-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, S1OaHomxJ6182tD2rSSUJVlwBGdv4PI5v47ZgTzPl9DyoEMBHfLnvu72BoaV7J2I VoAXAwH9p1DwESSpXopEGQ== 0000350621-97-000007.txt : 19970926 0000350621-97-000007.hdr.sgml : 19970926 ACCESSION NUMBER: 0000350621-97-000007 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 12 CONFORMED PERIOD OF REPORT: 19970627 FILED AS OF DATE: 19970925 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: C COR ELECTRONICS INC CENTRAL INDEX KEY: 0000350621 STANDARD INDUSTRIAL CLASSIFICATION: RADIO & TV BROADCASTING & COMMUNICATIONS EQUIPMENT [3663] IRS NUMBER: 240811591 STATE OF INCORPORATION: PA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-10726 FILM NUMBER: 97685198 BUSINESS ADDRESS: STREET 1: 60 DECIBEL RD CITY: STATE COLLEGE STATE: PA ZIP: 16801 BUSINESS PHONE: 8142382461 MAIL ADDRESS: STREET 1: 60 DECIBEL ROAD CITY: STATE COLLEGE STATE: PA ZIP: 16801 10-K 1 FORM 10-K FISCAL YEAR ENDING JUNE 27, 1997 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-K (X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended June 27, 1997 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 0-10726 C-COR ELECTRONICS, INC. (Exact name of Registrant as specified in its charter) Pennsylvania 24-0811591 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 60 Decibel Road State College, Pennsylvania 16801 (Address of principal executive offices and Zip Code Registrant's telephone number, including area code: (814) 238-2461 Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None Not Applicable Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.10 par value Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ( ) As of September 5, 1997, the aggregate market value of the voting stock held by non-affiliates of the Registrant was $122,115,561. As of September 5, 1997, the Registrant had 9,141,514 shares of Common Stock outstanding. Documents Incorporated by Reference: 1) 1997 Annual Report to Shareholders (Parts I, II and IV) 2) Proxy Statement dated September 15, 1997 (Part III) PART I Item 1. Business Some of the information presented in this report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Corporation believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers; the gain or loss of significant customers; changes in the mix of products sold; changes in the cost and availability of parts and supplies; fluctuations in warranty costs; completion of a tentative settlement for certain litigation; new product development activities; regulatory changes affecting the telecommunications industry, in general, and the Corporation's operations, in particular; competition and changes in domestic and international demand for the Corporation's products; and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors which may cause the Corporation's actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed by the Corporation with the Securities and Exchange Commission. Introduction C-COR Electronics, Inc. (the "Corporation") was incorporated in the Commonwealth of Pennsylvania on June 30, 1953. Prior to fiscal year 1996, the Corporation operated in one industry segment broadly defined as the Electronic Distribution Products segment. During the fiscal year ended June 28, 1996, a fundamental shift occurred in the markets and customers, as cable television (CATV) operators reduced their purchases of the Corporation's Digital Fiber Optics Equipment in lieu of other technology alternatives. As a result, in fiscal years 1996 and 1997, the Corporation operated in two industry segments: the Electronic Distribution Products segment which represents the Corporation's continuing operations and provides hybrid fiber coax (HFC) equipment for signal distribution applications, primarily to the CATV market; and the Digital Fiber Optics Transmission Products segment which has been reported as a discontinued business segment in fiscal year 1997 and provides products for long-distance, point-to-point video, voice and data signal transmission applications, primarily for telephony, distance-learning and other non-CATV markets. On July 10, 1997, the Corporation announced its intent to discontinue its Digital Fiber Optics Transmission Products segment in a phase-down process expected to span nine months. See "Discontinued Operations." In the remainder of this document, the discussions are based on continuing operations, except where the context indicates otherwise. The Corporation's headquarters are in State College, Pennsylvania, and its manufacturing facilities are in State College, Reedsville, and Tipton, Pennsylvania, and in Tijuana, Mexico. The Corporation also maintains administrative offices in Denver, Colorado; Toronto, Canada; Almere, The Netherlands; and Hong Kong. During fiscal year 1997, the Corporation announced that it would transfer the manufacture of the power supply assembly component of its radio frequency (RF) amplifiers to the Corporation's new production facility in Mexico in the summer of 1997. That transfer has taken place and initial shipments began in August 1997. The Corporation has been approved for ISO 9001 registration at its Pennsylvania manufacturing facilities. ISO 9001 is the most comprehensive of all ISO 9000 series requirements and includes quality assurance in design, development, production, installation and servicing. Criteria for registration are set by the International Organization for Standardization, whose function is to develop global standards in an effort to improve the exchange of goods and services internationally. This designation builds on the Corporation's reputation as a high-quality, global provider of transmission electronics. ELECTRONICS DISTRIBUTION PRODUCTS SEGMENT Products and Services The Corporation provides three principal product families for use in broadband voice, video, and data networks: RF amplifiers, amplitude modulation (AM) fiber optic equipment, and network management systems. Amplifiers include a series of FlexNet(R) 862 MHz and 750 MHz trunks, terminating bridgers, and line extenders designed specifically for use in today's widely-accepted HFC network architectures. The newest addition to this line is FlexNet(R) 900 Series amplifiers, which offer high performance, two-way capability, and advanced powering for today's complex communications networks. Other RF distribution products available from the Corporation include push-pull, power-doubling, and feedforward technologies; trunk, minitrunk, and split-band amplifiers; and main line passives to 1 GHz. In fiscal year 1997, shipments began of the I-Flex(TM) global product family, specially designed for fiber-intensive architectures that require cabinet and pedestal mount housings. Featuring 862 MHz bandwidth capability, the I-Flex(TM) product line consists of amplifiers and fiber optic nodes. The Corporation's AM fiber optic products include a wide range of both headend and strand-mounted equipment designed for use in HFC applications. Headend equipment, which operates up to 862 MHz, includes a universal mainframe, high-performance Distribution Feedback (DFB) transmitters at a variety of output powers, receivers for both forward and return path applications, and power supplies. FlexNode (TM), the Corporation's 6-port AM fiber optic node, features 750 MHz and 862 MHz bandwidth capability, maximum performance with RF and optics in one module, simplified internal fiber management and 90 volt powering. The AM fiber optic products are fully integrated into the Corporation's Cable Network Management (CNM(TM)) system. CNM(TM) is a network management system that is playing an increasingly critical role in communications. This user-friendly, computer-based control and monitoring system aids in outage prediction, notifying the operator of problems, often before they even occur, so maintenance crews can go directly to a problem without having to search the system unit by unit. In fiscal year 1997, the Corporation announced a cooperative marketing agreement with Bay Networks, Inc., LANcity Cable Modem Division (now called Broadband Technologies Division), to focus on delivery of high-speed data over HFC networks. The companies agreed to work together to help ensure interoperability of equipment and quality delivery of high-speed data over these networks. The first step in the relationship has involved focusing on interoperability of Bay Networks' modems and the Corporation's DataSelect(TM) offering of HFC equipment and related technical services. In support of its products, the Corporation offers a complete line of technical customer services, including pre-sale analysis and consultation, network design, field engineering, technical documentation, training seminars, and equipment repair and testing. Sales and Distribution The Corporation's principal customers include operators of communication networks worldwide, as well as network integrators. During fiscal year 1997, consolidation continued to occur among cable operators in the domestic CATV industry; however, the Corporation does not consider that occurrence to have had a material impact on its business. Most of the Corporation's sales were comprised of equipment manufactured or provided by the Corporation, with the remainder being from services. Sales efforts are conducted from the Corporation's headquarters; from offices in Colorado, Canada and Europe; and from 8 regional sales offices located throughout the United States. For the fiscal year ended June 27, 1997, the Corporation's international sales from continuing operations represented 19% of net sales, primarily in the Canadian, Asian, European, and Latin American markets. In the fiscal years ended June 28, 1996, and June 30, 1995, international sales from continuing operations were 39% and 40%, respectively, of net sales. See the discussion of segment information in the Corporation's 1997 Annual Report to Shareholders, Note R, incorporated herein by reference. During the past fiscal year, the Corporation's CATV customers have included almost all of the largest system operators in the United States. The Corporation's largest customer during the fiscal year ended June 27, 1997, was Time Warner Cable, which accounted for 36% of net sales. The Corporation's largest customers during the fiscal year ended June 28, 1996 were Rogers Cablesystems, Inc. and Time Warner Cable, each accounting for 18% of net sales. During the fiscal year ended June 30, 1995, the Corporation's largest customers were Rogers Cablesystems, Inc., accounting for 24% of the net sales, and Time Warner Cable, accounting for 19% of net sales. No other customer accounted for 10% or more of net sales during fiscal years 1995, 1996, and 1997, respectively. At June 27, 1997, the Corporation's backlog of orders was $34.9 million. At June 28, 1996, the Corporation's backlog of orders was $24.3 million, and at June 30, 1995, it was $53.8 million. For additional information regarding backlog, refer to Management's Discussion and Analysis of Financial Condition and Results of Operation incorporated herein by reference to pages 17 through 20 of the Registrant's 1997 Annual Report to Shareholders. Research and Product Development The Corporation operates in an industry that is subject to rapid changes in technology. The Corporation's ability to compete successfully depends in large part upon its ability to react to such changes. Accordingly, the Corporation is engaged in ongoing research and development activities that are intended to advance existing product lines, provide custom-designed variations of existing product lines, and develop or evaluate new products. Research and development activities for the three major product groups are conducted at the Corporation's headquarters. The Corporation has an interdepartmental team which assigns product development priorities. The result is a market-driven set of guidelines for the timely development of new products. During this past fiscal year, research and product development expenditures have been primarily directed at expanding the Corporation's RF amplifier line, AM fiber optic technology and network management systems. During fiscal year 1997, the Corporation continued implementation of product development process changes in order to improve cycle time to design, develop and deliver new products; reduce manufacturing costs; and improve design quality. During the fiscal years ended June 27, 1997, June 28, 1996, and June 30, 1995, the Corporation spent approximately $5,681,000, $4,857,000, and $3,786,000, respectively, on research and development, primarily related to RF distribution equipment, AM fiber optic systems, and network management. Anticipated new product development initiatives focused on AM fiber optics, network management, and other technology areas, are expected to result in increased research and development expense in future years, as compared to fiscal year 1997. None of the research and product development expenditures have been capitalized. Competition The Corporation's products are marketed with emphasis on their premium quality and are generally priced competitively with other manufacturers' product lines. Equipment reliability, superior customer service and an enhanced warranty program are several of the key criteria for competition. In these respects, the Corporation considers its competitive position to be favorable. Other bases for competition include pricing and technological leadership. Although less expensive products are available, the Corporation believes it is in a good competitive position with respect to pricing. The Corporation believes that its strong commitment to efficient network design, a broad offering of technical customer services, and its focus on research and development, enhance its competitive position in the market. There are several competing equipment vendors selling network products in the United States, a few of which have greater sales of similar equipment than the Corporation; however, the Corporation believes it offers a broader product line in the RF distribution amplifier segment of the market. Currently, CATV networks serve more than 64.5 million subscribers in the United States. CATV construction has evolved to the point where this network passes over 95% of TV households in the United States. The CATV industry claims that their market penetration exceeds 60% and is approaching 65%. Over the next several years, most industry observers expect this trend to continue. However, there are alternative methods of distributing entertainment video or information services to subscribers. All of the methods compete, to a limited extent, with conventional CATV services. The alternative distribution technologies include Off Air Broadcast Service, Multichannel Multipoint Distribution Service (MMDS), Local Multipoint Distribution Service (LMDS), Satellite Master Antenna Television (SMATV), and Direct Broadcast Satellite Service (DBS). Generally, these alternative technologies are limited in terms of their ability to deliver two-way service and/or local programming. Based upon these limitations, it is the Corporation's belief that such technologies will mature to the point that they serve a relatively narrow segment of the market. On the other hand, a CATV network has two-way capability and has the ability to deliver vast amounts of information to subscribers. As a result, the Corporation believes that the CATV industry is uniquely positioned to benefit from the evolution that is occurring in the telecommunications industry, particularly in the area of high-speed data delivery. Similarly, due to its reputation and long-standing tradition of servicing the CATV industry with excellence, the Corporation believes that it is strategically positioned to grow and expand with the industry. External Influences/Industry The primary