funds Rate would otherwise
be set the Agent (in the case of (A) or (B) below) or any Bank (in the case
of (C) below) shall have in good faith determined (which determination
shall be conclusive) that:
(A) adequate and reasonable means do not exist for ascertaining
such LIBOR Rate or Fed Funds Rate, as the case may be, or
(B) a contingency has occurred which materially and adversely
affects the London interbank market, or
(C) the effective cost to such Bank of funding a proposed
Funding Segment of any LIBOR Rate Portion from a Corresponding Source
of Funds shall exceed the LIBOR Rate applicable to such Funding
Segment, or
(ii) at any time any Bank shall have determined in good faith (which
determination shall be conclusive) that the making, maintenance or funding
of any Subset of the LIBOR Rate Portion or any Fed Funds Rate Loan has been
made impracticable or unlawful by compliance by such Bank or a Notional
LIBOR Rate Funding Office, as the case may be, in good faith with any Law
or guideline or interpretation or administration thereof by any Official
Body charged with the interpretation or administration thereof or with any
request or directive of any such Official Body (whether or not having the
force of law);
then, and in any such event, the Agent or such Bank, as the case may be (the
"Affected Party"), may notify the Borrowers of such determination (and any Bank
giving such notice shall notify the Agent). Upon such date as shall be
specified in any such notice (which shall not be earlier than the date such
notice is given) the obligation of the Affected Party to allow the Borrowers to
select the LIBOR Rate Option or Fed Funds Rate Option shall be suspended until
such Affected Party later shall have notified the Borrowers (and any Bank giving
such notice shall notify the Agent) of its determination in good faith (which
determination shall be conclusive) that the circumstances giving rise to such
previous determination no longer exist. If an Affected Party shall notify the
Borrowers of a determination under subsection (ii) of this Section 2.05(f), the
Borrowers shall, as to the Affected Party's part of the LIBOR Rate Portion or
Fed Funds Rate Loan, on the date specified in such notice, either prepay such
part in accordance with Section 2.06 or convert the Affected Party's part of the
LIBOR Rate Portion or Fed Funds Rate Loan to the Prime Rate Option.
If at the time the Agent or a Bank makes a determination under
subsection (i) or (ii) of this Section 2.05(f), the Borrowers previously have
notified the Agent that they wish to select the LIBOR Rate Option or the Fed
Funds Rate Option but such Option has not yet gone into effect, such
notification shall be deemed to provide for selection of the Prime Rate Option
instead of the LIBOR Rate Option or the Fed Funds Rate Option, as the case may
be, with respect to the Loans of any Affected Party.
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<PAGE>
2.06. Payments and Prepayments.
(a) Subject to the provisions of Section 2.10(b) hereof, the
Borrowers shall have the right at their option at any time or from time to time
to prepay the Loans in whole or part without premium or penalty:
(i) at any time with respect to any Subset of the Prime Rate
Portion or the Fed Funds Rate Portion,
(ii) at the expiration of any Funding Period with respect to
prepayment of the LIBOR Rate Portion, as the case may be, with respect
to any part of the Funding Segment corresponding to such expiring
Funding Period, or
(iii) on the date specified in a notice by the Bank pursuant to
Section 2.05(f) with respect to any Subset of the LIBOR Rate Portion.
(b) Whenever the Borrowers desire to prepay any part of any Loan,
they shall provide Standard Notice to the Agent (in the form attached hereto as
Exhibit F) setting forth the following information:
(i) The date, which shall be a Business Day, on which the
proposed prepayment is to be made;
(ii) The principal amounts selected in accordance with Section
2.05(c) of the Prime Rate Portion or the Fed Funds Rate Portion and
each Subset of the LIBOR Rate Portion to which such payment is to
apply; and
(iii) The total principal amount of such prepayment, selected in
accordance with Section 2.05(c), which shall be the sum of the
principal amounts of the Portions to be prepaid.
Standard Notice having been so provided, on the date specified in such Standard
Notice the principal amounts of the Prime Rate Portion or the Fed Funds Rate
Portion and each Subset of the LIBOR Rate Portion specified in such notice shall
be due and payable.
2.07. Conversion or Renewal of Interest Rate Options; Prime Rate
Fallback; Term Loan Interest Rate Swap.
(a) Subject to the provisions of Section 2.10(b), if no Event of
Default or Potential Default shall have occurred and be continuing or shall
exist, the Borrowers may convert any Subset of the Loans from any interest rate
Option or options to one or more different interest rate Option or options and
may renew the LIBOR Rate Option if such Option is offered at such time as to any
Subset:
(i) at any time with respect to conversion from the Prime Rate
Option or the Fed Funds Rate Option,
(ii) at the expiration of any Funding Period with respect to
conversions from or renewals of the LIBOR Rate Option, as to the
Funding Segment corresponding to such expiring Funding Period, or
(iii) on the date specified in a notice by the Bank pursuant to
Section 2.05(f) with respect to conversions from the LIBOR Rate
Option.
-25-
<PAGE>
(b) Whenever the Borrowers desire to convert or renew any interest
rate Option or options the Borrowers shall provide to the Agent Standard Notice
(in the form attached hereto as Exhibit G) setting forth the following
information:
(i) The date, which shall be a Business Day, on which the
proposed conversion or renewal is to be made;
(ii) The interest rate Option or options selected in accordance
with Section 2.05(a) and the principal amounts selected in accordance
with Section 2.05(c) and (d) of the Prime Rate Portion or the Fed
Funds Rate Portion and each Funding Segment of the LIBOR Rate Portion,
as the case may be, to be converted to;
(iii) The Funding Period for each Funding Segment of each Subset
of Loans selected in accordance with Section 2.05(b); and
(iv) The principal amounts selected in accordance with Section
2.05(c) and (d) of the Prime Rate Portion or the Fed Funds Rate
Portion and each Funding Segment of the LIBOR Rate Portion, as the
case may be, to be converted from or renewed.
The Agent promptly shall give notice to each Bank of the information contained
in any notice received by it pursuant to this Section 2.07(b) and of the amount
of each part of each Bank's Portion converted from, converted to or renewed.
Standard Notice having been so provided, on the date specified in such Standard
Notice interest shall be calculated upon the principal amount of the Portions as
so converted or renewed.
(c) After expiration of any Funding Period, the principal amount of
any Set of Loans corresponding to such Funding Period which has not been
converted or renewed in accordance with Section 2.07(a) and (b) shall earn
interest automatically at the Prime Rate Option from the date of expiration of
such Funding Period until paid in full, unless and until the Borrowers request
and the Agent approves a conversion to the LIBOR Rate Option, in accordance
herewith. After expiration of any Funding Period, if the Term Loan has not been
converted or renewed in accordance with this Section 2.07(a) and (b), the
outstanding principal amount of the Term Loan shall earn interest automatically
at LIBOR Rate Option for a one month Funding Period from the date of expiration
of the prior Funding Period until paid in full, unless and until the expiration
of the one month Funding Period when the Borrower may request (subject to the
approval of the Agent) conversion to a two or three month Funding Period.
(d) Notwithstanding Section 2.07(c), solely with respect to the Term
Loan, if the Borrowers elect to achieve an effective fixed rate pursuant to an
interest rate swap, upon the expiration of the applicable Funding Period, the
Term Loan shall accrue interest at a rate equal to the LIBOR Rate Option
applicable to the Term Loan for successive Funding Periods equal to one month,
such rate to remain in effect until the earlier of (i) the expiration of the
swap, or (ii) payment in full of all amounts due under the Term Loan.
2.08. Interest Payment Dates. Interest on the Prime Rate Portion of
each Loan or on Fed Funds Rate Portion of Swingline Loans shall be due and
payable on the last day of each month, commencing on the last day of the first
full calendar month following the Closing Date. Interest on the LIBOR Rate
Portion of each Loan shall be due and payable on the last day of the
corresponding LIBOR Rate Funding Period and, if such LIBOR Rate Funding Period
is longer than three months, also on the last day of the third month during such
LIBOR Rate Funding Period. After maturity of any Subset of Loans (by
acceleration or otherwise) interest on such Subset shall be due and payable on
demand.
2.09. Pro Rata Treatment and Payments. Each borrowing from the Banks
and each payment or prepayment to the Banks hereunder (except as specifically
provided in Sections 2.02(d)(i),
-26-
<PAGE>
2.05(f) or 2.10) shall be made pro rata in accordance with each Bank's
Proportion and from and to each Bank on the same date. All payments and
prepayments to be made in respect of principal, interest, fees or other amounts
due from the Borrowers hereunder or under any Note shall be payable at 12:00
o'clock Noon, Philadelphia time, on the day when due without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and an action therefor shall immediately accrue. Such payments shall be made to
the Agent at its Office in Dollars in funds immediately available at such Office
without setoff, counterclaim or other deduction of any nature. To the extent
permitted by law, after there shall have become due (by acceleration or
otherwise) interest, fees or any other amounts due from the Borrowers hereunder
or under the Notes (excluding overdue principal, which shall bear interest as
described in Section 2.05(e), but including interest payable under this Section
2.09), such amounts shall bear interest for each day until paid (before and
after judgment), payable on demand, at a rate per annum (based on a year of 365
or 366 days, as the case may be) 2% above the then current Prime Rate, such
interest rate to change automatically from time to time effective as of the
effective date of each change in the Prime Rate.
2.10. Additional Compensation in Certain Circumstances.
(a) Increased Costs or Reduced Return Resulting From Taxes, Reserves,
Capital Adequacy Requirements, Expenses, Etc. If any Law or guideline or
interpretation or application thereof by any Official Body charged with the
interpretation or administration thereof or compliance with any request or
directive of any Official Body (whether or not having the force of law) now
existing or hereafter adopted:
(i) subjects any Bank or any Notional LIBOR Rate Funding Office to
any tax or changes the basis of taxation with respect to this Agreement,
the Notes, the Loans or payments by the Borrowers of principal, interest,
fees or other amounts due from the Borrowers hereunder or under the Notes
(except for taxes on the overall net income of such Bank or such Notional
LIBOR Rate Funding Office imposed by the jurisdiction in which the Bank's
principal office or Notional LIBOR Rate Funding Office is located),
(ii) imposes, modifies or deems applicable any reserve, special
deposit or similar requirement against credits (funded or contingent) of,
deposits with or for the account of, or other acquisition of funds by, such
Bank or any Notional LIBOR Rate Funding Office (other than requirements
expressly included herein in the determination of the LIBOR Rate
hereunder),
(iii) imposes, modifies or deems applicable any capital adequacy or
similar requirement (A) against assets (funded or contingent) of, or
credits or commitments to extend credit extended by, any Bank or any
Notional LIBOR Rate Funding Office, or (B) otherwise applicable to the
obligations of any Bank or any Notional LIBOR Rate Funding Office under
this Agreement, or
(iv) imposes upon any Bank or any Notional LIBOR Rate Funding Office
any other condition or expense with respect to this Agreement, the Notes or
its making, maintenance or funding of any part of the Loans or any security
therefor,
and the result of any of the foregoing is to increase the cost to, reduce the
income receivable by, or impose any expense (including loss of margin) upon any
Bank or any Notional LIBOR Rate Funding Office with respect to this Agreement,
the Notes or the making, maintenance or funding of any part of any Loan (or, in
the case of any capital adequacy or similar requirement, to have the effect of
reducing the rate of return on such Bank's capital, taking into consideration
such Bank's policies with respect to capital adequacy) by an amount which such
Bank deems to be material (such Bank being deemed for this purpose to have made,
maintained or funded each Funding Segment of each LIBOR Rate Portion from a
Corresponding Source of Funds), such Bank shall from time to time notify the
Borrowers of the amount determined in good faith (using any averaging and
attribution methods) by such Bank (which determination shall be conclusive) to
be necessary to compensate such Bank or such Notional LIBOR
-27-
<PAGE>
Rate Funding office for such increase, reduction or imposition. Such amount
shall be due and payable by the Borrowers to such Bank three (3) Business Days
after such notice is given by such Bank to the Borrowers.
(b) Indemnity. In addition to the compensation required by
subsection (a) of this Section 2.10, the Borrowers shall indemnify each Bank
against any loss or expense (including loss of margin) which such Bank has
sustained or incurred as a consequence of any:
(i) payment, prepayment or conversion of any part of any Funding
Segment of the LIBOR Rate Portion on a day other than the last day of the
corresponding Funding Period (whether or not such payment, prepayment or
conversion is mandatory or automatic and whether or not such payment or
prepayment is then due),
(ii) attempt by the Borrowers to revoke (expressly, by later
inconsistent notices or otherwise) in whole or part any notice stated
herein to be irrevocable (the Banks having in their sole discretion the
options (A) to give effect to such attempted revocation and obtain
indemnity under this Section 2.10(b) or (B) to treat such attempted
revocation as having no force or effect, as if never made), or
(iii) default by the Borrowers in the performance or observance of
any covenant or condition contained in this Agreement, the Notes or the
Loan Documents, including, without limitation, any failure of the Borrowers
to pay when due (by acceleration or otherwise) any principal, interest, fee
or any other amount due hereunder or under any Note or the Loan Documents.
If any Bank sustains or incurs any such loss or expense it shall from time to
time notify the Borrowers of the amount determined in good faith by such Bank
(which determination shall be conclusive) to be necessary to indemnify such Bank
for such loss or expense (each Bank being deemed for this purpose to have made,
maintained or funded each Funding Segment of the LIBOR Rate Portion from a
Corresponding Source of Funds). Such amount shall be due and payable by the
Borrowers to such Bank three (3) Business Days after such notice is given.
2.11. Funding by Branch, Subsidiary or Affiliate.
(a) Notional Funding. Each Bank shall have the right from time to
time, prospectively or retrospectively, without notice to the Borrowers, to deem
any branch, subsidiary or affiliate of such Bank to have made, maintained or
funded any LIBOR Rate Portion at any time, provided, however, that such Bank
shall not have such right if such transfer would cause an event or condition
described in Section 2.05(f)(ii) or increase the compensation payable by the
Borrowers pursuant to Section 2.10(a). Any branch, subsidiary or affiliate so
deemed shall be known as a "Notional LIBOR Rate Funding Office." Such Bank
shall deem any part of the LIBOR Rate Portion of its Loans or the funding
therefor to have been transferred to a different Notional LIBOR Rate Funding
Office if such transfer would avoid or cure an event or condition described in
Section 2.05(f)(ii) or would lessen compensation payable by the Borrowers under
Section 2.10(a), and if such Bank determines in its sole discretion that such
transfer would be practicable and would not have a material adverse effect on
such part of its Loans, such Bank or any Notional LIBOR Rate Funding Office (it
being assumed for purposes of such determination that each part of the LIBOR
Rate Portion is actually made or maintained by or funded through the
corresponding Notional LIBOR Rate Funding Office). Notional LIBOR Rate Funding
Offices may be selected by such Bank without regard to such Bank's actual
methods of making, maintaining or funding its Loans or any sources of funding
actually used by or available to such Bank.
(b) Actual Funding. Each Bank shall have the right from time to time
to make or maintain any part of any LIBOR Rate Portion by arranging for a
branch, subsidiary or affiliate of such Bank to make or maintain such part of
the LIBOR Rate Portion of such Loans, provided, however, that
-28-
<PAGE>
such Bank shall not have such right if such transfer would cause an event or
condition described in Section 2.05(f)(ii) or increase the compensation payable
by the Borrowers pursuant to Section 2.10(a). Such Bank shall have the right to
(i) hold any applicable Note payable to its order for the benefit and account of
such branch, subsidiary or affiliate or (ii) request the Borrowers to issue one
or more promissory notes in the principal amount of such part of the LIBOR Rate
Portion, in substantially the form attached hereto as Exhibit A, with the blanks
appropriately filled payable to such branch, subsidiary or affiliate and with
appropriate changes reflecting that the holder thereof is not obligated to make
any additional Loans. The Borrowers agree to comply promptly with any request
under subsection (ii) of this Section 2.11(b). If any Bank causes a branch,
subsidiary or affiliate to make or maintain any part of any Loan hereunder, all
terms and conditions of this Agreement shall, except where the context clearly
requires otherwise, be applicable to such Loans and to any note payable to the
order of such branch, subsidiary or affiliate to the same extent as if such part
of such LIBOR Rate Portion were made or maintained and such note were a
Revolving Credit Note payable to such Bank's order.
2.12. Agent's Fee. On the Closing Date and each year thereafter, the
Borrowers shall pay to the Agent for the sole account of the Agent a fee in an
amount equal to $3,500.00 per Bank (including the Agent in its capacity as a
Bank).
2.13. Payments Under Loan Documents. Subject to amounts owing
pursuant to Section 2.10, any amount received by the Agent or any Bank under any
of the Loan Documents which, shall be applied:
(a) first, to payment of all fees and expenses due to the Agent
hereunder or under the Loan Documents;
(b) second, to payment in full of all fees and expenses due to the
Banks hereunder or under the Loan Documents;
(c) third, to payment in full of interest on outstanding Loans and
Letter of Credit Reimbursement Obligations commencing with the interest
accruing at the lowest rate;
(d) fourth, to payment in full of principal of all outstanding Loans
and to make deposits to the Letter of Credit Collateral Account commencing
with the principal earning interest at the lowest rate;
(e) fifth, to payment in full of any and all other amounts due
hereunder or under the Notes or the Loan Documents in respect of the Loans,
the Letter of Credit Reimbursement Obligations or the Commitments or
otherwise; and
(f) sixth, to the Borrowers or their order or as otherwise required
by law.
Article III
The Letters of Credit
3.01. Letter of Credit Subfacility.
(a) General. Subject to the terms and conditions of this Agreement,
and relying upon the representations and warranties herein set forth and upon
the agreements of the Banks set forth in Sections 3.03, 3.04 and 3.08(c), the
Issuing Bank agrees (such agreement being herein called the "Letter of Credit
Commitment") to issue for the account of the Borrowers letters of credit (each,
as amended, modified or supplemented from time to time, a "Letter of Credit") at
any time or from time to time on or after the date hereof. The Borrowers shall
not request any Letter of Credit to be issued except within the following
limitations: (i) no Letter of Credit shall be issued later than ninety (90) days
before the
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Revolving Credit Expiration Date, (ii) no Letter of Credit shall be issued if
the Agent shall have received the notice from the Required Banks referred to in
Section 3.02(c)(iii), (iii) at the time any Letter of Credit is issued (and
after giving effect to issuance of the requested Letter of Credit), the
aggregate Revolving Credit Exposures of the Banks shall not exceed the sum of
the Revolving Credit Committed Amounts of the Banks at such time, and (iv) on
the date of issuance of any Letter of Credit (and after giving effect to such
issuance) the aggregate Letter of Credit Exposure shall not exceed the Letter of
Credit Limit.
(b) Terms of Letters of Credit. The Issuing Bank has previously
issued the Workers' Compensation Letter of Credit. As of the Closing Date, the
Workers' Compensation Letter of Credit shall be deemed to be a Letter of Credit
issued pursuant to the terms of this Article III for all purposes including
calculation of the Letter of Credit Limit. The Borrowers shall not request any
additional Letter of Credit to be issued except within the following
limitations: each Letter of Credit (i) shall have an expiration date no later
than the earlier of twelve (12) months after the date of issuance thereof, or
ten (10) days before the Revolving Credit Expiration Date, (ii) shall be
denominated in Dollars, and (iii) shall be payable only against sight drafts
(and not time drafts).
(c) Purposes of Letters of Credit. Each Letter of Credit shall be
satisfactory in form and substance to the Issuing Bank. Each Letter of Credit
shall be a trade or standby letter of credit used to support trade or financial
obligations of the Borrowers. The provisions of this Section 3.01(c) represent
only an obligation of the Borrowers to the Issuing Bank and the Banks; the
Issuing Bank shall not have any obligation to the Banks to ascertain the purpose
of any Letter of Credit, and the rights and obligations of the Banks and the
Issuing Bank among themselves shall not be impaired or affected by a breach of
this Section 3.01(c).
(d) Letter of Credit Fee. On the date of issuance (and annually
thereafter), the Borrowers shall pay to the Agent for the account of each Bank a
fee (the "Letter of Credit Fee") for each Letter of Credit equal to (i) the face
amount of each issued and outstanding Letter of Credit times (ii) 0.75%.
(e) Administration Fees. The Borrowers shall pay to the Agent, for
the sole account of the Issuing Bank, such other administration, maintenance,
amendment, drawing and negotiation fees as may be customarily charged by the
Issuing Bank from time to time in connection with letters of credit.
3.02 Procedure for Issuance and Amendment of Letters of Credit.
(a) Request for Issuance. The Borrowers may from time to time
request, upon at least three (3) Business Days' notice, the Issuing Bank to
issue a Letter of Credit by (i) delivering to the Issuing Bank and the Agent a
written request to such effect, specifying the date on which such Letter of
Credit is to be issued, the expiration date thereof, and the stated amount
thereof, and (ii) delivering to the Issuing Bank an application, in such form as
the Issuing Bank may from time to time require (each, a "Letter of Credit
Application"), completed to the satisfaction of the Issuing Bank, together with
such other certificates, documents and other items as such Issuing Bank may
request. If the Issuing Bank desires to issue such Letter of Credit, the
Issuing Bank shall promptly notify the Agent (by telephone or otherwise), and
furnish the Agent with the proposed form of Letter of Credit to be issued. The
Agent shall determine, as of the close of business on the day before such
proposed issuance, whether such proposed Letter of Credit complies with the
limitations set forth in Sections 3.01(a) and 3.01(b). Unless such limitations
are not satisfied, or unless the Required Banks have given notice to the Agent
to cease issuing Letters of Credit pursuant to Section 3.02(c)(iii), the Agent
shall notify the relevant Issuing Bank (in writing or by telephone promptly
confirmed in writing) that such Issuing Bank is authorized to issue such Letter
of Credit. If the Issuing Bank issues a Letter of Credit, it shall deliver the
original of such Letter of Credit to the beneficiary thereof or as the Borrowers
shall otherwise direct, and shall promptly notify the Agent thereof, and if the
Agent so requests shall furnish a copy thereof to the Agent.
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(b) Extension or Increase. The Borrowers may from time to time
request an Issuing Bank to extend the expiration date of an outstanding Letter
of Credit issued by such Issuing Bank or to increase the Letter of Credit
Undrawn Availability of such Letter of Credit. Such extension or increase shall
for all purposes hereunder (including Sections 3.01, 3.02(a) and 5.02) be
treated as though the Borrowers had requested issuance of a replacement Letter
of Credit; provided, that the Issuing Bank may, if it elects, issue an amendment
to the Letter of Credit providing for such an extension or increase in lieu of
issuing a new Letter of Credit in substitution therefor.
(c) Limitations on Issuance, Extension and Amendment.
(i) As between the Borrowers, on the one hand, and the Agent and the
Banks, on the other hand, the issuance or extension of any Letter of Credit
(including any deemed issuance arising from increase or extension of a Letter of
Credit as provided in Section 3.02(b)) is subject to the applicable conditions
precedent set forth or referred to in this Article III and Articles V and VIII.
In addition, the Issuing Bank shall be justified and fully protected in
declining to issue or extend any Letter of Credit (including any deemed
issuance) if the Issuing Bank has not received authorization to do so from the
Agent as provided in Section 3.02(a).
(ii) As between the Issuing Bank, on the one hand, and the Agent and
the Banks, on the other hand, the Issuing Bank shall be justified and fully
protected in issuing any Letter of Credit (including any deemed issuance arising
from increase or extension of a Letter of Credit as provided in Section 3.02(b))
after receiving authorization from the Agent as provided in Section 3.02(a),
notwithstanding any subsequent notices to the Issuing Bank, any knowledge of an
Event of Default or Potential Default, any knowledge of failure of any
applicable condition set forth or referred to in this Article III or Articles V
or VIII to be satisfied, any other knowledge of the Issuing Bank, or any other
event, condition or circumstance whatever.
(iii) As between the Agent and the Banks, the Agent shall not
authorize issuance of any Letter of Credit pursuant to Section 3.02(a)
(including any deemed issuance arising from increase or extension of a Letter of
Credit as provided in Section 3.02(b)) if the Agent shall have received, at
least two (2) Business Days before authorizing such issuance, from the Required
Banks an unrevoked written notice that any applicable condition set forth or
referred to in this Article or Article V or VIII will not be satisfied and
expressly requesting that the Agent direct the Issuing Banks to cease to issue
Letters of Credit. Unless the Agent has received such notice or has determined
that the applicable limitations set forth in Sections 3.01(a) and 3.01(b) are
not satisfied, the Agent shall be justified and fully protected, as against the
Banks, in authorizing the Issuing Bank to issue such Letter of Credit,
notwithstanding any subsequent notices to the Agent, any knowledge of an Event
of Default or Potential Default, any knowledge of failure of any applicable
condition set forth or referred to in this Article III or Article V or VIII to
be satisfied, any other knowledge of the Agent, or any other event, condition or
circumstance whatever.
(d) Amendments. The Borrowers may from time to time, upon at least
three Business Days' notice, request the Issuing Bank to amend, modify or
supplement Letters of Credit. At the request of the Borrowers, and subject to
satisfaction of such conditions as the Issuing Bank may require, the Issuing
Bank may amend, modify or supplement Letters of Credit, or waive compliance with
any condition of issuance or payment, without the consent of, and without
liability to, the Agent or any Bank; provided, that any such amendment,
modification or supplement that extends the expiration date or increases the
Letter of Credit Undrawn Availability of an outstanding Letter of Credit shall
be subject to Section 3.02(b).
3.03 Letter of Credit Participating Interests.
(a) Generally. Concurrently with the issuance of each Letter of
Credit, the Issuing Bank automatically shall be deemed, irrevocably and
unconditionally, to have sold, assigned, transferred
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and conveyed to each other Bank, and each other Bank automatically shall be
deemed, irrevocably and unconditionally, severally to have purchased, acquired,
accepted and assumed from the Issuing Bank, without recourse to, or
representation or warranty by, the Issuing Bank, an undivided interest, in a
proportion equal to such Bank's Letter of Credit Proportion, in all of the
Issuing Bank's rights and obligations in, to or under such Letter of Credit, the
Letter of Credit Application, the Letter of Credit Reimbursement Obligations,
and all collateral, guarantees and other rights from time to time directly or
indirectly securing the foregoing (such interest of each Bank being referred to
herein as a "Letter of Credit Participating Interest"). Amounts other than
Letter of Credit Reimbursement Obligations and Letter of Credit Fees payable
from time to time under or in connection with a Letter of Credit or a Letter of
Credit Application shall be for the sole account of the Issuing Bank. On the
date that any Purchasing Bank becomes a party to this Agreement in accordance
with Section 10.12, Letter of Credit Participating Interests in any outstanding
Letters of Credit held by the Bank from which such Purchasing Bank acquired its
interest hereunder shall be proportionately reallocated between such Purchasing
Bank and such transferor Bank (and, to the extent such transferor Bank is an
Issuing Bank, the Purchasing Bank shall be deemed to have acquired a Letter of
Credit Participating Interest from such transferor Bank to such extent).
(b) Obligations Absolute. Notwithstanding any other provision
hereof, each Bank hereby agrees that its obligation to participate in each
Letter of Credit issued in accordance herewith, and its obligation to make the
payments specified in Section 3.04 and 3.08(c), are each absolute, irrevocable
and unconditional and shall not be affected by any event, condition or
circumstance whatever. The failure of any Bank to make any such payment shall
not relieve any other Bank of its funding obligation hereunder on the date due,
but no Bank shall be responsible for the failure of any other Bank to meet its
funding obligations hereunder.
3.04 Letter of Credit Drawings and Reimbursements.
(a) Borrowers' Reimbursement Obligation. The Borrowers hereby agree
to reimburse the Issuing Bank, by making payment to the Agent for the account of
the Issuing Bank in accordance with Section 2.09, on the date and in the amount
of each payment made by the Issuing Bank under any Letter of Credit, upon notice
(which may be by telephone) by the Issuing Bank to the Borrowers of such
payment, without further notice, protest or demand, all of which are hereby
waived, and an action therefor shall thereupon immediately accrue. To the
extent such payment is not timely made, the Borrowers hereby agree to pay to the
Agent, for the account of the Issuing Bank, on demand, interest on any Letter of
Credit Unreimbursed Draws for each day from and including the date of such
payment by the Issuing Bank until reimbursed in full (before and after
judgment), in accordance with Section 2.05(e), at the rate per annum set forth
therein. Unless the Borrowers notify the Agent that the Borrowers intend to
make immediate payment to the Agent, for the account of the Issuing Bank, in
accordance with the preceding sentence, a notice of drawing by a beneficiary
under a Letter of Credit shall be deemed to be a notice by the Borrowers for
Revolving Credit Loans under the Prime Rate Option in an aggregate amount equal
to the amount of such drawing.
(b) Payment by Banks on Account of Unreimbursed Draws. If an Issuing
Bank makes a payment under any Letter of Credit and is not reimbursed in full
therefor on such payment date in accordance with Section 3.04(a), such Issuing
Bank will promptly notify the Agent thereof (which notice may be by telephone),
and the Agent shall forthwith notify each Bank (which notice may be by telephone
promptly confirmed in writing) thereof. If the Agent's notice to the Banks is
given by 11:00 a.m., no later than the Agent's close of business on such date
the notice is given, each Bank will pay to the Agent, for the account of the
Issuing Bank, in immediately available funds, an amount equal to such Bank's
Letter of Credit Proportion of the unreimbursed portion of such payment by such
Issuing Bank. If the Agent's notice to the Banks is given after 11:00 a.m.,
then such payments by the Banks shall be made before the close of business on
the next Business Day. If and to the extent that any Bank fails to make such
payment to the Agent for the account of such Issuing Bank on such date, such
Bank shall pay such amount on demand, together with interest, for such Issuing
Bank's own account, for each day from and
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including the date of such Issuing Bank's payment to and including the date of
payment to the Issuing Bank (before and after judgment) at the following rates
per annum: (i) for each day from and including the date of such payment by the
Issuing Bank to and including the second Business Day thereafter, at the Federal
Funds Effective Rate for such day, and (ii) for each day thereafter, at the rate
applicable to Letter of Credit Unreimbursed Draws under Section 3.04(a) for such
day.
(c) Distributions to the Banks. If, at any time, after an Issuing
Bank has made a Letter of Credit Unreimbursed Draw and has received from any
Bank such Bank's share of such Letter of Credit Unreimbursed Draw, such Issuing
Bank receives any payment or makes any application of funds on account of the
Letter of Credit Reimbursement Obligation arising from such Letter of Credit
Unreimbursed Draw, such Issuing Bank will pay to the Agent, for the account of
such Bank, such Bank's Letter of Credit Proportion of such payment or
application.
(d) Rescission. If any amount received by an Issuing Bank on account
of any Letter of Credit Reimbursement Obligation shall be avoided, rescinded or
otherwise returned or paid over by such Issuing Bank for any reason at any time,
whether before or after the termination of this Agreement (or such Issuing Bank
believes in good faith that such avoidance, rescission, return or payment is
required, whether or not such matter has been adjudicated), each such Bank will,
promptly upon notice from the Agent or such Issuing Bank, pay over to the Agent
for the account of such Issuing Bank its Letter of Credit Proportion of such
amount, together with its Letter of Credit Proportion of any interest or
penalties payable with respect thereto.
(e) Equalization. If any Bank receives any payment or makes any
application on account of its Letter of Credit Participating Interest, such Bank
shall forthwith pay over to the relevant Issuing Bank, in Dollars and in like
kind of funds received or applied by it the amount in excess of such Bank's
ratable share of the amount so received or applied.
3.05 Obligations Absolute. The payment obligations of the Borrowers
under Section 3.04(a) shall be unconditional and irrevocable and shall be paid
strictly in accordance with the terms of this Agreement under all circumstances,
including, without limitation, the following circumstances:
(a) any lack of validity or enforceability of this Agreement, any
Letter of Credit, any other Loan Documents or any documents, instruments or
agreements evidencing or otherwise relating to any obligation of the
Borrowers secured or supported by any Letter of Credit;
(b) the existence of any claim, set-off, defense or other right which
the Borrowers or any other Person may have at any time against any
beneficiary or transferee of any Letter of Credit (or any Persons for whom
any such beneficiary or transferee may be acting), the relevant Issuing
Bank, any Bank, or any other Person, whether in connection with this
Agreement, the transactions contemplated hereby or any unrelated
transaction;
(c) any draft, certificate, statement or other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(d) payment by the Issuing Bank under any Letter of Credit against
presentation of a draft or certificate which does not comply with the terms
of such Letter of Credit, or payment by the Issuing Bank under the Letter
of Credit in any other circumstances in which conditions to payment are not
met, except any such payment resulting solely from the gross negligence or
willful misconduct of the Issuing Bank; or
(e) any other event, condition or circumstance whatever, whether or
not similar to any of the foregoing.
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The Borrowers bear the risk of, and neither the Issuing Bank, any of its
directors, officers, employees or agents, nor any Bank, shall be liable or
responsible for the use which may be made of any Letter of Credit, or acts or
omissions of the beneficiary or any transferee in connection therewith.
3.06 Further Assurances. The Borrowers hereby agree, from time to
time, to do and perform any and all acts and to execute any and all further
instruments reasonably requested by any Issuing Bank more fully to effect the
purposes of this Agreement and the issuance of the Letters of Credit hereunder.
The representations, warranties and covenants by the Borrowers under, and rights
and remedies of the Issuing Bank under, any Letter of Credit Application
relating to any Letter of Credit are in addition to, and not in limitation or
derogation of, representations, warranties and covenants by the Borrowers under,
and rights and remedies of the Issuing Bank and the Banks under, this Agreement,
the other Loan Documents, and applicable Law. In the event of any inconsistency
between the terms of this Agreement and any Letter of Credit Application, this
Agreement shall prevail. The terms of this Agreement shall be deemed to be
incorporated by reference into each such agreement or instrument (whether or not
such agreement or instrument so states).