market factors affecting the global communications industry include access to funding, technology advancements, and government regulations. The increased demand for products offered by the Corporation to domestic and international customers has resulted from a combination of the market factors listed above. In recent years, the global communications industry has grown rapidly by constructing networks to meet the increased demand for video, voice, and data services. A significant amount of consolidation has occurred over recent years in the domestic communications industry. Cable companies have bought other cable companies in order to achieve efficiency through clustering of properties. Telephone companies (telcos) have bought telcos. Telcos have even bought cable companies. Overall, the Corporation believes this consolidation has, in some cases, led to delays in plans for network construction resulting in slower ordering of products and services as network planners take time to assess their new situation. In the area of technology, advancements in the global communications industry are occurring at a rapid rate. Traditional, one-way broadband amplifier cascades are being replaced by two-way HFC architectures which employ fiber optic electronics to individual service cells (nodes). The Corporation believes that HFC networks could have significant strategic advantages in the future as the demand grows for the highest-capacity, lowest-cost networks for delivery of two-way, high-speed, data service. The Corporation has combined its strength in conventional RF amplifiers with an increasing presence in the areas of AM fiber optics and network management systems, and believes that it is well positioned to be a supplier in the interactive multimedia network industry. Cable operators have traditionally used HFC network architectures for providing video services to the home. The HFC network architecture utilized in the CATV industry has been embraced by several telcos, while others continue to explore their options between HFC and other approaches and technologies, such as DBS, FTTC (fiber to the curb) and ADSL (asymmetrical digital subscriber line). Sales by the Corporation of HFC equipment to customers in the telephone industry declined in fiscal year 1997. The Company believes the decline resulted from reassessment of strategic alternatives and priorities by the telcos in connection with pursuing direct competition with cable MSO's in providing video services. The regulatory environment in the United States has changed in recent periods with the passage of the Telecommunications Act of 1996. Key provisions of the Telecommunications Act are designed to enhance competition in the industry in that they permit telcos to sell video services, and in some cases, to buy out local cable companies; allow cable operators to charge what they wish for many channels; allow Regional Bell Operating Companies (RBOC's) to sell long-distance services, under certain conditions; require local telcos to open their networks to competitors; and allow RBOCs to manufacture customer equipment. The Corporation believes that competition among customer groups (CATV operators and telcos, competing to build networks and offer similar services, could benefit the Corporation as a key equipment provider for those networks. While the Telecommunications Act of 1996 was viewed by many in the domestic communications industry as the necessary catalyst to opening a robust network building cycle in the United States, the Corporation has not seen a significant increase in orders directly attributable to the benefits described above. The Corporation's domestic sales did increase 26% for fiscal year 1997 over sales for the previous fiscal year, but the majority came from traditional domestic cable operators. The Corporation believes the increase was a result of network upgrade activity, by new and existing customers, to enhance capacity with expanded bandwidth products. The push to upgrade networks is being driven by demand for increased and improved services, affecting not only video and voice requirements, but also demand for two-way, high-speed, data. International demand for advanced services is increasing as well, as mature markets are deregulating and emerging economies are seeking to expand their communications capabilities. The Corporation sees the international markets as a key growth area now, and in the future and will continue to pursue opportunities in the international markets. Employees The Corporation had approximately 1,200 employees as of September 5, 1997, of whom approximately 70% were engaged in manufacturing, inspection, and quality control activities. The remainder were engaged in executive, administrative, sales, product development, research, and technical customer services activities. The technical staff includes 103 employees with baccalaureate or more advanced degrees in engineering or other technical disciplines, and an additional 304 persons with at least two years of technical college or military education equivalent to a two-year degree. None of the employees are represented by a collective bargaining representative. Suppliers The Corporation closely monitors supplier delivery performance and quality and employs a strategy of limiting the total number of suppliers to those who are quality leaders in their respective specialties and who will work with the Corporation as partners in the supply function. Typical items purchased are die cast aluminum housings, RF hybrids, printed circuit boards, fiber optic laser transmitter assemblies, and standard electronic components. Although a few of the components used by the Corporation are single-sourced, the Corporation has experienced no significant difficulties to date in obtaining adequate quantities of raw materials and component parts. In fiscal year 1997, the Corporation continued its implementation of process changes focused on order fulfillment. The goal of this corporate-wide effort has been to reduce cycle time throughout the manufacturing process, reduce inventory, improve productivity, and enhance product quality. Key to the success of inventory reduction is the implementation of in-house vendor supply relationships. Through this method, the Corporation can gain access to key parts needed in the manufacturing process on a "just-in-time" basis. The Corporation has implemented a number of in-house vendor supply relationships to date. DISCONTINUED OPERATIONS Digital Fiber Optics Transmission Products Segment On July 10, 1997, the Corporation announced its intent to discontinue its Digital Fiber Optics Transmission Products segment in a phase-down process expected to span nine months. The Digital Fiber Optics Transmission Products segment provided products for long-distance, point-to-point video, voice and data signal transmission applications, primarily for telephony, distance- learning and other non-CATV markets. Customers were primarily telcos, major broadcast companies and educational institutions. The decision to discontinue this segment was based on an assessment of the potential return on continued funding of product development for the Corporation's proprietary digital technology versus other opportunities for investments in the Corporation's core business, especially AM fiber optics technology. Research and development expenditures for this segment were $4,005,000, $4,544,000, and $2,836,000 in fiscal years 1997, 1996 and 1995, respectively. This business segment has been accounted for as a discontinued business segment in fiscal year 1997, and its results have been excluded from continuing operations for all periods presented in the Corporation's fiscal year 1997 consolidated financial statements, incorporated herein by reference to pages 21 through 34 of the Registrant's 1997 Annual Report to Shareholders. Additional information regarding discontinued operations and segment performance is incorporated by reference to Notes B (Discontinued Operations) and R (Segment Information) on pages 26 and 32 of the Registrant's 1997 Annual Report to Shareholders. Item 2. Properties The Corporation operates the following principal facilities: Approximate (O)Owned Location Principal Use Square Feet (L)Leased State College, Pennsylvania Administrative Offices and Manufacturing 133,000 O Tipton, Pennsylvania Manufacturing 45,000 O Reedsville, Pennsylvania Manufacturing 60,000 L Tijuana, Mexico Manufacturing 25,200 L Almere, The Netherlands Administrative Offices 14,100 L Ajax, Ontario, Canada Administrative Offices 5,000 L
The Corporation believes its current facilities are well maintained and in good operating condition, and that such facilities are sufficient for its present operations. Item 3. Legal Proceedings On or about March 31, 1995, James and Elizabeth McCarthy, who own 150 shares of the Registrant's Common Stock, filed a complaint in the United States District Court for the Eastern District of Pennsylvania against the Corporation and its then Chief Executive Officer, Richard E. Perry, alleging that, during the period January 17, 1995, through March 24, 1995, the defendants knowingly or recklessly omitted material information about the Registrant in violation of Sections 10 (b) and 20 (a) of the Securities Exchange Act of 1934 and common law. The complaint seeks permission to proceed as a class action on behalf of certain persons who purchased shares of the Registrant's Common Stock during the period January 17, 1995, through March 24, 1995, and who were allegedly damaged. The complaint seeks compensatory damages in an unspecified amount and costs and expenses relating to the complaint, including reasonable attorney's fees. On May 26, 1995, the Corporation filed a motion to dismiss the complaint which was denied in part and granted in part on December 28, 1995. Plaintiffs have filed a motion for class certification, and the Corporation is preparing its opposition. Discovery has commenced, but a trial date has not yet been set. On September 17, 1997, a tenative settlement was reached in this matter which, subject to completion of documentation and approval by the Court, would require the Corporation to make a payment in the first or second quarter of fiscal year 1998 of an amount that (net of insurance proceeds) is not expected to have a material adverse effect on the Corporation's results of operations for such periods. Item 4. Submission of Matters to a Vote of Securities Holders There were no matters submitted to a vote of security holders during the fourth quarter of the fiscal year ended June 27, 1997. Executive Officers of the Registrant All executive officers of the Corporation are elected annually at the Annual Meeting of the Board of Directors (which is normally held on the date of the Annual Meeting of Shareholders of the Corporation) to serve in their office for the next succeeding year and until their successors are duly elected and qualified. The listing immediately following this paragraph gives certain information about the Corporation's executive officers, including the age, present position, and business experience during the past five years. Name Age Position/Experience Richard E. Perry 67 Chairman since June 1986; Chief Executive Officer from July 1985 to August 1996; President from July 1985 through December 1992. Scott C. Chandler 36 President and Chief Executive Officer since August 1996. Vice President-General Manager, U S WEST Cable & Multimedia, Regional Bell Operating Company (RBOC), from September 1995 to August 1996; Vice President-General Manager, !NTERPRISE America, a subsidiary of U S WEST Communications (RBOC), from January 1994 to August 1995; Director-Vendor Relations/Channel Support, !NTERPRISE Networking Services, a subsidiary of U S WEST Communications (RBOC), from January 1992 to December 1993; Director, Market Strategy Development, U S WEST, Inc., (RBOC), from June 1990 to December 1991. Edwin S. Childs 58 Vice President-Human Resources since August 1996; Director, Human Resources from September 1986 to July 1996. David J. Eng 44 Sr. Vice President-Worldwide Sales since March 1997; Vice President - Sales, North, Central and South America from August 1996 to March 1997; Vice President-Sales & Marketing from August 1994 to August 1996. Director, Regional Telephony Sales, Scientific Atlanta, Inc. from March 1993 to July 1994; Regional Sales Manager, Scientific Atlanta, Inc. from April 1985 to February 1993. Lawrence R. Fisher, Jr. 47 Vice President-Engineering since August 1996; Director, RF Engineering Product Development from June 1995 to July 1996; Manager, RF Engineering from June 1994 to May 1995. Director of Engineering, Calan, Inc. from January 1993 to May 1994. Vice President, Bulick & Fisher Sales Associates from March 1990 to December 1992. Chris A. Miller 44 Vice President-Finance, Secretary and Treasurer since July 1995; Controller, Planning Manager and Assistant Secretary from February 1993 to July 1995; Controller and Assistant Secretary from February 1987 to February 1993. Donald F. Miller 55 Vice President-Operations & Manufacturing since August 1995; Plant Manager from September 1987 to August 1995. Gerhard B. Nederlof 49 Sr. Vice President, Marketing, Business Development and Services since March 1997; Vice President-Sales, Europe and Pacific Rim from August 1996 to March 1997; Vice President-International from January 1992 to August 1996. Managing Director of DataCable B.V. from November 1981 to January 1992. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The information required by this item is incorporated herein by reference to page 36 of the Registrant's 1997 Annual Report to Shareholders under the caption "Stock Listing." Item 6. Selected Financial Data The information required by this item is incorporated herein by reference to the inside cover of the Registrant's 1997 Annual Report to Shareholders. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations The information required by this item is incorporated herein by reference to pages 17 through 20 of the Registrant's 1997 Annual Report to Shareholders. Item 8. Financial Statements and Supplementary Data The information required by this item is incorporated herein by reference to pages 21 through 34 of the Registrant's 1997 Annual Report to Shareholders. Item 9. Changes and Disagreements on Accounting and Financial Disclosure None PART III Item 10. Directors and Executive Officers of the Registrant The information with respect to Directors required by this item is incorporated herein by reference to pages 2 and 3 of the Registrant's Proxy Statement dated September 15, 1997. The information with respect to Executive Officers required by this item is set forth in Part I of this report. To the Corporation's knowledge, based soley on a review of the copies of such reports furnished to the Corporation and written representations, and no other reports were required during the fiscal year ended June 27, 1997, its officers, directors, and ten-percent shareholders complied with all applicable Section 16(a) filing requirements, except that Mr. Chandler filed a single report on Form 4 approximately one month late to report a single purchase of approximately 2,500 shares of the Corporation's Common Stock shortly after he became President and Chief Executive Officer of the Corporation. Item 11. Executive Compensation The information required by this item is incorporated herein by reference to pages 6 through 12 of the Registrant's Proxy Statement dated September 15, 1997. Item 12. Security Ownership of Certain Beneficial Owners and Management The information required by this item is incorporated herein by reference to pages 4 and 6 of the Registrant's Proxy Statement dated September 15, 1997. Item 13. Certain Relationships and Related Transactions The Registrant had no related transactions or relationships requiring disclosure under Regulation S-K, Item 404, during the fiscal year 1997. PART IV ITEM 14. Exhibits, Financial Statements and Reports on Form 8-K (a) The following documents are filed as part of this report: (1) As indicated in Item 8 of Part II, the following consolidated financial statements of the Registrant included in the Registrant's 1997 Annual Report to Shareholders for the year ended June 27, 1997, are incorporated by reference to pages 21 through 34 of the Registrant's Annual Report to Shareholders. Consolidated Balance Sheets -- Years ended June 27, 1997, and June 28, 1996. Consolidated Statements of Operations -- Years ended June 27, 1997, June 28, 1996, and June 30, 1995. Consolidated Statements of Cash Flows -- Years ended June 27, 1997, June 28, 1996, and June 30, 1995. Consolidated Statements of Shareholders' Equity -- Years ended June 27, 1997, June 28, 1996, and June 30, 1995. Notes to Consolidated Financial Statements. Report of KPMG Peat Marwick LLP. (2) The following financial statement schedule of the Registrant is filed as a part of this report: Schedule II -- Valuation and Qualifying Accounts Report of KPMG Peat Marwick LLP Schedules, other than the one listed above, have been omitted because they are not applicable or the required information is shown in the consolidated financial statements or notes thereto. (3) Exhibits NUMBER DESCRIPTION OF DOCUMENTS (3) (a) Restated Articles of Incorporation of Registrant (incorporated by reference to Exhibit 3-a.1. to Amendment No. 2 to Form S-1 Registration Statement, File No. 2-70661). (3) (b) Amendment to Articles of Incorporation of Registrant, filed September 21, 1995 (incorporated by reference to Exhibit (3) (b) of Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (3) (c) Bylaws of Registrant, as amended October 27, 1987, (incorporated by reference to Exhibit (3) (b) to the Registrant's Form 10-K for the year ended June 30, 1988, Securities and Exchange Commission File No., 0-10726). (4) Specimen of Common Stock Certificate (incorporated by reference to Exhibit 4 to Amendment No. 1 of Form S-1 Registration Statement, File No. 2-70661). (10) (a) Deferred Compensation Plan between the Registrant and Richard E. Perry dated December 6, 1989, (incorporated by reference to Exhibit (10) (y) to the Registrant's Form 10-K for the year ended June 30, 1990, Securities and Exchange Commission File No. 0-10726). (10) (b) 1989 Non-Employee Directors' Non-Qualified Stock Option Plan (incorporated by reference to Exhibit 28 to Form S-8 Registration Statement, File No. 33-35208). (10) (c) Employment Agreement dated January 1, 1992, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (v) to the Registrant's Form 10-K for the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726). (10) (d) Indemnification Agreement dated February 3, 1992, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 26, 1992, Securities and Exchange Commission File No. 0-10726). (10) (e) Supplemental Retirement Plan Participation Agreement dated April 20, 1993, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (bb) to the Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726). (10) (f) Change of Control Agreement dated May 21, 1993, between the Registrant and Gerhard B. Nederlof (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 25, 1993, Securities and Exchange Commission File No. 0-10726). (10) (g) Change of Control Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (h) Form of Indemnification Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (pp) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (i) Supplemental Retirement Plan Participation Agreement dated August 22, 1994, between the Registrant and David J. Eng (incorporated by reference to Exhibit (10) (qq) to the Registrant's Form 10-K for the year ended June 24, 1994, Securities and Exchange Commission File No. 0-10726). (10) (j) Change of Control Agreement dated May 23, 1995, between the Registrant and Joseph E. Zavacky (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (k) Form of Indemnification Agreement dated May 23, 1995, between the Registrant and Joseph E. Zavacky (incorporated by reference to Exhibit (10) (hh) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (l) Supplemental Retirement Plan Participation Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (ii) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (m) Change of Control Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (jj) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (n) Form of Indemnification Agreement dated May 22, 1995, between the Registrant and Chris A. Miller (incorporated by reference to Exhibit (10) (kk) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). 10) (o) Supplemental Retirement Plan Participation Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (ll) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (p) Change of Control Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (q) Form of Indemnification Agreement dated August 24, 1995, between the Registrant and Donald F. Miller (incorporated by reference to Exhibit (10) (nn) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (r) Lease Agreement dated November 10, 1994, between the Registrant and Mifflin County Industrial Development Corporation for a manufacturing building (incorporated by reference to Exhibit (10) (oo) to the Registrant's Form 10-K for the year ended June 30, 1995, Securities and Exchange Commission File No. 0-10726). (10) (s) Registrant's Retirement Savings and Profit Sharing Plan as Amended July 1, 1989, and including amendments through April 19, 1994. (incorporated by reference to Exhibit 99.B14 to Form S-8 Registration Statement, File No. 333-02505). (10) (t) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (x) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (u) Change of Control Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (y) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (v) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Edwin S. Childs. (incorporated by reference to Exhibit (10) (z) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (w) Supplemental Retirement Plan Participation Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (aa) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (x) Change of Control Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (bb) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (y) Form of Indemnification Agreement dated August 13, 1996, between the Registrant and Lawrence R. Fisher, Jr. (incorporated by reference to Exhibit (10) (cc) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (z) Amended and Restated Employment Agreement dated October 16, 1995, between the Registrant and Richard E. Perry. (incorporated by reference to Exhibit (10) (dd) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (aa) Employment Agreement dated July 2, 1996, between the Registrant and Scott C. Chandler. (incorporated by reference to Exhibit (10) (ee) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (bb) Registrant's Supplemental Executive Retirement Plan effective May 1, 1996. (incorporated by reference to Exhibit (10) (ff) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (cc) Note and Security Agreement effective November 2, 1995, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (gg) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (dd) Supplement to Note and Security Agreement effective November 2, 1995, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (hh) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (ee) Revolving Line of Credit Agreement effective November 2, 1995, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (ff) Supplement to Revolving Line of Credit Agreement effective November 2, 1995, between the Registrant and Mellon Bank, N.A. (incorporated by reference to Exhibit (10) (jj) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (gg) (i) 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (gg) (ii) Amendment to 1988 Stock Option Plan. (incorporated by reference to Exhibit (10) (kk)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (hh) (i) 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(i) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (hh) (ii) Amendment to 1992 Stock Purchase Plan. (incorporated by reference to Exhibit (10) (ll)(ii) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (ii) Fiscal Year 1997 Profit Incentive Plan. (incorporated by reference to Exhibit (10) (mm) to the Registrant's Form 10-K for the year ended June 28, 1996, Securities and Exchange Commission File No. 0-10726). (10) (jj) Note and Security Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (10) (kk) Supplement to Note and Security Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (10) (ll) Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (10) (mm) Supplement to Revolving Line of Credit Agreement effective November 14, 1996, between the Registrant and Mellon Bank, N.A. (10) (nn) Amended and Restated Employment Agreement dated July 21, 1997, between the Registrant and Richard E. Perry. (10) (oo) Amended and Restated Employment Agreement dated July 30, 1997, between the Registrant and Gerhard B. Nederlof. (11) Statement re Computation of Earnings Per Share. (13) Annual Report to Shareholders for the year ended June 27, 1997. (21) Subsidiaries of the Registrant. (23) Consent of Independent Auditors. (27) Financial Data Schedule.
(b) Reports on Form 8-K filed in the fourth quarter of the fiscal year 1997: None. (c) Exhibits: See (a) (3) above. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. C-COR ELECTRONICS, INC. (Registrant) September 25, 1997 /s/ Scott C. Chandler, President and Chief Executive Officer (principal executive officer) /s/ Chris A. Miller, Vice President-Finance, Secretary and Treasurer (principal financial officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated on the 25th day of September 1997. /s/ Richard E. Perry, Director, Chairman /s/ Donald M. Cook, Jr., Director /s/ I. N. Rendall Harper, Jr., Director /s/ Anne P. Jones, Director /s/ John J. Omlor, Director /s/ Frank Rusinko, Jr., Director /s/ James J. Tietjen, Director /s/ Philip L. Walker, Jr., Director SCHEDULE II-VALUATION AND QUALIFYING ACCOUNTS COL. A COL. B COL. C COL. D COL. E ADDITIONS DESCRIPTION Balance Charged Charged to Balance at Beginning to Costs Other Accounts- Deductions- at End of Period and Expenses Describe Describe of Period - ----------------------------------------------------------------------------------------------------------------------------- Year ended June 27, 1997 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 355,000 $ 157,000 $0 $ 2,000(1) $ 510,000 Inventory Reserve-Continuing Operations 1,112,000 1,323,000 0 1,202,000(2) 1,233,000 Inventory Reserve-Discontinued Operations 305,000 3,418,000 0 93,000(2) 3,630,000 - ------------------------------------------------------------------------------------------------------------------------------ $1,772,000 $ 4,898,000 $0 $ 1,297,000 $ 5,373,000 - ------------------------------------------------------------------------------------------------------------------------------ Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $1,724,000 $ 2,310,000 $0 $ 1,849,000(3) $ 2,185,000 Product Warranty Reserve-Discontinued Operations 0 4,028,000 0 599,000(3) 3,429,000 Workers' compensation self-insurance 704,000 1,068,000 0 610,000(4) 1,162,000 Allowance for Discontinued Operations 0 3,375,000 0 0 3,375,000 - ------------------------------------------------------------------------------------------------------------------------------ $2,428,000 $10,781,000 $0 $ 3,058,000 $10,151,000 - ------------------------------------------------------------------------------------------------------------------------------ Year ended June 28, 1996 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 657,000 $ 0 $0 $ 302,000(1) $ 355,000 Inventory Reserve-Continuing Operations 949,000 819,000 0 656,000(2) 1,112,000 Inventory Reserve-Discontinued Operations 500,000 273,000 0 468,000(2) 305,000 - ------------------------------------------------------------------------------------------------------------------------------ $2,106,000 $ 1,092,000 $0 $ 1,426,000 $ 1,772,000 - ------------------------------------------------------------------------------------------------------------------------------ Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $1,751,000 $ 1,981,000 $0 $ 2,008,000(3) $ 1,724,000 Workers' compensation self-insurance 553,000 653,000 0 502,000(4) 704,000 - ------------------------------------------------------------------------------------------------------------------------------ $2,304,000 $ 2,634,000 $0 $ 2,510,000 $ 2,428,000 - ------------------------------------------------------------------------------------------------------------------------------ Year ended June 30, 1995 Reserves deducted from assets to which they apply: Allowance for Doubtful Accounts $ 348,000 $ 313,000 $0 $ 4,000(1) $ 657,000 Inventory Reserve-Continuing Operations 497,000 546,000 0 94,000(2) 949,000 Inventory Reserve-Discontinued Operations 151,000 731,000 0 382,000(2) 500,000 - ------------------------------------------------------------------------------------------------------------------------------ $ 996,000 $ 1,590,000 $0 $ 480,000 $ 2,106,000 - ------------------------------------------------------------------------------------------------------------------------------ Reserves not deducted from assets: Product Warranty Reserve-Continuing Operations $ 602,000 $ 2,355,000 $0 $ 1,206,000(3) $ 1,751,000 Workers' compensation self-insurance 0 665,000 0 112,000(4) 553,000 - ------------------------------------------------------------------------------------------------------------------------------ $ 602,000 $ 3,020,000 $0 $ 1,318,000 $ 2,304,000 - ------------------------------------------------------------------------------------------------------------------------------ (1) Uncollectible accounts written off, net of recoveries. (2) Inventory disposals. (3) Warranty claims honored during year. (4) Worker's compensation claims paid. Note: Unless otherwise indicated, reserves relate to continuing operations