3.07 Cash Collateral for Letters of Credit. To the extent that any
provision of this Agreement or any other Loan Document requires a payment,
prepayment or other application of funds to be made with respect to the
Revolving Credit Loans, such provision shall be applied as follows: after
payment in full of the outstanding Revolving Credit Loans (whether or not such
payment would require the Borrowers to pay any amount under Section 2.10(b)),
and the payment in full of all outstanding Letter of Credit Unreimbursed Draws,
then, to the extent of the excess, if any, of the aggregate Letter of Credit
Exposure at such time over the balance in any Letter of Credit Collateral
Account (as hereinafter defined), an amount equal to the remainder of the amount
so required to be paid by the Borrowers shall immediately be paid by the
Borrowers to the Agent for deposit in an account (the "Letter of Credit
Collateral Account") to be held as collateral for the Borrowers' Letter of
Credit Reimbursement Obligation. In addition, the Borrowers agree that, without
limitation of the foregoing or of any other provisions of this Agreement or Loan
Documents requiring collateral for the Letters of Credit or other Loans in whole
or in part, and without limitation of other rights and remedies under this
Agreement or the Loan Documents or at law or in equity, if the Revolving Credit
Loans become due and payable pursuant to Article VIII, the Borrowers shall
immediately pay to the Agent, for deposit in the Letter of Credit Collateral
Account, an amount equal to the excess, if any, of the aggregate Letter of
Credit Exposure at such time over the balance in the Letter of Credit Collateral
Account. The Agent shall release funds in the Letter of Credit Collateral
Account to the Issuing Bank for payment of Letter of Credit Reimbursement
Obligations constituting Letter of Credit Unreimbursed Draws, as and when the
same become due and payable if and to the extent the Borrowers fail to pay the
same.
3.08 Certain Provisions Relating to the Issuing Bank.
(a) General. The Issuing Bank shall have no duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents, and no implied duties or responsibilities on the part of
the Issuing Bank shall be read into this Agreement or any Loan Documents or
shall otherwise exist. The duties and responsibilities of the Issuing Bank to
the Agent or the other Banks under this Agreement and the other Loan Documents
shall be mechanical and administrative in nature, and the Issuing Bank shall
have no fiduciary relationship in respect of the Agent or any Bank or any other
Person. The Issuing Bank shall not be liable for any action taken or omitted to
be taken by it under or in connection with this Agreement or any other Loan
Document, unless caused by its own gross negligence or willful misconduct. The
Issuing Bank shall not be under any obligation to ascertain, inquire or give any
notice relating to (i) the performance or observance of any of the terms or
conditions of this Agreement or any other Loan Document on the part of the
Borrowers, (ii) the business, operations, condition (financial or other) or
prospects of the Borrowers or any other Person, or (iii) the existence of any
Event of Default or Potential Default. The Issuing Bank shall not be under any
obligation, either initially or on a continuing basis, to provide the Agent or
any Bank with any notices,
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reports or information of any nature, whether in its possession presently or
hereafter, except for such notices, reports and other information expressly
required by this Agreement to be so furnished.
(b) Administration. The Issuing Bank may rely upon any notice or
other communication of any nature (written or oral, including but not limited to
telephone conversations, whether or not such notice or other communication is
made in a manner permitted or required by this Agreement or any Loan Document)
purportedly made by or on behalf of the proper party or parties, and the Issuing
Bank shall not have any duty to verify the identity or authority of any Person
giving such notice or other communication. The Issuing Bank may consult with
legal counsel (including, without limitation, in-house counsel for the Issuing
Bank or in-house or other counsel for the Borrowers), independent public
accountants and any other experts selected by it from time to time, and the
Issuing Bank shall not be liable for any action taken or omitted to be taken in
good faith in accordance with the advice of such counsel, accountants or
experts. Whenever the Issuing Bank shall deem it necessary or desirable that a
matter be proved or established with respect to the Borrowers or the Agent or
any Bank, such matter may be established by a certificate of the Borrowers or
the Agent or such Bank, as the case may be, and such Issuing Bank may
conclusively rely upon such certificate.
(c) Indemnification of Issuing Bank by the Banks. Each Bank hereby
agrees to reimburse and indemnify the Issuing Bank and each of its respective
directors, officers, employees and agents (to the extent not reimbursed by the
Borrowers and without limitation of the obligations of the Borrowers to do so),
in accordance with its Letter of Credit Proportion, from and against any and all
amounts, losses, liabilities, claims, damages, expenses, obligations, penalties,
actions, judgments, suits, costs or disbursements of any kind or nature
(including, without limitation, the fees and disbursements of counsel (other
than in-house counsel) for the Issuing Bank or such other Person in connection
with any investigative, administrative or judicial proceeding commenced or
threatened, whether or not the Issuing Bank or such other Person shall be
designated a party thereto) that may at any time be imposed on, incurred by or
asserted against the Issuing Bank, in its capacity as such, or such other
Person, as a result of, or arising out of, or in any way related to or by reason
of, this Agreement, any other Loan Document, any transaction from time to time
contemplated hereby or thereby, or any transaction secured or financed in whole
or in part, directly or indirectly, with any Letter of Credit or the proceeds
thereof, provided, that no Bank shall be liable for any portion of such amounts,
losses, liabilities, claims, damages, expenses, obligations, penalties, actions,
judgments, suits, costs or disbursements resulting from the gross negligence or
willful misconduct of the Issuing Bank or such other Person.
Article IV
Representations And Warranties
The Borrowers hereby represent and warrant to each Bank as follows:
4.01. Organization and Qualification. Each Borrower and each
Subsidiary is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation. Each Borrower and
each Subsidiary is duly qualified to do business as a foreign corporation and is
in good standing in all jurisdictions in which the ownership of its properties
or the nature of its activities or both makes such qualification necessary,
except to the extent that failure to be so qualified would not reasonably be
expected to have a material adverse effect on the business, operations,
condition, financial or otherwise, or prospects of each Borrower and each
Subsidiary or on the ability of each Borrower and each Subsidiary to perform its
obligations under this Agreement, the Notes or the Loan Documents. Schedule
4.01 states as of the date hereof the jurisdiction of incorporation of each
Borrower and each Subsidiary and the jurisdictions in which each Borrower and
each Subsidiary is qualified to do business as a foreign corporation.
4.02. Authority and Authorization. Each Borrower and each Subsidiary
has corporate power and authority to execute and deliver this Agreement, the
Notes and the Loan Documents to which
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it is a party, to make the borrowings and incur the other obligations provided
for herein and to perform its obligations hereunder and under the Notes and the
Loan Documents, and all such action has been duly and validly authorized by all
necessary corporate proceedings on its part.
4.03. Execution and Binding Effect. This Agreement, the Notes and
the Loan Documents to which each Borrower and each Subsidiary is a party have
been duly and validly executed and delivered by each Borrower and each
Subsidiary and constitute legal, valid and binding obligations of each Borrower
and each Subsidiary enforceable in accordance with the terms hereof and thereof
except, in each case, as enforceability may be limited by bankruptcy, insolvency
or other similar laws of general application affecting the enforcement of
creditors' rights or by general principles of equity limiting the availability
of equitable remedies.
4.04. Authorizations and Filings. No authorization, consent,
approval, license, exemption or other action by, and no registration,
qualification, designation, declaration or filing with, any Official Body is or
will be necessary or advisable in connection with the execution and delivery of
this Agreement, the Notes or any Loan Document, consummation of the transactions
herein or therein contemplated, performance of or compliance with the terms and
conditions hereof or thereof or to ensure the legality, validity, enforceability
and admissibility in evidence hereof or thereof, except as set forth on Schedule
4.04. True, correct and complete copies of all instruments and documents
evidencing each authorization, consent, approval, license, exemption or other
action by, or registration, qualification, designation, declaration or filing
with, any Official Body, referred to on Schedule 4.04, together with true,
correct and complete copies of all applications therefor and exhibits thereto
have been delivered to the Agent, with a copy for each Bank. Each
authorization, consent, approval, license, exemption or other action by, or
registration, qualification, designation, declaration or filing with, any
Official Body, referred to on Schedule 4.04, has been duly obtained, has not
been modified or amended and is in full force and effect, and there is no
proceeding pending or, to the Borrowers' knowledge after due inquiry,
threatened, which seeks or may result in the reversal, rescission, termination,
modification of any thereof.
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4.05. Absence of Conflicts. Neither the execution and delivery of
this Agreement, the Notes or any Loan Document nor consummation of the
transactions herein or therein contemplated nor performance of or compliance
with the terms and conditions hereof or thereof by the Borrowers or their
Subsidiaries will:
(a) violate any Law;
(b) conflict with or result in a breach of or a default under (i) the
articles of incorporation or by-laws of the Borrowers or their Subsidiaries or
(ii) any agreement or instrument to which a Borrower or a Subsidiary is a party
or by which it or any of its properties (now owned or hereafter acquired) may be
subject or bound the consequences of which would reasonably be expected to be
material to the business, operations, condition, financial or otherwise, or
prospects of a Borrower or a Subsidiary or to the ability of a Borrower or a
Subsidiary to perform its obligations under this Agreement, the Notes or any
Loan Document; or
(c) result in the creation or imposition of any Lien upon any
property (now owned or hereafter acquired) of the Borrowers or their
Subsidiaries;
Schedule 4.05 sets forth each consent, waiver, amendment or agreement which has
been obtained by or on behalf of the Borrowers or their Subsidiaries in respect
of any matter which would, absent such consent, waiver, amendment or agreement,
be within the scope of the foregoing Subsection 4.05(b)(ii).
4.06. Financial Statements. The Borrowers have heretofore furnished
to the Banks balance sheets of the Borrowers and their Subsidiaries for each of
the fiscal years ended June 30, 1996, June 30, 1997 and June 30, 1998, and
related statements of income, retained earnings and cash flow, and has also
furnished to the Banks parallel interim financial statements or financial
statements for and as of the end of the first three fiscal quarters of the
fiscal years ending June 30, 1999. Such financial statements (including the
notes thereto) present fairly the financial condition of the Borrowers and their
Subsidiaries as of the end of such fiscal years and as of the end of such fiscal
quarters and the results of their operations for the fiscal years and fiscal
quarters then ended, all in conformity with GAAP, subject (in the case of the
interim financial statements) to year-end audit adjustments. To the Borrowers'
knowledge after due inquiry, except as disclosed in the financial statements
referred to in this Section 4.06 or as disclosed in Schedule 4.06, neither the
Borrowers nor their Subsidiaries have material contingent liabilities (including
liabilities for taxes), unusual forward or long-term commitments or unrealized
or anticipated material losses from unfavorable commitments.
4.07. No Event of Default; Compliance with Instruments. No event has
occurred and is continuing and no condition exists which constitutes an Event of
Default or Potential Default. Neither the Borrowers nor any Subsidiary is in
violation of any term of (i) any charter instrument or bylaw or (ii) agreement
or instrument to which it is a party or by which it or any of its properties
(now owned or hereafter acquired) may be subject or bound the consequences of
which would reasonably be expected to be material to the business, operations,
condition, financial or otherwise, or prospects of any Borrower or any of its
Subsidiaries or on the ability of any Borrower or any of its Subsidiaries to
perform its obligations under this Agreement, the Notes or any Loan Document.
4.08. Litigation. Except as set forth on Schedule 4.08, as of the
date hereof there is no pending or, to the Borrowers' knowledge after due
inquiry, threatened proceeding by or before any Official Body against or
affecting the Borrowers or any Subsidiary (including, without limitation, any
proceeding seeking to challenge, prevent or declare illegal any of the
transactions contemplated by this Agreement, the Notes or any Loan Document).
None of the matters set forth on Schedule 4.08, if adversely decided, would
reasonably be expected to have a material adverse effect on the business,
operations, condition, financial or otherwise, or prospects of the Borrowers or
any Subsidiary or on the
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ability of the Borrowers or any Subsidiary to perform their obligations under
the Agreement, the Notes or any Loan Document.
4.09. Subsidiaries. Schedule 4.09 states as of the date hereof the
authorized capitalization of each Subsidiary of the Borrowers, the number of
shares of each class of capital stock issued and outstanding of each such
Subsidiary, and the number and percentage of outstanding shares of each such
class of capital stock owned by the Borrowers and by each Subsidiary. The
outstanding shares of each Subsidiary of the Borrowers have been duly authorized
and validly issued and are fully paid and nonassessable. The Borrowers and each
Subsidiary of the Borrowers owns beneficially and of record and has good title
to all of the shares it is listed as owning in such Schedule 4.09, free and
clear of any Lien. There are no options, warrants, calls, subscriptions,
conversion rights, exchange rights, preemptive rights or other rights,
agreements or arrangements (contingent or otherwise) which may in any
circumstances now or hereafter obligate any Subsidiary to issue any shares of
its capital stock.
4.10. Pension-Related Matters. A copy of the most recent Annual
Report (5500 Series Form) including all attachments thereto as filed with the
Internal Revenue Service for each Plan has been made available to the Banks and
fairly presents the funding status of each Plan as of the date hereof. There
has been no deterioration in any Plan's funding status since the date of such
Annual Report. Schedule 4.10 sets forth as of the date hereof a list of all
Plans and Multiemployer Plans and all available information with respect to the
Borrowers' or any Controlled Group Member's direct, indirect or potential
withdrawal liability to any Multiemployer Plan. Except as set forth on Schedule
4.10, the Borrowers have no material liability (contingent or otherwise) for,
and none of the Borrowers' respective assets are encumbered in connection with,
(i) the minimum funding requirements under ERISA or the Code with respect to a
Plan (including, without limitation, joint and several liability with a
Controlled Group Member for the minimum funding requirement and the excise tax
for failure to meet such requirement, any lien for contributions with respect to
a Plan which are due and unpaid by any Borrower or a Controlled Group Member,
and any security posted by any Borrower to obtain a waiver of the minimum
funding requirement), (ii) any amendment to a Plan, (iii) any PBGC premiums with
respect to a Plan which are due and unpaid by any Borrower or a Controlled Group
Member, or (iv) the termination of a Plan or withdrawal by any Borrower or a
Controlled Group Member from any Multiemployer Plan. The PBGC premiums and
contributions required to meet the minimum funding requirements of ERISA and the
Code for all Plans have not exceeded $500,000 on an annual basis for any of the
past three fiscal years. The amount of unfunded benefit liabilities (as defined
in Section 4001(a)(18) of ERISA), as determined by the Plan's actuary, for any
Plan do not exceed $1,000,000 and for all Plans do not exceed $1,500,000 as of
the end of the most recent Plan year.
4.11. Title to Property. Schedule 4.11 sets forth a summary
description of all real property owned by or leased to a Borrower or any
Subsidiary. Each Borrower and Subsidiary has good and marketable title in fee
simple to all real property purported to be owned by it and good and marketable
title to all other property purported to be owned by it, including that
reflected in the most recent audited balance sheets referred to in Section 4.06
or submitted pursuant to Section 6.01(a) (except as sold or otherwise disposed
of in the ordinary course of business), subject only to Permitted Liens. Such
property as is material to the business, operations, condition, financial or
otherwise, or prospects of any Borrower or any of its Subsidiaries or to the
ability of any Borrower or any of its Subsidiaries to perform its obligations
under this Agreement, the Notes or any Loan Document is in good operating
condition and repair, ordinary wear and tear alone excepted, and the Borrowers'
or Subsidiaries' use thereof conforms, in all material respects, to all Laws
applicable thereto. Each Borrower and Subsidiary has full and complete right to
use and possession of all properties purported to be leased by it. Each
Borrower and Subsidiary is in compliance, in all material respects, with all
leases applicable thereto.
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4.12. Contracts. Except as set forth in Schedule 4.12, as of the
date hereof neither Borrower nor any Subsidiary is a party to or subject to any
agreement or instrument of any kind (including, but not limited to, agreements
to repay borrowed money, guarantees, leases of real or personal property as
lessor or lessee, contracts for future purchase or delivery of goods or
rendering of services, powers of attorney, distribution arrangements, patent
license agreements, collective bargaining agreements, employment agreements,
bonus, pension or retirement plans, or vacation pay, insurance or welfare
agreements) other than purchase and sale agreements entered into by the
Borrowers or their Subsidiaries in the ordinary course of business or agreements
or instruments which are terminable at will by the Borrowers or their
Subsidiaries without penalty or which are not, singly or in the aggregate,
material to the business, operations, condition, financial or otherwise, or
prospects of the Borrowers or their Subsidiaries or to the ability of the
Borrowers or their Subsidiaries to perform their respective obligations under
this Agreement, the Notes or any Loan Document. The Borrowers and their
Subsidiaries are and, to the Borrowers' knowledge after due inquiry, all other
parties to all agreements and instruments set forth on Schedule 4.12 are in
substantial compliance with the terms thereof. The Borrowers and their
Subsidiaries are not and, to the Borrowers' knowledge after due inquiry, no
other party to any agreement or instrument set forth on Schedule 4.12 is in
default thereunder, and (to the Borrowers' knowledge after due inquiry in the
case of any party other than itself) no event has occurred which, but for the
giving of notice or the passage of time or both, would constitute such a
default, which default, in any case, would reasonably be expected to be material
and adverse to the business, operations, condition, financial or otherwise, or
prospects of the Borrowers or their Subsidiaries or to the ability of the
Borrowers or their Subsidiaries to perform their respective obligations under
this Agreement, the Notes or any Loan Document.
4.13. Taxes. All tax returns required to be filed by the Borrowers
have been properly prepared, executed and filed. All taxes, assessments, fees
and other governmental charges upon the Borrowers and their Subsidiaries or upon
any of their respective properties, incomes, sales or franchises which are due
and payable have been paid, except for any nonpayment permitted by Section 6.05.
The reserves and provisions for taxes on the books of the Borrowers and their
consolidated Subsidiaries are adequate for all open years and for the current
fiscal period. The Borrowers know of no proposed additional assessment or basis
for any material assessment for additional taxes (whether or not reserved
against). The federal income tax liabilities of the Borrowers and their
consolidated Subsidiaries have been finally determined by the Internal Revenue
Service, or the time for audit has expired, for all fiscal periods ending on or
prior to June 30, 1996 and all such liabilities (including all deficiencies
assessed following audit) have been satisfied.
4.14. Financial Accounting Practices. Each Borrower and Subsidiary
(a) makes and keeps books, records and accounts which, in reasonable detail,
accurately and fairly reflect its material transactions and the dispositions of
its material assets, and (b) maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) material transactions are
executed in accordance with management's general or specific authorization, (ii)
transactions are recorded as necessary (A) to permit preparation of financial
statements in conformity with GAAP and (B) to maintain accountability for
material assets, (iii) access to material assets is permitted only in accordance
with management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
4.15. Power To Carry On Business. Each Borrower and Subsidiary has
all requisite corporate power and authority to own and operate its properties
and to carry on its business as now conducted and as presently planned to be
conducted.
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4.16. No Material Adverse Change. Since June 30, 1998, there has
been no material adverse change in the business, operations, condition,
financial or otherwise, or prospects of the Borrowers or their Subsidiaries or
on the ability of the Borrowers or their Subsidiaries to perform their
respective obligations under this Agreement, the Notes or any Loan Document.
4.17. Regulation U . Neither the Borrowers nor their Subsidiaries
will make borrowings hereunder or use a Letter of Credit issued hereunder for
the purpose of buying or carrying any "margin stock," as such term is used in
Regulation U of the Board of Governors of the Federal Reserve System, as amended
from time to time. Neither the Borrowers nor their Subsidiaries own "margin
stock." Neither the Borrowers nor their Subsidiaries are engaged in the business
of extending credit to others for such purpose, and no part of the proceeds of
any borrowing hereunder or a Letter of Credit will be used to purchase or carry
any "margin stock" or to extend credit to others for the purpose of purchasing
or carrying any "margin stock".
4.18. Compliance with Laws. Except as set forth on Schedule 4.18,
neither the Borrowers nor any Subsidiary is in violation of or to its knowledge
after due inquiry subject to any contingent liability on account of any Law
(including but not limited to ERISA, the Code, any applicable occupational and
health or safety Law, environmental protection Law, or Hazardous Substances
management, handling or disposal Law and including but not limited to (i) any
restrictions, specifications or requirements pertaining to products that the
Borrower manufactures, processes or sells or pertaining to the services it
performs, (ii) the conduct of its businesses and (iii) the use, maintenance or
operation of the real and personal properties owned or possessed by it), except
for violations which, singly or in the aggregate, would not reasonably be
expected to have a material adverse effect on the business, operations,
condition, financial or otherwise, or prospects of the Borrowers or their
Subsidiaries or on the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
4.19. Patents, Licenses, Franchises. The Borrowers and their
Subsidiaries own or possess all the patents, inventions, technology, trademarks,
service marks, trade names, copyrights, licenses, franchises, permits and rights
with respect to the foregoing necessary to own and operate their respective
properties and to carry on their respective businesses as presently conducted
and presently planned to be conducted without conflict with the rights of
others. Schedule 4.19 sets forth as of the date hereof all patents, patent
applications, trademarks, service marks and applications therefor and inventions
and copyrights of the Borrowers and their Subsidiaries which are material to
their businesses. There are no claims of infringement or misappropriation of
proprietary rights of others pending or, to the knowledge of the Borrowers'
after due inquiry, threatened by or against the Borrowers or their Subsidiaries,
except for any such claims which, if adversely decided, would not reasonably be
expected to have a material adverse effect on the business, operations,
condition, financial or otherwise, or prospects of the Borrowers or their
Subsidiaries or on the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
4.20. Ownership and Control. Schedule 4.20 states as of the date
hereof the authorized capitalization of the Borrowers and their Subsidiaries,
the number of shares of each class of capital stock thereof issued and
outstanding and the number and percentage of outstanding shares of each such
class of capital stock and the names of the record owners of such shares and, to
the Borrower's knowledge after due inquiry, the direct or indirect beneficial
owners of such shares (except that, as to C-Cor, only the record and beneficial
-----------
owners which hold more than five percent (5%) of the issued and outstanding
shares as of the Closing Date are listed on Schedule 4.20). The outstanding
shares of the Borrowers and their Subsidiaries have been duly authorized and
validly issued and are fully paid and
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nonassessable. Schedule 4.20 describes as of the date hereof all outstanding
options, rights and warrants issued by the Borrowers and their Subsidiaries for
the acquisition of shares of the capital stock of the Borrowers or their
Subsidiaries, all outstanding securities or obligations convertible into such
shares and all agreements by the Borrowers or their Subsidiaries to issue or
sell such shares. Schedule 4.20 describes as of the date hereof all options,
sale agreements, pledges, proxies, voting trusts, powers of attorney and other
agreements or instruments to the Borrowers' knowledge after due inquiry binding
upon any of its shareholders with respect to beneficial or record ownership of
or voting rights with respect to shares of the capital stock of the Borrowers.
4.21. Accurate and Complete Disclosure. No representation or
warranty made by the Borrowers under or in connection with this Agreement, the
Notes or any Loan Document, and no statement made by the Borrowers in any
financial statement (furnished pursuant to Section 4.06 or 6.01(a) hereof or
otherwise), certificate, report, exhibit or document furnished by or on behalf
of the Borrowers and their Subsidiaries to the Banks pursuant to or in
connection with this Agreement, the Notes or any Loan Document is false or
misleading in any material respect, including by omission of material
information necessary to make such representation, warranty or statement, in
light of the circumstances under which they were made, not misleading in any
material respect. The Borrowers have disclosed to the Banks in writing every
fact which materially and adversely affects, or which so far as the Borrowers
can now foresee is reasonably possible in the future and would reasonably be
expected to materially and adversely affect, the business, operations,
condition, financial or otherwise, or prospects of the Borrowers or their
Subsidiaries or the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
4.22. Investment Company. Neither the Borrowers nor any Subsidiary
is an "investment company" or a company "controlled" by an investment company
within the meaning of the Investment Company Act of 1940, as amended.
4.23. Public Utility Holding Company. Neither the Borrowers nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of either a "holding company" or a "subsidiary
company" within the meaning of the Public Utility Holding Company Act of 1935,
as amended.
4.24. Business. Schedule 4.24 correctly describes the business of
the Borrowers and their Subsidiaries as presently conducted and as presently
planned to be conducted.
4.25. Proceeds. The Borrowers and their Subsidiaries shall use the
proceeds of all Revolving Credit Loans for general corporate purposes. The
Borrowers and their Subsidiaries shall use Letters of Credit for standby or
trade letters of credit in the ordinary course of business. The Borrowers and
their Subsidiaries shall use the proceeds of all Standby Facility Loans for
funding acquisitions, investments and joint ventures in accordance with the
limitations set forth in Sections 7.08 and 7.09 of this Agreement.
4.26. Partnerships and Other Affiliated Entities. Schedule 4.26
states as of the date hereof the name of, jurisdiction of organization of,
nature of, and the nature of the Borrowers' and each Affiliated Entity's
interest in and liabilities to, for the acts of or with respect to, each
Affiliated Entity.
4.27. Regulation O. No director, executive officer or principal
shareholder of the Borrowers or their Subsidiaries is a "director," "executive
officer" or "principal shareholder" of any Bank, as such terms are used in
Regulation O of the Board of Governors of the Federal Reserve System, as amended
from time to time.
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4.28. Burdensome Obligations. As of the date hereof neither the
Borrowers, their Subsidiaries, nor any of their respective properties, is
subject to any Law or, to the Borrowers' knowledge after due inquiry, any
pending or threatened change of Law, or is subject to any restriction under its
respective articles of incorporation or bylaws or under any agreement or
instrument to which it is a party or by which it or any of its properties (now
owned or hereafter acquired) may be subject or bound, which is so unusual and
burdensome as to be reasonably likely in the foreseeable future to have a
material adverse effect on the business, operations or condition, financial or
otherwise, of the Borrowers or their Subsidiaries or on the ability of the
Borrowers or their Subsidiaries to perform their respective obligations under
this Agreement, the Notes or any Loan Document.
4.29. Insurance. The Borrower maintains with financially sound and
reputable insurers insurance with respect to its properties and businesses and
against at least such liabilities, casualties and contingencies and in at least
such types and amounts as is customary in the case of corporations engaged in
the same or a similar business or having similar properties similarly situated.
Schedule 4.29 to this Agreement sets forth a list of all insurance maintained by
the Borrower on the date hereof.
4.30. Hazardous Materials. Except as set forth on Schedule 4.30, as
of the date hereof the Borrowers and their Subsidiaries have substantially
complied with, are currently in substantial compliance with, have not been
charged with, have not received any notice of, and, to the knowledge of the
Borrowers' after due inquiry, are not under investigation for, the failure
substantially to comply with any Laws relating to environmental protection
matters, and, specifically, relating to Hazardous Substances. None of the
Borrowers' or the Subsidiaries' properties is (a) presently listed or proposed
for listing on the National Priorities List or (b) presently listed on the
CERCLIS list.
4.31. Solvency. On the Closing Date, (a) the amount of the "fair
value" (as defined below) of the assets of the Borrowers and their consolidated
Subsidiaries will, as of such date, exceed the amount of all liabilities of the
Borrowers and their consolidated Subsidiaries, contingent or otherwise, as of
such date, (b) the debts of the Borrowers and their consolidated Subsidiaries
will not be beyond their ability to pay as such debts mature, and (c) neither
Borrower nor any Subsidiary will have, as of such date, an unreasonably small
amount of capital with which to conduct business or an unreasonably small
amount of assets in relation to their future business. For purposes of this
Section 4.31, "fair value" means the amount for which the assets of the
Borrowers and their consolidated Subsidiaries might be expected to be sold to a
willing buyer by a willing seller, neither being under compulsion, each having
reasonable knowledge of all relevant facts, with equity to both, with no
definite time period required to consummate the sale, and with buyer and seller
contemplating the retention of the facilities at their present location for
continuation of current operations; "debt" means "liability on a claim", and
"claim" means (i) any right to payment, whether or not such a right is reduced
to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured,
disputed, undisputed, legal, equitable, secured or unsecured and (ii) any right
to an equitable remedy for breach of performance if such breach gives rise to a
right to payment, whether or not such right to an equitable remedy is reduced to
judgment, fixed, contingent, matured or unmatured, disputed, secured or
unsecured.
4.32 Year 2000 Considerations. The Borrowers and their Subsidiaries
(a) have undertaken a detailed inventory, review and assessment of all areas
within their business and operations that could be adversely affected by the
failure of Borrowers or their Subsidiaries to be Year 2000 Compliant on a timely
basis, (b) have taken all reasonable steps to ascertain the business risks
resulting from the failure of their vendors to be Year 2000 Compliant on a
timely basis, and (c) are using their best efforts to develop a detailed plan
and timeline for Borrowers and their Subsidiaries to become Year 2000 Compliant
on a timely basis. The Borrowers and their Subsidiaries reasonably anticipate,
based on their present knowledge, that they will be Year 2000 Compliant on a
timely basis.
4.33. Name Change. C-Cor has taken all corporate action and
completed all filings with any Official Body necessary to change its name from
C-Cor Electronics, Inc. to C-COR.net Corp.
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Article V
Conditions Precedent
5.01. Closing Date Conditions. The obligations of the Banks to make
any Loans hereunder and of the Issuing Bank to issue a Letter of Credit are
subject to the satisfaction of the following conditions precedent on or before
the Closing Date:
(a) Agreement; Notes. The Agent shall have received (i) with an
executed counterpart for each Bank, this Agreement, duly executed by the
Borrowers, (ii) a Revolving Credit Note for each Bank, (iii) a Term Loan
Note for each bank, and (iv) a Standby Facility Note for each bank, each
conforming to the requirements hereof and duly executed by the Borrowers.
(b) Loan Documents. The Agent shall have received, with an executed
counterpart for each Bank, all other Loan Documents conforming to the
requirements of this Agreement and duly executed by the Borrowers,
including, without limitation, a Guaranty and Suretyship Agreement (a
"Guaranty") in the form attached hereto as Exhibit H, executed by each
Subsidiary in favor of the Banks.
(c) Corporate Proceedings. The Agent shall have received (i), with a
copy for each Bank, a true, correct and complete copy of the articles of
incorporation and bylaws of the Borrowers as in effect on the Closing Date
and (ii), with an executed counterpart for each Bank, a certificate of the
Secretary or Assistant Secretary of the Borrowers, dated the Closing Date,
certifying as to true copies of all corporate action taken by the Borrowers
relative to this Agreement, the Notes and the Loan Documents, including but
not limited to that authorizing the execution, delivery and performance of
this Agreement, the Notes and the Loan Documents, which certificate shall
state that the resolutions thereby certified have not been amended,
modified, revoked or rescinded and are in full force and effect as of the
date thereof.
(d) Incumbency Certificates. The Agent shall have received with an
executed counterpart for each Bank, a certificate of the Secretary or
Assistant Secretary of the Borrowers, dated the Closing Date, as to the
names, true signatures and incumbency of its officer or officers authorized
to execute and executing this Agreement, the Notes and the Loan Documents
together with evidence satisfactory to the Agent and the Banks in their
reasonable discretion of the incumbency of such Secretary or Assistant
Secretary. The Agent and the Banks may conclusively rely on such
certificate unless and until a later certificate revising the prior
certificate has been furnished to the Banks.
(e) Insurance. The Agent shall have received, with a copy for each
Bank, a certificate from a Person satisfactory to the Agent and the Banks
in their reasonable discretion, dated a date satisfactory to the Agent and
the Banks in their reasonable discretion, that the insurance policies
required by this Agreement and the Loan Documents have been obtained and
are in full force and effect.
(f) Environmental Matters. The Agent shall have received, with a
copy for each Bank, such information with respect to environmental matters
relating to any properties owned or operated or previously owner operated
by the Borrowers and their Subsidiaries, which the Agent or any Bank may
have requested, and all such materials shall have been found to be
satisfactory in form and substance to the Agent and the Banks.
(g) Authorizations and Filings; Litigation. All authorizations,
consents, approvals, licenses, exemptions or other actions by, and all
registrations, qualifications, designations, declarations or filings with,
all Official Bodies necessary or advisable in connection with the execution
and delivery of this Agreement, the Notes or any Loan Document,
consummation of the transactions herein or therein contemplated,
performance of or compliance with the terms
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and conditions hereof or thereof or to ensure the legality, validity,
enforceability and admissibility in evidence hereof or thereof shall have
been obtained and shall be in full force and effect. No suit, action,
investigation, inquiry or other proceeding (including, without limitation,
the enactment or promulgation of a statute or rule) by or before any
arbitrator or any Official Body shall be pending or threatened, and no
preliminary or permanent injunction or order by a state or federal court
shall have been entered in connection with the transactions contemplated by
this Agreement, the Notes or any Loan Document or any of the transactions
contemplated hereby or thereby which might reasonably be expected to have a
material adverse effect on (i) the transactions contemplated by this
Agreement, the Notes or any Loan Document, or (ii) the business,
operations, condition (financial or otherwise) or prospects of the
Borrowers or the ability of the Borrowers to perform their obligations
under this Agreement, the Notes or any Loan Document. The Agent shall have
received, with an executed counterpart for each Bank, a certificate of a
duly authorized officer of the Borrowers as to the matters set forth in
this Section 5.01(g); provided, however, that such officer's certification
as to any threatened suit, action, investigation, inquiry or other
proceeding may be limited to such officer's knowledge after due inquiry.
(h) No Material Adverse Change. No material adverse change shall
have occurred in the business, operations or condition (financial or
otherwise) of the Borrowers or their Subsidiaries or in the business,
operations, condition (financial or otherwise) or prospects of the
Borrowers or their Subsidiaries since June 30, 1998, and the Agent shall
have received, with an executed counterpart for each Bank, a certificate of
a duly authorized officer of the Borrowers to such effect. For purposes of
this Section 5.01(h), no change which shall have occurred in the business,
operations or condition (financial or otherwise) of the Borrowers or their
Subsidiaries shall be deemed to be "materially adverse", unless such
change, singly or in the aggregate, would reasonably be expected to have a
material adverse effect on the business, operations or condition (financial
or otherwise) or prospects of the Borrowers or their Subsidiaries or on the
ability of the Borrowers or their Subsidiaries to perform their respective
obligations under this Agreement, the Notes or any Loan Document.