EX-10.(JJ) 2 MELLON BANK NOTE AGREEMENT $23,000,000.00 November 14, 1996 For value received, and intending to be legally bound, Undersigned, as defined below, promises to pay to Mellon Bank, N.A. ("Bank") or its order at State College, Pennsylvania the sum of Twenty-Three Million and No/100 Dollars ($23,000,000.00) or such lesser or greater principal amount as may be outstanding from time to time under the Revolving Line of Credit Agreement dated August 31, 1994(as amended and supplemented from time to time, the "Credit Agreement"), between Bank and Undersigned, with interest on the outstanding balance from the date of this Note and Security Agreement ("Note") at the rate(s) ("Contractual Rate(s)") specified herein. Payment of principal and interest shall be due and payable, as set forth in the attached supplement to Note and Security Agreement. This Note and Security Agreement is given in replacement of that original Note and Security agreement dated August 31, 1994, and as amended and restated on November 1, 1994, December 29, 1994, February 1, 1995, April 3, 1995, and June 21, 1995, in order to extend the maturity date. This is not a novation of the prior Note and Security Agreement(s). All prior security interests granted shall carry to this Note and Security Agreement. After maturity, whether by acceleration or otherwise, interest shall accrue at a rate 2 percent per annum above the Contractual Rate(s) specified until all sums due hereunder are paid. Interest shall continue to accrue after the entry of judgment by confession or otherwise at the Contractual Rate(s) until all sums due hereunder and/or under the judgment are paid, unless the Contractual Rate(s) is (are) altered by subsequent maturity, Undersigned agrees to pay to Bank, as consideration for Bank's commitment under the Credit Agreement, (i) a commitment fee equal to N/A % per annum on the unborrowed Commitment Amount (as defined in the Credit Agreement), from time to time, for each day of the Commitment Period (as defined in the Credit Agreement), and (ii) a facility fee equal to N/A % per annum on the Commitment Amount (whether borrowed or unborrowed) for each day of the Commitment Period, in each case payable for the preceding period for which such fee has not been paid, (a) on the last day of each N/A, and N/A after the date hereof, (b) on the date of each reduction of the Commitment Amount on the amount so reduced, and (c) on the last day of the Commitment Period. If any law, regulation, order, decree or guideline or interpretation or application thereof by any governmental authority charged with the interpretation or administration thereof or compliance by Bank with any request or directive of any governmental authority (whether or not having the force of law) shall either impose, modify or deem applicable any capital adequacy or similar requirement against assets (funded or contingent) of, or credits or commitments to extend credit extended by Bank and the result of any of the foregoing is to increase the cost to, reduce the income receivable by, or impose any expense (including loss of margin) upon Bank with respect to the Credit Agreement, this Note, or the making, maintenance or funding of any part of the Loans (or, in the case of capital adequacy or similar requirement, to have the effect of reducing the rate of return on Bank's capital, taking into account Bank's policies with regard to capital adequacy) by an amount which Bank deems to be material, Bank shall from time to time notify Undersigned of the amount determined in good faith by Bank (which determination shall be conclusive absent manifest error) to be necessary to compensate Bank for such increase, reduction or imposition. Such amount shall be due and payable by Undersigned to Bank ten (10) business days after such notice is given. So long as Bank is the holder hereof, Bank's books and records shall be presumed, except in the case of manifest error, to accurately evidence at all times all amounts outstanding under this Note and the date and amount of each advance and payment made pursuant hereto. The prompt and faithful performance of all of Undersigned's obligations hereunder, including without limitation time of payment, is of the essence of this Note. Certain terms used in this Note are defined in Section 9 below. 1. Security Interest. Undersigned hereby grants to Bank a security interest in the following property now owned or hereafter acquired by Undersigned: no (a) all equipment, wherever located, including machinery, motor vehicles, furniture and fixtures; yes (b) all inventory (whether held for sale or lease or to be furnished under contracts of service), raw materials, work in process, and materials used or consumed in the conduct of Undersigned's business, and all books, records, invoices and other documents which describe or evidence the same; no (c) all farm products; yes (d) all accounts, contract rights, general intangibles, choses in action, instruments, chattel paper, documents (including all documents of title and warehouse receipts) and all rights to the payment of money, however evidenced or arising; no (e) the securities described below, together with all cash, stock or other dividends or distributions paid upon or made in respect of such securities in any form; all securities received in addition to or in exchange for such securities; and all subscription rights incident to such securities; and no (f) Other (g) In addition to the foregoing, Undersigned (1) grants to Bank a security interest in all accessions, parts, accessories, attachments and appurtenances in any way used with, attached or related to, or installed in, any equipment or inventory constituting "Collateral" hereunder; (2) grants to Bank a security interest in all substitutions for, renewals of, improvements, replacements and additions to, and the products and proceeds (cash and non-cash) of all property constituting "Collateral" hereunder and any insurance policies relating thereto; (3) grants to Bank a security interest in, lien upon, and right of setoff against, all deposit accounts, credits, securities, moneys or other property of Undersigned which may at any time be in the possession of, delivered to, or owed by Bank, including any proceeds or returned or unearned premiums of insurance, and the proceeds (cash and non-cash) of all the foregoing property; and (4) assigns to Bank all moneys which may become payable on any policy of insurance required to be maintained under this Note, including any returned or unearned premiums. All such property subject to Bank's security interests described in this Section 1 is referred to herein collectively as the "Collateral". With respect to Section 4 hereunder, the term "Collateral" shall not include the property described in Subsections (g ) (3) and (g) (4) of this Section 1. All security interests in Collateral shall be deemed to arise and be perfected under and governed by the Uniform Commercial Code, except to the extent that such law does not apply to certain types of transactions or Collateral, in which case applicable law shall govern. 2. Obligations Secured. The Collateral shall secure the following obligations ("Obligations") of Undersigned to Bank: (a) all amounts at any time owing or payable under this Note, (b) all costs and expenses incurred by Bank in the collection or enforcement of this Note or the protection of the Collateral; (c) all future advances made by Bank for taxes, levies, insurance, and repairs to or maintenance of the Collateral: and (d) any other indebtedness, liability or obligation of Undersigned to Bank, past, present, or future, direct or indirect, absolute or contingent, individual, joint or several, now due or to become due, whether as drawer, maker, endorser. guarantor. surety or otherwise, except that none of the security interests created herein shall secure any obligation incurred by Undersigned which is defined as "consumer credit" by Federal Reserve Board Regulation Z, 12 C.F.R. 226.1 et seq., and is not exempted from the application of that Regulation. 3. Representations. Undersigned hereby makes the following representations and warranties which shall be true and correct on the date of this Note and shall continue to be true and correct at the time of the creation of any Obligation secured hereby and until the Obligations secured hereby shall have been paid in full: (a) Undersigned's residence and or Chief Executive Office, as the case may be, is as stated below or as otherwise stated in a subsequent written notice delivered to Bank pursuant to the terms hereof; (b) Undersigned has good and marketable title to the Collateral subject to no security interest, lien or encumbrance, except as indicated to the contrary to Bank in writing prior to the execution of this Note; and (c) if any of the Undersigned is an individual, each such individual is at least 18 years of age and under no legal disability or incapacity. 4. Covenants. Undersigned covenants and agrees that until the Obligations secured hereunder have been paid in full, Undersigned shall: (a) use the proceeds of the Loans evidenced hereby only for the purpose(s) specified to the Bank at or prior to the execution hereof; (b) not permit use of the Collateral for any illegal purposes; (c) promptly notify Bank in writing of any change in its or their residence or Chief Executive Office; (d) not permit removal of any of the Collateral from county to county or state to state unless Bank has given written consent in advance; (e) maintain at all times good and marketable title to all Collateral, free and clear of any security interest, lien or encumbrance except as to which Bank may grant its prior written consent pursuant to section 4(f) below), and defend such title against the claims and demands of all persons; (f) not (1) affix the Collateral or permit the Collateral to be affixed to real estate or to any other goods, (2) lease, mortgage, pledge or encumber the Collateral, (3) permit the Collateral's identity to be lost, (4) permit the Collateral to be levied upon or attached under any legal process, (5) permit or cause any security interest or lien to arise with respect to the Collateral (other than those created in this Note), or (6) except Collateral customarily sold by Undersigned in the ordinary course of business and so sold in such manner for full value, sell, consign, part with possession of, or otherwise dispose of the Collateral or any rights therein, except as Bank may grant its prior specific written consent with respect to acts or events specified in subsections (1), (2), (5) or (6) hereof; (g) maintain the Collateral in good condition and repair, excepting only reasonable wear and tear; pay and discharge all taxes and other levies on the Collateral, as well as the costs of repair and maintenance thereof; and furnish to Bank upon request documentary proof of payment of such taxes, levies and costs; (h) provide additional collateral at such times and having such value as Bank may request, if Bank shall have reasonable grounds for believing that the value of the Collateral has become insufficient to secure all Obligations evidenced or secured by this Note; (i) purchase and maintain policies of insurance (including flood insurance) to protect the Collateral or other property against such risks and casualties, and such amounts, as shall be required by Bank and/or applicable law, which policies shall (1) be in form and substance satisfactory to Bank (2) designate Bank as loss payee and, at Bank's option, as additional insured, and (3) be (or certificates evidencing the same shall be) deposited with Bank; (j) provide, upon request, financial or other information, documentation or certifications to Bank (including balance sheets and income statements), all in form and content satisfactory to Bank; (k) execute, upon demand by Bank, any financing statements or other documents which Bank may deem necessary to perfect or maintain perfection of the security interest(s) created in this Note and pay all costs and fees pertaining to the filing of any financing, continuation or termination statements with regard to such security interests; (1) procure, and cause a statement of Bank's security interest to be noted on, any certificate of title issued or required by law to be issued with respect to any motor vehicle constituting part of the Collateral, and cause any such certificate to be delivered to Bank within 10 days from the later of the date of this Note or the date of the issuance of such certificate; (m) pay, upon demand, all amounts incurred by Bank in connection with any action or proceeding taken or commenced by Bank to enforce or collect this Note or protect, insure or realize upon the Collateral, including attorney's fees equal to the Lesser of (a) 20% of the above sum and interest then due hereunder, or $500.00, whichever is greater, or (b) the maximum amount permitted by law, and attorney's costs and all costs of legal proceedings; and (n) immediately notify Bank if any of Undersigned's accounts arise out of contracts with the United States or any department, agency or instrumentality thereof, and execute any instruments and take any steps required by Bank in order that all moneys due and to become due under any such contracts shall be assigned to Bank and notice thereof given to the United States under the Federal Assignment of Claims Act. 5. Events of Default. The occurrence of any of the following shall constitute an "Event of Default" hereunder: (a) default in payment or performance of any of the Obligations evidenced or secured by this Note or any other evidence of liability of Undersigned to Bank; (b) the breach by any Obligor (defined as Undersigned and each surety or guarantor of any of Undersigned's liabilities to Bank, as well as any person or entity granting Bank a security interest in property to secure the Obligations evidenced hereby) of any covenant contained in the Credit Agreement, this Note, or in any separate security, guarantee or suretyship agreement between Bank and any Obligor, the occurrence of any default hereunder or under the terms of any such agreement, or the discovery by Bank of any false or misleading representation made by any Obligor herein or in any such agreement or in any other information submitted to Bank by any Obligor; (c) with respect to any Obligor: (1) death or incapacity of any individual or general partner; or (2) dissolution of any partnership or corporation; (d) any assignment for the benefit of creditors by any Obligor; (e) insolvency of any Obligor; (f) the filing or commencement of any petition, action, case or proceeding, voluntary or involuntary, under any state or federal law regarding bankruptcy, insolvency, reorganization, receivership or dissolution, including the Bankruptcy Reform Act of 1978, as amended, by or against any Obligor, (g) default under the terms of any lease of or mortgage on the premises where any Collateral is located; (h) garnishment, attachment or taking by governmental authority of any Collateral or other property of the Undersigned which is in Bank's possession; (i) a determination by Bank, which determination shall be conclusive if made in good faith, that a material adverse change has occurred in the financial or business condition of undersigned; or (j) the maturity of any life insurance policy held as Collateral under this Note by reason of the death of the insured or otherwise. 6. Acceleration; Remedies. Upon the occurrence of any event of Default: (a) all amounts due under this Note, including the unpaid balance of principal and interest thereof, shall become immediately due and payable at the option of Bank, without any demand or notice whatsoever; (b) Undersigned shall, upon demand by Bank, assemble the Collateral and promptly make it available to Bank at any place designated by Bank which is reasonably convenient to both parties; (c) Bank may immediately and without demand exercise any of its rights and remedies granted herein, under applicable law, or which it may otherwise have, against the Undersigned, the Collateral, or otherwise; and (d) Bank may, without notice or process of any sort, peaceably enter any premises where any vehicle constituting a part of the Collateral is located and take possession, retain and dispose of such vehicle and all property located in or upon it. Bank shall have no obligation to return any property not constituting Collateral found in any such vehicle unless Bank actually receives undersigned's written request therefor specifically describing such property within 72 hours after repossession thereof. Notwithstanding any provision to the contrary contained herein, upon the occurrence of an Event of default as described in Section 5 (f) hereof, all amounts due under this Note shall become immediately due and payable, without any demand, notice, or further action by Bank whatsoever and an action therefor shall immediately accrue. 7. Bank's Rights. Undersigned hereby authorizes Bank, and Bank shall have the continuing right, at its sole option and discretion, to: (a) do anything which Undersigned is required but fails to do hereunder, and in particular Bank may, if Undersigned fails to do so, (1) insure or take any reasonable steps to protect the Collateral, (2) pay all taxes, levies, expenses and costs arising with respect to the Collateral, or (3) pay any premiums payable on any policy of insurance required to be obtained or maintained hereunder, and add any amounts paid under this Section 7(a) to the principal amount of the indebtedness secured by this Note; and direct any insurer to make payment of any insurance proceeds, including any returned or unearned premiums, directly to Bank. and apply such moneys to any Obligations or other amounts evidenced or secured hereby in such order and fashion as Bank may elect; (c) inspect the Collateral at any reasonable time; (d) pay any amounts Bank elects to pay or advance hereunder on account of insurance, taxes, or other costs, fees or charges arising in connection with the Collateral, either directly to the payee of such cost, fee or charge directly to Undersigned, or to such payee(s) and undersigned jointly; and (e) pay the proceeds of the Loans evidenced by, this Note to any, or all of the Undersigned individually or jointly, or to such other persons as any of the undersigned may direct. In addition to all rights given to Bank by this Note, Bank shall have all the rights and remedies of a secured party under any applicable law, including without limitation, the Uniform Commercial Code. 8. Miscellaneous Provisions. (a) Undersigned waives protest of all commercial paper at any time held by Bank on which Undersigned is in any way liable, notice of nonpayment at maturity of any and all accounts, and (except where requested hereby) notice of action taken by Bank; and hereby ratifies and confirms whatever Bank may do. Bank shall be entitled to exercise any right notwithstanding any prior exercise, failure to exercise or delay in exercising any such right. (b) Bank shall retain the lien of any judgment entered on account of the indebtedness evidenced hereby, as well as any security interest previously granted to secure repayment of the indebtedness evidenced hereby, and Undersigned warrants that Undersigned has no defense whatsoever to any action or proceeding that may be brought to enforce or realize on such judgment or security interest. (c) If any provision hereof shall for any reason be held invalid or unenforceable, no other provision shall be affected thereby, and this Note shall be construed as if the invalid or unenforceable provision had never been a part of it. The descriptive headings of this Note are for convenience only and shall not in any way affect the meaning or construction of any provision hereof. (d) The rights and privileges of Bank contained in this Note shall inure to the benefit of its successors and assigns, and the duties of Undersigned shall bind all heirs, personal representatives, successors and assigns. (e) This Note shall in all respects be governed by the laws of the state in which this Note is payable (except to the extent that federal law governs), and all references to the Uniform Commercial Code shall be deemed to refer to the Uniform Commercial Code as enacted in such state. (f) Undersigned hereby irrevocably appoints Bank and each holder hereof as Undersigned's attorney-in-fact to: (1) endorse Undersigned's name to any draft or check which may be payable to Undersigned in order to collect the proceeds of any insurance or any returned or unearned premiums in respect of any policies of insurance required to be maintained hereunder; and (2) take any action Bank deems necessary to perfect or maintain perfection of any security interest granted to Bank herein including executing any document on Undersigned's behalf. (g) Undersigned shall bear the risk of loss of, damage to, or destruction of the Collateral, and Undersigned hereby releases Bank from all claims for loss or damage to the Collateral caused by any act or omission on the part of Bank, except for willful misconduct. (h) Copies or reproductions of this document or of any financing statement may be filed as a financing statement. 9. Definitions. As used herein: (a) "account". "chattel paper", "contract right", "document", "instrument", and "inventory" have the same respective meanings given to those terms in the Uniform Commercial Code; (b) "general intangibles" has the meaning given to that term in the Uniform Commercial Code, including without limitation, customer lists, books and records (including without limitation, all correspondence, files, tapes, cards, book entries, computer runs, computer programs and other papers and documents, whether in the possession or control of Undersigned or any computer service bureau), rights in franchises and sales contracts, patents, copyrights, trademarks, logos, goodwill, trade names, label designs, royalties, brand names, plans, blueprints, inventions, patterns, trade secrets, licenses, jigs, dies, molds, and formulas; (c) "Chief Executive Office" means the place from which the main part of the business operations of an entity is managed; and (d) "Undersigned" refers individually and collectively to all makers of this Note, including, in the case of any partnership, all general partners of such partnership individually and collectively, whether or not such partners sign below. Undersigned shall each be jointly and severally bound by the terms hereof, and, with respect to any partnership executing this Note, each general partner shall be bound hereby both in such general partner's individual and partnership capacities. Capitalized terms not defined in this Note shall have the same meanings set forth in the Credit Agreement. 10. Confession of Judgment. Undersigned hereby empowers the prothonotary or any attorney of any court of record to appear for Undersigned and to confess judgment as often as necessary against Undersigned in favor of the holder hereof, as of any term, for the above sum plus interest due under the terms hereof, together with costs of legal proceedings and an attorney's commission equal to the lesser of (a) 20% of the above sum and interest then due hereunder or $500.00, whichever is greater, or (b) the maximum amount permitted by law, with release of all errors. Undersigned waives all laws exempting real or personal property from execution. Attest: Joseph E. Zavacky (Corporate Seal) C-COR Electronics, Inc. By: Chris A. Miller Title: Vice President - Finance Address for Notices to Undersigned: 60 Decibel Road State College, PA 16801 Mellon Bank, N.A. By: John A. Rodgers Address for Notices to Bank: Mellon Bank, N.A. Attn: Middle Market Banking P.O. Box 19 State College, PA 16804-0019 EX-10.(KK) 3 SUPPLEMENT TO NOTE AGREEMENT AMENDED AND RESTATED SUPPLEMENT TO NOTE AND SECURITY AGREEMENT This Amended and Restated Supplement to Note and Security Agreement (this "Supplement") is annexed to and is part of the Amended and Restated Note and Security Agreement dated November 12, 1996 of Undersigned payable to MELLON BANK, N.A. ("Bank") in the stated principal amount of TWENTY-THREE Million Dollars and No Cents ($23,000,000.00). Such Note and Security Agreement, as supplemented by this Supplement, shall be referred to as the "Note". 1. Payment. Principal on the Note shall be due and payable on October 31, 1997. Accrued interest on the Prime Rate Portion, ABS Rate Portion, and As-Offered Rate Portion shall be due and payable on the last Business Day of each calendar month after the date hereof and on October 31, 1997. Interest on each Rate Segment of the LIBOR-Rate Portion shall be due and payable on the last day of the corresponding Rate Period, but in no case less frequently than 90 days after the previous interest payment on account of such LIBOR-Rate Portion. After maturity of any part of the Note (by acceleration or otherwise), interest on such part of the Note shall be due and payable on demand. 2. Interest Rate Options. The unpaid principal amount of the Note shall bear interest for each day until due on one or more bases selected by Undersigned from among the interest rate options ("Interest Rate Options") set forth below. Undersigned understands and agrees: (a) that Bank may in its sole discretion from time to time determine that the right of Undersigned to select, convert to or renew the Prime Rate Option, the ABS Rate Option, the LIBOR-Rate Option, or As-Offered Rate Option is not available, although Bank agrees to make a good faith effort to provide all Interest Rate Options to Borrower, and (b) that subject to the provisions of this Supplement, Undersigned may select any number of Interest Rate Options to apply simultaneously to different parts of the unpaid principal amount of the Note and may select any number of Rate Segments to apply simultaneously to different parts of the LIBOR-Rate Portion. Available Interest Rate Options Prime Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) for each day equal to the Prime Rate. ABS Rate Option: A rate per annum (computed on the basis of a year of 360 days and actual days elapsed) for each day equal to the ABS Rate for such day plus 120 Basis Points. LIBOR-Rate Option: For each Rate Segment of the LIBOR-Rate Portion, a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) for each day equal to the LIBOR-Rate for such Rate Segment for such day plus 120 Basis. As-Offered Rate Option: For each Rate Segment of the As-Offered Rate Portion, a rate per annum (computed on the basis of a year of 360 days and actual days elapsed) for each day equal to the As-Offered Rate for such Rate Segment for such day plus 120 Basis Points. 3. Rate Periods. At any time when Undersigned selects, converts to or renews the LIBOR-Rate Option or As-Offered Rate Option, Undersigned shall fIx a period (the "Rate Period") which shall be one, two, or three months and in the case of the As-Offered Rate Option, shall be such number of days as Bank may offer at its sole discretion, which shall be acceptable to Bank in Bank's sole discretion, during which the LIBOR-Rate Option or As-Offered Rate Option shall apply to the corresponding Rate Segment. Bank's right to payment of principal and interest under the Note shall in no way be affected by the fact that one or more Rate Periods may be in effect. 4. Amounts. Every selection of, conversion to or renewal of the ABS Rate Option, the LIBOR-Rate Option, or the As-Offered Rate option shall be in a principal amount selected by Undersigned but limited to no more than four interest rate segments at any one time. 5. Interest After Maturity. After the principal amount of any part of the Prime Rate Portion or the ABS Rate Portion shall have become due and payable, such amount shall bear interest for each day until paid (before and after judgment) at a rate per annum (based on a 360 day year and actual days elapsed) which for each day shall be the greater of (a) 2% above the Prime Rate Option on the day such amount became due and (b) 2% above the Prime Rate option, such interest rate to change automatically from time to time effective as of the effective date of each change in the Prime Rate. After the principal amount of any part of the LIBOR-Rate Portion or the As-Offered Rate Option shall have become due and payable, such amount shall bear interest for each day until paid (before and after judgment) (a) until the end of the applicable then-current Rate Period at a rate per annum 2% above the LIBOR-Rate Option or the As-Offered Rate Option otherwise applicable to such part and (b) thereafter in accordance with the first sentence of this Section 5. 6. Late Payment Charge. If any payment (including without limitation any regularly scheduled payment, balloon payment and final payment) is not paid within 25 days after it is due, Undersigned will pay a late charge equal to 5% of the entire payment due (regardless of whether part of the payment due had been made, and regardless of whether the payment due consists of principal and interest, principal only or interest only). (Such late charge will be in addition to any increase made to the interest rate(s) applicable to the outstanding balance hereof as a result of maturity of this Note or otherwise, as well as in addition to any other applicable fees, charges and costs.) Also, Bank reserves the right to modify, in its sole discretion and upon thirty (30) days prior written notice to Undersigned, the late charge set forth herein. 7. Selection, Conversion or Renewal of Rate Options. Subject to the other provisions of this Supplement, Undersigned may select any Interest Rate Option to apply to any borrowing evidenced by the Note. Subject to the other provisions of this Supplement, Undersigned may convert any part of the unpaid principal amount of the Note from any Interest Rate Option to any other Interest Rate Option and may renew the LIBOR-Rate Option as to any Rate Segment: (a) at any time with respect to conversion from the Prime Rate Option or ABS Rate Option to any other Interest Rate option and (b) at the expiration of any Rate Period with respect to conversion from or renewals of the LIBOR-Rate Option or As-offered Rate Option as to the Rate Segment corresponding to such expiring Rate Period. Whenever Undersigned desires to select, convert or renew the LIBOR-Rate Option or As-Offered Rate Option, Undersigned shall give Bank Standard Notice thereof (which shall be irrevocable), specifying the date, amount and type of the proposed new Interest Rate Option. If such notice has been duly given, and if Bank in its sole discretion (based on a good faith effort to provide all Interest Rate Options) approves the proposed selection, conversion or renewal, on and after the date specified in such notice interest shall be calculated upon the unpaid principal amount of the Note taking into account such selection, conversion or renewal. 8. Prime Rate Fallback. If any Rate Period expires, any part of the Rate Segment corresponding to such Rate Period which has not been converted or renewed in accordance with Section 7 hereof automatically shall be converted to the Prime Rate Option. If at any time the ABS Rate Option is determined to exceed the Prime Rate Option, the ABS Rate Portion shall automatically convert to the Prime Rate Option. If Undersigned fails to select, or if Bank fails to approve (because an Interest Option is not available in Bank's good faith determination), an Interest Rate Option to apply to any borrowing evidenced by the Note, such borrowing shall be deemed to be at the Prime Rate Option. If at any time the Bank shall have determined in good faith (which determination shall be conclusive) that the accrual of interest at any of the Interest Rate Options has been made impractical or unlawful by compliance with the Bank in good faith with any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic, or administration thereof by any official body charged with the interpretation or administration thereof or with any request or directive of any such official body (whether or not having the force of law), then, and in any such event, the outstanding principal amount of this Note subject to such Interest Rate Option shall accrue interest at the Prime Rate Option and the Undersigned shall not have the right to select such Interest Rate Option. 9. Prepayments. Undersigned shall have the right at its option from time to time to prepay the Prime Rate Portion and ABS Rate Portion in whole or in part. Undersigned shall have no right to prepay any part of the LIBOR-Rate Portion or As-Offered Rate Portion at any time without the prior written consent of Bank except that Undersigned may prepay any part of any Rate Segment at the expiration of the Rate Period corresponding to such Rate Segment. Prepayments shall be made by giving the Bank Standard Notice thereof (which shall be irrevocable), specifying the date, and amount and type of prepayment, and upon such date the amount so specified and accrued interest thereon shall be due and payable. 