(i) Legal Opinion of Counsel to the Borrowers. The Agent shall have
received, with an executed counterpart for each Bank, an opinion of
McQuaide, Blasko, Schwartz, Fleming & Faulkner, counsel to the Borrowers,
dated the Closing Date, substantially in the form attached hereto as
Exhibit I.
(j) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the Notes and the Loan
Documents shall have been reviewed and found to be satisfactory in form and
substance to the Agent and the Banks in their reasonable discretion, and
the Agent and the Banks shall have received all such other counterpart
original or certified or other copies of all such other documents and
instruments in connection with such transactions as the Agent or any Bank
reasonably shall have requested.
(k) Facility Fee; Compensation. Each Bank shall have received from
the Borrowers all fees and other compensation (including, without
limitation, all attorneys' fees and out-of pocket expenses incurred by
Agent) required to the Agent or any Bank pursuant to the Commitment Letter,
this Agreement, the Notes or any Loan Document on or prior to the Closing
Date shall have been paid by the Borrowers.
5.02. Conditions to Loans and to Letters of Credit. The obligations
of the Banks to make any Loans hereunder (including, without limitation, on the
Closing Date) and of the Issuing Bank to issue a Letter of Credit, are subject
to the satisfaction of the following further conditions precedent as of the date
such Loans are requested to be made or such Letter of Credit is requested to be
issued, and as of the date each such Loan is made or such Letter of Credit is
issued:
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(a) Representations and Warranties. Each of the representations and
warrant by the Borrowers in or pursuant to this Agreement, the Notes or any
Loan Document shall have been true and correct in all material respects on
and as of the date hereof or thereof or on and as of the date made, as the
case may be, and shall be true and correct in all material respects on and
as of each such date with the same effect as though made on and as of each
such date.
(b) Performance of Obligations. The Borrowers shall have performed
all their obligations required to be performed hereunder and under the
Notes and the Loan Documents on or before each such date.
(c) No Default. No Event of Default or Potential Default shall have
occurred and be continuing or shall exist on each such date or shall occur
or exist after giving effect to the Loans requested to be made or a Letter
of Credit requested to be issued on each such date.
(d) Limitations on Availability of Commitments. The Borrowers shall
be in compliance with the covenants and conditions set forth in Section
2.01, 2.04 or 3.01, as applicable.
Any request by the Borrowers for any Loan hereunder or for the issuance of a
Letter of Credit hereunder shall constitute a representation and warranty by the
Borrowers that the conditions precedent described in this Section 5.02 have been
satisfied on and as of the date of such request. Failure of the Agent to
receive notice from the Borrowers to the contrary before any Loan is made or a
Letter of Credit is issued shall constitute a further representation and
warranty by the Borrowers that the conditions precedent described in this
Section 5.02 have been satisfied on and as of the date of such Loan or the
issuance of a Letter of Credit.
Article VI
Affirmative Covenants
The Borrowers covenant to each Bank as follows:
6.01. Reporting and Information Requirements.
(a) Annual Audit Reports. As soon as practicable, and in any event
within ninety (90) days after the close of each fiscal year of the Borrowers,
commencing with the fiscal year ending June 30, 1999, the Borrowers shall
furnish to the Agent, with a copy for each Bank, consolidated statements of
income, retained earnings and cash flow of the Borrowers and their consolidated
Subsidiaries for such fiscal year and a consolidated balance sheet of the
Borrowers and their consolidated Subsidiaries as of the close of such fiscal
year, and notes to each, all in reasonable detail, setting forth in comparative
form the corresponding figures for the preceding fiscal year, with such
statements and balance sheet to be audited and certified by independent
certified public accountants of recognized standing selected by the Borrowers
and satisfactory to the Agent and the Banks in their reasonable discretion. The
certificate or report of such accountants shall be free of exceptions or
qualifications not acceptable to the Agent or the Banks in their reasonable
discretion, a copy of such certificate or report shall be addressed to the Agent
and the Banks and signed by such independent public accountants, and such
certificate or report shall in any event contain a written statement of such
accountants substantially to the effect that (i) such accountants examined such
statements and balance sheet in accordance with generally accepted auditing
standards and accordingly made such tests of accounting records and such other
auditing procedures as such accountants considered necessary in the
circumstances and (ii) in the opinion of such accountants such statements and
balance sheet present fairly the financial position of the Borrowers as of the
end of such fiscal year and the results of its operations and its cash flow for
such fiscal year, in conformity with GAAP applied on a basis consistent with
that of the preceding fiscal year (except for changes in application in which
such accountants concur).
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(b) Quarterly Reports. As soon as practicable, and in any event
within forty-five (45) days after the close of each fiscal quarter of the
Borrowers, commencing with the fiscal quarter ending June 30, 1999, the
Borrowers shall furnish to the Agent, with a copy for each Bank, unaudited
consolidated statements of income, retained earnings and cash flow for the
Borrowers and their consolidated Subsidiaries for such fiscal quarter and for
the period from the beginning of such fiscal year to the end of such fiscal
quarter, and an unaudited consolidated balance sheet of the Borrowers and their
consolidated Subsidiaries as of the close of such fiscal quarter, and notes to
each, all in reasonable detail, setting forth in comparative form the
corresponding figures for the same period or as of the same date during the
preceding fiscal year, and certified by the President, Treasurer or Chief
Financial Officer of the Borrowers as presenting fairly the financial position
of the Borrowers and their consolidated Subsidiaries as of the end of such
fiscal quarter and the results of their operations and their cash flow for such
fiscal quarter, in conformity with GAAP applied in a manner consistent with that
of the most recent audited financial statements furnished to the Banks, subject
to year-end audit adjustments.
(c) Accountants' Certificate. Each set of statements and balance
sheet delivered pursuant to Section 6.01(a) shall be accompanied by a
certificate or report, dated the Relevant Date, of the accountants who certified
such statements and balance sheet, stating in substance that they have reviewed
this Agreement and that in making the examination necessary for their
certification of such statements and balance sheet they did not become aware of
any Event of Default or Potential Default, or, if they did become so aware, such
certificate or report shall state the nature and period of existence thereof.
(d) Officer's Compliance Certificates. On or before the forty-fifth
(45th) day following the last day of each fiscal quarter, the Borrowers shall
deliver to the Agent, with a copy for each Bank, a certificate, in the form
attached hereto as Exhibit J, dated as of the Relevant Date, signed on behalf of
the Borrowers by their President, Treasurer or Chief Financial Officer, (i)
stating that as of the date thereof no Event of Default or Potential Default has
occurred and is continuing or exists, or, if an Event of Default or Potential
Default has occurred and is continuing or exists, specifying in detail the
nature and period of existence thereof and any action with respect thereto taken
or contemplated to be taken by the Borrowers and (ii) stating in reasonable
detail the information and calculations necessary to establish compliance with
the provisions of Section 7.01 and (iii) stating that the signer personally has
reviewed this Agreement and that such certificate is based on an examination
made by or under the supervision of the signer sufficient to assure that such
certificate is accurate (such signer to have no personal liability on account of
such certificate in the absence of gross negligence or willful misconduct).
(e) Annual Budget. As soon as practicable, and in any event within
ninety (90) days after the start of each fiscal year, the Borrowers shall
deliver to the Banks an annual budget for the Borrowers and their consolidated
Subsidiaries, which shall include monthly projections of profit and loss
statements, balance sheets and cash flow reports (prepared on an annual basis)
for the then current fiscal year (including projections as to capital
expenditures), together with a statement of the assumptions and estimates upon
which such projections are based. The projections shall be accompanied by a
cover letter stating that such projections, estimates and assumptions, as of the
date of preparation thereof, are reasonable, made in good faith, are consistent
with this Agreement and the Loan Documents, and represent the Borrowers' best
judgment as to such matters.
(f) Other Reports and Information. Promptly upon their becoming
available, the Borrowers shall deliver to the Agent, with a copy for each Bank,
a copy of (i) all regular or special reports or effective registration
statements which the Borrowers shall file with the Securities and Exchange
Commission (or any successor thereto) or any securities exchange, (ii) all
reports, proxy statements, financial statements and other information
distributed by the Borrowers to its stockholders, debtholders or the financial
community in general, and (iii) any reports (including, without limitation,
management letters) submitted to the Borrowers by independent accountants in
connection with any annual, interim or special audit of the Borrowers.
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(g) Further Information. The Borrowers promptly will furnish to the
Agent, with a copy for each Bank, such other information and in such form as the
Agent or any Bank reasonably may request.
(h) Notice of Event of Default. Promptly upon becoming aware of any
Event of Default or Potential Default, the Borrowers shall give the Agent notice
thereof, together with a written statement of the President, Treasurer or Chief
Financial Officer of the Borrowers setting forth the details thereof and any
action with respect thereto taken or contemplated to be taken by the Borrowers.
(i) Notice of Material Adverse Change. Promptly upon becoming aware
thereof, the Borrowers shall give the Agent notice of any material adverse
change in the business, operations, condition, financial or otherwise, or
prospects of the Borrowers or their Subsidiaries or in the ability of the
Borrowers or their Subsidiaries to perform their respective obligations under
this Agreement, the Notes or any Loan Document.
(j) Notice of Material Proceedings. Promptly upon becoming aware
thereof, the Borrower shall give the Agent notice of the commencement, existence
or threat of any proceeding by or before any Official Body against or affecting
the Borrower which, if adversely decided, would reasonably be expected to have a
material adverse effect on the business, operations, condition, financial or
otherwise, or prospects of the Borrower or on the ability of the Borrower to
perform its obligations under this Agreement, the Notes or any Loan Document.
(k) Notice of Other Material Defaults. Promptly upon becoming aware
of any material default by any Borrower or any Subsidiary under any agreement or
instrument to which any Borrower or any Subsidiary or by which any Borrower, any
Subsidiary or any of their properties are or may be bound, the Borrowers shall
give the Agent notice thereof, together with a written statement of the
President, Treasurer or Chief Financial Officer of the Borrowers setting forth
the details thereof, if such agreement or instrument or the consequences of such
default would reasonably be expected to be material to the business, operations,
condition, financial or otherwise, or prospects of the Borrowers or their
Subsidiaries or to the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
(l) Notice of Pension-Related Events. Promptly after the Borrowers,
any Controlled Group Member or any administrator of a Plan:
(i) receives the notification referred to in subsection (i), (iv) or
(vii) of Section 8.01(f);
(ii) has knowledge of (A) the occurrence of a Reportable Event with
respect to a Plan, and within seven (7) days thereafter if the Reportable
Event is a failure to meet the minimum funding requirement with respect to
a Plan, including failure to pay any contribution when due, and the total
unpaid balance of contributions due to such Plan exceeds $1,000,000; (B)
any event which has occurred or any action which has been taken to amend or
terminate a Plan as referred to in subsections (ii) and (vi) of Section
8.01(f); (C) any event which has occurred or any action which has been
taken which could result in complete withdrawal, partial withdrawal or
secondary liability for withdrawal liability payments with respect to a
Multiemployer Plan as referred to in subsection (vii) of Section 8.01(f);
(D) any action which has been taken in furtherance of, any agreement which
has been entered into for or any petition which has been filed with a
United States district court for, the appointment of a trustee for a Plan
as referred to in subsection (iii) of Section 8.01(f); (E) any action to
amend a Plan which requires security to be provided to the Plan pursuant to
Section 401(a)(29) of the Code or Section 307 of ERISA or (F) any failure
to pay the PBGC premium with respect to a Plan when due; or
(iii) files (A) any notice or application with a participant in a
Plan, the Internal Revenue Service or the PBGC in connection with the
termination of a Plan; (B) a request with
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the Internal Revenue Service pursuant to Section 412(d) or 412(e) of the
Code for a variance from the minimum funding standard or an extension of
the period for amortizing unfunded liabilities, respectively, for a Plan;
or (C) a return with the Internal Revenue Service with respect to the tax
imposed under Section 4971(a) of the Code for failure to meet the minimum
funding standards established under Section 412 of the Code for a Plan;
the Borrowers will furnish to the Agent (i) a copy of any notice received,
request or petition filed and agreement entered into; (ii) the most recent
Annual Report (Form 5500 Series) and attachments thereto for the Plan; (iii) the
most recent actuarial report for the Plan; (iv) any notice, return or materials
required to be filed with the Internal Revenue Service, the PBGC or Plan
participants and beneficiaries in connection with the event, action or filing;
and (v) a written statement of the President, Treasurer or chief financial
officer of the Borrower describing the event or the action taken and the reasons
therefor.
(m) Visitation. The Borrowers shall permit such Persons as the Agent
or any Bank may designate to visit and inspect any of the properties of the
Borrowers and of any Subsidiary, to examine their books and records and to take
copies and extracts therefrom and to discuss their affairs with their officers
and employees and independent accountants, engineers, consultants and
contractors (each of whom is hereby authorized to discuss with the Agent or any
Bank the affairs of the Borrowers and of any Subsidiary) at such times and as
often as the Agent or any Bank reasonably may request.
(n) Environmental Matters.
(i) On the date hereof and within ninety (90) days following the
close of each year, commencing with the fiscal year ending June 30, 1999, the
Borrowers shall deliver to the Agent, with a copy for each Bank, a certificate,
signed on behalf of the Borrowers by a duly authorized officer, stating that,
(A) as of the date thereof, the Borrowers and their Subsidiaries are in
compliance with all applicable environmental protection and pollution control
Laws and hazardous waste and toxic substances management, handling and disposal
Laws, except for violations which, singly or in the aggregate, would not
reasonably be expected to have a material adverse effect on the business,
operations, condition, financial or otherwise, or prospects of the Borrowers or
their Subsidiaries or on the Borrowers' or their Subsidiaries' ability to
perform their respective obligations under this Agreement, the Notes or any Loan
Document, or, (B) if the Borrowers and their Subsidiaries are not so in
compliance, specifying in detail the nature and period of existence of such
noncompliance and any action taken or contemplated to be taken by any Borrower
or any Subsidiary with respect to such noncompliance.
(ii) Promptly upon becoming aware of the occurrence or existence of
any material environmental event, circumstance or condition relating to any of
the Borrowers' or Subsidiaries' properties, the Borrowers shall give the Agent
notice thereof and shall deliver to the Agent, with a copy for each Bank, a
written description of such event, circumstance or condition, specifying in
detail the nature and period of existence thereof and any action taken or
contemplated to be taken by any Borrower or any Subsidiary with respect thereto.
(iii) Without limitation of Section 6.01(n)(i), upon receipt by the
Agent of a notice pursuant to Section 6.01(n)(i)(B), or upon the occurrence of
an Event of Default, the Agent or any Bank shall have the right to designate
such Persons ("Site Reviewers") as the Agent or any Bank may elect, to visit and
inspect any of the properties of the Borrowers or their Subsidiaries and to
perform such reasonable environmental site investigations and assessments ("Site
Assessments") on their properties for the purpose of determining whether there
exists on their properties any environmental condition which could result in any
liability, cost or expense to the owner or occupier thereof relating to
Hazardous Substances or any other environmental condition which could materially
adversely affect the business, operations, condition, financial or otherwise or
prospects of the Borrowers or their Subsidiaries or on the Borrowers' or their
Subsidiaries' ability to perform their respective obligations under this
Agreement, the Notes or any Loan Document. Such Site Assessments may include
both above and below the ground testing for environmental damage or the presence
of Hazardous Substances and such other tests as may
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be necessary to conduct the Site Assessments in the opinion of the Site
Reviewers. The Borrowers shall, and shall cause each Subsidiary to, supply to
the Site Reviewers such historical and operational information, including the
results of all samples sent for analysis, correspondence with Official Bodies
and previous environmental audits or environmental reviews regarding its
properties as are within its possession, custody or control, or which are
reasonably available to it and which reasonably may be requested by the Site
Reviewers to facilitate the Site Assessments, and will make available for
meetings with the Site Reviewers appropriate Personnel employed by any Borrower
or any of its Subsidiaries having knowledge of such matters. The cost of
performing all Site Assessments shall be paid by the Borrowers upon demand by
the Agent.
(iv) At such other times and as often as the Agent or any Bank
reasonably may request, the Borrowers will, and shall cause each Subsidiary to,
make available at its offices to the Agent or such Bank or its designees such
historical and operational information including the results of all samples sent
for analysis, correspondence with Official Bodies and environmental reviews
regarding its properties as are in its possession, custody or control, or which
are reasonably available to it and which reasonably may be requested by the
Agent, any Bank or its designees, and will make available for meetings with the
Agent, such Bank or such designees appropriate Personnel employed by any
Borrower or any of its Subsidiaries having knowledge of such matters.
(o) Information Package. Upon the reasonable request of the Agent or
the Banks, the Borrowers shall, and shall cause each Subsidiary to, deliver to
the Agent and each Bank an information package containing relevant information
about the Borrowers , and such other information as the Agent or the Banks
reasonably may request, which information package shall be in form and substance
satisfactory to the Agent and the Banks in their reasonable discretion. The
Borrowers hereby expressly authorize the Agent and each Bank to distribute such
package (and any and all other information and materials respecting the
Borrowers or their Subsidiaries) as from time to time delivered to or in the
possession of the Agent or such Bank to any Bank or Participant or prospective
Bank or Participant; provided, however, that, prior to delivering any such
information package or other information or materials, the Agent or such Bank,
as the case may be, shall consult with the Borrowers (it being expressly
understood that the Agent shall not distribute any information package provided
by the Borrowers pursuant to this Section 6.01(o) without the prior written
consent of the Borrowers; it being further understood, however, that the
Borrowers' consent to delivery of any other information or materials shall not
be required), and provided, further, that the Agent or such Bank first shall
cause the Bank or Participant or prospective Bank or Participant receiving such
information package or other information or materials to execute and deliver to
the Agent or such Bank such confidentiality agreement or agreements as the
Borrowers may reasonably request (unless such Bank or Participant or prospective
Bank or Participant previously has signed such an agreement). Neither the Agent
nor any Bank shall be liable to the Borrowers, any Subsidiary, nor to any other
Person for any breach of any such confidentiality agreement or agreements by any
other Bank or any Participant or any prospective Bank or Participant to whom it
may have delivered such information package or other information or materials.
6.02. Preservation of Existence and Franchises. Each Borrower shall,
and shall cause each of its Subsidiaries to, maintain its corporate existence,
rights and franchises in full force and effect in its jurisdiction of
incorporation. Each Borrower shall, and shall cause each of its Subsidiaries
to, qualify and remain qualified as a foreign corporation in each jurisdiction
in which failure to receive or retain such qualification would reasonably be
expected to have a material adverse effect on the business, operations,
condition, financial or otherwise, or prospects of any Borrower or any
Subsidiary or on the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
6.03. Insurance. Each Borrower shall, and shall cause each of its
Subsidiaries to, maintain insurance against fire, flood, casualty and such other
hazards as may be reasonably acceptable to the Agent in such amounts, with such
deductibles and with such insurers as may be reasonably acceptable to the Agent.
The policies of all such casualty insurance shall contain standard Bank's Loss
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Payable Clauses issued in favor of the Agent under which all losses thereunder
shall be paid to the Agent as the Agent's interest may appear. Such policies
shall expressly provide that the requisite insurance cannot be altered or
canceled without thirty (30) days prior written notice to the Agent and shall
insure the Agent notwithstanding the act or neglect of the insured. In the
event any Borrower or any Subsidiary fails to procure or cause to be procured
any such insurance or to timely pay or cause to be paid the premium(s) on any
such insurance, the Agent may do so for any Borrower or any Subsidiary but the
Borrowers shall continue to be liable for the cost of such insurance. The
Borrowers hereby appoint the Agent as their attorney-in-fact, exercisable at the
Agent's option, to endorse any check which may be payable to either Borrower or
any Subsidiary in order to collect the proceeds of such insurance. Any and all
amount or amounts received or collected by the Agent pursuant to the provisions
of this paragraph, in excess of $100,000 per year in the aggregate, may be
applied by the Agent to any obligations or to repair, reconstruct or replace the
loss of or damage to property as the Agent in its sole judgment may from time to
time determine. Each Borrower shall, and shall cause each of its Subsidiaries
to, furnish to the Agent from time to time upon request the policies under which
such insurance is issued, certificates of insurance and such other information
relating to such insurance as the Agent may request, and provide such other
insurance and endorsements as are required by this Agreement, the Notes and the
other Loan Documents.
6.04. Maintenance of Properties.
(a) Each Borrower shall, and shall cause each of its Subsidiaries to,
maintain or cause to be maintained in good repair, working order and condition,
ordinary wear and tear alone excepted, the properties now or hereafter owned,
leased or otherwise possessed by it which are material to the business,
operations, condition, financial or otherwise, or prospects of any Borrower or
any Subsidiary or to the ability of the Borrowers and the Subsidiaries to
perform their respective obligations under this Agreement, the Notes or any Loan
Document, and shall make or cause to be made all needful and proper repairs,
renewals, replacements and improvements thereto which shall be reasonable,
necessary and consistent with sound business judgment so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times.
(b) Each Borrower shall, and shall cause each of its Subsidiaries to,
maintain or cause to be maintained in full force and effect all patents, patent
applications, trademarks, service marks and applications therefor, trade names,
copyrights and all other intellectual property rights now or hereafter owned, or
otherwise possessed by it which are material to the business, operations,
condition, financial or otherwise, or prospects of any Borrower or any
Subsidiary or to the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or any Loan
Document.
6.05. Payment of Taxes and Other Potential Charges and Priority
Claims; Payment of Other Current Liabilities. Each Borrower shall, and shall
cause each of its Subsidiaries to, pay or discharge
(a) on or prior to the date on which penalties attach thereto, all
taxes, assessments and other governmental charges or levies imposed upon it
or any of its properties or income (including such as may arise under
Section 4062, Section 4063 or Section 4064 of ERISA, or any similar
provision of law);
(b) on or prior to the date when due, all lawful claims of
materialmen, mechanics, carriers, warehousemen, landlords and other like
Persons which, if unpaid, might result in the creation of a Lien upon any
such property;
(c) on or prior to the date when due, all other lawful claims which,
if unpaid, might result in the creation of a Lien upon any such property
(other than Permitted Liens) or which, if unpaid, might give rise to a
claim entitled to priority over general creditors of any Borrower or
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any of its Subsidiaries in a case under Title 11 (Bankruptcy) of the United
States Code, as amended, or in any insolvency proceeding or dissolution or
winding-up involving any Borrower or any of its Subsidiaries; and
(d) all other current liabilities so that none is overdue more than
forty-five (45) days;
provided, that, unless and until foreclosure, distraint, levy, sale or similar
proceedings shall have been commenced, neither the Borrowers nor any Subsidiary
need pay or discharge any such tax, assessment, charge, levy, claim or current
liability so long as the validity thereof is contested in good faith and by
appropriate proceedings diligently conducted, and so long as such reserves or
other appropriate provisions as may be required by GAAP shall have been made
therefor, and so long as such failure to pay or discharge does not have a
material adverse effect on the business, operations, condition, financial or
otherwise, or prospects of the Borrowers or any Subsidiary or on the ability of
the Borrowers or their Subsidiaries to perform their respective obligations
under this Agreement, the Notes or any Loan Document.
6.06. Financial Accounting Practices. Each Borrower shall, and shall
cause each of its Subsidiaries to, (a) make and keep books, records an accounts
which, in reasonable detail, accurately and fairly reflect its material
transactions and dispositions of its material assets and (b) maintain a system
of internal accounting controls sufficient to provide reasonable assurances that
(i) material transactions are executed in accordance with management's general
or specific authorization, (ii) transactions are recorded as necessary (A) to
permit preparation of financial statements in conformity with GAAP and (B) to
maintain accountability for material assets, (c) access to material assets is
permitted only in accordance with management's general or specific authorization
and (d) the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with respect to
any differences.
6.07. Compliance with Laws. Each Borrower shall, and shall cause
each of its Subsidiaries to, comply with all applicable Laws (including but not
limited to ERISA, the Code and any applicable tax Law, product safety Law,
occupational safety or health Law, environmental protection or pollution control
Law, Hazardous Substances management, handling or disposal Law) in all respects
(including but not limited to compliance in respect of products that it
manufactures, processes or sells or services it performs, conduct of its
business or use, maintenance or operation of real and personal properties owned
or possessed by it), provided that neither the Borrowers nor any Subsidiary
shall be deemed to be in violation of this Section 6.07 as a result of any
failures to comply which would not result in fines, penalties, injunctive relief
or other civil or criminal liabilities which, singly or in the aggregate, would
reasonably be expected to materially adversely affect the business, operations,
condition, financial or otherwise, or prospects of the Borrowers or their
Subsidiaries or the ability of the Borrowers or their Subsidiaries to perform
their respective obligations under this Agreement, the Notes or the Loan
Documents.
6.08. Use of Proceeds. Each Borrower shall, and shall cause each of
its Subsidiaries to, use the proceeds of all Loans and Letters of Credit
hereunder only as set forth in Section 4.25.
6.09. Government Authorizations, etc. Each Borrower shall, and shall
cause each of its Subsidiaries to, obtain and maintain in full force and effect
all authorizations, consents, approvals, licenses, exemptions and other actions
by, and all registrations, qualifications, designations, declarations and other
filings with, any Official Body necessary or advisable in connection with the
execution and delivery of this Agreement, the Notes or any Loan Document,
consummation of the transactions herein or therein contemplated, performance of
or compliance with the terms and conditions hereof or thereof or to ensure the
legality, validity, enforceability and admissibility in evidence hereof or
thereof.
6.10. Contracts. Each Borrower shall, and shall cause each of its
Subsidiaries to, comply with all agreements or instruments to which it is a
party or by which it or any of its properties
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(now owned or hereafter acquired) may be subject or bound, provided that neither
the Borrowers nor any Subsidiary shall be deemed to be in violation of this
Section 6.10 as a result of any failure to comply which, singly or in the
aggregate, would not reasonably be expected to have a material adverse effect on
the business, operations, condition, financial or otherwise, or prospects of the
Borrowers or their Subsidiaries or on the ability of the Borrowers or their
Subsidiaries to perform their respective obligations under this Agreement, the
Notes or any Loan Document.
6.11. Environmental Matters.
(a) Hazardous Substances. Each Borrower shall, and shall cause each
of its Subsidiaries to, use its best efforts to prevent the deposit, emission,
discharge or release of any Hazardous Substances or residual wastes on the
properties owned or operated by it, unless such deposit, emission, discharge or
release is authorized by, and in full compliance with applicable Law (including
by the giving of all necessary financial assurances). Each Borrower shall, and
shall cause each of its Subsidiaries to, use its best efforts to handle, store,
transport and dispose of all Hazardous Substances or residual wastes generated
on properties owned or operated by it in compliance with all applicable Laws now
or hereafter enacted, and shall use its best efforts promptly to clean up any
accidental deposit, emission, discharge or release of Hazardous Substances,
pollutants or contaminants from or on any of the properties owned or operated by
it in accordance with applicable Law. Each Borrower shall, and shall cause each
of its Subsidiaries to, pay, collect or remit, as appropriate, in a timely
manner, all fees, taxes or other impositions imposed by any Official Body as a
result of the handling, storage, collection, treatment or disposal of solid
wastes or Hazardous Substances on any of the properties owned or operated by it.
(b) Financial Assurances. Each Borrower shall, and shall cause each
of its Subsidiaries to, at all times maintain and keep in effect appropriate
financial assurances, bonds or other financial security or liability insurance
required by any Official Body to be kept as conditions of any permits, licenses,
authorizations or other approvals necessary: to permit any Borrower or any
Subsidiary to operate pollution control equipment; to close facilities which
handled, stored, treated or disposed of Hazardous Substances or residual wastes
and to provide for post-closure care of the same; to undertake any cleanup or
remediation of areas on any of the properties owned or operated by it in or on
which Hazardous Substances or residual wastes were or are generated, handled,
stored, treated or disposed of; or otherwise required by any Official Body as a
condition of any Borrowers' or any Subsidiary's operation of all or any part of
the properties owned or operated by it.
(c) Indemnification. The Borrowers hereby agree to indemnify and
hold the Agent and the Banks harmless from and against any and all liability,
loss or damage which the Agent or any Bank may or might incur under the Loan
Documents arising from or relating to the existence of Hazardous Substances or
residual wastes on the Borrowers' or any Subsidiaries' properties.
6.12 Matters Concerning Acquisitions, Mergers and Investments.
(a) Consolidation of Financial Information. To the extent that a
transaction allowed pursuant to Section 7.08 or 7.09 hereof results in the
formation and continued existence of a Subsidiary of any Borrower, (a) the
consolidated financial statements required by Section 6.01 hereof shall include
such Subsidiary, and (b) the financial covenants set forth in Section 7.01 shall
be measured on a consolidated basis including such Subsidiary.
(b) Calculation of EBITDA. Prior to the closing of a proposed
transaction which would be allowed pursuant to Section 7.08 or 7.09 hereof, and
so long as no Event of Default or Potential Default exists, for purposes of
measuring the financial covenant set forth in Section 7.01(a) and calculating
the Applicable Margin in Section 2.05(a), the Borrowers may include in their
calculation of EBITDA the financial performance figures of the Person to be
acquired under the following circumstances:
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(i) If the Borrowers can demonstrate pro forma compliance with
all of the financial covenants set forth in Section 7.01 hereof,
which, solely for these purposes, shall be calculated by using (x)
EBITDA of the Borrowers and their consolidated Subsidiaries for the
prior four fiscal quarters, (y) the projected Funded Indebtedness
after giving effect to the proposed transaction, and (z) the maximum
permitted Funded Indebtedness to EBITDA Ratio as of the date of the
proposed transaction; or
(ii) If the Borrowers can demonstrate pro forma compliance with
all of the financial covenants set forth in Section 7.01 hereof,
which, solely for these purposes, shall be calculated by using (x)
EBITDA of the Borrowers and their consolidated Subsidiaries for the
prior four fiscal quarters adjusted by adding in on a pro forma basis
for the same period the EBITDA of the Person to be acquired, (y) the
projected Funded Indebtedness after giving effect to the proposed
transaction, and (z) the maximum permitted Funded Indebtedness to
EBITDA Ratio as of the date of the proposed transaction, but only if
each of the Banks consent.
Each of the Banks shall receive from the Borrowers a written request for
approval of a proposed calculation of EBITDA under this Section 6.12, such
request to be accompanied by a pro forma compliance certificate in the form
required by Section 6.01(d) hereof, a copy of the resolutions of the Person to
be acquired which resolutions approve the proposed transaction, and such other
documents which the Banks may reasonably request. The Banks shall use their
best efforts to respond to the Borrowers' request seven (7) Business Days after
their receipt of the certification, resolutions and all other documents which
the Banks may have requested.
(c) Delivery of Guaranty. To the extent that a transaction allowed
pursuant to Section 7.08 or 7.09 hereof results in the formation and continued
existence of a Subsidiary of any Borrower, within ten (10) Business Days of the
closing of such transaction, such Borrower shall deliver to the Agent a Guaranty
fully executed by such newly formed Subsidiary in favor of all of the Banks.
Article VII
Negative Covenants
The Borrowers covenant to each Bank as follows:
7.01. Financial Covenants.
(a) Funded Indebtedness to EBITDA Ratio. As of the last day of each
fiscal quarter, the Funded Indebtedness to EBITDA Ratio, as measured on a
rolling four quarter basis of the four most recent quarters, shall not exceed
3.00:1.00.
(b) Minimum Net Income. Net Income shall not be less than $500,000
as measured on a rolling four quarter basis of the four most recent quarters.
For purposes of this covenant only, Net Income shall exclude (i) the impact of
discontinued operations in Fremont, CA, (ii) the impact of benefit from possible
tax refunds due to operating loss, and (ii) any gain realized from the sale
proceeds of the Reedsville facility.
(c) Current Ratio. As of the last day of each fiscal quarter, the
Current Ratio shall not at any time be less than 1.25:1.00.
7.02. Liens. Each Borrower shall not, and shall not permit any of
its Subsidiaries to, at any time create, incur, assume or suffer to exist any
Lien on any of its property or assets, tangible or intangible, now owned or
hereafter acquired, or agree or become liable to do so, except for the following
("Permitted Liens"):
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(a) Liens existing on the date hereof and listed in Schedule 7.02;
(b) Liens arising from taxes, assessments, charges, levies or claims
described in Section 6.05 that are not yet due or that remain payable
without penalty or to the extent permitted to remain unpaid under the
proviso to such Section 6.05;
(c) Deposits or pledges to secure workmen's compensation,
unemployment insurance, old age benefits or other social security
obligations, or in connection with or to secure the performance of bids,
tenders, trade contracts or leases, or to secure statutory obligations, or
stay, surety or appeal bonds, or other pledges or deposits of like nature
and all in the ordinary course of business;
(d) Liens arising from legal proceedings, so long as such proceedings
are being contested in good faith by appropriate proceedings diligently
conducted and so long as execution is stayed on all judgments resulting
from any such proceedings; and
(e) Zoning restrictions, easements, minor restrictions on the use of
real property, minor irregularities in title thereto and other minor Liens
that do not secure the payment of money or the performance of an obligation
and that do not, singly or in the aggregate, materially detract from the
value of a property or asset to, or materially impair its use in the
business of, the Borrowers or their Subsidiaries.
(f) Liens (whether or not assumed) existing on property at the time
of purchase thereof by any Borrower or any of its Subsidiaries or to secure
payment of the purchase price thereof, provided, that:
(i) such Lien is created before or substantially simultaneously
with the purchase of such property in the ordinary course of business
by any Borrower or any of its Subsidiaries;
(ii) such Lien is confined solely to the property so purchased,
improvements thereto and proceeds thereof;
(iii) the aggregate amount secured by all such Liens on any
particular property at the time purchased by any Borrower or any of
its Subsidiaries, as the case may be, shall not exceed the lesser of
the purchase price of such property or the fair market value of such
property at the time of purchase thereof ("purchase price" for this
purpose including the amount secured by each such Lien thereon whether
or not assumed);
(iv) the obligation secured by such Lien is Indebtedness
permitted under Section 7.03(d); and
(v) the total Indebtedness secured by such Liens shall not
exceed $1,500,000 in the aggregate on a per annum basis.
7.03. Indebtedness. Each Borrower shall not, and shall not permit
any of its Subsidiaries to, at any time create, incur, assume or suffer to exist
any Indebtedness, except:
(a) Indebtedness under this Agreement, the Notes or any Loan
Document;
(b) Indebtedness appearing on the Borrowers' financial statements
dated as June 30, 1998 (excluding the debts to be satisfied or refinanced
under this Agreement) and listed in Schedule 7.03;
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(c) Current accounts payable now existing or hereafter arising out of
transactions (other than borrowings) in the ordinary course of business of
the Borrowers and their Subsidiaries; and
(d) Purchase money indebtedness and Capitalized Lease Obligations of
the Borrowers and their Subsidiaries in an amount not to exceed $1,500,000
in the aggregate on a per annum basis.
7.04. Guarantees and Similar Liabilities. Each Borrower shall not,
and shall not permit any of its Subsidiaries to, at any time directly or
indirectly assume, guarantee, become surety for, endorse or otherwise agree,
become or remain liable upon or with respect to any Indirect Guarantee, except:
(a) Obligations under or in respect of this Agreement, the Notes and
the Loan Documents;
(b) Guarantees and contingent liabilities existing on the date hereof
and listed in Schedule 7.04;
(d) Obligations to pay the purchase price of goods or services on
usual and customary terms in the ordinary course of business;
(e) Contingent liabilities arising from the endorsement of negotiable
or other instruments for deposit or collection or similar transactions in
the ordinary course of business; and
(f) Indemnities of the liabilities of directors or officers pursuant
to provisions contained in its articles of incorporation or by-laws or as
otherwise permitted by applicable law.
7.05. Loans and Investments. Each Borrower shall not, and shall not
permit any of its Subsidiaries to, at any time make or suffer to remain
outstanding any loan or advance to, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) in, or any other interest in, or make any capital contribution to, any
other Person, or agree, become or remain liable to do any of the foregoing,
except:
(a) Loans and investments existing on the date hereof and listed in
Schedule 7.05;
(b) Trade credit extended, and loans and advances extended to
subcontractors or suppliers, under usual and customary terms in the
ordinary course of business;
(c) Advances to employees of any Borrower or any of its Subsidiaries
to allow such employees to meet expenses incurred by such employees in the
ordinary course of business or advances to employees or prospective
employees of any Borrower or any of its Subsidiaries for the purpose of
attracting or recruiting such employees or prospective employees, provided
that the aggregate amount of all advances pursuant to this Section 7.05(c)
shall not exceed $200,000 at any time outstanding;
(d) Demand deposits, time deposits or certificates of deposit in
United States commercial banks having shareholders' equity of at least
$100,000,000 and maturing not in excess of one year from the date of
acquisition;
(e) Obligations backed by the full faith and credit of the United
States of America maturing not in excess of one year from the date of
acquisition, commercial paper maturing not in excess of 180 days from the
date of acquisition and rated P-1 by Moody's Investors Service, Inc. or A-1
by Standard & Poor's Corporation on the date of acquisition;
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(f) Notes or securities received in good faith settlement of loans or
investments described in this Section 7.05, if such loan or investment was
not made in the expectation of such settlement; and
(g) Investments allowed under Section 7.08 hereof.
7.06. Distributions to Shareholders. Except with the prior written
approval of all of the Banks, each Borrower shall not, and shall not permit any
of its Subsidiaries to, declare, make, pay or set apart assets for a fund to
pay, or agree, become or remain liable to make or pay, or set apart assets for a
fund to pay, any dividend or other distribution of any nature (whether in cash,
property, securities or otherwise) on account of, or in respect of, any shares
of the capital stock of the Borrowers or their Subsidiaries or for or on account
of the purchase, redemption, defeasance, retirement or acquisition of any shares
of any class of the capital stock (or warrants, options or rights therefor) of
the Borrowers or their Subsidiaries, whether now or hereafter outstanding, or
make any other distribution in respect thereof, either directly or indirectly,
whether in cash or property or in obligations of the Borrowers or their
Subsidiaries, or permit any Affiliate to make any payment on account of, or
purchase or otherwise acquire, any equity interest in the Borrowers or their
Subsidiaries from any Person; provided, however, that
(a) the Borrowers and their Subsidiaries may declare, make and pay
dividends or distributions on account of their capital stock or on account of
the purchase, redemption, retirement or acquisition of such capital stock if
such dividend or distribution is payable solely in shares of capital stock (or
warrants, options or rights therefor) of the Borrowers or their Subsidiaries, so
long as no Event of Default or Potential Default exists;
(b) any Subsidiary of the Borrowers may declare, make and pay
dividends or distributions on account of its capital stock to a Borrower so long
as such payments do not exceed the Net Income of such Subsidiary and no Event of
Default or Potential Default exists; and
(c) C-Cor may purchase its own capital stock, so long as such
purchases do not exceed $1,000,000 in the aggregate at all times and so long as
no Event of Default or Potential Default exists.
7.07. Sale-Leasebacks. Each Borrower shall not, and shall not
permit any of its Subsidiaries to, at any time enter into or suffer to remain in
effect any transaction involving the sale, transfer or other disposition by any
Borrower or any of their Subsidiaries of any property, real or personal, now
owned or hereafter acquired, with a view directly or indirectly to the leasing
back of any part of the same property or any other property used for the same or
a similar purpose or purposes.; provided, that the Borrowers may enter into
sale-leaseback transactions with equipment so long as (a) the cash received in
such transaction is greater than or equal to the fair market value of the
equipment subject to the sale-leaseback, (b) no Event of Default or Potential
Default exists, and (c) such sale-leaseback transactions do not exceed
$3,000,000 in the aggregate at all times.
7.08. Acquisitions; Mergers, Etc.. Each Borrower shall not, and shall
not permit any of its Subsidiaries to, enter into any transaction of acquisition
or merger or consolidation or amalgamation or division, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), except that the
Borrowers may merge with, consolidate with or acquire all or substantially all
of the operating assets of a Person, or purchase, acquire or own any stock,
bonds, notes or securities of, or any partnership interest (whether general or
limited) in, or any other interest in, or make any capital contribution to, any
other Person, so long as:
(a) The total legal consideration paid by the Borrowers does not
exceed $10,000,000 in the aggregate per fiscal year for all such
transactions, except for transactions where the sole legal consideration is
the Stock of a Borrower;
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(b) The Person is historically profitable based on unadjusted GAAP
during the most recent fiscal year, except where the transaction is an
investment in cash to acquire less than 50% of the Person's capital stock
("Minority Investment" and "Minority Investments"), in which case the
Person must have a positive EBITDA for the twelve months immediately prior
to the acquisition, based on unadjusted GAAP;
(c) The Person must be engaged in a business substantially the same
as, or complimentary to, the business conducted and operated by the
Borrowers ("substantially" and "complimentary" to be determined by the
Agent in its sole discretion);
(d) Each Borrower, after giving effect to the acquisition,
consolidation or merger, is in compliance with the financial covenants set
forth in Section 7.01 hereof, on an historical and pro forma basis;
(e) No Event of Default or Potential Default exists; and
(f) C-Cor is the surviving legal entity (except for transactions
which are Minority Investments).
7.09. Dispositions of Assets. Each Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, convey, assign, lease, abandon or
otherwise transfer or dispose of, voluntarily or involuntarily (any of the
foregoing being referred to in this Section 7.09 as a "transaction" and any
series of related transactions constituting but a single transaction), a
substantial part ("substantial" to be determined by Agent, in its sole
discretion) of its properties or assets, tangible or intangible (including but
not limited to sale, assignment, discount or other disposition of accounts,
contract rights, chattel paper or general intangibles with or without recourse),
except in transactions in the ordinary course of business.
7.10. Transactions with Affiliates. Each Borrower shall not, and
shall not permit any of its Subsidiaries to, enter into or carry out any
transaction with (including, without limitation, purchasing property or services
from or selling property or services to) any Affiliate except:
(a) Directors, officers and employees of the Borrowers may render
services to the Borrowers for compensation at the same rates generally paid
by corporations engaged in the same or similar businesses for the same or
similar services;
(b) The Borrowers may enter into and carry out other transactions
with its Affiliates if in the ordinary course of business, pursuant to the
reasonable requirements of the Borrowers' business, and upon terms which
are fair and reasonable and no less favorable to the Borrowers than would
obtain in a comparable arm's-length transaction; and
(c) This provision shall not apply to transactions between a
Borrower, on the one hand, and one or more of its wholly-owned
Subsidiaries, on the other hand.
7.11. Continuation of or Change in Business. Each Borrower shall,
and shall cause each of its Subsidiaries to, continue to engage in the business
substantially as conducted and operated by the Borrowers and their Subsidiaries
during the present and preceding fiscal years of such Persons, and each Borrower
will not, and will not permit any of its Subsidiaries to, engage in any other
business.
7.12. Regulation U. Each Borrower shall not, and shall not permit
any of its Subsidiaries to, use the proceeds of any Loans hereunder or use a
Letter of Credit directly or indirectly to purchase or carry any "margin stock"
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System) or to extend credit to others for the purpose of purchasing or
carrying, directly or indirectly, any such margin stock.
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Article VIII
Defaults
8.01. Events of Default. An Event of Default shall mean the
occurrence or existence of one or more of the following events or conditions
(whatever the reason for such Event of Default and whether voluntary,
involuntary or effected by operation of Law):
(a) The Borrowers shall fail to pay when due the principal of or
interest on any Note or Letter of Credit Reimbursement Obligation, any fee
or any other amount due hereunder or under any Note; or
(b) Any representation or warranty made by the Borrowers under this
Agreement or under any of the Loan Documents or any statement made by the
Borrowers in any financial statement, certificate, report, exhibit or
document furnished by the Borrowers to the Agent or any Bank pursuant to
this Agreement or any Loan Document shall prove to have been false or
misleading in any material respect as of the time when made (including by
omission of material information necessary to make such representation,
warranty or statement in light of the circumstances under which it was
made, not misleading); or
(c) The Borrowers shall default in the performance or observance of
any covenant contained in Article VI or Article VII hereof or under any
Note or Loan Document; or
(d) (i) Any Subsidiary shall default in the performance or observance
of any covenant under its respective Guaranty or shall fail to pay when due
any amount due under the Guaranty or any other Loan Document; (ii) any
representation or warranty made by any Subsidiary under its Guaranty shall
prove to have been false or misleading in any material respect as of the
time when made (including by omission of material information necessary to
make such representation, warranty or statement in light of the
circumstances under which it was made, not misleading); or
(e) Any Borrower or any of its Subsidiaries (i) shall default (as
principal or as guarantor or other surety) in any payment of any obligation
(or set of related obligations) in respect of Indebtedness owing to the
Agent or any other Indebtedness in excess of $100,000 in aggregate amount
beyond any period of grace with respect thereto or, if such obligation or
obligations is or are payable or repayable on demand, shall fail to pay or
repay such obligation or obligations when demanded or (ii) shall default in
the observance of any covenant, term or condition contained in any
agreement or instrument by which such obligation or obligations is or are
created, secured or evidenced if the effect of such default is to cause, or
to permit the holder or holders of such obligation or obligations (or a
trustee or agent on behalf of such holder or holders) to cause, all or part
of such obligation or obligations to become due before its or their
otherwise stated maturity; provided that if an event or condition described
in subsection (i) or (ii) of this Section 8.01(e) would have occurred or
existed but for the grant of a waiver or similar indulgence to any Borrower
or any of its Subsidiaries, no such waiver or indulgence shall be deemed to
exist if any Borrower or any of its Subsidiaries pays or agrees to pay any
consideration for such waiver or indulgence (including but not limited to a
reduction in maturity, an increase in rates or the granting of collateral);
or
(f) If any Bank shall make a determination that the potential
liabilities associated with the events set forth in subsections (i) through
(ix) below, individually or in the aggregate, would reasonably be expected
to have a material adverse effect on the business, operations, condition,
financial or otherwise, or prospects of any Borrower or any of its
Subsidiaries or on the ability of any Borrower or any of its Subsidiaries
to perform their respective obligations under this Agreement, the Notes or
any Loan Document:
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(i) The PBGC notifies a Plan pursuant to Section 4042 of ERISA
by service of a complaint, threat of filing a law suit or otherwise of
its determination that an event described in Section 4042(a) of ERISA
has occurred, a Plan should be terminated, or a trustee should be
appointed for a Plan; or
(ii) Any action is taken to terminate a Plan pursuant to its
provisions or the plan administrator files with the PBGC any notice in
connection with the termination of a Plan in accordance with Section
4041 of ERISA; or
(iii) Any action is taken by a plan administrator to have a
trustee appointed for a Plan pursuant to Section 4042 of ERISA; or
(iv) A return is filed with the Internal Revenue Service, or a
Plan is notified by the Secretary of the Treasury that a notice of
deficiency under Section 6212 of the Code has been mailed, with
respect to the tax imposed under Section 4971(a) of the Code for
failure to meet the minimum funding standards established under
Section 412 of the Code; or
(v) A Reportable Event occurs with respect to a Plan other than
a Reportable Event described in 29 C.F.R. Part 2615.13 or 2615.19 that
occurs solely as a result of an amendment to or merger of a Plan made
solely for the purpose of complying with the Tax Reform Act of 1986,
as amended, provided that the representations in Section 4.10 continue
to be true immediately after such amendment or merger becomes
effective; or
(vi) Any action is taken to amend a Plan to become an employee
benefit plan described in Section 4021(b)(1) of ERISA, causing a Plan
termination under Section 4041(e) of ERISA; or
(vii) Any Borrower or any Controlled Group Member receives a
notice of liability or demand for payment on account of complete
withdrawal under Section 4203 of ERISA, partial withdrawal under
Section 4205 of ERISA or on account of becoming secondarily liable for
withdrawal liability payments under Section 4204 of ERISA (sale of
assets); or
(viii) The assets of any Borrower or any Controlled Group Member
are encumbered as a result of security provided to a Plan pursuant to
Section 412 of the Code or Section 306 of ERISA in connection with a
request for a minimum funding waiver or extension of the amortization
period, or pursuant to Section 401(a)(29) of the Code or Section 307
of ERISA as a result of a Plan amendment; or
(ix) Any Borrower or a Controlled Group Member fails to pay the
PBGC premium with respect to a Plan when due and it remains unpaid for
more than thirty (30) days thereafter; or
(g) One or more judgments for the payment of money shall have been
entered against a Borrower or any of its Subsidiaries, which judgment or
judgments exceed $100,000 in the aggregate, and such judgment or judgments
shall have become final and nonappealable or shall have remained
undischarged and unstayed for a period of thirty consecutive days; or
(h) A writ or warrant of attachment, garnishment, execution,
distraint or similar process shall have been issued against a Borrower or
any of its properties which shall have remained undischarged and unstayed
for a period of thirty consecutive days; or
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(i) Any authorization, consent, approval, license, exemption,
registration, qualification, designation, declaration, filing or other
action or undertaking now or hereafter made by or with any Official Body in
connection with this Agreement, the Notes or any Loan Document or any such
action or undertaking now or hereafter necessary or advisable to make this
Agreement, the Notes or any Loan Document legal, valid, enforceable and
admissible in evidence is not obtained or shall have ceased to be in full
force and effect or shall have been modified or amended or shall have been
held to be illegal or invalid, and the Agent or any Bank shall have
determined in good faith (which determination shall be conclusive) that
such event or occurrence would reasonably be expected to have a material
adverse effect on the Agent's or any Bank's rights under this Agreement,
any Note or any Loan Document; or
(j) If any Bank shall have determined in good faith that a material
adverse change has occurred in the business, operations, condition,
financial or otherwise, or prospects of any Borrower or any of its
Subsidiaries or that the prospect of payment or of performance of any
material covenant, agreement or duty under this Agreement, the Notes or any
Loan Document is impaired in any material respect and, in the judgment of
the Agent or any Bank, is not reasonably capable of being cured within a
reasonable period of time; or
(k) A proceeding shall have been instituted in respect of any
Borrower or any Subsidiary:
(i) seeking to have an order for relief entered in respect of
such Person or seeking a declaration or entailing a finding that such
Person is insolvent or a similar declaration or finding, or seeking
dissolution, winding-up, charter revocation or forfeiture,
liquidation, reorganization, arrangement, adjustment, composition or
other similar relief with respect to such Person, its assets or its
debts under any law relating to bankruptcy, insolvency, relief of
debtors or protection of creditors, termination of legal entities or
any other similar law now or hereafter in effect, or
(ii) seeking appointment of a receiver, trustee, custodian,
liquidator, assignee, sequestrator or other similar official for such
Person or for all or any substantial part of its property,
and such proceeding shall result in the entry, making or grant of any such
order for relief, declaration, finding, relief or appointment, or such
proceeding shall remain undismissed and unstayed for a period of thirty
consecutive days; or
(l) Any Borrower or any of its Subsidiaries shall become insolvent,
shall become generally unable to pay its debts as they become due, shall
voluntarily suspend transaction of its business, shall make a general
assignment for the benefit of creditors, shall institute a proceeding
described in Section 8.01(k)(i) or shall consent to any such order for
relief, declaration, finding or relief described therein, shall institute a
proceeding described in Section 8.01(k)(ii) or shall consent to any such
appointment or to the taking of possession by any such official of all or
any substantial part of its property whether or not any such proceeding is
instituted, shall dissolve, wind up or liquidate itself or any substantial
part of its property, or shall take any action in furtherance of any of the
foregoing.
8.02. Consequences of an Event of Default.
(a) If an Event of Default specified in subsections (a) through (j)
of Section 8.01 shall occur and be continuing or shall exist the Banks shall be
under no further obligation to make Loans and the Issuing Bank shall be under no
further obligation to issue a Letter of Credit hereunder, the Banks may
terminate the Commitments, and the Agent may, and, upon the written request of
the Required Banks, shall, declare the unpaid principal amount of the Notes, all
Letter of Credit Reimbursement Obligations,
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interest accrued thereon and all other amounts owing by the Borrowers hereunder
or under the Notes to be immediately due and payable without presentment,
demand, protest or notice of any kind, all of which are hereby expressly waived,
and an action therefor shall immediately accrue.
(b) If an Event of Default specified in subsection (k) or (l) of
Section 8.01 hereof shall occur or exist, the Banks shall be under no further
obligation to make Loans and the Issuing Bank shall be under no further
obligation to issue a Letter of Credit hereunder, the Commitments automatically
shall be terminated, and the unpaid principal amount of the Notes, all Letter of
Credit Reimbursement Obligations, interest accrued thereon and all other amounts
owing by the Borrowers hereunder or under the Notes shall become immediately due
and payable without presentment, demand, protest or notice of any kind, all of
which are hereby expressly waived, and an action therefor shall immediately
accrue.
8.03. Set-Off. If the unpaid principal amount of any Note or Letter
of Credit Reimbursement Obligation, interest accrued thereon or other amount
owing by the Borrowers hereunder or under any Note shall have become due and
payable (by acceleration or otherwise), the Banks and any branch, subsidiary or
affiliate of such Banks anywhere in the world each shall have the right, in
addition to all other rights and remedies available to it, without notice to the
Borrowers, to set-off against and to appropriate and apply to such due and
payable amounts any debt owing to, and any other funds held in any manner for
the account of, the Borrowers by such Bank or by such branch, subsidiary or
affiliate, including, without limitation, all funds in all deposit accounts
(whether time or demand, general or special, provisionally credited or finally
credited, or otherwise) now or hereafter maintained by the Borrowers with such
Bank or such branch, subsidiary or affiliate. Such right shall exist whether or
not any such Bank shall have given notice or made any demand hereunder or under
any Note, whether or not such debt owing to or funds held for the account of the
Borrowers is or are matured or unmatured and regardless of the existence or
adequacy of any collateral, guaranty or any other security, right or remedy
available to the Banks. Such right shall exist regardless of the currency in
which is expressed such debt owing to or such funds held for the account of the
Borrowers, and if such a debt is or such funds are expressed in a currency (the
"Set-off Currency") other than the currency payable hereunder (the "Contractual
Currency"), for purposes of effecting set-off the rate of exchange used shall be
that at which in accordance with normal banking procedures the Bank or such
branch, subsidiary or affiliate could purchase the Contractual Currency with the
Set-off Currency on the Business Day following such set-off. The Borrowers
hereby consent to and confirm the foregoing arrangements and confirm each Bank's
rights and each such branch's, subsidiary's and affiliate's rights of banker's
lien and set-off. Nothing in this Agreement shall be deemed a waiver or
prohibition of or restriction on any Bank's rights or any such branch's,
subsidiary's or affiliate's rights of banker's lien or set-off.
8.04. Equalization Among Banks and Participants. The Banks and the
Participants hereby agree among themselves that, with respect to all amounts
received by the Bank or any such Participant for application on any obligation
hereunder or under the Notes or under any such participation, whether received
by voluntary payment, by realization upon security, by the exercise of the right
of set-off or banker's lien, by counterclaim or by any other non-pro rata
source, equitable adjustment will be made in the manner stated in the following
sentence so that, in effect, all such excess amounts will be shared ratably
among the Banks and such Participants in proportion to their interests in
payments under the Notes. The Bank or any such Participant receiving any such
amount shall purchase for cash from the Banks and the other Participants, as the
case may be, an interest therein or in such Participant's participation in the
Notes, as the case may be, in such amount as shall result in a ratable
participation by the Banks and each such Participant in the aggregate unpaid
amount under the Notes, provided that if all or any portion of such excess
amount is thereafter recovered from the Bank or Participant or the Participant
making such purchase, such purchase shall be rescinded and the purchase price
restored to the extent of such recovery, together with interest or other
amounts, if any, required by Law (including court order) to be paid by the Bank
or Participant making such purchase.
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Article IX
The Agent
9.01. Appointment; Administrative Fee. The Banks hereby appoint
Mellon Bank, N.A. to act as Agent as herein specified for the Banks hereunder
and under the Loan Documents. Each of the Banks hereby irrevocably authorizes,
and each holder of any Note by the acceptance of such Note shall be deemed
irrevocably to authorize, the Agent to take such action on its behalf under the
provisions of this Agreement and the Loan Documents, and to exercise such powers
and to perform such duties hereunder and thereunder, as are specifically
delegated to or required of the Agent by the terms hereof or thereof, together
with such powers as are reasonably incidental thereto. Mellon Bank, N.A. agrees
to act as Agent on behalf of the Banks to the extent provided in this Agreement
and the Loan Documents.
9.02. Delegation of Duties. The Agent may perform any of its duties
hereunder or under the Loan Documents by or through agents or employees. The
Agent may consult with legal counsel (including counsel for the Borrowers),
independent public accountants and any other experts selected by it and shall
not be liable to the Banks for any action taken or omitted to be taken in good
faith by it in accordance with the advice of such counsel, accountants or
experts.
9.03. Nature of Duties; Independent Credit Investigation. The Agent
shall have no duties or responsibilities except those expressly set forth in
this Agreement or in the Loan Documents. The duties of the Agent shall be
mechanical and administrative in nature; the Agent shall not have by reason of
this Agreement, any Note or any Loan Document a fiduciary relationship in
respect of any Bank; and nothing in this Agreement, any Note or any Loan
Document, expressed or implied, is intended to or shall be so construed as to
impose upon the Agent any obligations in respect of this Agreement, the Notes or
any Loan Document except as expressly set forth herein or therein. Each Bank
expressly acknowledges (a) that the Agent has not made any representations or
warranties to it and that no act by the Agent hereafter taken, including any
review of the affairs of the Borrowers, shall be deemed to constitute any
representation or warranty by the Agent to any Bank; (b) that it has made and
will make its own independent investigation of the financial condition and
affairs, and its own appraisal of the creditworthiness, of the Borrowers in
connection with this Agreement, the Notes and the Loan Documents; and (c) that
the Agent shall have no duty or responsibility, either initially or on a
continuing basis, to provide any Bank with any credit or other information
except as otherwise provided herein, whether coming into its possession before
the making of any Loans or the issuance of a Letter of Credit hereunder or at
any time or times thereafter.
9.04. Actions in Discretion of Agent; Instructions from Banks. The
Agent agrees, upon the written request of the Required Banks, to take any action
of the type specified as being within the Agent's rights, powers or discretion
herein or in the Loan Documents. In the absence of a request by the Required
Banks, the Agent shall have authority pursuant to Section 10.03, in its sole
discretion, to take or not to take any such action, unless this Agreement or any
Loan Document specifically requires the consent of the Required Banks. Any
action taken or failure to act pursuant to such instructions or discretion shall
be binding on all the Banks and on all holders of Notes. No Bank shall have any
right of action whatsoever against the Agent as a result of the Agent acting or
refraining from acting hereunder in accordance with the instructions of the
Required Banks, or, in the absence of such instructions, in the absolute
discretion of the Agent, subject to the provisions of Section 9.05(b).
9.05. Exculpatory Provisions.
(a) Liability of Agent. Neither the Agent nor any of its directors,
officers, employees or agents shall be liable to any Bank for any action taken
or omitted to be taken by it or them hereunder or under the Notes or any Loan
Document or in connection herewith or therewith, unless caused by its or their
own gross negligence or willful misconduct. In performing its functions and
duties hereunder or thereunder on behalf of the Banks, the Agent shall exercise
the same care which it would exercise in dealing with loans for its own account,
but it shall not (i) be responsible in any manner to any of the
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Banks for the effectiveness, enforceability, genuineness, validity or due
execution of this Agreement, the Notes or any Loan Document, or for any recital,
representation, warranty, document, certificate, report or statement herein or
therein or made or furnished under or in connection with this Agreement, the
Notes or any Loan Document, or (ii) be under any obligation to any of the Banks
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions hereof or thereof on the part of the Borrowers,
or the financial condition of the Borrowers, or the existence or possible
existence of any Event of Default or Potential Default.
(b) Notice of Default. The Agent shall be under no obligation to any
of the Banks to ascertain the existence or possible existence of any Event of
Default or Potential Default and shall not be deemed to have knowledge of the
occurrence of an Event of Default or Potential Default unless a required payment
by the Borrowers to the Agent has not been made or the Agent has received notice
from a Bank or the Borrowers specifying such Event of Default or Potential
Default and stating that such notice is a "Notice of Default". In the event
that the Agent receives such a notice of the occurrence of an Event of Default
or Potential Default, the Agent shall give prompt notice thereof to the Banks
(and shall give each Bank prompt notice of each such nonpayment). The Agent
shall (subject to Section 10.03) take such action with respect to such Event of
Default or Potential Default as shall be directed by the Required Banks,
provided that, unless and until the Agent shall have received such directions,
the Agent may (but shall not be obligated to) take such action, or refrain from
taking such action, with respect to such Event of Default or Potential Default
as it shall deem advisable and in the best interests of the Banks.
9.06. Reimbursement and Indemnification. Each Bank agrees to
reimburse and indemnify the Agent (to the extent not reimbursed by the
Borrowers), ratably in proportion to its Commitment, for and against any and all
liabilities, obligations, losses, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against the Agent, in its capacity as such,
in any way relating to or arising out of this Agreement, the Notes or any Loan
Document or any action taken or omitted by the Agent hereunder or thereunder,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements to the extent that they result from the Agent's gross
negligence or willful misconduct.
9.07. Reliance by Agent. The Agent shall be entitled to rely upon
any writing, telegram, telex or teletype message, resolution, notice, consent,
certificate, letter, cablegram, statement, order or other document or
conversation by telephone or otherwise believed by it to be genuine and correct
and to have been signed, sent or made by the proper party or parties, and upon
opinions of counsel and other professional advisers selected by the Agent.
Subject to Section 9.05(b), the Agent shall be fully justified in failing or
refusing to take any action hereunder unless it first shall be indemnified to
its satisfaction by the Banks against any and all liability and expense which
may be incurred by it by reason of taking or continuing to take any such action.
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9.08. Mellon Bank, N.A. in its Individual Capacity. With respect to
its Commitment, the Loans made by it and the Notes and Letter of Credit
Reimbursement Obligations held by it, Mellon Bank, N.A. shall have the same
rights and powers hereunder as any other Bank and may exercise the same as
though it were not the Agent, and the terms "Banks", "holders of Notes" or
"holders of Letter of Credit Reimbursement Obligations" shall, unless the
context hereof otherwise indicates, include Mellon Bank, N.A. in its individual
capacity. Except as otherwise provided herein, Mellon Bank, N.A. and its
affiliates may, without liability to account, make loans to, accept deposits
from, act as trustee under indentures of, and generally engage in any kind of
banking or trust business with, the Borrowers and their respective stockholders
and affiliates as though it were not acting as Agent hereunder.
9.09. Holders of Notes. The Agent may deem and treat the payee of
any Note as the owner of such Note for all purposes hereof unless and until
written notice of the assignment or transfer thereof shall have been filed with
the Agent. Any request, authority or consent of any party who at the time of
making such request or giving such authority or consent is the holder of any
Note shall be conclusive and binding on any subsequent holder, transferee or
assignee of such Note or of any Note or Notes issued in exchange therefor.
9.10. Successor Agent.
(a) The Agent may resign at any time by giving thirty (30) days' prior
written notice thereof to the Banks and the Borrowers, such resignation to be
effective on the date specified therein and, on such date, the resigning Agent
automatically shall be discharged from its duties under this Agreement and the
Loan Documents without requirement of any further action by such resigning
Agent. Upon any such resignation, the Required Banks shall have the right to
appoint a successor Agent. If no successor Agent shall have been appointed, and
shall have accepted such appointment, within ten (30) days after such notice of
resignation or removal, then the Agent, on behalf of the Banks, may, but shall
not be obligated to, appoint a successor Agent which shall be either a Bank or a
commercial bank organized under the laws of the United States of America or any
state thereof and having a combined capital and surplus of at least
$100,000,000. Upon the appointment of a successor Agent and the acceptance by
such successor Agent of its appointment, such successor Agent shall thereupon
succeed to and become vested with all the rights, powers, privileges and duties
of the former Agent. After any Agent's resignation hereunder as Agent, the
provisions of this Article IX shall inure to its benefit as to any actions taken
or omitted by it while it was Agent under this Agreement and under the Loan
Documents.
(b) Notwithstanding any other provision of this Agreement, the Notes
or any Loan Document to the contrary, neither the Agent nor any of its
directors, officers, employees or agents shall be liable to any Bank for any
action taken or omitted to be taken by it or them under or in connection with
this Section 9.10.
9.11. Calculations. In the absence of gross negligence or willful
misconduct, the Agent shall not be liable for any error in computing the amount
payable to any Bank whether in respect of the Loans, Letter of Credit
Reimbursement Obligations, fees or other amounts due to the Banks under this
Agreement, the Notes or any Loan Document. In the event an error in computing
any amount payable to any Bank is made, the Agent, the Borrowers and each
affected Bank shall, forthwith upon discovery of such error, make such
adjustments as shall be required to correct such error, and any compensation
therefor will be calculated at the Fed Funds Rate.
Article X
Miscellaneous
10.01. Holidays. Except as otherwise provided herein, whenever any
payment or action to be made or taken hereunder or under the Notes or any Loan
Document shall be stated to be due on a day which is not a Business Day, such
payment or action shall be made or taken on the next following
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Business Day, and such extension of time shall be included in computing interest
or fees, if any, in connection with such payment or action.
10.02. Records. The unpaid principal amount of the Notes and Letter
of Credit Reimbursement Obligations, the unpaid interest accrued thereon, the
interest rate or rates applicable to such unpaid principal amounts, the duration
of such applicability, each Bank's Commitment and Letter of Credit Proportion
and accrued and unpaid fees shall at all times be ascertained from the records
of the Agent, which shall be conclusive absent manifest error.
10.03. Amendments or Waivers. The Borrowers, the Required Banks and
the Agent may from time to time enter into agreements amending, modifying or
supplementing this Agreement, the Notes or any Loan Document or changing the
rights or obligations of the Borrowers, the Banks or the Agent hereunder or
thereunder, and the Required Banks, or the Agent with the prior written consent
of the Required Banks, may from time to time grant waivers or consents to a
departure from the due performance of the obligations of the Borrowers hereunder
or thereunder; provided, however, that any amendment, waiver or consent which
would (a) reduce or increase the amount or alter the terms of the Commitment of
any Bank or any Bank's obligation to participate in a Letter of Credit or alter
the provisions hereof relating to the fees to be paid with respect to any such
Commitment or obligation; (b) extend the time for payment of principal of or
interest on any Note or the expiration date of a Letter of Credit or otherwise
affect the terms of payments of the principal of or interest on any Loan or
Letter of Credit Reimbursement Obligation or any other amount payable in respect
of the Loans or a Letter of Credit; (c) amend, waive or give consent required by
Section 7.02, 7.03 and 7.08; or (d) amend this Section 10.03 or change the
definition of the term "Required Banks", may not occur without the prior written
consent of all the Banks; and provided further that any amendment, waiver or
consent to any of the provisions of Article III of this Agreement, or which
otherwise would affect the rights and duties of the Issuing Bank hereunder,
shall require the prior written consent of the Issuing Bank, and any amendment,
waiver or consent to any of the provisions of Article IX of this Agreement, or
which otherwise would affect the rights and duties of the Agent hereunder, shall
require the prior written consent of the Agent. Any such agreement, waiver or
consent must be in writing and shall be effective only to the extent
specifically set forth in such writing. In the case of any waiver or consent
relating to any Event of Default or Potential Default hereunder, such Event of
Default or Potential Default so waived or consented to shall be deemed to be
cured and not continuing, but no such waiver or consent shall extend to any
other or subsequent Event of Default or Potential Default or impair any right
consequent thereto.
10.04. No Implied Waiver; Cumulative Remedies. No course of dealing
and no delay or failure of the Agent, the Issuing Bank or any Bank in exercising
any right, power or privilege under this Agreement, the Notes or any Loan
Document shall affect any other or future exercise thereof or the exercise of
any other right, power or privilege; nor shall any single or partial exercise of
any such right, power or privilege or any abandonment or discontinuance of steps
to enforce such a right, power or privilege preclude any further exercise
thereof or of any other right, power or privilege. The rights and remedies of
the Agent, the Issuing Bank and the Banks under this Agreement, the Notes and
the Loan Documents are cumulative and not exclusive of any rights or remedies
which the Agent, the Issuing Bank or any Bank otherwise would have.