10. Indemnity. Undersigned shall indemnify Bank against any loss or expense (including loss of margin) which Bank has sustained or incurred as a consequence of: (i) payment, prepayment or conversion of any part of any Rate Segment of the LIBOR-Rate Portion or As-offered Rate Portion on a day other than the last day of the corresponding Rate Period (whether or not any such payment is pursuant to demand by Bank under the Note and whether or not any such payment, prepayment or conversion is consented to by Bank, unless Bank shall have expressly waived such indemnity in writing); (ii) attempt by Undersigned to revoke in whole or part any irrevocable notice given pursuant to Section 6 of this Supplement; or (iii) breach of or default by any Obligor in the performance or observance of any covenant or condition contained in the Loan Agreement (if any), the Note or any separate security, guarantee or suretyship agreement between Bank and any Obligor. If Bank sustains any such loss or expense it shall from time to time notify Undersigned of the amount determined in good faith by Bank (which determination shall be conclusive) to be necessary to indemnify Bank for such loss or expense. Such amount shall be due and payable by Undersigned on demand. 11. Records. The unpaid principal amount of the Note, the unpaid interest accrued thereon, the interest rate or rates applicable to such unpaid principal amount, the duration of such applicability and the date and amount of each payment or demand shall at all times be ascertained from the books and records created by Bank, which shall be conclusive absent manifest error. 12. Notices. All notices under Sections 7 or 9 of this Supplement shall be in writing or by telephone promptly confirmed in writing, and all such writings shall be sent by first-class, first-class express or certified mail or by hand delivery, in all cases with charges prepaid. All notices shall be sent to the applicable party at the address stated on the signature page hereof or in accordance with the last unrevoked written direction from such party to the other parties hereto. All notices by Undersigned shall be effective when received by Bank and all notices by Bank shall be effective when telephoned, deposited in the mail or hand delivered. Written notices or confirmations by Undersigned shall not be deemed records of Bank within the meaning of Section 11 of this Supplement whether or not received by Bank. Bank may conclusively rely without inquiry on any notice or confirmation purporting to be from or authorized by Undersigned. 13. Definitions. As used in this Supplement: "ABS Rate" shall mean a per annum rate of interest equal to the rate of interest determined by Bank, in its sole discretion, from time to time, to be its ABS Rate. Such ABS Rate shall change from time to time as of the effective date of each change in the ABS Rate as determined in the sole discretion of Bank. The ABS Rate may be greater or less than other interest rates charged by Bank to other borrowers and is not solely based or dependent upon the interest rate which Bank may charge any particular borrower or class of borrowers. "As-Offered Rate Option" shall mean a rate per annum offered by Bank in its sole discretion to Undersigned from time to time for such Rate Period for such Rate Segment as Bank may offer in its sole discretion, such interest rate to remain fixed for the duration of such Rate Period. "Business Day" shall mean any day on which Bank is open for business at the location where the Note is payable. "LIBOR-Rate" for any day for any proposed or existing Rate Segment corresponding to a Rate Period shall mean the rate per annum determined by Bank to be the rate per annum obtained by dividing (the resulting quotient to be rounded upward to the nearest 1/100 of 1%) (A) the rate of interest (which shall be the same for each day in such Rate Period) estimated in good faith by Bank in accordance with its usual procedures (which determination shall be conclusive) to be the average of the rates per annum for deposits in United States dollars offered to major money center banks in the London interbank market at approximately 11:00 a.m., London time, two London Business Days prior to the first day of such Rate Period for delivery on the first day of such Rate Period in amounts comparable to such Rate Segment (or, if there are no such comparable amounts actively traded, the smallest amounts actively traded) and having maturities comparable to such Rate Period by (B) a number equal to 1.00 minus the LIBOR-Rate Reserve Percentage for such day. The "LIBOR-Rate" may also be expressed by the following formula: [average of rates offered to major ] [money banks in the London inter- ] [bank market estimated by the Bank ] LIBOR-Rate = [subsection (A)(1)] / (1.00 - LIBOR-Rate Reserve Percentage) "LIBOR-Rate Reserve Percentage" for any day shall mean the percentage (rounded upward to the nearest 1/100 of 1%), as determined in good faith by Bank (which determination shall be conclusive) as representing for such day the maximum effective reserve requirement (including without limitation supplemental, marginal and emergency requirements) for member banks of the Federal Reserve System with respect to eurocurrency funding (currently referred to as "Euro-currency liabilities") of any maturity. Each LIBOR-Rate shall be adjusted automatically as of the effective date of any change in the LIBOR-Rate Reserve Percentage. "London Business Day" shall mean a day for dealing in deposits in United States dollars by and among banks in the London interbank market. "Portion": "Prime Rate Portion" shall mean at any time the part, including the whole, of the unpaid principal amount of the Note bearing interest at such time under the Prime Rate Option or in accordance with the first sentence of Section 5 of this Supplement. "ABS Rate Portion" shall mean at any time the part, including the whole, of the unpaid principal amount of the Note bearing interest at such time under the ABS Rate Option or in accordance with the first sentence of Section 5 of this Supplement. "LIBOR-Rate Portion" or "As-Offered Rate Portion" shall mean at any time the part, including the whole, of the unpaid principal amount of the Note bearing interest at such time under the LIBOR-Rate Option or As-Offered Rate Portion as the case may be, or at a rate determined by reference to the LIBOR-Rate Option pursuant to Section 5 of this Supplement. "Prime Rate" shall mean the interest rate per annum announced from time to time by Banks as its Prime Rate. The Prime Rate may be greater or less than other interest rates charged by Bank to other borrowers and is not solely based or dependent upon the interest rate which Bank may charge any particular borrower or class of borrowers. "Rate Segment" of the LIBOR-Rate Portion at any time shall mean the entire principal amount of such Portion to which at such time there is applicable a particular Rate Period beginning on a particular day and ending on another particular day. (By definition, each Portion is at all times composed of an integral number of discrete Rate Segments, each corresponding to a particular Rate Period, and the sum of the principal amounts of all Rate Segments of a particular Portion at any time equals the principal amount of such Portion at such time). "Standard Notice" shall mean an irrevocable notice provided to the Bank on a Business Day which is (i) at least one Business Day in advance in the case of selection of, conversion to or renewal of the Prime Rate Option or prepayment of any Prime Rate Portion; (ii) at least one Business Day in advance in the case of selection of, conversion to or renewal of the ABS Rate Option or prepayment of any ABS Portion; (iii) at least two London Business Days in advance in the case of selection of, conversion to or renewal of the LIBOR-Rate Option or prepayment of any LIBOR-Rate Portion, and (iv) at least one Business Day in advance in the case of selection of, conversion to or renewal of the As-Offered Rate Option or prepayment of any As-Offered Rate Portion. Standard Notice must be provided no later than 1:00 o'clock p.m., Pittsburgh time, on the last day permitted for such notice. Witness the due execution hereof intending to be legally bound this 14th day of November, 1996. Attest: Joseph E. Zavacky (Corporate Seal) C-COR Electronics, Inc. By: Chris A. Miller Title: Vice President - Finance Address for Notices to Undersigned: 60 Decibel Road State College, PA 16801 Mellon Bank, N.A. By: John A. Rodgers Address for Notices to Bank: Mellon Bank, N.A. Attn: Middle Market Banking P.O. Box 19 State College, PA 16804-0019 EX-10.(LL) 4 REVOLVING LINE OF CREDIT AMENDED AND RESTATED C-COR Electronics, Inc. ("Borrower") has requested Mellon Bank, N.A. ("Bank") to make loans (the "Loans") to Borrower from time to time during the period set forth below (the "Commitment Period") in an aggregate principal amount outstanding at any one time not to exceed Bank's commitment set forth below (the "Commitment Amount") and, subject to the terms and conditions set forth herein and in the Note and the other Credit Documents (hereinafter defined) and, relying upon the representations and warranties herein and therein set forth, Bank is willing to make such Loans. Commitment Period: From the date hereof to but not including November 1, 1997. Commitment Amount: The lesser of (i) $23,000,000.00 or (ii) the sum of 80% of Eligible Accounts (as hereinafter defined) and 20% of Eligible Inventory (as hereinafter defined). Within the limits of time and amount set forth above and subject to the terms and conditions set forth herein and in the Note and the other Credit Documents, Borrower may borrow, repay and reborrow hereunder. Borrower may at any time or from time to time reduce the Commitment Amount to an amount not less than the sum of the unpaid principal amount of the Loans then outstanding plus the principal amount of all Loans not yet made as to which notice has been given by Borrower under Section 2 hereof, by providing not less than five days' prior written notice (which notice shall be irrevocable) to such effect to Bank. If Bank allows Loans above the Commitment Amount, all the terms and conditions set forth herein and in the Note and the other Credit Documents will apply to such Loans. The obligation of Borrower to repay the Loans, to pay interest thereon and to pay fees, if any, with respect to the Commitment Amount shall be evidenced by one or more promissory notes, note and security agreements, letter of credit applications, or other instruments or documents (collectively, the "Note"), which together with this Agreement, including any Supplement hereto, and any security agreements, instruments and other documents executed by Borrower in connection herewith are sometimes referred to herein as the "Credit Documents". In consideration of the foregoing and intending to be legally bound, Borrower agrees with Bank as follows: 1. Representations and Warranties. In addition to the representations and warranties contained in the Note and any other Credit Documents, Borrower hereby makes the following representations and warranties which shall be true and correct on the date hereof and shall continue to be true and correct at the time of the creation of any of the Loans and until the Loans shall have been paid in full, or if there are no Loans outstanding so long as the Commitment Period has not expired: (a) Organization-Corporation and Partnership. If Borrower is a corporation or a partnership, Borrower is duly organized, validly existing, and in good standing under the laws of the jurisdiction in which Borrower is incorporated or was formed; Borrower has the power and authority to own its properties and assets, to carry on its businesses as now being conducted and is qualified to do business in every jurisdiction in which it is required to qualify to do business. (b) Validity and Binding Nature. Borrower has the power to execute, deliver, and perform this Agreement, the Note and all other Credit Documents, and when executed and delivered, this Agreement, the Note and all other Credit Documents will be valid and binding obligations of Borrower, enforceable in accordance with their terms; provided, however, that this representation with respect to enforceability is limited by bankruptcy, insolvency, or other laws of general application relating to or affecting the enforcement of creditors' rights. (c) Due Authorization-Corporation and Partnership. The execution, delivery and performance of this Agreement, the Note and all other Credit Documents have been duly authorized by all corporate or partnership action required for the lawful creation and issuance and performance thereof and will not violate any provision of law, any order of any court or governmental agency, the charter documents and by-laws of, or partnership agreement of Borrower. (d) Conflicting Instruments. The execution, delivery and performance of this Agreement, the Note and all other Credit Documents will not violate any provisions of any indenture, agreement, or other instrument to which Borrower or any of Borrower's properties or assets are bound, and will not be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement, or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower. (e) Authorization and Consents. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary to the valid execution, delivery and performance of this Agreement, the Note or any other Credit Document. (f) Financial Condition. The most recent financial statements of Borrower delivered to the Bank are true and correct and represent fairly its financial position as of the date thereof; and the results of its operations for the period or periods indicated; and show all known liabilities, direct or contingent, of Borrower as of the date thereof. Since the date of such financial statements, there has been no material adverse change in the condition, financial or otherwise, of Borrower or in the operations, business, prospects or properties of Borrower and, since such date, Borrower has not incurred, other than in the ordinary course of business, any indebtedness, liabilities, obligations or commitments, contingent or otherwise, other than indebtedness created hereunder. (g) Compliance with Laws. Neither the Borrower nor any subsidiary is in violation of or subject to any contingent liability on account of any law or any order or regulation issued by any court or governmental authority, state or federal, including but not limited to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), any applicable occupational and health or safety law, environmental protection or pollution control law or hazardous waste or toxic substances management, handling or disposal law. (h) Litigation. Except as previously disclosed in writing to Bank prior to the date of this Agreement, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or to the knowledge of Borrower, threatened by or against or affecting Borrower or any of the properties or rights of Borrower which, if adversely determined, would impair the right of Borrower to carry on its business substantially as now conducted or would adversely affect the financial condition, business or operations of Borrower. (i) Misrepresentation. Neither this Agreement, the Note, the other Credit Documents, nor any other document, statement, financial statement, or certificate furnished to Bank by or on behalf of Borrower in connection herewith, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading and, insofar as Borrower can now foresee, there is no event or condition which may in the future materially adversely affect the financial condition, operations, or properties of Borrower which has not been set forth in this Agreement or in a document, statement, financial statement, or certificate furnished to Bank in connection herewith. 