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10.05. Notices. All notices under Sections 2.01, 2.02, 2.04, 2.05,
2.06 or 2.07 shall be sent to the Agent by telex (which shall be effective when
received) or by telephone confirmed by telex or first-class mail (which shall be
effective when telephoned), in all cases with charges prepaid. All notices
under Sections 2.05(a) and (f), and 2.10 shall be sent to the Borrowers by telex
(which shall be effective when received), by telephone confirmed by telex or
first-class mail (which shall be effective when telephoned) or by first-class or
first-class express mail (which shall be effective when received), in all cases
with charges prepaid. All other notices, requests, demands, directions and
other communications (collectively "notices") under the provisions of this
Agreement, the Notes or any Loan Document shall be in writing (including telexed
communication) unless otherwise expressly provided hereunder or thereunder and
shall be sent by first-class or first-class express mail, or by telex with
confirmation in writing mailed first-class, in all cases with charges prepaid,
and any such properly given notice shall be effective when received. All
notices shall be sent to the applicable party at the address stated on the
signature page hereof or in accordance with the last unrevoked written direction
from such party to the other parties hereto.
10.06. Expenses; Taxes; Attorneys' Fees.
(a) The Borrowers agree to pay or cause to be paid and to save the
Agent, the Issuing Bank and the Banks harmless against liability for the payment
of all reasonable out-of-pocket expenses, including but not limited to fees and
expenses of counsel for the Agent, the Issuing Bank and the Banks, incurred by
the Agent, the Issuing Bank or the Banks from time to time and (a) arising in
connection with the preparation, execution, delivery and performance of this
Agreement, the Notes, a Letter of Credit and the Loan Documents, (b) relating to
any requested amendments, waivers or consents to this Agreement, the Notes, a
Letter of Credit or any Loan Document, (c) arising in connection with the
Agent's, the Issuing Bank's or any Bank's enforcement or preservation of rights
under this Agreement, the Notes, a Letter of Credit or any Loan Document,
including but not limited to such expenses as may be incurred by the Agent, the
Issuing Bank or any Bank in the collection of the outstanding Notes and any
litigation, proceeding, dispute or so-called "workout" in any way related to the
Loans, a Letter of Credit or a Letter of Credit Reimbursement Obligations. The
Borrowers hereby agree to indemnify the Agent, the Issuing Bank and the Banks
from and hold each of them harmless against any and all losses, liabilities,
claims, damages or expenses incurred by any of them arising out of or by reason
of any investigation, litigation or other proceeding related to any use or
proposed use of the proceeds of any Loans or a Letter of Credit or the
Borrowers' entry into and performance of this Agreement, the Notes or any Loan
Document (but excluding any such losses, liabilities, claims, damages or
expenses incurred by reason of the gross negligence or willful misconduct of the
Person to be indemnified).
(b) The Borrowers further agree to and hereby do indemnify and hold
harmless the Agent, the Issuing Bank, the Banks, the Participants and each
affiliate and each director, officer, employee and agent of each thereof and the
other banks and financial institutions which may be offered to participate in
the transactions contemplated by this Agreement, the Notes and the Loan
Documents and each affiliate and each director, officer, employee and agent
thereof (the "Indemnified Parties") from and against any and all losses, claims,
damages, expenses or liabilities to which any thereof may become subject,
insofar as such losses, claims, damages, expenses or liabilities (or actions,
suits or proceedings, including any inquiry or investigation or claims in
respect thereof) arise out of, in any way relate to, or result from a claim made
by any third party in respect of the transactions described herein or the
financing contemplated hereby (whether or not any Indemnified Party is a party
to any action or proceeding out of which any such losses, claims, damages,
expenses or liabilities arise), and agrees to reimburse the Indemnified Parties
for any reasonable legal or other expenses incurred by any thereof in or in
connection with investigating, preparing to defend, defending or otherwise
participating in any such claim, action or proceeding related to any such loss,
claim, damage or liability, except that the Borrowers shall not be obligated to
indemnify, hold harmless or reimburse an Indemnified Party for any such losses,
claims, damages, expenses or liabilities to the extent that the same are
determined in a final judgment by a court of competent jurisdiction to have
resulted primarily from the gross negligence or willful misconduct of the
Indemnified Party seeking such indemnity. The Agent, the Issuing Bank and the
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Banks hereby agree to give the Borrowers prompt written notice of the incurrence
of any loss, claim, damage, expense or liability (or the institution of any
action, suit or proceeding, including any inquiry or investigation, or claim in
respect thereof) which may give rise to an obligation by the Borrowers to
indemnify an Indemnified Party pursuant to this paragraph promptly upon becoming
aware thereof. The Borrowers hereby agree that the Agent's, the Issuing Bank's
or any Bank's failure to give any such notice shall not excuse their performance
of their obligations pursuant to this paragraph except to the extent that any
such failure shall be determined in a final judgment by a court of competent
jurisdiction to have resulted in material prejudice to the Borrowers.
(c) The Borrowers agree to pay all stamp, document, transfer,
recording or filing taxes or fees and similar impositions now or hereafter
determined by the Agent, the Issuing Bank or the Banks to be payable in
connection with this Agreement, the Notes, a Letter of Credit or any Loan
Document, and the Borrowers agree to save the Agent, the Issuing Bank and the
Banks harmless from and against any and all present or future claims,
liabilities or losses with respect to or resulting from any omission to pay or
delay in paying any such taxes, fees or impositions.
(d) In the event of termination adversely to a Borrower of any action
at law or suit in equity in relation to this Agreement, the Notes, a Letter of
Credit or any Loan Document, the Borrowers will pay, in addition to all other
sums which the Borrowers may be required to pay, a reasonable sum for attorneys'
fees incurred by the Agent, the Issuing Bank or any Bank in connection with such
action or suit.
10.07. Severability. The provisions of this Agreement are intended
to be severable. If any provision of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof in any
jurisdiction.
10.08. Governing Law. This Agreement, the Notes and the Loan
Documents shall be deemed to be contracts under the laws of the Commonwealth of
Pennsylvania and for all purposes shall be governed by and construed and
enforced in accordance with the laws of said Commonwealth.
10.09. Prior Understandings. This Agreement supersedes all prior
understandings and agreements, whether written or oral, among the parties hereto
relating to the transactions provided for herein.
10.10. Duration; Survival. All representations and warranties of the
Borrowers contained herein or made in connection herewith shall survive the
making of and shall not be waived by the execution and delivery of this
Agreement, the Notes, a Letter of Credit or any Loan Document, any investigation
by the Agent, the Issuing Bank or any Bank or the making of any Loan or the
issuance of a Letter of Credit hereunder. All covenants and agreements of the
Borrowers contained herein shall continue in full force and effect from and
after the date hereof so long as the Borrowers may borrow hereunder, request the
issuance of a Letter of Credit hereunder or so long as any Letter of Credit
shall be outstanding, and until payment in full of the Notes, all Letter of
Credit Reimbursement Obligations, interest thereon, fees and all other
obligations of the Borrowers under this Agreement, the Notes and the Loan
Documents. Without limitation, it is understood that all obligations of the
Borrowers to make payments to or indemnify the Agent, the Issuing Bank and the
Banks (including, without limitation, obligations arising under Sections 2.10,
3.04 and 10.06 hereof) shall survive the payment in full of the Notes and Letter
of Credit Reimbursement Obligations and of all other obligations of the
Borrowers hereunder and thereunder.
10.11. Counterparts. This Agreement may be executed in any number of
counterparts and by the different parties hereto on separate counterparts each
of which, when so executed, shall be deemed an original, but all such
counterparts shall constitute but one and the same instrument.
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10.12. Successors and Assigns; Participations; Assignments.
(a) Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the Borrowers, the Banks, the Agent and their respective
successors and assigns, except that the Borrowers may not assign or transfer any
of their rights hereunder without the prior written consent of the Banks, the
Issuing Bank and the Agent, and any purported assignment without such consent
shall be void. Except to the extent otherwise required by the context of this
Agreement, the word "Bank" where used in this Agreement shall mean and include
any holder of any Note originally issued to any Bank hereunder or any holder of
any Letter of Credit Reimbursement Obligation originally incurred hereunder, and
each such holder of a Note or Reimbursement Agreement shall be bound by and have
the benefits of this Agreement the same as if such holder had been a signatory
hereto.
(b) Participations. Any Bank may, in the ordinary course of its
commercial banking business and in accordance with applicable law, at any time
sell to one or more banks or other entities ("Participants") participating
interests in any Loan or Letter of Credit Reimbursement Obligation owing to such
Bank, any Note held by such Bank, any Commitment of such Bank or any other
interest of such Bank hereunder. In the event of any such sale by a Bank of
participating interests to a Participant, such Bank's obligations under this
Agreement to the other parties to this Agreement shall remain unchanged, such
Bank shall remain solely responsible for the performance thereof, such Bank
shall remain the holder of any such Note or Letter of Credit Reimbursement
Obligation for all purposes under this Agreement, and the Borrowers, the Issuing
Bank and the Agent shall continue to deal solely and directly with such Bank in
connection with such Bank's rights and obligations under this Agreement. The
Borrowers hereby consent to and confirm the Bank's right without notice to or
consent of the Borrowers to create or dispose of participations as contemplated
by this Section 10.12(b) and agrees that each Participant shall be entitled to
the benefits of Sections 2.04(g), 2.09, 2.10, 3.04(c) and 8.03 with respect to
its participation in the Commitments or a Letter of Credit and the Loans, a
Letter of Credit and a Letter of Credit Reimbursement Obligations outstanding
from time to time.
(c) Sales to Purchasing Banks. Any Bank may, in the ordinary course
of its commercial banking business and in accordance with applicable law, at any
time sell to any Bank or any affiliate thereof, and, subject to the limitations
set forth in this paragraph, to one or more additional banks or financial
institutions ("Purchasing Banks") all or any portion of its rights and
obligations under this Agreement pursuant to a "Commitment Transfer Supplement"
(in the form attached hereto as Exhibit K), executed by such Purchasing Bank,
such transferor Bank (and, in the case of a Purchasing Bank that is not then a
Bank or an affiliate thereof, by the Agent), and delivered to the Agent for its
acceptance and recording in any register maintained by the Agent. Upon such
execution, delivery, acceptance and recording, from and after the Transfer
Effective Date (determined pursuant to such Commitment Transfer Supplement), (x)
the Purchasing Bank thereunder shall be a party hereto and, to the extent
provided in such Commitment Transfer Supplement, have the rights and obligations
of a Bank hereunder with Commitments and obligations to participate in a Letter
of Credit as set forth therein, and (y) the transferor Bank thereunder shall, to
the extent provided in such Commitment Transfer Supplement, be released from its
obligations under this Agreement (and, in the case of a Commitment Transfer
Supplement covering all or the remaining portion of a transferor Bank's rights
and obligations under this Agreement, such transferor Bank shall cease to be a
party hereto). Such Commitment Transfer Supplement shall be deemed to amend
this Agreement to the extent, and only to the extent, necessary to reflect the
addition of such Purchasing Bank and the resulting adjustment of the Commitment
Proportions and Letter of Credit Proportions arising from the purchase by such
Purchasing Bank of all or a portion of the rights and obligations of such
transferor Bank under this Agreement, the Notes or any Loan Document. On or
prior to the Transfer Effective Date, the Borrowers, at their own expense, shall
execute and deliver to the Agent in exchange for the surrendered Note or Notes a
new Note or Notes payable to the order of such Purchasing Bank in amounts equal
to the Commitment assumed by it pursuant to such Commitment Transfer Supplement
and, if the transferor Bank has retained a Commitment hereunder, a new Note or
Notes payable to the order of the transferor Bank in amounts equal to the
Commitment retained by it hereunder. Such new Note or Notes shall be dated the
same
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dates as the Note or Notes surrendered and shall otherwise be in the form
of the Notes replaced thereby. The Notes surrendered by the transferor Bank
shall be returned by the Agent to the Borrowers marked "SUPERSEDED".
(d) Agreements of Transferor Bank and Purchasing Bank. By executing
and delivering a Commitment Transfer Supplement, the transferor Bank and the
Purchasing Bank confirm to and agree with each other and the other parties
hereto as follows: (i) other than as expressly provided in such Commitment
Transfer Supplement, the transferor Bank makes no representation or warranty and
assumes no responsibility with respect to any statements, warranties or
representations made in or in connection with this Agreement, the Notes or any
Loan Document or the execution, legality, validity, enforceability, genuineness,
sufficiency or value of this Agreement, the Notes or any Loan Document; (ii) the
transferor Bank makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrowers or the
performance or observance by the Borrowers of any of their obligations under
this Agreement, the Notes or any Loan Document; (iii) the Purchasing Bank
confirms that it has received a copy of this Agreement and the Loan Documents
and such other documents and information as it has deemed appropriate to make
its own credit analysis and decision to enter into such Commitment Transfer
Supplement; (iv) the Purchasing Bank will, independently and without reliance
upon the transferor Bank, the Issuing Bank, any other Bank or this Agent, and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own decisions in taking or not taking action under
this Agreement, the Notes or any Loan Document; (v) the Purchasing Bank agrees
that it will perform in accordance with their terms all of the obligations which
by the terms of this Agreement, the Notes and the Loan Documents are required to
be performed by it as a Bank; and (vi) the Purchasing Bank agrees that such
Commitment Transfer Supplement is taken by it without recourse to the transferor
Bank.
(e) Financial and Other Information. The Borrowers authorize each
Bank to disclose to any Participant or Purchasing Bank (each, a "Transferee")
and any prospective Transferee any and all financial and other information in
such Bank's possession concerning the Borrowers which has been or may be
delivered to such Bank by or on behalf of the Borrowers pursuant to this
Agreement, any of the Loan Documents or which has been or may be delivered to
such Bank by or on behalf of the Borrowers in connection with such Bank's credit
evaluation of the Borrowers prior to becoming a party to this Agreement;
provided, however, that prior to delivering any such information to any such
Transferee or prospective Transferee, such Bank shall consult with the Borrowers
(it being expressly understood, however, that the Borrowers' consent to such
delivery shall not be required), and provided, further, that such Bank first
shall cause such Transferee or prospective Transferee receiving such information
to execute and deliver to such Bank such confidentiality agreement or agreements
as the Borrowers reasonably may request (unless such Transferee or prospective
Transferee previously has signed such an agreement). Neither the Agent, the
Issuing Bank nor any Bank shall be liable to the Borrowers nor to any other
Person for any breach of any such confidentiality agreement or agreements by any
Transferee or prospective Transferee to whom it may have delivered such
information.
(f) Taxes. If, pursuant to this Section, any interest in this
Agreement, any Note or a Letter of Credit is transferred to any Transferee which
is organized under the laws of any jurisdiction other than the United States or
any State thereof, the transferor Bank shall cause such Transferee, concurrently
with the effectiveness of such transfer, (i) to represent to the transferor Bank
(for the benefit of the Borrowers the transferor Bank and the Agent) that under
applicable law and treaties no taxes will be required to be withheld by the
Borrowers, the transferor Bank or the Agent with respect to any payments to be
made to such Transferee in respect of the Loans or Letter of Credit
Reimbursement Obligations, (ii) to furnish to the Borrowers, the transferor Bank
and the Agent either U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001 or successor applicable form, as the case may be,
certifying in each case that the Transferee is entitled to receive payments
under this Agreement, the Notes or any Loan Document without deduction or
withholding of any United States federal income taxes, (iii) an Internal Revenue
Service Form W-8 or W-9 or successor applicable form, as the case may be, to
establish an exemption from United States backup withholding taxes, and (iv) to
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agree (for the benefit of the Borrowers, the transferor Bank and the Agent) to
provide the Borrowers, the transferor Bank and the Agent, a new Form 4224 or
Form 1001 and Form W-8 or W-9, or successor applicable forms, or other manner of
certification, as the case may be, on or before the date that any such letter or
form expires or becomes obsolete or after the occurrence of any event requiring
change in the most recent letter and form previously delivered by it to the
Borrowers, and such extensions or renewals thereof as may reasonably be
requested by the Borrowers, the transferor Bank or the Agent, certifying in the
case of a Form 1001 or 4224 that such Transferee is entitled to receive payments
under this Agreement, the Notes or any Loan Document without deduction or
withholding of any United States federal income taxes, unless in any such cases
an event (including without limitation any change in treaty, law or regulation)
has occurred prior to the date on which any such delivery would otherwise be
required which renders all such forms inapplicable or which would prevent the
Transferee from duly completing and delivering any such letter or form with
respect to it and such Transferee advises the Borrowers, the transferor Bank and
the Agent that it is not capable of receiving payments without any deduction or
withholdings of United States federal income tax, and in the case of a Form W-8
or W-9, establishing an exemption from United States backup withholding tax.
10.13. Personal Liability of Officers. Notwithstanding anything to
the contrary set forth herein, no officer of any Borrower delivering any
certification under or pursuant to this Agreement, the Notes or any Loan
Document shall have any personal liability to the Banks, the Agent or the
Issuing Bank, based thereon in the absence of gross negligence or willful
misconduct of such Person in connection with the preparation, execution and
delivery thereof.
10.14. Confession of Judgment. THE BORROWERS HEREBY AUTHORIZE AND
EMPOWER THE PROTHONOTARY OR ANY ATTORNEY OF ANY COURT OF RECORD TO APPEAR FOR
THE BORROWERS AND TO CONFESS JUDGMENT AS OFTEN AS NECESSARY AGAINST THE
BORROWERS IN FAVOR OF THE BANKS, AS OF ANY TERM OR TIME, FOR ALL SUMS DUE
HEREUNDER PLUS INTEREST DUE, TOGETHER WITH COSTS AND OTHER EXPENSES OF LEGAL
PROCEEDINGS AND AN ATTORNEY'S COMMISSION EQUAL TO FIVE PERCENT OF THE AGGREGATE
AMOUNT OF THE FOREGOING SUMS, BUT IN NO EVENT LESS THAN $500.00 WITH RELEASE OF
ALL ERRORS. THE BORROWERS WAIVE ALL LAWS EXEMPTING REAL OR PERSONAL PROPERTY
FROM EXECUTION.
THE BORROWERS ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED BY COUNSEL
IN CONNECTION WITH THE EXECUTION AND DELIVERY OF THIS AGREEMENT AND THAT THEY
KNOWINGLY WAIVE THEIR RIGHT TO BE HEARD PRIOR TO THE ENTRY OF SUCH JUDGMENT AND
UNDERSTAND THAT, UPON SUCH ENTRY, SUCH JUDGMENT SHALL BECOME A LIEN ON ALL REAL
PROPERTY OF ANY BORROWER IN THE COUNTY WHERE SUCH JUDGMENT IS ENTERED.
NOTWITHSTANDING THE ATTORNEYS' COMMISSION PROVIDED FOR IN THE PRECEDING
PARAGRAPH (WHICH IS INCLUDED IN THE WARRANT FOR PURPOSES OF ESTABLISHING A SUM
CERTAIN), THE AMOUNT OF ATTORNEYS' FEES THAT THE BANKS MAY RECEIVE FROM THE
BORROWERS SHALL NOT EXCEED THE ACTUAL ATTORNEYS' FEES INCURRED BY THE BANKS.
-70-
<PAGE>
10.15. Additional Legal Matters.
(a) Submission to Jurisdiction and Venue; Consent to Service of
Process; Waiver Of Jury Trial; Etc. THE BORROWERS HEREBY IRREVOCABLY AND
UNCONDITIONALLY:
(i) AGREE THAT ANY ACTION, SUIT OR PROCEEDING BY ANY PERSON ARISING
FROM OR RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY
STATEMENT, COURSE OF CONDUCT, ACT, OMISSION OR EVENT IN CONNECTION WITH ANY
OF THE FOREGOING (COLLECTIVELY, "RELATED LITIGATION") MAY BE BROUGHT IN ANY
STATE OR FEDERAL COURT OF COMPETENT JURISDICTION SITTING IN PHILADELPHIA
COUNTY, PENNSYLVANIA, SUBMIT TO THE JURISDICTION OF SUCH COURTS, AND AGREE
NOT TO BRING ANY RELATED LITIGATION IN ANY OTHER FORUM (BUT NOTHING HEREIN
SHALL AFFECT THE RIGHT OF THE AGENT OR THE BANKS TO BRING ANY RELATED
LITIGATION IN ANY OTHER FORUM);
(ii) ACKNOWLEDGE THAT SUCH COURTS WILL BE THE MOST CONVENIENT FORUM
FOR ANY RELATED LITIGATION, WAIVE ANY OBJECTION TO THE LAYING OF VENUE OF
ANY RELATED LITIGATION BROUGHT IN ANY SUCH COURT, WAIVE ANY CLAIM THAT ANY
RELATED LITIGATION BROUGHT IN ANY SUCH COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM, AND WAIVE ANY RIGHT TO OBJECT, WITH RESPECT TO ANY
RELATED LITIGATION, THAT SUCH COURT DOES NOT HAVE JURISDICTION OVER IT;
(iii) CONSENT AND AGREE TO SERVICE OF ANY SUMMONS, COMPLAINT OR OTHER
LEGAL PROCESS IN ANY RELATED LITIGATION BY REGISTERED OR CERTIFIED U.S.
MAIL, POSTAGE PREPAID, TO THEM AT THE ADDRESS FOR NOTICES DESCRIBED IN THIS
AGREEMENT, AND CONSENT AND AGREE THAT SUCH SERVICE SHALL CONSTITUTE IN
EVERY RESPECT VALID AND EFFECTIVE SERVICE (BUT NOTHING HEREIN SHALL AFFECT
THE VALIDITY OR EFFECTIVENESS OF PROCESS SERVED IN ANY OTHER MANNER
PERMITTED BY LAW); AND
(iv) WAIVE THE RIGHT TO TRIAL BY JURY IN ANY RELATED
LITIGATION.
(b) Limitation of Liability. NO CLAIM MAY BE MADE BY THE BORROWERS
AGAINST THE AGENT, THE BANKS OR ANY AFFILIATE, DIRECTOR, OFFICER, EMPLOYEE,
ATTORNEY OR AGENT OF THE AGENT OR THE BANKS FOR ANY SPECIAL, INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES IN RESPECT OF ANY CLAIM ARISING FROM OR
RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT OR ANY STATEMENT, COURSE
OF CONDUCT, ACT, OMISSION OR EVENT IN CONNECTION WITH ANY OF THE FOREGOING
(WHETHER BASED ON BREACH OF CONTRACT, TORT OR ANY OTHER THEORY OF LIABILITY);
AND THE BORROWERS HEREBY WAIVE, RELEASE AND AGREE NOT TO SUE UPON ANY CLAIM FOR
ANY SUCH DAMAGES, WHETHER OR NOT ACCRUED AND WHETHER OR NOT KNOWN OR SUSPECTED
TO EXIST.
-71-
<PAGE>
(c) Waiver of Jury Trial. THE BORROWERS WAIVE ANY RIGHT TO TRIAL BY
JURY ON ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT, THE NOTES AND THE LOAN DOCUMENTS OR (ii) IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF BORROWERS OR LENDER WITH RESPECT TO ANY
OF THE TRANSACTIONS RELATED HERETO, IN EACH CASE WHETHER SOUNDING IN CONTRACT OR
TORT OR OTHERWISE. THE BORROWERS AGREE AND CONSENT THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND
THAT ANY PARTY TO THE CREDIT AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A
COPY OF THIS PARAGRAPH WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE
BORROWERS TO THE WAIVER OF ITS RIGHT TO TRIAL BY JURY. THE BORROWERS ACKOWLEDGE
THAT THEY HAVE HAD THE OPPORTUNITY TO CONSULT WITH COUNSEL REGARDING THIS
PARAGRAPH, THAT THEY FULLY UNDESTAND ITS TERMS, CONTENT AND EFFECT, AND THAT
THEY VOLUNTARILY AND KNOWINGLY AGREE TO THE TERMS OF THIS PARAGRAPH.
-72-
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their officers thereunto
duly authorized, have executed and delivered this Agreement as of the date first
above written.
<TABLE>
<CAPTION>
<S> <C>
ATTEST: C-COR.NET CORP.
_______________________________ By_____________________________________
By: Name:
Title: Title:
[CORPORATE SEAL]
Address for notices:
60 Decibel Road
State College, PA 16801
Attn: William T. Hanelly
ATTEST: BROADBAND CAPITAL CORPORATION
_______________________________ By_____________________________________
By: Name:
Title: Title:
[CORPORATE SEAL]
Address for notices:
Suite 1300
1105 North Market Street
Wilmington, DE 19899
Attn: Thomas Strauss
MELLON BANK, N.A., as Issuing Bank and as
Agent for the Banks
By______________________________________
Name: Joseph N. Butto
Title: Vice President
Address for Notices:
P.O. Box 1010
10 South Market Square, 4th Floor
Harrisburg, PA 17101
Attention: Joseph N. Butto
</TABLE>
-73-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
MELLON BANK, N.A., individually as a Bank
By______________________________________
Name: Joseph N. Butto
Title: Vice President
Address for Notices:
P.O. Box 1010
10 South Market Square, 4th Floor
Harrisburg, PA 17101
Attention: Joseph N. Butto
FIRST UNION NATIONAL BANK, individually as a Bank
By______________________________________
Name: Kathryn M. Borkgren
Title: Vice President
Address for Notices:
600 Penn Street
Third Floor-PA 6464
P.O. Box 1102
Reading, PA 19603
Attention: Paul S Phillips
PNC BANK, NATIONAL ASSOCIATION,
individually as a Bank
By______________________________________
Name: Robert G. Mills
Title: Vice President
Address for Notices:
c/o PNC Corporate Banking
11 West Market Street
Third Floor
Wilkes Barre, PA 18701
Attention: Robert G. Mills
</TABLE>
-74-
<PAGE>
ANNEX A
-------
<TABLE>
<CAPTION>
Bank Initial Revolving Credit Initial Standby Facility Term Loan
- ---- Committed Amount Committed Amount Committed Amount
---------------- ---------------- ----------------
<S> <C> <C> <C>
Mellon Bank, N.A. $10,000,000 $25,000,000 $1,250,000
First Union National Bank $ 5,000,000 $12,500,000 $ 625,000
PNC Bank, National Association $ 5,000,000 $12,500,000 $ 625,000
=========== =========== ==========
TOTAL $20,000,000 $50,000,000 $2,500,000
</TABLE>
Bank Proportion
- ---- ----------
Mellon Bank, N.A. 50%
First Union National Bank 25%
PNC Bank, National Association 25%
<PAGE>
Exhibit 10(pp)
C-COR.net Corp.
PROFIT INCENTIVE PLAN (PIP)
FISCAL YEAR 2000
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 85% 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 and part-time, active employees (working a
minimum of 20 hours per week/1040 hours per year) of C-COR.net Corp. and the
following wholly owned subsidiaries are eligible:
- C-COR Services, Inc.
- C-COR Canada
- Convergence.com (from date of closing of merger)
- Silicon Valley Communications, Inc. (from date of closing of merger)
- - 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 2000 in which they were an active, full-time employee.
1
<PAGE>
3. Calculation of Total PIP Payment Pool
Pre-incentive, pre-tax profits must be at least 85% 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:
<TABLE>
<CAPTION>
<S> <C>
Less than 85% of Plan 0% PIP payment pool
85% to less than 100% 10.0% PIP payment pool
of Plan
100% to 105% 15.0% PIP payment pool
105% or greater 15% PIP payment pool plus an additional 5% of
the actual profit in excess of 105% of the
Plan profit
</TABLE>
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.
For purpose of this plan, one-time charges associated with the acquisitions of
Convergence.com and Silicon Valley Communications, Inc. that can be reported as
separate line item on the Income Statement in accordance with Generally Accepted
Accounting Principals (GAAP) will be excluded in calculating pre-incentive, pre-
tax profits.
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 85% 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.net
Corp.'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:
2
<PAGE>
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:
<TABLE>
<CAPTION>
PIP Pool Apportionment %
------------------------
<S> <C>
Officers 2.0% per Officer
Non-officers Total Pool less Officer apportionment above
</TABLE>
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.
3
<PAGE>
7. Administration
(a) The Compensation Committee of the Board of Directors oversees the Plan,
which shall be administered by the President and CEO and such other
employees of the Company as may be appointed by the President and CEO.
(b) Subject to the provisions of the Plan, the President and CEO shall have the
sole authority and discretion:
i) to construe and interpret the Plan;
ii) to determine and recommend to the Board of Directors for approval, the
amount of payments to be made under the Plan and the status and rights
of any participant or beneficiary to payments under the Plan;
iii) to decide all questions concerning the Plan and to make all other
determinations and to take all other steps necessary or advisable for
the administration of the Plan.
All decisions made by the President and CEO pursuant to the provisions of
the Plan shall be made in his or her sole discretion and shall be final,
conclusive, and binding upon all parties.
8. Right to Withhold Taxes
The Company shall have the right to withhold such amounts from any payment under
this Plan as it determines necessary to fulfill any federal, state, or local
wage or compensation withholding requirements.
9. Non-Transferability of Rights
A participant's rights and interests under the Plan may not be assigned or
transferred in whole or in part either directly or by operation of law or
otherwise (except in an event of the participant's death), including, but not
limited to, by way of execution, levy, garnishment, attachment, pledge,
bankruptcy or in any other manner, and no such rights or interests of any
participant under the Plan shall be subject to any obligation or liability of
such participant other than any obligations or liabilities owed by the
Participant to the Company.
10. No Right to Continued Employment
Neither the Plan, nor any compensation payable under the Plan, shall confer upon
any participant any right to continuance of employment by the Company or any
affiliate of the Company nor shall they interfere in any way with the right of
the Company or any affiliate of the Company to terminate any participant's
employment at any time.
4
<PAGE>
11. No Claim Against Assets
Nothing in this Plan shall be construed as giving any participant or his or her
legal representative, or designated beneficiary, any claim against any specific
assets of the Company or any affiliate or as imposing any trustee relationship
upon the Company or any affiliate in respect of the participant.
The Company shall not be required to segregate any assets in order to provide
for the satisfaction of the obligations hereunder. If and to the extent that the
participant or his or her legal representative or designated beneficiary
acquires a right to receive any payment pursuant to this Plan, such right shall
be no greater than the right of an unsecured general creditor of the Company or
any affiliate.
12. Company's Books and Records Conclusive
The Company's books and records, and internal accounting procedures, will be
conclusive for all purposes under the Plan.
13. Amendment or Termination
The Company may at any time, terminate or modify or amend the Plan in any
respect, at any time prior to payment for a fiscal quarter.
14. No Other Agreements or Understandings
Except as expressly provided herein, this Plan represents the sole agreement
between the Company and participants concerning its subject matter and it
supersedes all prior agreements, arrangements, understandings, warranties,
representations, and statements between the parties concerning its subject
matter.
15. Governing Law
The Plan and all actions taken pursuant thereto shall be governed by, and
construed in accordance with, the laws of the State of Pennsylvania applied
without regard to conflict of law principles.
5
<PAGE>
EXHIBIT 10(QQ)
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT, made this 14 day of September, 1999, by and between C-
COR.NET CORP., 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. Employee has been employed by Corporation as its President and Chief
Executive Officer since July 20, 1998.
B. Corporation and Employee entered into an Employment Agreement dated as
of June 22, 1998, a true and correct copy of which is attached hereto as Exhibit
"A" (the "1998 Agreement").
C. Corporation and Employee mutually desire to set forth the terms of
certain amendments and additions to the 1998 Agreement.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and intending to be legally bound thereby, the parties hereto agree as follows:
<PAGE>
SECTION I.
Description of Employment
-------------------------
1.01. Employment and Term. The term of Employee's employment with
-------------------
Corporation commenced on July 20, 1998 and shall extend to June 30, 2003 (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
2
<PAGE>
Fifty Thousand and No/100 ($250,000.00) 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. Supplemental Retirement Plan. Employee will be entitled to
----------------------------
participate in Corporation's supplemental retirement plan with an annual
supplemental retirement benefit of Twenty-five Thousand and NO/100 ($25,000.00)
Dollars commencing at Employee's retirement and continuing for a period of
fifteen (15) years in accordance with and subject to the terms of such plan and
a participation agreement to be entered into between Corporation and Employee
under such plan.
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.
3
<PAGE>
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
4
<PAGE>
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.
5
<PAGE>
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.
6
<PAGE>
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
7
<PAGE>
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
8
<PAGE>
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
9
<PAGE>
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
10
<PAGE>
(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
11
<PAGE>
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
12
<PAGE>
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
13
<PAGE>
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
14
<PAGE>
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
15
<PAGE>
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.
16
<PAGE>
(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
17
<PAGE>
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;
18
<PAGE>
(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
19
<PAGE>
(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
20
<PAGE>
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.
21
<PAGE>
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.
22
<PAGE>
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.NET CORP.
By:Richard E. Perry
-----------------
Title: Chairman of the Board
-----------------------------
David A. Woodle
23
<PAGE>
EXHIBIT 10(r)(r)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made this 9th day of July, 1999, 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 R. AMES, an individual at 10303 Papillon Trace, Alpharetta, Georgia
30022 ("Employee").
BACKGROUND
----------
A. Corporation desires to employ Employee as its Senior Vice President of
Network Management and Services and Employee desires to be so employed by
Corporation.
B. The parties mutually desire to set forth in this Employment Agreement
(the "Agreement") the terms and conditions under which Employee will be employed
by Corporation.
NOW, THEREFORE, in consideration of the mutual promises contained herein,
and intending to be legally bound thereby, the parties hereto agree as follows:
SECTION I
Description of Employment
-------------------------
1.01. Employment and Term. Corporation agrees to employ Employee and
-------------------
Employee agrees to be so employed for a three (3) year term commencing on June
17, 1999 and ending on June 17, 2002 (the "Term").
<PAGE>
1.02 Capacity. During the Term, Employee shall serve as Corporation's
--------
Senior Vice President of Network Management and Services or in such other
commensurate offices or capacities as shall be determined by Corporation.
1.03 Time and Efforts. During the Term, Employee shall diligently and
----------------
conscientiously devote his best efforts and his full time and attention to the
discharge of his duties as Senior Vice President of Network Management and
Services and of such other commensurate 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 Senior Vice President of Network
Management and Services of Corporation, he will not have any other employment or
business affiliations (other than passive investments) without the prior
approval of Corporation.
1.04 Location. During the Term, Employee will not be required by
--------
Corporation to move from the Atlanta, Georgia metropolitan area.
1.05 Termination. This Agreement may be terminated.
-----------
a. By agreement of Corporation and Employee;
b. By Corporation, unilaterally, in its sole discretion, for any of
the following reasons:
i. if Employee directly or indirectly competes with Corporation while
employed under this Agreement;
ii. If Employee:
A. has materially breached any term or provision of this
Agreement and, if susceptible of cure, has not within thirty (30) days
following notice thereof cured such breach;
B. has conducted himself in a manner which discredits or is
otherwise materially detrimental to the reputation and standing of
Corporation and, if susceptible of cure, has not within thirty (30)
days following notice thereof cured such breach;
<PAGE>
C. wrongfully discloses any trade secrets or any confidential
information of Corporation; or
D. willfully and intentionally breaches his duties to
Corporation.
SECTION II
Compensation
------------
2.01 Salary. During the period of Employee's employment hereunder as
------
Senior Vice President of Network Management and Services (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 One Hundred Forty Thousand and 00/100
($140,000.00) Dollars, payable bi-weekly, for services rendered. The amount of
Employee's salary shall be reviewed annually by the Corporation and Employee
shall be eligible for merit increases in accordance with C-COR's standard
practice, and shall not be reduced below the amount set forth above for any year
during the Term.
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 commensurate with other similarly situated executives of
the Company under the terms of the "Profit Incentive Plan."
2.04 Stock Options. Employee shall be eligible for stock option
-------------
awards commensurate with other similarly situated executives of the Company in
accordance with stock option plans adopted by the Corporation from time to time.
<PAGE>
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 as any
salary changes.
2.06 Reimbursement For Income Tax Preparation. Corporation agrees to
----------------------------------------
reimburse Employee for expenses incurred for preparation of income tax returns
up to an amount not exceeding Three Hundred and 00/100 ($300.00) Dollars per
year during the Term of this Agreement.
2.07 Vacation. Employee shall be entitled to a reasonable amount of
--------
vacation but not less than three (3) weeks per year. In addition, Employee
shall be entitled to credit for any accrued and unused vacation accumulated
while Employee was employed by Covergence.com Corporation.
2.08 Physical Examination. Corporation agrees to reimburse Employee
--------------------
for the expense of an annual physical examination by a physician selected by
Employee up to an amount not exceeding Two Hundred and 00/100 ($200.00) Dollars.
2.09 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.
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
<PAGE>
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
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 all interest in and
-------------------
title to Inventions patented or unpatented which Employee conceived prior to his
Term of employment with Corporation, except for those conceived while employed
by Convergence.com Corporation, an interest in which Employee hereby expressly
disclaims.
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.
<PAGE>
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
nondiscloure of trade secrets or confidential information, knowledge of 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,
consultant, owner, stockholder, partner, officer, director or otherwise,
enter into or in any manner take part in any business in direct competition
with the business of Corporation or its subsidiaries (as such business is
defined on the date hereof and assuming that Convergence.com Corporation is
on the date hereof a subsidiary of Corporation (the "Business of
Corporation")), excluding internet applications other than network
management that do not compete with Corporation or its subsidiaries, within
the United States of America, or in any foreign country in which the
Company develops, manufactures, distributes or sells its products.
<PAGE>
(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 or its
subsidiaries 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 its
subsidiaries or products or services which Corporation or its subsidiaries
may have under development during the period of time Employee was employed
by Corporation, except products or services developed for business
different than the Business of 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 or its subsidiaries. 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 or its subsidiaries if, but only if, such employment or
agency relationship is with respect to a business in competition with
Corporation or its subsidiaries.
(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 or its subsidiaries to enter into a business in
competition with Corporation or its subsidiaries.
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
<PAGE>
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
Miscellaneous
-------------
5.01. 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.
5.02. 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.
5.03. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
5.04. 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,
<PAGE>
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.
5.05. 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.
5.06. 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.
<PAGE>
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.
CORPORATION:
-----------
ATTEST: C-COR ELECTRONICS, INC.
W. T. Hanelly By: David A. Woodle
Secretary President
EMPLOYEE:
WITNESS: --------
David R. Ames
Terry L. Wright
DAVID A. AMES
<PAGE>
EXHIBIT 10(s)(s)
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT, made this 9th day of July, 1999, 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-
TERRY L. WRIGHT, an individual, of 5321 Old Atlanta Road, Suwanee, Georgia
30024 ("Employee").
BACKGROUND
----------
A. Corporation desires to employ Employee as its Chief Technical 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 three (3) year term commencing on June
17, 1999 and ending on June 17, 2002 (the "Term").
1.02. Capacity. During the Term, Employee shall serve as Corporation's
--------
Chief Technical Officer, or in such other commensurate offices or capacities as
shall be determined by Corporation.
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 Technical Officer and of such other
commensurate 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 Technical Officer of Corporation, he
will
<PAGE>
not have any other employment or business affiliations (other than passive
investments) without the prior approval of Corporation.
1.04 Location. During the Term, Employee will not be required by
--------
Corporation to move from the Atlanta, Georgia metropolitan area.
1.05. Termination. This Agreement may be terminated:
-----------
a. By agreement of Corporation and Employee;
b. By Corporation, unilaterally, in its sole discretion, for any of the
following reasons:
i. if Employee directly or indirectly competes with Corporation while
employed under this Agreement;
ii. If Employee:
A. has materially breached any term or provision of this Agreement and, if
susceptible of cure, has not within thirty (30) days following notice
thereof cured such breach;
B. has conducted himself in a manner which discredits or is otherwise
materially detrimental to the reputation and standing of Corporation and,
if susceptible of cure, has not within thirty (30) days following notice
thereof cured such breach;
C. wrongfully discloses any trade secrets or any confidential information
of Corporation; or
D. willfully and intentionally breaches his duties to Corporation.
2
<PAGE>
SECTION II
Compensation
------------
2.01. Salary. During the period of Employee's employment hereunder as
------
Chief Technical Officer (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 One Hundred Forty Thousand and 00/100 ($140,000.00) Dollars, payable bi-
weekly, for services rendered. The amount of Employee's salary shall be
reviewed annually by the Corporation and Employee shall be eligible for merit
increases in accordance with C-COR's standard practice, and shall not be reduced
below the amount set forth above for any year during the Term.
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 commensurate with other similarly situated executives of the
Company under the terms of the "Profit Incentive Plan."
2.04. Stock Options. Employee shall be eligible for stock option awards
-------------
commensurate with other similarly situated executives of the Company in
accordance with stock option plans adopted by the Corporation from time to time.
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 as any salary
changes.
2.06. Reimbursement For Income Tax Preparation. Corporation agrees to
----------------------------------------
reimburse Employee for expenses incurred for preparation of income tax returns
up to an amount not exceeding Three Hundred and 00/100 ($300.00) Dollars per
year during the Term of this Agreement.
3
<PAGE>
2.07. Vacation. Employee shall be entitled to a reasonable amount of
--------
vacation but not less than three (3) weeks per year. In addition, Employee
shall be entitled to credit for any accrued and unused vacation accumulated
while Employee was employed by Convergence.com Corporation.
2.08. Physical Examination. Corporation agrees to reimburse Employee for
--------------------
the expense of an annual physical examination by a physician selected by
Employee up to an amount not exceeding Two Hundred and 00/100 ($200.00) Dollars.
2.09. 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.
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
4
<PAGE>
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, except for those conceived while employed
by Convergence.com Corporation, an interest in which Employee hereby expressly
disclaims.
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 of 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.
5
<PAGE>
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,
consultant, owner, stockholder, partner, officer, director or otherwise,
enter into or in any manner take part in any business in direct competition
with the business of Corporation or its subsidiaries (as such business is
directly defined on the date hereof and assuming that Convergence.com
Corporation is on the date hereof a subsidiary of Corporation (the
"Business of Corporation")), excluding internet applications other than
network management that do not compete with Corporation or its
subsidiaries, within the United States of America, or in any foreign
country in which the Company develops, manufactures, distributes or sells
its products.
(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 or its
subsidiaries 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 its
subsidiaries or products or services which Corporation or its subsidiaries
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 or
its subsidiaries. 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 or its subsidiaries if, but only if, such employment or
6
<PAGE>
agency relationship is with respect to a business in competition with
Corporation or its subsidiaries.
(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 or its subsidiaries to enter into a business in competition
with Corporation or its subsidiaries .
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.
7
<PAGE>
These restrictive covenants shall survive the termination of this
Agreement.
SECTION V
Miscellaneous
-------------
5.01. 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.
5.02. 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.
5.03. Governing Law. This Agreement shall be construed and enforced in
-------------
accordance with the laws of the Commonwealth of Pennsylvania.
5.04. 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.
5.05. 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.
5.06. 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.
8
<PAGE>
CORPORATION:
-----------
ATTEST: C-COR ELECTRONICS, INC.
W. T. Hanelly By: David A. Woodle
Secretary President
EMPLOYEE:
WITNESS: --------
David R. Ames Terry L. Wright
TERRY L. WRIGHT
9
<PAGE>
EXHIBIT 11
Computation of Earnings Per Share
<TABLE>
<CAPTION>
Year Ended
June 25, 1999 June 26, 1998 June 27, 1997
------------- ------------- -------------
(000's omitted, except per share data)
<S> <C> <C> <C>
Basic:
Weighted average shares outstanding 9,137 9,148 9,504
------------- ------------- -------------
Total 9,137 9,148 9,504
Income from continuing operations $ 10,455 $ 7,317 $ 4,257
Gain (loss) from discontinued operations 397 928 (10,435)
------------- ------------- -------------
Net income (loss) $ 10,852 $ 8,245 $ (6,178)
------------- ------------- -------------
Net income (loss) per share
Continuing operations $ 1.15 $ 0.80 $ 0.45
Discontinued operations 0.04 0.10 (1.10)
------------- ------------- -------------
Net income (loss) per share $ 1.19 0.90 (0.64)
------------- ------------- -------------
Diluted:
Weighted average shares outstanding $ 9,137 $ 9,148 $ 9,504
Weighted average common stock equivalents 361 253 134
------------- ------------- -------------
Total 9,498 9,401 9,638
Income from continuing operations $ 10,455 $ 7,317 $ 4,257
Gain (loss) from discontinued operations 397 928 (10,435)
------------- ------------- -------------
Net income (loss) $ 10,852 $ 8,245 $ (6,178)
------------- ------------- -------------
Net income (loss) per share
Continuing operations $ 1.10 $ 0.78 $ 0.44
Discontinued operations 0.04 0.10 (1.08)
------------- ------------- -------------
Net income (loss) per share $ 1.14 $ 0.88 $ (0.64)
------------- ------------- -------------
</TABLE>
<PAGE>
[ARTWORK APPEARS HERE]
1999 Annual Report
C A P I T A L I Z I N G O N C O N V E R G E N C E
<PAGE>
C-COR.net
1999 Annual Report
CAPITALIZING ON CONVERGENCE
<PAGE>
C-COR.net Corp.
The Knowledge Source
for Network Integrity...
...The Product Source
for Network Performance
Some of the information presented in this Annual Report, including, but not
limited to continuation of increased domestic spending for network upgrades,
anticipated increased spending on product development, the continued
availability of capital resources, the Company's expectations in connection with
the merger with Convergence.com Corporation ("Convergence") and pending merger
with Silicon Valley Communications, Inc. ("SVCI"), 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, constitute 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 ability to consummate the pending merger with SVCI and
integrate both Convergence's and SVCI's businesses, 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,
the Company's ability to implement its strategies of product, service and global
market expansion, 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 and materials filed with the Securities and Exchange Commission.
<PAGE>
C-COR.net is moving forward to provide the global market with complete network
solutions. Capitalizing on its 45-year legacy in the broadband communications
industry and strategically focused on building C-COR.net's integrity and
performance into hybrid fiber coax (HFC) networks, the company is positioned to
capitalize on the many opportunities created in this growth-driven industry.
The Internet explosion, the merging of traditional cable and telephony
enterprises, and the public's increased demand for high-speed data, digital
services, video-on-demand and a variety of other new services are creating new
opportunities for our business. In response, C-COR.net's strategic goal is to be
our customers' first choice for their future network solutions.
C-COR.net provides products, services and support to information service
providers -- cable television operators, telephone companies, utilities,
Internet service providers, and network installers -- as they plan, design,
build, maintain and enable applications over HFC cable networks. C-COR.net's
wide selection of RF amplifiers and the latest in AM fiber optic transmission
equipment combine to offer customers a complete package of network distribution
electronics.
Today, C-COR.net is applying its legacy for innovation to the full network
life cycle with services that will provide network integrity as more voice, data
and video applications are delivered via the HFC cable pipeline to the consumer.
Those services include network design, activation, optimization, management and
maintenance.
C-COR.net's sales are conducted from our headquarters in State College,
Pennsylvania, from regional offices throughout the United States, in Canada, and
in the Netherlands, and through numerous distributors worldwide. The company has
been publicly held since 1981. C-COR.net stock trades on the Nasdaq under the
ticker symbol "CCBL" and is included in the Russell 2000 Index. C-COR.net was
named to the Forbes Magazine 200 Best Small Companies in the United States in
November 1998.
<PAGE>
Contents
SELECTED FINANCIAL DATA
3
SHAREHOLDER LETTER
4
THE TRENDS
8
THE STRATEGIES
11
THE RESULTS
14
MANAGEMENT'S DISCUSSION AND ANALYSIS
16
CONSOLIDATED BALANCE SHEETS
22
CONSOLIDATED STATEMENTS OF OPERATIONS
23
CONSOLIDATED STATEMENTS OF CASH FLOWS
24
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
25
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
26
REPORTS
41
DIRECTORS AND OFFICERS
42
CORPORATE DATA
43
MISSION STATEMENT
44
<PAGE>
<TABLE>
<CAPTION>
Selected Financial Data
(in thousands of dollars except per share data)
FISCAL YEAR ENDED 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------
Statements of operations:1
<S> <C> <C> <C> <C> <C>
Net sales $ 171,281 $ 152,144 $ 131,941 $ 139,539 $ 121,269
Income from continuing operations 10,455 7,317 4,257 9,014 8,528
Loss from discontinued operations 0 0 (6,605) (3,095) (213)
Gain (loss) from disposal of
discontinued operations 397 928 (3,830) 0 0
Net income (loss) 10,852 8,245 (6,178) 5,919 8,315
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share- (basic):2
Continuing operations $ 1.15 $ 0.80 $ 0.45 $ 0.94 $ 0.91
Discontinued operations 0.00 0.00 (0.70) (0.32) (0.02)
Disposal of discontinued operations 0.04 0.10 (0.40) 0.00 0.00
Net income (loss) 1.19 0.90 (0.65) 0.62 0.89
- --------------------------------------------------------------------------------------------------------------
Net income (loss) per share- (diluted):2
Continuing operations $ 1.10 $ 0.78 $ 0.44 $ 0.91 $ 0.86
Discontinued operations 0.00 0.00 (0.68) (0.31) (0.02)
Disposal of discontinued operations 0.04 0.10 (0.40) 0.00 0.00
Net income (loss) 1.14 0.88 (0.64) 0.60 0.84
- --------------------------------------------------------------------------------------------------------------
Balance sheet data (at period end):1
Working capital $ 34,381 $ 27,313 $ 22,745 $ 35,452 $ 24,442
Total assets 93,664 75,518 71,119 77,278 85,868
Total long-term obligations 4,392 6,367 7,201 8,030 2,172
Shareholders' equity 61,327 50,190 41,678 53,317 44,725
- --------------------------------------------------------------------------------------------------------------
</TABLE>
1 Certain amounts have been reclassified for comparability with fiscal year
1999 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.
Net Sales
[BAR CHART APPEARS HERE]
in thousands of dollars
Income
from continuing operations
[BAR CHART APPEARS HERE]
in thousands of dollars
Income Per Share
from continuing operations (diluted)
[BAR CHART APPEARS HERE]
in dollars
C-Cor.net 1999 Annual Report 3
<PAGE>
[PHOTO OF RICHARD E. PERRY APPEARS HERE] Richard E. Perry
DEAR C-COR.NET SHAREHOLDER:
The 1999 fiscal year was an exceptional one for our company as we enjoyed
solid growth, initiated two mergers and, most significantly, set a bold new
course for the company.
The accelerating trend to converge voice, video and high-speed data
services over a single, powerful network and the industry's decision to move to
a standards-based architecture are creating outstanding opportunities for our
company. We are responding with a new business model that focuses on the key
network priorities -- expanded bandwidth and network reliability -- and is
designed to position C-COR.net as an effective supplier of broadband
technologies and services well into the 21st century.
We are pleased to report that the marketplace has responded
positively to our efforts. In the fourth quarter of fiscal year 1999, net sales
were a record $57.1 million, an increase of 52% over those of the fourth quarter
of the previous year. Gross margins of 26.7% in the quarter produced earnings
per diluted share from continuing operations of $.45, setting a record for
quarterly earnings. Fiscal year 1999 annual net sales were a record $171.3
million, and income from continuing operations of $10.5 million was up 43% when
compared to fiscal year 1998. Earnings per diluted share from continuing
operations were $1.10, up 41% over fiscal year 1998. Gross margin percentage for
fiscal year 1999 improved to 24.6% from 22.7% for the previous year. Other
positive indicators included record annual sales orders booked of over $200
million, book-to-bill of 1.17 and a backlog of orders in excess of $52 million
at fiscal year end.
4 C-Cor.net 1999 Annual Report
<PAGE>
[PHOTO OF DAVID A. WOODLE APPEARS HERE] David A. Woodle
CAPITALIZING ON OUR LEGACIES
Our performance in 1999 has created a solid foundation from which we can
grow. We are implementing four major strategies to drive us in the quest to
service, for the first time in our history, the complete broadband network life
cycle. First, we are offering an expanded product lineup. Second, we are helping
customers' integrate new, cost-effective applications on their networks. Third,
we are offering expanded network management services to meet our customers'
needs to monitor and service their systems. Fourth, we are designing,
activating, optimizing and servicing our customers' networks.
The acquisitions of two outstanding companies were initiated during the
1999 fiscal year to enable us to meet both market demand and our strategic
initiatives to become a fully integrated supplier. Convergence.com
("Convergence") -- the acquisition which closed on July 9, 1999 -- was an early
leader in providing Internet enabling services to the broadband network. With
Convergence's state-of-the-art, multi-million dollar Network Operations Center,
C-COR.net can monitor cable modems throughout the world and supply Help Desk
services 24 hours a day, seven days a week.
Recognizing the growing market requirement for head-end fiber optics, in
July 1999 we signed a definitive merger agreement to acquire Silicon Valley
Communications, Inc. ("SVCI") of Santa Clara, California. The acquisition is
scheduled to close in the fall of 1999. SVCI has an outstanding global
reputation for providing high-quality, advanced AM fiber optic equipment that
forms the basis of broadband hybrid fiber coax (HFC) networks. Strong
C-Cor.net 1999 Annual Report 5
<PAGE>
vendor acceptance of their products and an established reputation for dedicated
customer service make this pending acquisition a natural fit for expanding
C-COR.net. Once both mergers are complete, Convergence and SVCI will bring to
our company some of the advanced products and services we need to pursue our
mission of serving our customers throughout all phases of the broadband network
life cycle.
CAPITALIZING ON OUR PEOPLE
To effectively apply our expanded product and service offerings and utilize
our larger pool of talented service employees in every facet of the broadband
network, we have restructured the company into two operating units. Upon
completion of the acquisition of Convergence, we established the Broadband
Management Services (BMS) Group, which combines the network designers, technical
service personnel and operations experts from both Convergence and C-COR.net.
Directed from our facility near Atlanta, Georgia, BMS is responsible for
delivering a full range of network life cycle services, including design,
activation and installation as well as warranty repair and maintenance. The
group also specializes in enabling Internet service over cable, the sale and
integration of network management services as well as construction and service
provisioning of network operations centers.
The HFC Product Group focuses on the design and manufacture of
high-quality, technologically advanced fiber optics and RF amplifiers. This
includes the legacy products of C-COR.net and will include the legacy products
of SVCI upon completion of the merger. This comprehensive line of network
transmission products constitutes an integral portion of the infrastructure of
an HFC network. By installing these products, network operators can expand the
bandwidth available on their networks so new, revenue-generating services can be
introduced.
We have set a course to be in a unique position to help our customers meet
the demands brought on by rapid change. That unique position is not simply the
result of solid strategies and advanced products and services. Equally important
is the dedication of our employees to achieving our vision. We are a strong
company because of our employees, and their spirit and commitment is crucial to
our ability to succeed.
6 C-Cor 1999 Annual Report
<PAGE>
CAPITALIZING ON OUR FUTURE
The global telecommunications industry is undergoing what is surely a new
operating paradigm, driven by consumer demand for more services, faster delivery
and a higher level of reliability. The intense competition to be the first to
meet these needs in a cost-effective way has opened up many opportunities for
our company. We believe our new business model, and the strategies put in place
in fiscal year 1999 to bring it to life, are in direct response to these market
realities.
As we formulated the key strategies to lead us into the future, we saw the
need to better reflect our focus on the network -- specifically, providing
network integrity for the full network life cycle. As a result, we have chosen
to add .net to our strong legacy name, C-COR. This addition is a declaration to
all that our total energy is dedicated to serving the complete broadband
network.
C-COR.net has embarked on an exciting journey, one that we believe holds a
great deal of promise for our customers, shareholders and employees. As we
execute strategies, build integrity into networks and provide outstanding
service to our customers, we are confident in our commitment to seeing that
promise realized.
/s/ Richard E. Perry
Richard E. Perry
Chairman
/s/ David A. Woodle
David A. Woodle
President and CEO
C-Cor.net 1999 Annual Report 7
<PAGE>
[GRAPHICS APPEAR HERE]
The Trends -
Capitalizing on the Market
Technology advancements are providing the means to operate efficient,
high-quality networks while meeting the expectations of the end users.
8 C-Cor.net 1999 Annual Report
<PAGE>
There is little doubt, the world is on the threshold of a dramatic change
in the way information is delivered and exchanged. Our primary customers --
operators of broadband hybrid fiber coax (HFC) networks -- are moving
aggressively to become the dominant supplier of a complete package of voice,
video and high-speed data to millions of homes and businesses over a single
network. Four trends are driving the change: consumer demand, consolidation of
network operators, technology advancements and the establishment of standards.
[GRAPHIC APPEARS HERE]
As we experienced in the evolution of cable television over the past five
decades, consumers are stimulating change by demanding real-time information,
access to high-speed data transfer and the Internet, video-on-demand, expanded
service choices, high-quality digital cable service and much more. Along with
greater access and choice, subscribers want complete network reliability,
assuring consistent, high-quality delivery of information. Meeting these demands
depends largely on expanding the capabilities of the broadband HFC network. The
successful information service supplier -- be it a cable, telephone or utility
company -- will be equipped with a powerful information pipe that offers an
array of new products and services with demonstrated network reliability.
C-Cor.net 1999 Annual Report 9
<PAGE>
Consolidation among network operators has resulted in the creation of a new
financial model. More than $200 billion has been invested in the past few years
to swap cable systems -- with per-subscriber costs tripling to more than $5,000.
As a result, network operators must realize increased value and return from
their networks. Offering bundled services -- combining traditional entertainment
cable with high-speed data/Internet, telephony and more, at a competitive price
- -- is the course network operators will need to take to meet the financial
demands of their operations.
Technology advancements are providing the means to operate efficient,
high-quality networks while meeting the expectations of the end users. Advanced
fiber optic equipment makes it feasible to run fiber deeper into a network,
increasing capacity, speed and, most importantly, reliability. And, increasingly
sophisticated network management systems are helping operators build integrity
into their networks. The advantages for the end-user are improved variety,
quantity and quality of service, while the network operator benefits from being
able to maintain a solid business model.
Similarly, the establishment of a standards-based architecture is positive
for all sides of the industry. Consumers will benefit from new and additional
services as well as from increased system reliability. Network operators will
benefit from added choice, economies of scale and easier deployment and
maintenance of network components. C-COR.net benefits from open standards
through the elimination of the need to develop and support proprietary,
customer-specific network management systems.
Just as these trends have shaped the way the world is communicating, they
are serving as the basis for the business decisions being made at C-COR.net. The
focus is a complete commitment to serving the entire broadband network life
cycle with products and services that build network integrity in from the start.
10 C-Cor.net 1999 Annual Report
<PAGE>
The Strategies -
Capitalizing on our Strengths
We believe the wide acceptance of open systems technology will facilitate
that evolution and our goal is to lead the way to interoperability across
vendors and networks.
<PAGE>
The major trends in the communications industry point to the convergence of
customers, services, technologies and standards. The strategies we adopted to
capitalize on each level of convergence reflect a fundamental objective: create
solid, end-to-end solutions for our broadband network customers by building on
our strong legacy of products and services. This was the basis for undertaking
two key acquisitions in fiscal year 1999.
[GRAPHIC APPEARS HERE]
STRENGTHENING OUR SERVICES - Since its inception in 1994, Convergence.com
("Convergence") has been known for technical innovation and premium customer
service. A recognized leader in integrating data over broadband cable, the
company has set the pace for delivering Internet services to consumers seeking
greater speed and expanded capabilities. Early projects undertaken by
Convergence include building networks that carry high-speed data services for
Hawaii's Department of Education, integrating Internet on various cable systems
and supporting the National Cable Television Association as it showcased the
advanced services being offered by the industry.
Convergence was named to two "Top 50 Hot Internet Company" lists. In
addition, the company designed and built a state-of-the-art Network Operations
Center (NOC) that operates seven days a week, 24 hours a day. Help Desk and
network operations technicians support thousands of cable modem subscribers
around the world, helping to assure optimum service to the end-user.
Upon completion of the merger with Convergence, a separate operating unit
- -- Broadband Management Services -- was formed to meet several of our strategic
objectives. Skilled network planners from the former Convergence joined forces
with the C-COR.net team of technical service professionals to focus their
talents on a full complement of services for every phase of the network life
cycle. Network design, activation, management and maintenance are just a few of
the technical services the unit offers. Add to that the
12 C-Cor.net 1999 Annual Report
<PAGE>
Internet enabling consultation and integration services and a network operator
can depend on C-COR.net to handle virtually every phase of network expansion and
maintenance.
STRENGTHENING OUR PRODUCT LINE - In order to complete our fiber optic product
line, C-COR.net turned to Silicon Valley Communications, Inc. ("SVCI"), a Santa
Clara, California, company founded in 1994. SVCI is a proven leader in designing
and producing advanced fiber optic head-end equipment for HFC broadband
networks. Upon completion of the pending acquisition, SVCI will bring to
C.COR.net five years of experience in offering a high-quality, flexible, compact
product line, marked by superior performance and backed by exceptional service.
When combined with C-COR.net's expertise in the fiber optic node and the RF
portion of the network, the result will be a robust, end-to-end network
equipment solution for broadband operators.
STRENGTHENING NETWORK INTEGRITY - In fiscal year 1999, C-COR.net assessed the
evolving HFC broadband marketplace and uncovered some underlying trends. We
think the strongest message is the overwhelming importance of network integrity
to our customers. The quality of the pipe that is carrying signals is
fundamental to meeting consumers' demand for reliability as well as operators'
requirements for a sound financial model. In the past, when network operators
delivered only video to the home, a customer's call for service represented a
passive form of status monitoring. Today, as suppliers of high-speed data and
voice, these operators require active network element management technologies to
ensure the quality of their systems. The next step in the evolution of network
management is a more sophisticated solution that provides for transparent
integration of accounting, billing and marketing systems. That environment is
driving the demand for the network management solutions C-COR.net offers.
We believe the wide acceptance of open systems technology will facilitate
that evolution, and as we lead the way to interoperability across vendors and
networks, C-COR.net is positioned to effectively leverage its 15-year network
management legacy. Currently, we offer an advanced element and power supply
management subsystem with the CNM(TM) System 2 hardware and software package. In
the future, we will work to expand capabilities by providing a variety of NOC
development services, along with a fully integrated services management system
for the NOC and back-office systems.
Superior performance in our products, advanced network management systems,
technically competent and highly motivated service employees, and
customer-driven NOC employees. All this and more add up to our motto, "C-COR.net
Quality Equals Network Integrity."
C-Cor.net 1999 Annual Report 13
<PAGE>
The Results-
Expanded Horizons &
Opportunity for Growth
We will further strengthen our customer relationships, build
new opportunities for our employees and work to enhance the value
of our company for our shareholders.
<PAGE>
The global communications world is moving at incredible speeds and creating
an environment that is rich in opportunities. In the future we expect to see
solid growth in demand for fiber optics as network operators upgrade
head-end facilities to handle more services at increased speeds.
[GRAPHIC APPEARS HERE]
Today, the services segment of the business is estimated to be in its
infancy. It is anticipated that demand for activation, optimization and
maintenance of networks will grow substantially in the coming years and many new
services, some not even known today, will challenge networks to achieve maximum
operations and integrity.
Our customers are driven by consumers who are prepared to reward the
provider who is the first to meet their needs for more, better and faster
services. The benefits from this environment flow to us as we supply
comprehensive solutions to help our customers achieve success.
This situation is not new to us. Nearly five decades ago, we began
designing and producing some of the technologies that allowed cable television
to reach into every community in the United States. With the addition of
Convergence and the proposed merger with SVCI, we will be able to offer the HFC
marketplace the expertise of three outstanding organizations. Our goal, quite
simply, is to capitalize on the opportunities the market and our new business
model will provide. As we do, we will further strengthen our customer
relationships, build new opportunities for our employees and work to enhance the
value of our company for our shareholders.
C-Cor.net 1999 Annual Report 15
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
DISCLOSURE REGARDING
FORWARD-LOOKING STATEMENTS
Some of the information presented in this Annual Report, including, but not
limited to continuation of increased domestic spending for network upgrades,
anticipated increased spending on product development, the continued
availability of capital resources, the Company's expectations in connection with
the merger with Convergence.com Corporation ("Convergence") and pending merger
with Silicon Valley Communications, Inc. ("SVCI"), 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, constitute 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 ability to consummate the pending merger with SVCI and
integrate both Convergence's and SVCI's businesses, 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,
the Company's ability to implement its strategies of product, service and global
market expansion, 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 and materials filed with the Securities and Exchange Commission.
RESULTS OF OPERATIONS
Net sales in fiscal year 1999 were $171,281, an increase of 13% from net sales
of $152,144 in fiscal year 1998. The increase in sales derived primarily from
increases in capital spending for network distribution equipment by domestic
cable television (CATV) operators and from increased sales of technical services
related to design, activation and support of CATV networks. Net sales increased
15% in fiscal year 1998 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 CATV industry.
Domestic sales increased 27% to $152,112 in fiscal year 1999 from $120,237 in
fiscal year 1998. In fiscal year 1999, the Company's domestic customer base
continued to consolidate, as acquisitions by and among several large multiple
systems operators (MSO's) and telephone companies took place. The Company
believes demand has increased for HFC network distribution equipment and related
services, as domestic CATV operators continue to increase their capital spending
to upgrade and rebuild their systems. The Company believes the increased capital
spending has been driven by customer demands for additional and improved
services, affecting not only voice and video requirements, but also demand for
high-speed data transmission and Internet access. 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
13% in fiscal year 1998 from $106,785 in fiscal year 1997, also due to network
upgrade activities by CATV operators. Total domestic sales were 89% of
consolidated net sales for fiscal year 1999, as compared to 79% and 81% for
fiscal years 1998 and 1997, respectively.
International sales decreased 40% to $19,169 in fiscal year 1999 from $31,907 in
fiscal year 1998. The decrease resulted generally from a weakness in sales to
all international markets, with the exception of Asia, in fiscal year 1999.
International sales increased 27% in fiscal year 1998 from $25,156 in fiscal
year 1997, resulting from increased demand primarily from sales to Canada,
Europe and Latin America. The Company expects international markets will
continue to represent a substantial portion of its sales base, but believes
demand will continue to be highly variable. The international markets represent
distinct markets in which capital spending decisions for HFC network
distribution equipment can be impacted by a variety of factors including access
to financing and general economic conditions. The Company's total international
sales were 11% of consolidated net sales in fiscal year 1999, as compared to 21%
and 19% for fiscal years 1998 and 1997, 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.
16 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
The Company's backlog of sales orders at June 25, 1999, was $52,765, compared to
$24,025 at June 26, 1998, and $34,851 at June 27, 1997. The backlog of sales
orders at June 25, 1999, was comprised of approximately 92% domestic and 8%
international orders, compared to approximately 91% domestic and 9%
international orders at June 26, 1998, and 72% domestic and 28% international
orders at June 27, 1997. The Company believes the increase in the backlog of
sales orders as of June 25, 1999, is a result of several factors, including
increases in overall demand, discretionary customer order patterns and CATV
operators' annual budget cycles. The Company's book-to-bill ratio was 1.17 for
fiscal year 1999, compared to 0.93 and 1.08 for fiscal years 1998 and 1997,
respectively.
Gross profit margin for fiscal year 1999 was 24.6%. This compares to 22.7% in
fiscal year 1998 and 20.6% in fiscal year 1997. Reductions in material costs,
changes in customer and product mix, lower manufacturing costs resulting from
the Company's operation in Mexico, efficiencies resulting from higher production
volume and manufacturing automation initiatives, all contributed to the increase
in the gross profit margin in fiscal year 1999, relative to fiscal years 1998
and 1997. The gross profit margin increase in fiscal year 1998, relative to
fiscal year 1997, was also attributed primarily to material cost reductions,
changes in customer and product mix and efficiencies resulting from higher
production volumes.