2. Conditions. The obligation of Bank to make any Loan hereunder is subject to the performance by Borrower of its obligations to be performed hereunder and under the Note and the other Credit Documents on or before the date of such Loan and to the satisfaction of the following further conditions: (a) The representations and warranties contained herein, in the Note and in the other Credit Documents shall be true on and as of the date of each Loan hereunder with the same effect as though made on and as of each such date; on each such date no "Event of Default" under and as defined in the Note and no event, act or condition which with notice or the passage of time or both would constitute such an Event of Default shall have occurred and be continuing or exist or shall occur or exist after giving effect to the Loan to be made on such date; and any request for borrowing under Section 2.(b) below shall constitute a certification by Borrower to both such effects. (b) Borrower shall have provided Bank with written notice (or telephonic notice confirmed in writing) of the proposed Loan specifying the principal amount thereof and the proposed date thereof, which notice shall be received by Bank at its designated office no later than 1:00 p.m., local time at the place where the proposed Loan is to be payable, on the date (which shall be a day on which Bank is opened for business ) of such proposed Loan. Such notice shall contain a certification as to the amounts of the then current Eligible Accounts and Eligible Inventory. In the event Bank receives telephonic notice, Bank may act in reliance upon such telephonic notice, provided Bank has acted in good faith. (c) The conditions, if any, specified in any Supplement hereto and in the Note or any Credit Document shall have been met to the satisfaction of Bank. (d) All legal details and proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory to Bank and Bank shall have received all such counterpart originals or certified or other copies of such documents and records of proceedings in connection with such transactions, in form and substance satisfactory to Bank, as Bank may from time to time request. 3. General Covenants. In addition to the covenants contained in the Note and the other Credit Documents, Borrower hereby covenants and agrees that, so long as any of the Loans are outstanding, or if there are no Loans outstanding so long as the Commitment Period has not expired, Borrower shall, except as Bank may otherwise agree in Writing: (a) Financial Statements-Annual. Furnish to Bank, within 90 days after the end of each fiscal year of Borrower, a financial statement of Borrower's profit and loss and surplus for such fiscal year and a balance sheet as of the end of such fiscal year, in each case setting forth in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail and audited by an independent certified public accountant not unsatisfactory to Bank. (b) Accounts Receivable and Inventory Reporting. Furnish to Bank, on or before the 45 day of each calendar month, a report, as at the end of the preceding calendar month, containing Borrower's account receivable aging and a description of raw material and finished goods inventory, including a listing of Eligible Accounts and Eligible Inventory, all in reasonable detail and in form and content satisfactory to Bank. (c) Financial Statements-Other. Furnish to Bank each financial statement required to be delivered to Bank by any supplement, addendum or amendment hereto, and such other information concerning the financial or business affairs of Borrower as may be requested by Bank from time to time. (d) Property. Maintain and keep all its property in good repair, working order and condition and make or cause to be made all necessary or appropriate repairs, renewals, replacements, substitutions, additions, betterments and improvements thereto so that the efficiency of all such properties shall at all times be properly preserved and maintained. (e) Taxes and Assessments. Duly pay and discharge all taxes, assessments and governmental charges levied upon or assessed against it or against its properties or income prior to the date on which penalties are attached thereto, unless and except to the extent only that such taxes, assessments and charges shall be contested in good faith and by appropriate proceedings diligently conducted by Borrower (unless and until foreclosure, distraint, sale or other similar proceedings shall have been commenced) and provided that such reserve or their appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made therefor. (f) Litigation. Promptly give notice in writing to Bank of the occurrence of any material litigation, arbitration or governmental proceeding affecting Borrower, and of any governmental investigation or labor dispute pending or, to the knowledge of Borrower, threatened which could reasonably be expected to interfere substantially with normal operations of the business of Borrower or materially adversely, affect the financial condition, business, or operations of Borrower. (g) Books and Records. Maintain and keep proper records and books of account in conformance with generally accepted accounting principles applied on a consistent basis in which full, true and correct entries shall be made of all its dealings and business affairs. (h) Access to Properties, Books and Records. Permit any of the officers, employees or representatives of Bank to visit and inspect any of the properties of Borrower and to examine its books and records and discuss the affairs, finances and accounts of Borrower with representatives thereof, during normal business hours, and as often as Bank may request. (i) Financial Information-Guarantors. Cause any third party guarantor of the Loans to submit annually or at any time there is a material change in their financial position, personal or business financial statements containing such financial information as may be requested by Bank from time to time. j) Other Obligations. Maintain all obligations of Borrower in whatsoever manner incurred, including but not limited to obligations for borrowed money or for services or goods purchased by Borrower, in a current status. (k) Continuance of Business. Not engage in any line of business other than those in which it is actively engaged in on the date hereof. (l) Compliance with Laws. Comply, and shall cause any subsidiary to comply, with all laws, and all regulations or orders, issued pursuant thereto, including but not limited to ERISA, the Code, any applicable occupational, and health or safety law, environmental protection or pollution control law or hazardous waste or toxic substances management, handling or disposal law. (m) Sale of Assets. Except for sales or other dispositions of inventory in the ordinary course of business, not sell, lease, transfer, or otherwise dispose of in a single transaction, or a series of related transactions, all or a substantial part of the property and assets of Borrower, whether now owned or hereafter acquired, to any person, firm or corporation. (n) Acquisition of Assets. Not purchase or otherwise acquire all or substantially all of the operating assets of any other person, firm or corporation and, if Borrower is a corporation, not merge or consolidate with or into any other person, firm or corporation, or permit any other person, firm or corporation to merge with or into it, or acquire all or substantially all of the property or assets of any other person, firm or corporation. (o) Selling Accounts Receivable. Not sell, assign or discount any of its accounts receivable or any promissory note held by it, with or without recourse, other than the discount of such receivables or notes in the ordinary course of business for collection. (p) Payments on Outstanding Stock. Pursuant to or in contemplation of termination, liquidation, dissolution or winding up of Borrower, not purchase, redeem or retire or make any dividend on or distribution on account of, if Borrower is a corporation, any shares of the capital stock of Borrower or if Borrower is a partnership, any capital account of any partner of such partnership. (q) Affiliated Entities. Not establish any partnership, subsidiary, corporation, joint venture or other form of business combination. (r) Insurance. Keep all insurable property, real and personal, now owned or hereafter acquired, insured at all times against loss or damage by fire and extended coverage risks and other hazards of the kinds customarily insured against and in amounts customarily carried by businesses engaged in comparable businesses and comparably situated: effect all such insurance under valid and enforceable policies issued by insurers of recognized responsibility not unacceptable to Bank; and, promptly from time to time upon request of Bank, deliver to Bank a summary schedule indicating all insurance then in effect. (s) Investments. Not purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any investment or capital contribution or acquire any interest whatsoever in any other person, firm or corporation or permit to exist any loans or advances for such purposes except for investments in direct obligations of the United States of America or any agency thereof, obligations guaranteed by the United States of America, certificates of deposit issued by a bank or trust company, organized under the laws of the United States, or any state thereof, or marketable securities which are publicly traded on a nationally recognized market. (t) Patents. Preserve and protect its patents, franchises, licenses, trademarks, trademark rights, tradenames, tradename rights, and copyrights used or useful in the conduct of its business. u) Guarantees and Contingencies. Not endorse, assume, guarantee, become surety for, or otherwise become or remain liable in connection with the obligations of any person, firm or corporation, except Borrower may endorse negotiable or other instruments for deposit or collection or similar transactions in the ordinary course of its business. v) Transactions with Affiliates. Not enter into any transaction, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service, with any person, firm or corporation affiliated with Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with any other person, firm or corporation not affiliated with Borrower. w) Modifications to Other Agreements. Not amend or modify any existing agreement with any person, firm or corporation in any manner materially adverse to Borrower. x) Notice of Event of Default. Promptly give notice in writing to Bank of the occurrence of any Event of Default under and as defined in the Note, and of any condition, event, act or omission which, with the giving of notice or the lapse of time or both, would constitute such an Event of Default. General Provisions. a) Waivers. The provisions of this Agreement may from time to time be waived in writing by Bank in its sole discretion. Any such waiver of any kind on the part of Bank of any breach or default under this Agreement or any waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent set forth in such writing. No delay by Bank in exercising any right or remedy hereunder shall operate as a waiver thereof b) Financial Covenants. Compliance or non-compliance with all financial covenants of Borrower contained herein, or in any supplement, addendum or amendment hereto, shall be determined in accordance with generally accepted accounting principles applied on a consistent basis. All financial statements of Borrower required to be delivered to Bank hereby, or by any written supplement now or hereafter executed by Borrower in which reference to this Agreement is made, shall be prepared on the basis of generally accepted accounting principles applied on a consistent basis. (c) Binding Nature. The rights and privileges of Bank contained in this Agreement shall inure to the benefit of its successors and assigns, and the duties of Borrower shall bind all heirs, personal representatives, successors, and assigns. "Borrower" refers individually and collectively to all signers of this Agreement, including, in the case of any partnership, all general partners of such partnership individually and collectively, whether or not such partners sign below. Each of the signers shall be jointly and severally bound by the terms hereof, and, with respect to any partnership executing this Agreement, each general partner shall be bound hereby both in such general partner's individual and partnership capacities. (d) Governing Law. Time of performance hereunder is of the essence of this Agreement. This Agreement and any written supplement hereto executed by Borrower in which reference to this Agreement is made shall in all respects be governed by the laws of the state where the Note is payable (except to the extent that federal law governs). (e) Severability. If any provision hereof shall for any reason be held invalid or unenforceable, no other provision shall be affected thereby, and this Agreement shall be construed as if the invalid or unenforceable provision had never been a part of it. The descriptive headings hereof are for convenience only and shall not in any way affect the meaning or construction of any provision hereof. (f) Definitions. i) "Eligible Accounts" shall be defined as trade accounts receivable created or acquired by Borrower in the ordinary course of business which are and at all times continue to be acceptable to Bank and in which Bank has a Prior Security Interest at all times. Standards of acceptability shall be fixed and may be revised from time to time solely by Bank in its exclusive judgment. ii) "Eligible Inventory" shall be defined as Borrower's inventory, excluding work in process, of saleable raw materials and finished goods manufactured or acquired by Borrower in the ordinary course of business, in its sole possession or control, stored in a location or locations and in a manner acceptable to Bank. valued at the lower of cost or market value, which inventory is and at all times continues to be acceptable to Bank and in which Bank has a Prior Security Interest at all times. Standards of acceptability shall be fixed and may be revised from time to time solely by Bank in its exclusive judgment. iii) "Prior Security Interest" shall be defined as an enforceable, perfected security interest (under the Uniform Commercial Code), which interest is senior and prior to all liens (including without limitation all security interests, pledges, bailments, leases, mortgages, conditional sales and title retention agreements, charges, claims, encumbrances, judgments, levies and all other types of liens whatsoever). 5. Loans Above Commitment Amount. Notwithstanding any other provision of this Agreement, the Note or the other Credit Documents, if, in Bank's sole determination, the principal balance of the Loans hereunder shall at any time exceed the Commitment Amount, Borrower shall pay such excess to Bank on demand. 6. Special Covenants. In addition to the covenants contained herein and in the Note and the other Credit Documents, Borrower hereby agrees that, so long as any of the Loans are outstanding, or if there are no Loans outstanding so long as the Commitment Period has not expired, Borrower shall, except as Bank may grant its prior written consent, comply with the special provisions or covenants set forth in any written supplement, now or hereafter executed by Borrower, in which reference to this Agreement is made. Attest: Joseph E. Zavacky (Corporate Seal) C-COR Electronics, Inc. By: Chris A. Miller Title: Vice President - Finance Address for Notices to Undersigned: 60 Decibel Road State College, PA 16801 Mellon Bank, N.A. By: John A. Rodgers Address for Notices to Bank: Mellon Bank, N.A. Attn: Middle Market Banking P.O. Box 19 State College, PA 16804-0019 EX-10.