Selling and administrative expenses for fiscal year 1999 were $16,545 or 10% of
net sales, compared to $15,020 or 10% of net sales for fiscal year 1998 and
$15,787 or 12% of net sales for fiscal year 1997. The increase in selling and
administrative expenses for fiscal year 1999, compared to fiscal year 1998, was
due primarily to various selling and administrative costs to support higher
sales volumes, including personnel costs associated with expansion of the
Company's offering of technical services related to design, activation and
support of HFC networks. The decrease in selling and administrative expenses 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.
Research and product development expenses for fiscal year 1999 were $9,038 or 5%
of net sales, compared to $7,459 or 5% of net sales for fiscal year 1998 and
$5,681 or 4% of net sales for fiscal year 1997. The increase in research and
product development expenses in fiscal year 1999 over fiscal years 1998 and 1997
was primarily due to the Company's continued investment in new products and
technologies. The increased expenditures resulted from higher personnel costs
and additional expenses primarily for development of AM fiber optics and network
management products. The AM fiber optic products bear the trade name NAVICOR(TM)
and are designed to offer a total solution approach to the distribution portion
of the cable network. They include an entire family of AM fiber optic head-end
and node products and optical lid upgrades. Fiscal year 1999 research and
product development expenditures also reflect the continued development of
CNM(TM) System 2, a new generation of its Cable Network Manager (CNM) platform.
The Company anticipates increased product development expenditures in fiscal
year 2000 related to ongoing product development initiatives.
In fiscal year 1998, the Company recorded 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
represented salaries and benefits for approximately 143 employees affected by
the plant closing. The work force reduction occurred during the first quarter of
fiscal year 1999, thereby eliminating the restructuring accrual at June 25,
1999.
Interest expense for fiscal year 1999 was $229. This compares to $335 and $318
for fiscal years 1998 and 1997, respectively. The reduction in interest expense
in fiscal year 1999 resulted from a reduction of long-term debt, relative to
fiscal years 1998 and 1997, and reduced borrowings on the Company's revolving
line-of-credit.
For fiscal year 1999, other expense was $151. This compares to other expense of
$384 and other income of $250 for fiscal years 1998 and 1997, respectively. The
decreased expense in fiscal year 1999 resulted from greater investment income
and lower foreign currency transaction losses compared to fiscal year 1998. 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 Company's effective income tax rate for fiscal year 1999 was 35%. This
compared to effective income tax rates of 32% and 25% for fiscal years 1998 and
1997, respectively. The higher effective tax rate for fiscal year 1999 is
attributed primarily to reduced tax benefits deriving from the Company's Foreign
Sales Corporation
C-Cor.net 1999 Annual Report 17
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
(FSC), resulting from lower international sales and higher state income taxes
compared to fiscal year 1998. 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 FSC. In addition, fluctuations in the effective income tax
rate from period to period reflect changes in permanent 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 completed the
wind-down of this operation as of March 1998. A gain on disposal of the
discontinued business segment of $397, net of tax expense of $477, was recorded
in fiscal year 1999. This compared to a gain on disposal of the discontinued
business segment for fiscal year 1998 of $928, which included a net tax benefit
of $94. The gains in fiscal year 1999 and 1998 represented adjustments of the
estimated loss on the disposal of the business segment of $3,830, net of
applicable income tax benefit of $1,974, recorded in fiscal year 1997. The gain
in fiscal year 1999 resulted primarily from settlement of certain warranty
claims. In fiscal year 1998, 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 loss from operations of the discontinued business segment was
$6,605 for fiscal year 1997. 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 continues to maintain a strong financial position. Working capital
increased $7,068 since June 26, 1998, principally as a result of increased sales
growth, including higher inventory, accounts receivable and accounts payable
levels. Accrued liabilities increased to $14,001 as of June 25, 1999, from
$10,245 at June 26, 1998, due primarily to an increase in current income taxes
payable.
RECENT ACCOUNTING CHANGES
In fiscal year 1999, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" (Statement 130), which was
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. In
addition, the Company also adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
(Statement 131), which was 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. Implementation of
these Statements did not have a material effect on the Company's consolidated
financial statements.
In 1998, The Financial Accounting Standards Board (FASB) issued Statement of
Financial Accounting Standards No. 133, "Accounting for Derivative Instruments
and Hedging Activities" (Statement 133), which was effective for fiscal years
beginning after June 15, 1999. In July 1999, the FASB announced it was delaying
the effective date of Statement 133 for one year to fiscal years beginning after
June 15, 2000. 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
this Statement in its fiscal year 2001 consolidated financial statements as
required. Implementation of this Statement is not expected to have a material
effect on the Company's consolidated financial statements.
18 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
LIQUIDITY AND CAPITAL RESOURCES
The Company's current ratio at June 25, 1999, was 2.3, as compared to 2.6 at
June 26, 1998. As of June 25, 1999, cash and cash equivalents totaled $2,940, up
from $2,313 at June 26, 1998. Net cash and cash equivalents provided by
operating activities were $13,497 in fiscal year 1999, including working capital
changes of $553 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 $14,007 and $9,440 in fiscal
years 1998 and 1997, respectively.
Net cash used in investing activities was $11,177 in fiscal year 1999, compared
to $8,097 in fiscal year 1998 and $6,551 in fiscal year 1997. In fiscal year
1999, the Company entered into a strategic alliance with Convergence, a provider
of Internet-enabling technical services. Under this arrangement, the Company
made a $5,000 investment in Convergence and became the exclusive reseller of
Convergence products and services in North America. The investment is being
carried at cost, as the ownership interest is less than 20%, and does not fall
within the guidelines of Financial Accounting Standards 115, ("Accounting for
Certain Investments in Debt and Equity Securities") (Statement 115). On July 9,
1999, the Company consummated a merger with Convergence, which will be accounted
for under the pooling-of-interests method of accounting (Reference Note S). The
Company's other investing activities derived primarily from purchases of
property, plant and equipment. 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 $1,693 in fiscal year 1999,
compared to $4,049 and $3,911 in fiscal years 1998 and 1997, respectively.
Financing activities consist primarily of borrowings and payments on the
Company's line-of-credit and long-term debt. In fiscal year 1999, the Company
paid off several loans and refinanced some of the borrowings with a new term
loan. On June 25, 1998, the Company announced the closing of its manufacturing
plant located in Reedsville, Pennsylvania. 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.
The Company was the guarantor of several borrowing commitments by the MCIDC for
financing the facility and improvements. In August 1998, the Company executed
its option and purchased the facility for approximately $1,454, representing the
outstanding principal balances of the various loan commitments. The Company used
its available capital resources for the purchase. As of June 25, 1999, the
building and improvements were reclassified as property held-for-sale as part of
other current assets in the consolidated balance sheet. In addition, in August
1998, the Company paid off the remaining balances of two loans secured through
the Pennsylvania Sunny Day Fund. The loans funded expansion and renovation of
the Company's State College, Pennsylvania, facility in 1995. The loan balances
were paid off in order to eliminate restrictive covenants associated with the
loan agreements. The principal balances of the two loans paid off were $409 and
$2,506, respectively.
In October 1998, the Company borrowed $3,000 under a term loan facility with a
bank. The purpose of the loan was to refinance the Sunny Day Fund loan paid off
in August 1998 (Reference Note H).
In fiscal years 1999 and 1998, the Company repurchased 90,381 shares for $1,084
and 10,342 shares for $131, respectively, of its common stock 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. In May 1999, the
Company terminated the stock repurchase program adopted in September 1997.
The Company had a line-of-credit with a bank pursuant to which it could borrow
the lesser of $25,000, net of outstanding letters of credit up to a $2,000
sub-limit, or a percentage of eligible accounts receivable and inventory. The
line-of-credit was committed through December 31, 1999. Based upon the Company's
analysis of eligible accounts receivable and inventory, approximately $23,300
was available to borrow as of June 25, 1999.
C-Cor.net 1999 Annual Report 19
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
The Company had no borrowings on the line-of-credit as of June 25, 1999, or June
26, 1998. On August 9, 1999, the Company replaced its $25,000 revolving
line-of-credit agreement with a new credit agreement established with three
banks under which it may borrow up to $70,000. The agreement has two parts.
First, $20,000 is available as a revolving line-of-credit, subject to an
aggregate sub-limit of $2,000 for issuance of letters of credit, which is
committed through December 31, 1999. The second part is a 364 day standby
acquisition facility which enables the Company to borrow up to $50,000, for
strategic acquisitions and/or investments. Each draw on the facility may be
extended for up to 84 months. A pricing matrix has been established for credit
pricing on these facilities which is a function of the Company's total funded
indebtedness to earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio. Borrowings under this credit agreement bear interest at various
rates, at the Company's option.
In addition, the Company amended its existing $3,000 term loan to eliminate
terms and conditions that govern that facility and replaced them with terms and
conditions that have been entered into for the revolving line-of-credit and the
standby facility. The outstanding balance on the term loan will be split among
the three participating banks based on their pro-rated share of the total
balance of combined credit facilities.
Borrowings on these facilities are unsecured, subject to a negative pledge on
all business assets, and the Company is required to maintain certain financial
ratios and indebtedness tests.
Management believes that operating cash flow, as well as the aforementioned
line-of-credit agreement, will be adequate to provide for all cash requirements
for the foreseeable future, subject to requirements that additional growth or
strategic development might dictate.
SUBSEQUENT EVENTS -
BUSINESS COMBINATIONS
On July 9, 1999, the Company consummated a merger with Convergence, a Georgia
corporation, whereby Convergence became a wholly-owned subsidiary of the
Company. The merger will enable the Company to offer an integrated package of
network management and support services and products. The expertise of
Convergence in enabling high-speed digital data transmission and Internet access
over HFC networks by providing network design, activation and support services
will augment the Company's existing technical service capabilities. In the
merger, each outstanding share of common stock of Convergence was converted into
one share of the Company's common stock for an aggregate of 1,433,323 shares of
the Company's common stock. Each outstanding warrant to acquire Convergence
common stock was converted into a warrant to acquire the Company's common stock
for an aggregate of warrants to acquire 366,930 shares of the Company's common
stock. The merger is being accounted for under the pooling-of-interests method
of accounting.
On July 13, 1999, the Company signed an Agreement and Plan of Merger with SVCI,
a California corporation, whereby SVCI will become a wholly-owned subsidiary of
the Company. The acquisition is expected to be completed in the fall of 1999.
This acquisition will enable the Company to broaden and strengthen its network
distribution product offering by adding advanced fiber optic products to its
existing radio frequency (RF) and fiber optic products. In particular, the
product offering will be strengthened with respect to head-end fiber optic
equipment. As consideration in the merger, each outstanding share of common
stock of SVCI will be converted into the right to receive .094534 shares of the
Company's common stock for an aggregate of 1,531,521 shares of the Company's
common stock (subject to reduction pursuant to certain escrow arrangements).
Outstanding stock options and warrants to acquire SVCI common stock will be
converted into stock options and warrants to acquire the Company's common stock,
using the same conversion ratio (with appropriate adjustment to the exercise
price) for an aggregate of stock options and warrants to acquire 397,911 shares
of the Company's common stock. It is anticipated that the merger will be
accounted for under the pooling-of-interests method of accounting.
The Company anticipates recording a one-time charge related to the business
combinations in its first quarter of fiscal year 2000. The one-time charge will
include the transaction costs, as well as employee severance payments and
write-off of assets related to existing fiber optic products that will become
obsolete and be replaced by the SVCI product line.
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
20 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Management's Discussion & Analysis
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
millennium (Year 2000) approaches. The Company's date-sensitive systems include,
but are not limited to, test equipment, 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.
During fiscal year 1999, the Company's Year 2000 project team (consisting of
representatives from its information technology, finance, manufacturing, product
development, quality assurance, and sales and marketing departments) completed
its assessment of the Company's internal date-sensitive equipment to determine
Year 2000 compliance. As of June 25, 1999, the Company has concluded that
approximately 7% of its date-sensitive equipment is deemed to be non-compliant.
Most of these non-compliant items can and will be upgraded to be compliant
before January 1, 2000. The non-compliant hardware and software were determined
not to be in critical systems.
At this time, all critical systems have been designated compliant by their
manufacturers. To verify manufacturers' assertions, the Company developed a
testing plan for its critical systems and began compliance testing during the
third quarter of its fiscal year 1999. The Company has completed approximately
60% of such compliance testing, and at this time, there are no exceptions
identified with these manufacturers' assertions. The Company anticipates
completing its compliance testing by the end of its first quarter of fiscal year
2000.
Throughout fiscal year 1999, the Company corresponded with its principal
customers, suppliers, vendors and subcontractors to ascertain their readiness
for the Year 2000 and requested assurances that they are addressing the Year
2000 issue. These actions were intended to help mitigate the possible external
impact of Year 2000 issues. However, the Company is unable to fully assess the
potential consequences in the event of unforeseen compliance issues with the
systems operated by its customers, suppliers, vendors or subcontractors.
The Company has assessed its products presently being sold and those installed
in customers' networks. Only our network management system has inherent software
embedded in it, and the Company has assessed its network management software and
firmware, both present and previously sold versions, and has found them to be
Year 2000 compliant.
The Company's current timetable under which it expects to complete its remaining
Year 2000 testing is by the end of its first quarter of fiscal year 2000,
however, there can be no assurance that the Company will meet this timetable.
As a result of the consummated merger with Convergence on July 9, 1999, and
pending merger with SVCI expected to be completed in the fall of 1999, the
Company is in the process of reassessing each of Convergence's and SVCI's Year
2000 initiatives. The Company will focus on compliance attainment efforts of
each of their customers and suppliers, and Convergence's and SVCI's internal
date-sensitive equipment. This activity is expected to last into the second
quarter of fiscal year 2000.
Based on its assessment to date, the Company believes it will not experience any
material disruption as a result of Year 2000 problems with its internal
financial, manufacturing and other computer systems. The worst case scenario for
the Company would be disruption of its operations and lost revenues as a result
of non-compliance of its systems and those operated by its customers, suppliers,
vendors and subcontractors. The Company has established a contingency plan
detailing how it will operate under the most reasonably likely worst case
scenario, in the event it perceives there are unaddressed risks associated with
the Year 2000. This plan will be refined during the first and second quarters of
fiscal year 2000, but includes provisions for increasing production and
inventory levels, altering third-party business relationships, if necessary,
ensuring adequate financial and personnel resources exist to adequately
remediate problems as soon as detected, and other contingency efforts.
The Company has not calculated the total estimated cost of addressing Year 2000
issues. While the total estimated cost of these efforts is difficult to predict
with accuracy, based on its evaluation and assessment thus far, the Company
believes 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, if 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.
C-Cor.net 1999 Annual Report 21
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Balance Sheets
- --------------------------------------------------------------------------------
(in thousands of dollars except share data)
<TABLE>
<CAPTION>
JUNE 25, 1999 JUNE 26, 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
CURRENT ASSETS
Cash and cash equivalents $ 2,940 $ 2,313
Marketable securities 445 356
Accounts and notes receivable, less allowance of $691 in 1999;
$430 in 1998 28,479 19,404
Inventories 21,415 17,375
Deferred taxes 3,908 2,797
Other current assets 3,044 2,468
Net current assets of discontinued operations 433 -
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 60,664 44,713
INVESTMENT 5,000 -
PROPERTY, PLANT AND EQUIPMENT, NET 24,541 27,751
INTANGIBLE ASSETS, NET OF ACCUMULATED
AMORTIZATION OF $172 IN 1999; $-0- IN 1998 1,123 1,295
OTHER LONG-TERM ASSETS 2,336 1,759
- ------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 93,664 $ 75,518
- ------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
CURRENT LIABILITIES
Accounts payable $ 11,523 $ 5,784
Accrued liabilities 14,001 10,245
Current portion of long-term debt 759 854
Net current liabilities of discontinued operations - 517
- ------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 26,283 17,400
LONG-TERM DEBT, less current portion 3,633 5,513
DEFERRED TAXES 1,092 1,374
OTHER LONG-TERM LIABILITIES 1,329 1,041
Commitments and Contingent Liabilities
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 32,337 25,328
- ------------------------------------------------------------------------------------------------------------------------
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 9,785,947 in 1999 and 9,672,128 in 1998 979 967
Additional paid-in capital 21,695 20,341
Accumulated other comprehensive loss (96) (99)
Retained earnings 45,729 34,877
Treasury stock at cost, shares of 600,723 in 1999 and 510,342 in 1998 (6,980) (5,896)
- ------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 61,327 50,190
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 93,664 $ 75,518
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
22 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Operations
- --------------------------------------------------------------------------------
(in thousands except per share data)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 25, 1999 JUNE 26, 1998 JUNE 27, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET SALES $ 171,281 $ 152,144 $ 131,941
COST AND EXPENSES
Cost of sales 129,124 117,557 104,702
Selling and administrative 16,545 15,020 15,787
Research and product development 9,038 7,459 5,681
Provision for restructuring costs - 625 -
Interest 229 335 318
Other expense (income), net 151 384 (250)
- ------------------------------------------------------------------------------------------------------------------------
155,087 141,380 126,238
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 16,194 10,764 5,703
INCOME TAX EXPENSE (BENEFIT)
Current 7,130 3,564 1,298
Deferred (1,391) (117) 148
- ------------------------------------------------------------------------------------------------------------------------
5,739 3,447 1,446
- ------------------------------------------------------------------------------------------------------------------------
INCOME FROM CONTINUING OPERATIONS 10,455 7,317 4,257
- ------------------------------------------------------------------------------------------------------------------------
DISCONTINUED OPERATIONS:
Loss from operations of discontinued
business segment, net of tax - - (6,605)
Gain (loss) on disposal of discontinued
business segment, net of tax 397 928 (3,830)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 10,852 $ 8,245 $ (6,178)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (basic):
Continuing operations $ 1.15 $ 0.80 $ 0.45
Discontinued operations
Loss from operations - - (0.70)
Gain (loss) on disposal 0.04 0.10 (0.40)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1.19 $ 0.90 $ (0.65)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER SHARE - (diluted):
Continuing operations $ 1.10 $ 0.78 $ 0.44
Discontinued operations
Loss from operations - - (0.68)
Gain (loss) on disposal 0.04 0.10 (0.40)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1.14 $ 0.88 $ (0.64)
- ------------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares and
Common Share Equivalents
Basic 9,137 9,148 9,504
Diluted 9,498 9,401 9,638
</TABLE>
See notes to consolidated financial statements.
C-Cor.net 1999 Annual Report 23
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows
- --------------------------------------------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 25, 1999 JUNE 26, 1998 JUNE 27, 1997
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
NET INCOME (LOSS) $ 10,852 $ 8,245 $ (6,178)
Adjustments to reconcile net income to net cash and cash
equivalents provided by operating activities:
Depreciation and amortization 7,978 6,100 4,910
(Gain) loss on disposal of discontinued operations, net of tax (397) (928) 3,830
Provision for deferred retirement salary plan 204 292 252
Loss (gain) on sale of property, plant and equipment 216 (14) 22
Changes in operating assets and liabilities:
Accounts receivable (9,075) (105) 1,718
Inventories (4,040) 1,765 (561)
Other assets 128 (2,844) (197)
Accounts payable 5,739 (2,852) 2,784
Accrued liabilities 3,838 3,420 (243)
Deferred income taxes (1,393) (123) (133)
Discontinued operations - working capital changes
and noncash charges (553) 1,051 3,236
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS
PROVIDED BY OPERATING ACTIVITIES 13,497 14,007 9,440
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchase of property, plant and equipment (6,121) (8,782) (5,884)
Purchase of marketable securities (84) - (200)
Proceeds from sale of marketable securities - 15 216
Investment at cost (5,000) - -
Proceeds from sale of property, plant and equipment 28 14 15
Proceeds from (investing activities of) discontinued operations - 656 (698)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED
IN INVESTING ACTIVITIES (11,177) (8,097) (6,551)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payment of debt and capital lease obligations (4,975) (834) (829)
Proceeds from long-term debt borrowing 3,000 - -
Proceeds from line-of-credit 19,366 52,818 21,936
Payment of line-of-credit (19,366) (56,284) (19,617)
Tax benefit deriving from exercise and sale of stock option shares 94 57 71
Issue common stock to employee stock purchase plan 76 51 88
Proceeds from exercise of stock options 1,196 274 205
Purchase of treasury stock (1,084) (131) (5,765)
- ------------------------------------------------------------------------------------------------------------------------
NET CASH AND CASH EQUIVALENTS USED
IN FINANCING ACTIVITIES (1,693) (4,049) (3,911)
- ------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 627 1,861 (1,022)
Cash and cash equivalents at beginning of year 2,313 452 1,474
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 2,940 $ 2,313 $ 452
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
24 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity
- --------------------------------------------------------------------------------
(in thousands of dollars)
<TABLE>
<CAPTION>
ACCUMULATED
ADDITIONAL OTHER
COMPREHENSIVE COMMON PAID-IN COMPREHENSIVE RETAINED TREASURY
INCOME STOCK CAPITAL INCOME EARNINGS STOCK
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JUNE 28, 1996 $ 960 $ 19,602 $ (55) $ 32,810 $ -
Net loss $ (6,178) (6,178)
Other comprehensive income:
Net unrealized holding gains on
marketable securities 7
Foreign currency translation loss (67)
-----------
Other comprehensive income (60) (60)
-----------
Comprehensive income $ (6,238)
===========
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)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 27, 1997 963 19,963 (115) 26,632 (5,765)
Net income $ 8,245 8,245
Other comprehensive income:
Net unrealized holding gains on
marketable securities 7
Foreign currency translation loss 9
-----------
Other comprehensive income 16 16
-----------
Comprehensive income $ 8,261
===========
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)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 26, 1998 967 20,341 (99) 34,877 (5,896)
Net income $ 10,852 10,852
Other comprehensive income:
Net unrealized holding gains on
marketable securities 4
Foreign currency translation loss (1)
-----------
Other comprehensive income 3 3
-----------
Comprehensive income $ 10,855
===========
Exercise of stock options 11 1,185
Tax benefit deriving from exercise
sale of stock option shares 94
Issue shares to employee stock
purchase plan 1 75
Purchase of treasury stock (1,084)
- ------------------------------------------------------------------------------------------------------------------------
BALANCE, JUNE 25, 1999 $ 979 $ 21,695 $ (96) $ 45,729 $ (6,980)
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
C-Cor.net 1999 Annual Report 25
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
For the three fiscal years ended June 25, 1999
DESCRIPTION OF BUSINESS
The Company designs and manufactures network distribution products and provides
technical services in support of two-way hybrid fiber coax (HFC) networks. In
fiscal years 1999 and 1998, the Company operated in one industry segment, the
Electronic Distribution Products segment, which provides HFC equipment for
signal distribution applications and technical services primarily to the cable
television (CATV) market.
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 25, 1999, June 26, 1998, and June 27, 1997.
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.
Revenue Recognition: The Company's revenues derive principally from equipment
sales, which are generally recognized when the equipment has been shipped.
Service revenues, consisting of systems design, field services and other
consulting engagements, are generally recognized as services are rendered.
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 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- for fiscal
years 1999, 1998 and 1997, 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 7 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 capitalizes certain internal and purchased
software development and production costs once technological feasibility has
been achieved. For the fiscal years ended 1999 and 1998, the Company capitalized
$389 and $670, respectively, of purchased software development costs, which is
included in other long-term assets in the consolidated financial statements. The
Company did not capitalize any software development costs during fiscal year
1997. Amortization will commence upon initial product release, which the Company
anticipates will occur during the first quarter of its fiscal year 2000, and as
such no amortization has been recorded in fiscal years 1999 and 1998.
Investment: In December 1998, the Company entered into a strategic alliance with
Convergence.com Corporation ("Convergence"), a provider of Internet-enabling
technical services. Under this arrangement, the Company made a $5,000 investment
in Convergence and the Company entered into an agreement with Convergence to be
the exclusive reseller of Convergence's products and services. At June 25, 1999,
the investment in Convergence is being carried at cost, as the ownership
interest is less than 20%, and does not fall within the guidelines of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" (Statement 115). Subsequent to June 25, 1999, the Company
consummated a merger with Convergence (Reference Note S).
Intangible Assets: Patents, trademarks and licenses are carried at cost less
accumulated amortization, which is calculated on a straight-line basis over the
estimated three year useful life of the assets. The patents, trademarks and
26 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
license costs relate to purchased product lines. For fiscal years ended 1999,
1998 and 1997, the Company recorded $172, $-0- and $-0- of amortization,
respectively.
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 1999 and 1998, the Company repurchased
90,381 shares for $1,084 and 10,342 shares for $131, respectively, of its common
stock 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. In May
1999, the Company terminated the stock repurchase program adopted in September
1997.
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 25, 1999, 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 are excluded from income and are recorded
directly to shareholders' equity in accumulated other comprehensive income, net
of related deferred income taxes.
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 this Statement
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 net income (loss) per share is 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>
<CAPTION>
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing
operations $ 10,455 $ 7,317 $ 4,257
Gain (loss) from
discontinued operations 397 928 (10,435)
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ 10,852 $ 8,245 $ (6,178)
- ---------------------------------------------------------------------------------------------------
Basic shares outstanding 9,137 9,148 9,504
Common stock equivalents 361 253 134
- ---------------------------------------------------------------------------------------------------
Dilutive potential
common shares 9,498 9,401 9,638
- ---------------------------------------------------------------------------------------------------
Net income (loss) per share - (basic):
Continuing operations $ 1.15 $ 0.80 $ 0.45
Discontinued operations 0.04 0.10 (1.10)
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ 1.19 $ 0.90 $ (0.65)
- ---------------------------------------------------------------------------------------------------
Net income (loss) per share - (diluted):
Continuing operations $ 1.10 $ 0.78 $ 0.44
Discontinued operations 0.04 0.10 (1.08)
- ---------------------------------------------------------------------------------------------------
Net income (loss) $ 1.14 $ 0.88 $ (0.64)
- ---------------------------------------------------------------------------------------------------
</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.
C-Cor.net 1999 Annual Report 27
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
Restructuring Costs: 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 represented salaries and
benefits for approximately 143 employees affected by the plant closing. The work
force reduction occurred during the first quarter of fiscal year 1999, thereby
eliminating the restructuring accrual at June 25, 1999.
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, 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. The
facility has been reclassified from property, plant and equipment to property
held-for-sale, which is included in other current assets on the consolidated
balance sheet as of June 25, 1999, with a carrying value of $1,281.
Comprehensive Income: In fiscal year 1999, the Company adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
(Statement 130), which requires net unrealized investment gains or losses on the
Company's available-for-sale securities and net foreign exchange gains or losses
on translation, which previously were reported directly in shareholders' equity,
to be included in accumulated other comprehensive income in the consolidated
balance sheet and in the disclosure of comprehensive income. The totals of other
comprehensive income items and comprehensive income (which includes net income)
are displayed separately in the consolidated statements of shareholders' equity.
The adoption of this statement had no effect on net income or shareholders'
equity.
The components of other comprehensive income (loss) and the related tax effects
are as follows:
INCOME
AMOUNT TAX AMOUNT
BEFORE EXPENSE NET OF
TAX (BENEFIT) TAXES
- -----------------------------------------------------------------
Fiscal year ended June 25, 1999
Unrealized holding gain during
the fiscal year $ 7 $ 3 $ 4
Net foreign exchange loss (2) (1) (1)
- -----------------------------------------------------------------
Total other comprehensive
income $ 5 $ 2 $ 3
- -----------------------------------------------------------------
Fiscal year ended June 26, 1998
Unrealized holding gain during
the fiscal year $ 12 $ 5 $ 7
Net foreign exchange gain 15 6 9
- -----------------------------------------------------------------
Total other comprehensive
income $ 27 $ 11 $ 16
- -----------------------------------------------------------------
Fiscal year ended June 27, 1997
Unrealized holding gain during
the fiscal year $ 12 $ 5 $ 7
Net foreign exchange loss (112) (45) (67)
- -----------------------------------------------------------------
Total other comprehensive
income $(100) $ (40) $ (60)
- -----------------------------------------------------------------
Accounting and Disclosure Changes: In June 1998, the FASB 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. In July 1999, the FASB announced it was delaying
the effective date of Statement 133 for one year, to fiscal years beginning
after June 15, 2000. 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 this Statement in its fiscal year 2001 consolidated financial
statements as required. Implementation of this Statement is not expected to have
a material effect on the Company's consolidated financial statements.
B. DISCONTINUED OPERATIONS
On July 10, 1997, the Company announced that it would discontinue its Digital
Fiber Optics Transmission Products segment located in Fremont, California, 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, were 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.
28 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
The Company completed the phase-down of this operation as of March 1998. A gain
on disposal of the discontinued business segment of $397, net of tax expense of
$477, was recorded during the fiscal year ended 1999. The gain in fiscal year
1999 resulted primarily from settlement of certain warranty claims. 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. In fiscal year 1998, 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 loss from operations of the discontinued business segment was
$6,605 for fiscal year 1997. 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 operation for
fiscal year 1997 is as follows:
JUNE 27, 1997
- --------------------------------------------------------------------------
Net sales $ 7,994
Costs and expenses (17,351)
- --------------------------------------------------------------------------
Loss before income taxes (9,357)
Income tax benefit 2,752
- --------------------------------------------------------------------------
Net loss $ (6,605)
- --------------------------------------------------------------------------
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) related to the discontinued operations.
These net assets consist of net working capital and other assets, less related
liabilities as follows as of June 25, 1999, and June 26, 1998:
JUNE 25, 1999 JUNE 26, 1998
- --------------------------------------------------------------------------
Current assets:
Accounts receivable $ 16 $ 150
Notes receivable 796 981
Deferred tax assets 474 1,602
Other assets - 156
- --------------------------------------------------------------------------
1,286 2,889
- --------------------------------------------------------------------------
Current liabilities:
Accrued warranty and other (728) (2,806)
Allowance for disposal of
discontinued operations (125) (600)
- --------------------------------------------------------------------------
(853) (3,406)
- --------------------------------------------------------------------------
Net current assets (liabilities)
of discontinued operations $ 433 $ (517)
- --------------------------------------------------------------------------
C. MARKETABLE SECURITIES
Marketable securities as of June 25, 1999, and June 26, 1998, consisted of the
following:
GROSS GROSS
UNREALIZED UNREALIZED
AMORTIZED HOLDING HOLDING FAIR
COST GAINS LOSSES VALUE
- --------------------------------------------------------------------------------
June 25, 1999
Available for sale:
Municipal bonds $ 351 $ -- $ (9) $ 342
Equity securities 101 2 -- 103
- --------------------------------------------------------------------------------
$ 452 $ 2 $ (9) $ 445
- --------------------------------------------------------------------------------
June 26, 1998
Available for sale:
Municipal bonds $ 366 $ -- $ (12) $ 354
Equity securities 2 -- -- 2
- --------------------------------------------------------------------------------
$ 368 $ -- $ (12) $ 356
- --------------------------------------------------------------------------------
Maturities of investment securities classified as available-for-sale at June 25,
1999, were as follows:
COST VALUE
- ---------------------------------------------------------------------
Available for sale:
Due after one year through five years $ 351 $ 342
Equity securities 101 103
- ---------------------------------------------------------------------
$ 452 $ 445
- ---------------------------------------------------------------------
D. INVENTORIES
JUNE 25, 1999 JUNE 26, 1998
- -------------------------------------------------------------------------------
Finished goods $ 2,732 $ 2,850
Work-in-process 2,588 1,755
Raw materials 16,095 12,770
- -------------------------------------------------------------------------------
$ 21,415 $ 17,375
- -------------------------------------------------------------------------------
Included in the amounts above are reserves of $2,024 at June 25, 1999, and
$1,987 at June 26, 1998.
C-Cor.net 1999 Annual Report 29
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
E. PROPERTY, PLANT AND EQUIPMENT
JUNE 25, 1999 JUNE 26, 1998
- ---------------------------------------------------------
Land $ 468 $ 468
Building and improvements
under capital lease - 1,727
Buildings 10,760 10,683
Machinery and equipment
under capital lease 38 39
Machinery and equipment 46,611 41,515
Leasehold improvements 975 875
- ---------------------------------------------------------
58,852 55,307
Less accumulated depreciation
and amortization 34,311 27,556
- ---------------------------------------------------------
$ 24,541 $ 27,751
- ---------------------------------------------------------
F. INTANGIBLE ASSETS
JUNE 25, 1999 JUNE 26, 1998
- ---------------------------------------------------------
Cost of intangibles:
Patents and trademarks $ 1,045 $ 1,045
Licensing costs 250 250
- ---------------------------------------------------------
1,295 1,295
- ---------------------------------------------------------
Less accumulated amortization:
Patents and trademarks $ (116) $ -
Licensing costs (56) -
- ---------------------------------------------------------
(172) -
- ---------------------------------------------------------
Net book value $ 1,123 $ 1,295
- ---------------------------------------------------------
G. LINE-OF-CREDIT
At June 25, 1999, and 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 $25,000, net of outstanding letters of credit up to a
$2,000 sub-limit, 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 1.00% and require compliance with certain
covenants. Interest is payable in 30 days as billed. The line-of-credit
agreement is committed through December 31, 1999. Accounts receivable and
inventory collateralize the borrowings. Based upon the Company's analysis of
eligible accounts receivable and inventory, approximately $23,300 was available
to borrow as of June 25, 1999. On August 9, 1999, the Company replaced this
revolving line-of-credit agreement with a new credit agreement (Reference Note
S).
H. LONG-TERM DEBT
JUNE 25, 1999 JUNE 26, 1998
- ---------------------------------------------------------
Notes payable $ 4,392 $ 4,909
Capital lease obligations - 1,458
- ---------------------------------------------------------
4,392 6,367
Less current portion 759 854
- ---------------------------------------------------------
$ 3,633 $ 5,513
- ---------------------------------------------------------
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 2006. Certain
property, plant and equipment collateralize the borrowing. The principal balance
at June 25, 1999, was $264.
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 2010. Certain property, plant and equipment collateralize the borrowing.
The principal balance at June 25, 1999, was $1,528.
On October 19, 1998, the Company borrowed $3,000 under a term loan facility with
a bank. The term loan requires monthly principal payments of $50, plus interest
based on a one-to-three month variable rate at LIBOR plus 1.15%, through 2003.
The Company is using a derivative financial instrument to reduce its exposure to
market risk resulting from interest rates. On October 20, 1998, the Company
entered into an interest rate swap agreement that fixes the interest rate at
6.14% on the notional amount of floating rate debt through October 21, 2003. The
financial institution, as counterparty to the agreement, will pay the Company a
floating interest rate based on a one-month LIBOR rate during the term of the
agreement in exchange for the Company paying the fixed interest rate. Interest
payments are made monthly. The Company is at risk of loss from this swap
agreement in the event of nonperformance by the counterparty. The Company
believes this risk to be minimal. The principal balance under this term loan at
June 25, 1999, was $2,600.
On August 20, 1998, the Company paid off the remaining balances of two loans
obtained from the Pennsylvania Sunny Day Fund. The original principal balance of
the loans totaled $4,500, which funded the expansion and renovation of the
Company's State College facility. The two notes evidencing the funding had an
30 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
renovation of the Company's State College facility. The two notes evidencing the
funding had an interest rate of 2%, which was contingent upon meeting certain
job creation commitments. The first note was for $488 with an original maturity
of 15 years, and the second was for $4,012 with an original maturity of 7 years.
Monthly payments of principal and interest of $3 and $51, respectively, were
required on these notes through the years 2010 and 2002, respectively. Certain
equipment collateralized the borrowing. The loan balances were paid off in order
to eliminate certain restrictive covenants associated with the loan agreements.
The principal balances of the two loans paid off were $409 and $2,506,
respectively.
Capital Lease Obligations: As a result of the Company's decision on June 25,
1998, to close its manufacturing facility located in Reedsville, Pennsylvania,
the Company executed its option to purchase the building and improvements for
approximately $1,454, plus closing costs, under the Lease/Option to Purchase
Agreement it had with the MCIDC on August 10, 1998. The Company was the
guarantor of several borrowing commitments by the MCIDC for financing the $1,727
cost of the project. The lease called for a monthly payment of $14, which was
equal to the monthly principal and interest of the various borrowing commitments
by the MCIDC through 2010. The original term of the lease was for 15 years with
the 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 carried a weighted-average interest rate of 4.7%. For
financial accounting purposes, the lease was accounted for during fiscal year
1998 as a capital lease and, accordingly, an asset and liability were recorded.
As of June 25, 1999, the building and improvements were reclassified as property
held-for-sale as part of other current assets in the consolidated balance sheet.
Long-term debt at June 25, 1999, had scheduled maturities as follows:
FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
2000 $ 759
2001 762
2002 766
2003 770
2004 173
Thereafter 1,162
- --------------------------------------------------------------------------------
$ 4,392
- --------------------------------------------------------------------------------
Total interest paid on the line-of-credit (Reference Note G) and long-term debt
was $229, $335 and $304 for fiscal years ended 1999, 1998 and 1997,
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. At June 25, 1999, the future
minimum lease payments for noncancelable leases with remaining lease terms in
excess of one year were as follows:
FISCAL YEAR ENDING
- --------------------------------------------------------------------------------
2000 $ 1,407
2001 1,411
2002 1,353
2003 408
2004 415
Thereafter 1,050
- --------------------------------------------------------------------------------
$ 6,044
- --------------------------------------------------------------------------------
Rent expense relating to continuing operations was $1,402, $859 and $748 for
fiscal years ended 1999, 1998 and 1997, respectively.
I. STOCK AWARD PLANS
In October 1998, the Company adopted a Stock Incentive Plan ("1998 Incentive
Plan"), which provides for several types of equity-based incentive compensation
awards. Awards, when made, may be in the form of stock options, restricted
shares, performance shares and performance units. Stock options granted to
employees and directors are at a price not less than 100% of the fair market
value of such shares on the date of grant. Stock options granted to certain
employees begin vesting in cumulative annual installments of 25% per year
beginning one year after the date of grant. Options granted to non-employee
directors are exercisable one year after grant. During fiscal year 1999, 2,000
restricted shares and 11,000 performance shares were awarded under the 1998
Incentive Plan. The restricted shares had an aggregate value of $22, which is
being amortized over a vesting period through June 2001. The performance shares
represent a right to receive common stock of the Company based upon achievement
of certain performance criteria over a performance period through June 2000.
Compensation expense related to the performance shares is based on the current
market price of the Company's common stock at the time the performance criteria
is satisfied.
C-Cor.net 1999 Annual Report 31
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
The Company's previous stock option plans provided 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. Stock options granted to
certain employees vest in cumulative annual installments of either 20% or 25%
per year beginning one year after the date of grant. Options granted to
non-employee directors were exercisable one year after grant. Certain options
held by the Chairman were exercisable immediately.
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:
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- --------------------------------------------------------------------------------
Net income (loss):
As reported $ 10,852 $ 8,245 $ (6,178)
Pro forma $ 8,239 $ 6,977 $ (6,396)
Net income (loss) per share:
Basic:
As reported $ 1.19 $ 0.90 $ (0.65)
Pro forma $ 0.90 $ 0.76 $ (0.67)
Diluted:
As reported $ 1.14 $ 0.88 $ (0.64)
Pro forma $ 0.87 $ 0.74 $ (0.66)
The per share weighted-average fair values of stock options granted during
fiscal years 1999, 1998 and 1997 were $15.92, $9.81 and $4.28, respectively, on
the date of grant using the Black-Scholes option-pricing model with the
following weighed-average assumptions:
Fiscal year 1999-expected dividend yield 0%, risk-free interest rate of 5.0 %, a
volatility factor of the expected market price of the Company's common stock of
.7395, and a weighted-average expected life of approximately 4 years.
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.
The fair value of stock options included in the pro forma amounts for fiscal
years 1999, 1998 and 1997 is not necessarily indicative of future effects on net
income and net income per share.
32 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
A summary of the status of the Company's stock option plans as of June 25, 1999,
June 26, 1998, and June 27, 1997, and changes during the years ended on those
dates is presented below:
<TABLE>
<CAPTION>
FISCAL YEARS ENDED: JUNE 25, 1999 JUNE 26, 1998 JUNE 27, 1997
- --------------------------------------------------------------------------------------------------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 1,418,260 $ 13.72 751,449 $ 14.71 776,542 $ 15.08
Granted 729,168 $ 20.42 836,404 $ 12.86 118,000 $ 14.99
Exercised (111,719) $ 10.64 (33,531) $ 7.80 (27,205) $ 8.32
Canceled (86,118) $ 14.51 (136,062) $ 15.35 (115,888) $ 19.02
- --------------------------------------------------------------------------------------------------------------
Outstanding at end of year 1,949,591 $ 16.34 1,418,260 $ 13.72 751,449 $ 14.71
- --------------------------------------------------------------------------------------------------------------
Options exercisable at end of year 614,766 470,950 433,292
</TABLE>
The following table summarizes information about the Company's stock option
plans as of June 25, 1999:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- --------------------------------------------------------------------------------------------------------------
NUMBER WEIGHTED-AVG. NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED AVG. EXERCISABLE WEIGHTED AVG.
EXERCISE PRICE AT 6/25/99 CONTRACTUAL LIFE EXERCISE PRICE AT 6/25/99 EXERCISE PRICE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$2.75 to $8.38 191,610 3.8 years $ 6.62 191,610 $ 6.62
$8.50 to $14.13 386,209 6.2 years $ 10.60 102,802 $ 10.86
$14.375 to $19.75 587,699 7.0 years $ 15.23 156,187 $ 15.00
$20.12 to $25.50 712,363 7.7 years $ 21.89 112,299 $ 21.89
$25.75 to $31.25 71,710 6.1 years $ 27.31 51,868 $ 27.32
- --------------------------------------------------------------------------------------------------------------
1,949,591 6.7 years $ 16.34 614,766 $ 13.99
- --------------------------------------------------------------------------------------------------------------
</TABLE>
J. INCOME TAXES
Total income tax expense (benefit) was allocated as follows:
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- --------------------------------------------------------------------------------
Income from continuing
operations $ 5,739 $ 3,447 $ 1,446
Results of discontinued
operations -- -- (2,752)
Gain (loss) on disposal of
discontinued operations 477 (94) (1,974)
Stockholders' equity,
for tax benefit derived
from exercise and sale
of stock option shares (94) (57) (71)
- --------------------------------------------------------------------------------
$ 6,122 $ 3,296 $(3,351)
- --------------------------------------------------------------------------------
Income tax expense (benefit) attributable to continuing operations consisted of
the following components:
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- --------------------------------------------------------------------------------
Current:
Federal $ 6,457 $ 3,262 $ 1,493
State 614 263 (97)
Foreign 59 39 (98)
- --------------------------------------------------------------------------------
7,130 3,564 1,298
- --------------------------------------------------------------------------------
Deferred:
Federal (1,183) (105) 133
State (208) (12) 15
- --------------------------------------------------------------------------------
(1,391) (117) 148
- --------------------------------------------------------------------------------
$ 5,739 $ 3,447 $ 1,446
- --------------------------------------------------------------------------------
C-Cor.net 1999 Annual Report 33
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
A reconciliation of the effective income tax rate from continuing operations
with the U.S. federal income tax rate of 35 percent applied to pretax income
from continuing operations was as follows:
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- --------------------------------------------------------------------------------
Statutory rate 35.0 % 35.0 % 35.0 %
State income taxes,
net of federal tax 1.6 1.5 (1.7)
Tax effect of foreign
income and losses - - (2.8)
Tax effect of foreign
sales corporation (0.1) (2.7) (11.6)
Permanent differences - 0.2 3.0
Other (1.1) (2.0) 3.5
- --------------------------------------------------------------------------------
35.4 % 32.0 % 25.4 %
- --------------------------------------------------------------------------------
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.
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at June 25, 1999, and
June 26, 1998, relating to continuing operations are presented at right:
JUNE 25, JUNE 26,
1999 1998
- --------------------------------------------------------------------------------
Gross deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts $ 266 $ 144
Inventories, principally due to
additional costs for tax purposes 220 168
Inventories, principally due to accrual
for obsolescence 809 628
Compensated absence, principally due
to accrual for financial reporting purposes 716 385
Workers' compensation expense accrual
for financial reporting purposes 689 449
Warranty expense accrual for financial
reporting purposes 650 583
Employee benefit plan accrual
for financial reporting purposes 375 224
State net operating loss carryforwards 320 206
Alternative minimum tax
credit carryforwards -- 228
Other 392 140
- --------------------------------------------------------------------------------
Total gross deferred tax assets 4,437 3,155
Less valuation allowance -- --
- --------------------------------------------------------------------------------
Net total deferred tax assets 4,437 3,155
- --------------------------------------------------------------------------------
Gross deferred tax liabilities:
Plant and equipment, principally due
to differences in depreciation (1,621) (1,732)
- --------------------------------------------------------------------------------
Total gross deferred tax liabilities (1,621) (1,732)
- --------------------------------------------------------------------------------
Net deferred tax assets $ 2,816 $ 1,423
- --------------------------------------------------------------------------------
Reflected on attached consolidated
balance sheets as:
Current deferred tax assets $ 3,908 $ 2,797
Non-current deferred tax liabilities (1,092) (1,374)
- --------------------------------------------------------------------------------
Net deferred tax assets, pertaining to
continuing operations $ 2,816 $ 1,423
- --------------------------------------------------------------------------------
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. The ultimate realization of deferred tax assets is
dependent upon the generation of future taxable income during periods in which
those temporary differences become deductible. Management considers the
scheduled reversal of deferred tax liabilities, projected future taxable income
and tax planning strategies in making this assessment. In order to fully realize
the State gross deferred tax assets, the Company will need to generate future
taxable income prior to the expiration of the State net operating loss
carryforwards in 2008. Based upon the level of historical taxable income and
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely than not the
Company will realize the benefits of these deductible differences. Accordingly,
there is no valuation allowance at June 25, 1999. The amount of the deferred tax
asset considered realizable, however, could be reduced in the near term if
estimates of future taxable income during the carryforward period are reduced.
34 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
At June 25, 1999, the Company had a State net operating loss carryforward of
approximately $5,800, which is available to offset future State taxable income
for varying periods through the fiscal year 2008.
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 $720 at June 25, 1999.
Cash paid for income taxes was $2,896, $1,914 and $1,071 in fiscal years 1999,
1998 and 1997, 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.
The Company has a deferred compensation plan that does not qualify under section
401 of the Internal Revenue Code, which provides officers and key executives
with the opportunity to participate in an unqualified deferred compensation
plan. The total of net participant deferrals, which is reflected in other
long-term liabilities, was $464 and $382 at June 25, 1999, and June 26, 1998,
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 $865 and $659 at June 25, 1999, and June 26, 1998,
respectively.
Total expenses for these plans were $1,158, $1,349 and $1,375 for fiscal years
ended 1999, 1998 and 1997, respectively.
L. ACCRUED LIABILITIES
JUNE 25, JUNE 26,
1999 1998
- --------------------------------------------------------------------------------
Accrued incentive plan expense $ 1,788 $ 1,716
Accrued vacation expense 1,791 1,435
Accrued salary expense 713 719
Accrued payroll and sales tax expense 1,393 903
Accrued warranty expense 1,624 1,716
Accrued workers' compensation
self-insurance expense 1,724 1,319
Accrued restructuring costs -- 625
Accrued income tax payable 3,304 473
Accrued other 1,664 1,339
- --------------------------------------------------------------------------------
$ 14,001 $ 10,245
- --------------------------------------------------------------------------------
M. OTHER EXPENSE (INCOME)
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997
- --------------------------------------------------------------------------------
Investment income $ (98) $ (27) $(110)
Loss (gain) on foreign
currency transactions 4 164 (58)
Other, net 245 247 (82)
- --------------------------------------------------------------------------------
$ 151 $ 384 $(250)
- --------------------------------------------------------------------------------
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 25, 1999, and June 26, 1998, accounts
receivable from customers in the CATV industry were approximately $28,404 and
$19,286, 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 two customers were $47,592 (28%) and $29,745 (17%), respectively, in
fiscal year 1999. Sales to one customer were $47,098 (31%) in fiscal year 1998.
Sales to one customer were $48,026 (36%) in fiscal year 1997.
C-Cor.net 1999 Annual Report 35
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
O. COMMITMENTS AND
CONTINGENCIES
The Company had an established letter of credit of $1,700 at June 25, 1999, for
its self-insured workers' compensation program.
P. QUARTERLY RESULTS OF
OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
1999 QUARTER QUARTER QUARTER QUARTER 1999
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 33,216 $ 36,847 $ 44,144 $ 57,074 $ 171,281
Gross profit 7,591 9,108 10,225 15,233 42,157
Income from continuing operations 1,381 1,882 2,805 4,387 10,455
Discontinued operations 288 16 -- 93 397
Net income 1,669 1,898 2,805 4,480 10,852
- ------------------------------------------------------------------------------------------------------------
Net income per share - (basic):
Continuing operations $ 0.15 $ 0.21 $ 0.31 $ 0.48 $ 1.15
Discontinued operations 0.03 0.00 0.00 0.01 0.04
Net income $ 0.18 $ 0.21 $ 0.31 $ 0.49 $ 1.19
- ------------------------------------------------------------------------------------------------------------
Net income per share - (diluted):
Continuing operations $ 0.15 $ 0.20 $ 0.30 $ 0.45 $ 1.10
Discontinued operations 0.03 0.00 0.00 0.01 0.04
Net income $ 0.18 $ 0.20 $ 0.30 $ 0.46 $ 1.14
- ------------------------------------------------------------------------------------------------------------
1998 FIRST SECOND THIRD FOURTH
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 0.00 0.00 0.04 0.06 0.10
Net income $ 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 0.00 0.00 0.04 0.06 0.10
Net income $ 0.20 $ 0.17 $ 0.24 $ 0.27 $ 0.88
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Results from continuing operations for the fourth quarter of fiscal
year 1998 include a provision for restructuring costs of $625
36 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
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
The Company adopted the Statement of Financial Accounting Standards No. 131,
"Disclosures About Segments of an Enterprise and Related Information" (Statement
131), in fiscal year 1999. In fiscal year 1999 and 1998, the Company operated in
one industry segment, the Electronic Distribution Products segment, which
provides HFC equipment for signal distribution applications and technical
services primarily to the 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 has been reported as a
discontinued business segment and 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 the discontinuation of its Digital Fiber Optics
Transmission Products segment.
Information about industry segments for fiscal years 1999, 1998 and 1997 is as
follows:
CONTINUING DISCONTINUED
OPERATIONS OPERATIONS TOTAL
- --------------------------------------------------------------------------------
Year ended June 25, 1999
- --------------------------------------------------------------------------------
Total revenue $ 171,281 $ -- $ 171,281
- --------------------------------------------------------------------------------
Operating income 16,423 -- 16,423
- --------------------------------------------------------------------------------
Interest income 98 -- 98
- --------------------------------------------------------------------------------
Interest expense 229 -- 229
- --------------------------------------------------------------------------------
Income tax expense 5,739 477 6,216
- --------------------------------------------------------------------------------
Identifiable assets at
June 25, 1999 93,664 1,286 94,950
- --------------------------------------------------------------------------------
Capital expenditures 6,121 -- 6,121
- --------------------------------------------------------------------------------
Depreciation and
amortization 7,978 -- 7,978
- --------------------------------------------------------------------------------
Year ended June 26, 1998
- --------------------------------------------------------------------------------
Total revenue $ 152,144 $ -- $ 152,144
- --------------------------------------------------------------------------------
Operating income 11,099 -- 11,099
- --------------------------------------------------------------------------------
Interest income 27 -- 27
- --------------------------------------------------------------------------------
Interest expense 335 -- 335
- --------------------------------------------------------------------------------
Income tax expense (benefit) 3,447 (94) 3,353
- --------------------------------------------------------------------------------
Identifiable assets at
June 26, 1998 75,518 2,889 78,407
- --------------------------------------------------------------------------------
Capital expenditures 8,782 -- 8,782
- --------------------------------------------------------------------------------
Depreciation and
amortization 6,100 -- 6,100
- --------------------------------------------------------------------------------
Year ended June 27, 1997
- --------------------------------------------------------------------------------
Total revenue $ 131,941 $ 7,994 $ 139,935
- --------------------------------------------------------------------------------
Operating income (loss) 6,021 (9,357) (3,336)
- --------------------------------------------------------------------------------
Interest income 110 -- 110
- --------------------------------------------------------------------------------
Interest expense 318 -- 318
- --------------------------------------------------------------------------------
Income tax expense (benefit) 1,446 (1,974) (528)
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
C-Cor.net 1999 Annual Report 37
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
The company and subsidiaries operate in various geographic areas as indicated by
the following:
<TABLE>
<CAPTION>
U.S. CANADA EUROPE ELIMINATIONS TOTAL
- -----------------------------------------------------------------------------------------------------------
Year ended June 25, 1999
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales to unaffiliated customers:
Domestic $ 152,112 $ 421 $ 236 $ - $ 152,769
Export 18,512 - - - 18,512
Transfers between geographic areas 162 - - (162) -
- -----------------------------------------------------------------------------------------------------------
Total revenue 170,786 421 236 (162) 171,281
- -----------------------------------------------------------------------------------------------------------
Operating income (loss) 16,735 (280) (32) - 16,423
- -----------------------------------------------------------------------------------------------------------
Interest income 98 - - - 98
- -----------------------------------------------------------------------------------------------------------
Interest expense 229 - - - 229
- -----------------------------------------------------------------------------------------------------------
Income tax expense 5,739 - - - 5,739
- -----------------------------------------------------------------------------------------------------------
Identifiable assets at June 25, 1999 92,672 509 483 - 93,664
- -----------------------------------------------------------------------------------------------------------
Capital expenditures 6,121 - - - 6,121
- -----------------------------------------------------------------------------------------------------------
Depreciation and amortization 7,942 12 24 - 7,978
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Year ended June 26, 1998
- -----------------------------------------------------------------------------------------------------------
Sales to unaffiliated customers:
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
- -----------------------------------------------------------------------------------------------------------
Interest income 25 - 2 - 27
- -----------------------------------------------------------------------------------------------------------
Interest expense 334 - 1 - 335
- -----------------------------------------------------------------------------------------------------------
Income tax expense 3,470 8 (31) - 3,447
- -----------------------------------------------------------------------------------------------------------
Identifiable assets at June 26, 1998 74,283 954 281 - 75,518
- -----------------------------------------------------------------------------------------------------------
Capital expenditures 8,781 1 - - 8,782
- -----------------------------------------------------------------------------------------------------------
Depreciation and amortization 6,064 12 24 - 6,100
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
Interest income 105 - 5 - 110
- -----------------------------------------------------------------------------------------------------------
Interest expense 317 - 1 - 318
- -----------------------------------------------------------------------------------------------------------
Income tax expense 1,348 100 (2) - 1,446
- -----------------------------------------------------------------------------------------------------------
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
- -----------------------------------------------------------------------------------------------------------
</TABLE>
38 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
S. SUBSEQUENT EVENTS
On July 9, 1999, the Company consummated a merger with Convergence, a Georgia
corporation, whereby Convergence became a wholly-owned subsidiary of the
Company. As consideration for the merger, each outstanding share of common stock
of Convergence was converted into one share of the Company's common stock for an
aggregate of 1,433,323 shares of the Company's common stock. Each outstanding
warrant to acquire Convergence common stock was converted into a warrant to
acquire the Company's common stock for an aggregate of warrants to acquire
366,930 shares of the Company's common stock. The merger is being accounted for
under the pooling-of-interests method of accounting.
On July 13, 1999, the Company signed an Agreement and Plan of Merger with SVCI,
a California corporation, whereby SVCI will become a wholly-owned subsidiary of
the Company. The acquisition is expected to be completed in the fall of 1999. As
consideration for the merger, each outstanding share of common stock of SVCI
will be converted into the right to receive .094534 shares of the Company's
common stock for an aggregate of 1,531,521 shares of the Company's common stock
(subject to reduction pursuant to certain escrow arrangements). Outstanding
stock options and warrants to acquire SVCI common stock will be converted into
stock options and warrants to acquire the Company's common stock, using the same
conversion ratio (with appropriate adjustment to the exercise price) for an
aggregate of stock options and warrants to acquire 397,911 shares of the
Company's common stock. It is anticipated that the merger will be accounted for
under the pooling-of-interests method of accounting.
The Company anticipates recording a one-time charge related to the business
combinations in its first quarter of fiscal year 2000. The one-time charge will
include the transaction costs, as well as employee severance payments and
write-off of assets related to existing fiber optic products that will become
obsolete and be replaced by the SVCI product line.
The following unaudited pro forma summary presents the consolidated financial
statement data as if the merger with Convergence and pending merger with SVCI
had been made at the beginning of the three fiscal year periods ending June 25,
1999. The pro forma information is presented for informational purposes only and
is not necessarily indicative of what would have occurred had the mergers
actually been consummated as of such dates or of results which may occur in the
future.
YEAR ENDED
JUNE 25, JUNE 26, JUNE 27,
1999 1998 1997 (a)
- -------------------------------------------------------------------------------
Statements of Operations:
Net sales $ 183,425 $ 153,919 $ 133,780
Gross profit 44,632 31,891 27,296
Income (loss) from
continuing operations (683) 801 898
Discontinued operations 397 928 (10,435)
Net income (loss) (286) 1,729 (9,537)
- -------------------------------------------------------------------------------
Net income (loss) per share - (basic):
Continuing operations $ (0.06) $ 0.07 $ 0.07
Discontinued operations 0.04 0.08 (0.86)
Net income (loss) $ (0.02) $ 0.15 $ (0.79)
- -------------------------------------------------------------------------------
Net income (loss) per share - (diluted):
Continuing operations $ (0.06) $ 0.06 $ 0.07
Discontinued operations 0.04 0.08 (0.84)
Net income (loss) $ (0.02) $ 0.14 $ (0.77)
- -------------------------------------------------------------------------------
Weighted average common shares
Basic 12,098 11,895 12,143
Diluted 12,098 12,340 12,402
- -------------------------------------------------------------------------------
(a) For fiscal year 1997, results of operations for Convergence are based on a
calendar year ending December 31, 1997. This results in an overlapping
period (July 1997 through December 1997) being included in the pro forma
results of operations.
JUNE 25, JUNE 26,
1999 1998
- --------------------------------------------------------------------------------
Balance Sheet Data (at period end):
Working capital $ 31,519 $ 27,541
Total assets 103,564 84,595
Total long-term obligations 4,540 6,493
Shareholders' equity 59,914 58,501
- --------------------------------------------------------------------------------
C-Cor.net 1999 Annual Report 39
<PAGE>
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements
- --------------------------------------------------------------------------------
(in thousands of dollars except share and per share data)
Credit Facilities
On August 9, 1999, the Company replaced its $25,000 revolving line-of-credit
agreement with a new credit agreement established with three banks under which
it may borrow up to $70,000. The agreement has two parts; $20,000 is available
as a revolving line-of-credit, subject to an aggregate sub-limit of $2,000 for
issuance of letters of credit. This revolving line-of-credit is committed
through December 31, 1999. A pricing matrix has been established for credit
pricing on this facility as a function of the Company's total funded
indebtedness to earnings before interest, taxes, depreciation and amortization
(EBITDA) ratio and is subject to adjustment quarterly. Interest on the
borrowings under the credit agreement is determined at the Company's option by
(a) LIBOR plus a margin ranging from .75%-1.35%, (b) Federal funds rate plus a
margin ranging from 1.15%-1.75% or (c) Prime rate plus a margin ranging from
.25%-.50%. The second part is a 364 day standby acquisition facility which
enables the Company to borrow up to $50,000 for strategic acquisitions and/or
investments. Each draw on the facility may be extended for up to 84 months. A
pricing matrix has been established for credit pricing on this facility which is
also a function of the Company's total funded indebtedness to EBITDA ratio and
is subject to adjustment quarterly. Interest on the borrowings under this part
of the credit agreement would be determined at the Company's option by (a) LIBOR
plus a margin ranging from .90%- 1.50% (b) Prime rate plus a margin ranging from
.25%-.50% or (c) fixed at the banks' 5 or 7 year fixed rates through an interest
rate swap.
In addition, the Company amended its existing $3,000 term loan to eliminate
terms and conditions that govern that facility and replaced them with terms and
conditions that have been entered into for the revolving line-of-credit and the
standby facility. The outstanding balance on the term loan will be split among
the three participating banks based on their pro-rated share of the total
balance of combined credit facilities.
Borrowings on these facilities are unsecured, subject to a negative pledge on
all business assets, and the Company is required to maintain certain financial
ratios and indebtedness tests.
40 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Reports
- --------------------------------------------------------------------------------
FINANCIAL
REPORT
To the Shareholders:
The management of C-COR.net Corp. 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 LLP to discuss financial reporting matters, the internal
controls, and the scope and results of the audit.
/s/ William T. Hanelly
William T. Hanelly
Vice President - Finance,
Secretary and Treasurer
August 16, 1999
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
C-COR. net Corp. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of C-COR.net Corp.
and Subsidiaries as of June 25, 1999, and June 26, 1998, and the related
consolidated statements of operations, cash flows and shareholders' equity for
each of the years in the three-year period ended June 25, 1999. 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
mistatement. 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.net Corp. and
Subsidiaries as of June 25, 1999, and June 26, 1998, and the results of their
operations and their cash flows for each of the years in the three-year period
ended June 25, 1999, in conformity with generally accepted accounting
principles.
/s/ KPMG LLP
KPMG LLP
State College, Pennsylvania
August 16, 1999
C-Cor.net 1999 Annual Report 41
<PAGE>
- --------------------------------------------------------------------------------
Directors & Officers
- --------------------------------------------------------------------------------
Year first
DIRECTORS elected
Richard E. Perry 1985
Chairman of the Board/2/4/5/
David A. Woodle 1998
President and Chief Executive Officer,
C-COR.net/2/4/
Donald M. Cook, Jr. 1988
Retired President and Chief
Operating Officer,
SEMCOR, Inc./2/3/4/
I.N. Rendall Harper, Jr. 1982
President, Chief Executive
Officer and Treasurer,
American Micrographics
Company, Inc./1/2/4/5/
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/
/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
* Resigned from C-COR.net Board effective June 27, 1999
DIRECTORS EMERITI
Joseph C. Bates 1982
Dr. John L. McLucas 1982
Dr. Philip L. Walker, Jr. 1960
OFFICERS
David A. Woodle
President and Chief Executive Officer
Mary G. Beahm
Vice President
Human Resources
David J. Eng
Senior Vice President
Worldwide Sales
Lawrence R. Fisher, Jr.
Vice President
Engineering
William T. Hanelly
Vice President
Finance, Secretary and Treasurer
Chris A. Miller
Vice President
Services
Donald F. Miller
Vice President
Operations and Manufacturing
Gerhard B. Nederlof
Senior Vice President
Marketing and Business Development
Joseph E. Zavacky
Controller and Assistant Secretary
42 C-Cor.net 1999 Annual Report
<PAGE>
- --------------------------------------------------------------------------------
Corporate Data
- --------------------------------------------------------------------------------
ANNUAL MEETING October 19, 1999 at 9:00 a.m.
OF SHAREHOLDERS Headquarters, C-COR.net
60 Decibel Road, State College, Pennsylvania
STOCK LISTING
The Common Stock of C-COR.net, traded in the Nasdaq Stock Market's National
Market System, was first offered to the public in February 1981. The Nasdaq
symbol is CCBL. The range of high and low price information as reported by
Nasdaq follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Quarter Ending Price Quarter Ending Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
September 30, 1997 High 163/4 September 30, 1998 High 191/4
Low 813/16 Low 115/16
December 31, 1997 High 181/4 December 31, 1998 High 151/2
Low 14 Low 10
March 31, 1998 High 16 March 31, 1999 High 191/2
Low 127/8 Low 1315/16
June 30, 1998 High 19 June 30, 1999 High 297/16
Low 127/8 Low 171/8
- -----------------------------------------------------------------------------------------------------------
</TABLE>
C-COR.net has never paid a dividend. As of June 25, 1999, there were 513
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 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.net's web site (www.c-cor.com) provides a vast array of information,
including company profile, news, product information, investor relations and
more.
C-Cor.net 1999 Annual Report 43
<PAGE>
Mission Statement
C-COR.net 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.net, 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.net 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.net 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.net 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.
44 C-Cor.net 1999 Annual Report
<PAGE>
[GRAPHIC APPEARS HERE]
C-COR.net Corp.
The Knowledge Source
for Network Integrity...
...The Product Source
for Network Performance C-COR.net Corp.
The Knowledge Source
for Network Integrity...
...The Product Source
for Network Performance
<PAGE>
C-COR.net Corp.
60 Decibel Road
State College, PA 16801
814-238-2461
800-233-2267
Fax 814-238-4065
www. c-cor.com
European Office
P.O. Box 10.265
1301 AG Almere
The Netherlands
31-36-5461111
Fax 31-36-5364255
Canadian Office
377 MacKenzie Avenue, Unit 5
Ajax, Ontario LIS 2G2, Canada
905-427-0366
800-427-2559 (in Canada)
Fax 905-428-0927
Regional Sales Offices
California, Colorado, Georgia,
Indiana, Minnesota, Pennsylvania,
North Carolina and Texas
Hong Kong
C-Cor 1999 Annual Report 15
<PAGE>
Subsidiaries of the Registrant: State of Incorporation:
C-COR/Comlux, Inc. Pennsylvania
C-COR Services, Inc. Pennsylvania
Broadband Capital Corporation Delaware
(formerly C-COR Electronics Company)
Broadband Royalty Corporation Delaware
(formerly C-COR Royalty Corporation)
C-COR.net Acquisition Corp. Delaware
Convergence.com Corporation Georgia
Convergence Systems, Inc. Georgia
C-COR Acquisition Corp. Georgia
Silicon Valley Communications, Inc. California
C-COR Electronics Foreign Sales Corporation St. Thomas, V.I.
C-COR Europe, B.V. Foreign (Europe)
C-COR Europe Holding B.V. Foreign (Europe)
C-COR Electronics Canada, Inc. Foreign (Canada)
C COR de Mexico, S.A. de C.V. Foreign (Mexico)
<PAGE>
Consent of Independent Auditors
The Board of Directors and Stockholders
C-COR.net Corp:
We consent to incorporation by reference in the registration statements (Nos. 2-
95959, 33-27440, 33-35208, 33-66590, 333-02505, 333-65805) on Form S-8 and (No.
333-82697) on Form S-3 of C-COR.net Corp. of our report dated August 16, 1999,
relating to the consolidated balance sheets of C-COR.net Corp. as of June 25,
1999 and June 26, 1998, and the related consolidated statements of operations,
cash flows and shareholders' equity for each of the years in the three-year
period ended June 25, 1999, and related schedule which reports appear in the
June 25, 1999 annual report on Form 10-K of C-COR.net Corp.
KPMG LLP
State College, Pennsylvania
September 22, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-25-1999
<PERIOD-END> JUN-25-1999
<CASH> 2,940
<SECURITIES> 445
<RECEIVABLES> 29,170
<ALLOWANCES> 691
<INVENTORY> 21,415
<CURRENT-ASSETS> 60,664
<PP&E> 58,858
<DEPRECIATION> 34,311
<TOTAL-ASSETS> 93,664
<CURRENT-LIABILITIES> 26,283
<BONDS> 0
0
0
<COMMON> 979
<OTHER-SE> 60,348
<TOTAL-LIABILITY-AND-EQUITY> 93,664
<SALES> 171,281
<TOTAL-REVENUES> 171,281
<CGS> 129,124
<TOTAL-COSTS> 25,583
<OTHER-EXPENSES> 151
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 229
<INCOME-PRETAX> 16,194
<INCOME-TAX> 5,739
<INCOME-CONTINUING> 10,455
<DISCONTINUED> 397
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,852
<EPS-BASIC> 1.19
<EPS-DILUTED> 1.14
</TABLE>