(MM) 5 SUPPLEMENT TO REVOLVING LINE-OF-CREDIT AMENDED AND RESTATED C-COR Electronics, Inc. ("Borrower") has requested Mellon Bank, N.A. ("Bank") to make loans (the "Loans") to Borrower from time to time during the period set forth below (the "Commitment Period") in an aggregate principal amount outstanding at any one time not to exceed Bank's commitment set forth below (the "Commitment Amount") and, subject to the terms and conditions set forth herein and in the Note and the other Credit Documents (hereinafter defined) and, relying upon the representations and warranties herein and therein set forth, Bank is willing to make such Loans. Commitment Period: From the date hereof to but not including November 1, 1997. Commitment Amount: The lesser of (i) $23,000,000.00 or (ii) the sum of 80% of Eligible Accounts (as hereinafter defined) and 20% of Eligible Inventory (as hereinafter defined). Within the limits of time and amount set forth above and subject to the terms and conditions set forth herein and in the Note and the other Credit Documents, Borrower may borrow, repay and reborrow hereunder. Borrower may at any time or from time to time reduce the Commitment Amount to an amount not less than the sum of the unpaid principal amount of the Loans then outstanding plus the principal amount of all Loans not yet made as to which notice has been given by Borrower under Section 2 hereof, by providing not less than five days' prior written notice (which notice shall be irrevocable) to such effect to Bank. If Bank allows Loans above the Commitment Amount, all the terms and conditions set forth herein and in the Note and the other Credit Documents will apply to such Loans. The obligation of Borrower to repay the Loans, to pay interest thereon and to pay fees, if any, with respect to the Commitment Amount shall be evidenced by one or more promissory notes, note and security agreements, letter of credit applications, or other instruments or documents (collectively, the "Note"), which together with this Agreement, including any Supplement hereto, and any security agreements, instruments and other documents executed by Borrower in connection herewith are sometimes referred to herein as the "Credit Documents". In consideration of the foregoing and intending to be legally bound, Borrower agrees with Bank as follows: 1. Representations and Warranties. In addition to the representations and warranties contained in the Note and any other Credit Documents, Borrower hereby makes the following representations and warranties which shall be true and correct on the date hereof and shall continue to be true and correct at the time of the creation of any of the Loans and until the Loans shall have been paid in full, or if there are no Loans outstanding so long as the Commitment Period has not expired: (a) Organization-Corporation and Partnership. If Borrower is a corporation or a partnership, Borrower is duly organized, validly existing, and in good standing under the laws of the jurisdiction in which Borrower is incorporated or was formed; Borrower has the power and authority to own its properties and assets, to carry on its businesses as now being conducted and is qualified to do business in every jurisdiction in which it is required to qualify to do business. (b) Validity and Binding Nature. Borrower has the power to execute, deliver, and perform this Agreement, the Note and all other Credit Documents, and when executed and delivered, this Agreement, the Note and all other Credit Documents will be valid and binding obligations of Borrower, enforceable in accordance with their terms; provided, however, that this representation with respect to enforceability is limited by bankruptcy, insolvency, or other laws of general application relating to or affecting the enforcement of creditors' rights. (c) Due Authorization-Corporation and Partnership. The execution, delivery and performance of this Agreement, the Note and all other Credit Documents have been duly authorized by all corporate or partnership action required for the lawful creation and issuance and performance thereof and will not violate any provision of law, any order of any court or governmental agency, the charter documents and by-laws of, or partnership agreement of Borrower. (d) Conflicting Instruments. The execution, delivery and performance of this Agreement, the Note and all other Credit Documents will not violate any provisions of any indenture, agreement, or other instrument to which Borrower or any of Borrower's properties or assets are bound, and will not be in conflict with, result in a breach of, or constitute (with due notice and/or lapse of time) a default under any such indenture, agreement, or other instrument, or result in the creation or imposition of any lien, charge or encumbrance of any nature whatsoever upon any of the properties or assets of Borrower. (e) Authorization and Consents. No authorization, consent, approval, license or exemption of, and no registration, qualification, designation, declaration or filing with any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, is necessary to the valid execution, delivery and performance of this Agreement, the Note or any other Credit Document. (f) Financial Condition. The most recent financial statements of Borrower delivered to the Bank are true and correct and represent fairly its financial position as of the date thereof; and the results of its operations for the period or periods indicated; and show all known liabilities, direct or contingent, of Borrower as of the date thereof. Since the date of such financial statements, there has been no material adverse change in the condition, financial or otherwise, of Borrower or in the operations, business, prospects or properties of Borrower and, since such date, Borrower has not incurred, other than in the ordinary course of business, any indebtedness, liabilities, obligations or commitments, contingent or otherwise, other than indebtedness created hereunder. (g) Compliance with Laws. Neither the Borrower nor any subsidiary is in violation of or subject to any contingent liability on account of any law or any order or regulation issued by any court or governmental authority, state or federal, including but not limited to the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), the Internal Revenue Code of 1986, as amended (the "Code"), any applicable occupational and health or safety law, environmental protection or pollution control law or hazardous waste or toxic substances management, handling or disposal law. (h) Litigation. Except as previously disclosed in writing to Bank prior to the date of this Agreement, there is no action, suit or proceeding at law or in equity or by or before any governmental instrumentality or other agency now pending, or to the knowledge of Borrower, threatened by or against or affecting Borrower or any of the properties or rights of Borrower which, if adversely determined, would impair the right of Borrower to carry on its business substantially as now conducted or would adversely affect the financial condition, business or operations of Borrower. (i) Misrepresentation. Neither this Agreement, the Note, the other Credit Documents, nor any other document, statement, financial statement, or certificate furnished to Bank by or on behalf of Borrower in connection herewith, contains an untrue statement of a material fact or omits to state a material fact necessary to make the statements contained therein not misleading and, insofar as Borrower can now foresee, there is no event or condition which may in the future materially adversely affect the financial condition, operations, or properties of Borrower which has not been set forth in this Agreement or in a document, statement, financial statement, or certificate furnished to Bank in connection herewith. 2. Conditions. The obligation of Bank to make any Loan hereunder is subject to the performance by Borrower of its obligations to be performed hereunder and under the Note and the other Credit Documents on or before the date of such Loan and to the satisfaction of the following further conditions: (a) The representations and warranties contained herein, in the Note and in the other Credit Documents shall be true on and as of the date of each Loan hereunder with the same effect as though made on and as of each such date; on each such date no "Event of Default" under and as defined in the Note and no event, act or condition which with notice or the passage of time or both would constitute such an Event of Default shall have occurred and be continuing or exist or shall occur or exist after giving effect to the Loan to be made on such date; and any request for borrowing under Section 2.(b) below shall constitute a certification by Borrower to both such effects. (b) Borrower shall have provided Bank with written notice (or telephonic notice confirmed in writing) of the proposed Loan specifying the principal amount thereof and the proposed date thereof, which notice shall be received by Bank at its designated office no later than 1:00 p.m., local time at the place where the proposed Loan is to be payable, on the date (which shall be a day on which Bank is opened for business ) of such proposed Loan. Such notice shall contain a certification as to the amounts of the then current Eligible Accounts and Eligible Inventory. In the event Bank receives telephonic notice, Bank may act in reliance upon such telephonic notice, provided Bank has acted in good faith. (c) The conditions, if any, specified in any Supplement hereto and in the Note or any Credit Document shall have been met to the satisfaction of Bank. (d) All legal details and proceedings in connection with the transactions contemplated by this Agreement shall be satisfactory to Bank and Bank shall have received all such counterpart originals or certified or other copies of such documents and records of proceedings in connection with such transactions, in form and substance satisfactory to Bank, as Bank may from time to time request. 3. General Covenants. In addition to the covenants contained in the Note and the other Credit Documents, Borrower hereby covenants and agrees that, so long as any of the Loans are outstanding, or if there are no Loans outstanding so long as the Commitment Period has not expired, Borrower shall, except as Bank may otherwise agree in Writing: (a) Financial Statements-Annual. Furnish to Bank, within 90 days after the end of each fiscal year of Borrower, a financial statement of Borrower's profit and loss and surplus for such fiscal year and a balance sheet as of the end of such fiscal year, in each case setting forth in comparative form the corresponding figures for the preceding fiscal year, all in reasonable detail and audited by an independent certified public accountant not unsatisfactory to Bank. (b) Accounts Receivable and Inventory Reporting. Furnish to Bank, on or before the 45 day of each calendar month, a report, as at the end of the preceding calendar month, containing Borrower's account receivable aging and a description of raw material and finished goods inventory, including a listing of Eligible Accounts and Eligible Inventory, all in reasonable detail and in form and content satisfactory to Bank. (c) Financial Statements-Other. Furnish to Bank each financial statement required to be delivered to Bank by any supplement, addendum or amendment hereto, and such other information concerning the financial or business affairs of Borrower as may be requested by Bank from time to time. (d) Property. Maintain and keep all its property in good repair, working order and condition and make or cause to be made all necessary or appropriate repairs, renewals, replacements, substitutions, additions, betterments and improvements thereto so that the efficiency of all such properties shall at all times be properly preserved and maintained. (e) Taxes and Assessments. Duly pay and discharge all taxes, assessments and governmental charges levied upon or assessed against it or against its properties or income prior to the date on which penalties are attached thereto, unless and except to the extent only that such taxes, assessments and charges shall be contested in good faith and by appropriate proceedings diligently conducted by Borrower (unless and until foreclosure, distraint, sale or other similar proceedings shall have been commenced) and provided that such reserve or their appropriate provisions, if any, as shall be required by generally accepted accounting principles shall have been made therefor. (f) Litigation. Promptly give notice in writing to Bank of the occurrence of any material litigation, arbitration or governmental proceeding affecting Borrower, and of any governmental investigation or labor dispute pending or, to the knowledge of Borrower, threatened which could reasonably be expected to interfere substantially with normal operations of the business of Borrower or materially adversely, affect the financial condition, business, or operations of Borrower. (g) Books and Records. Maintain and keep proper records and books of account in conformance with generally accepted accounting principles applied on a consistent basis in which full, true and correct entries shall be made of all its dealings and business affairs. (h) Access to Properties, Books and Records. Permit any of the officers, employees or representatives of Bank to visit and inspect any of the properties of Borrower and to examine its books and records and discuss the affairs, finances and accounts of Borrower with representatives thereof, during normal business hours, and as often as Bank may request. (i) Financial Information-Guarantors. Cause any third party guarantor of the Loans to submit annually or at any time there is a material change in their financial position, personal or business financial statements containing such financial information as may be requested by Bank from time to time. j) Other Obligations. Maintain all obligations of Borrower in whatsoever manner incurred, including but not limited to obligations for borrowed money or for services or goods purchased by Borrower, in a current status. (k) Continuance of Business. Not engage in any line of business other than those in which it is actively engaged in on the date hereof. (l) Compliance with Laws. Comply, and shall cause any subsidiary to comply, with all laws, and all regulations or orders, issued pursuant thereto, including but not limited to ERISA, the Code, any applicable occupational, and health or safety law, environmental protection or pollution control law or hazardous waste or toxic substances management, handling or disposal law. (m) Sale of Assets. Except for sales or other dispositions of inventory in the ordinary course of business, not sell, lease, transfer, or otherwise dispose of in a single transaction, or a series of related transactions, all or a substantial part of the property and assets of Borrower, whether now owned or hereafter acquired, to any person, firm or corporation. (n) Acquisition of Assets. Not purchase or otherwise acquire all or substantially all of the operating assets of any other person, firm or corporation and, if Borrower is a corporation, not merge or consolidate with or into any other person, firm or corporation, or permit any other person, firm or corporation to merge with or into it, or acquire all or substantially all of the property or assets of any other person, firm or corporation. (o) Selling Accounts Receivable. Not sell, assign or discount any of its accounts receivable or any promissory note held by it, with or without recourse, other than the discount of such receivables or notes in the ordinary course of business for collection. (p) Payments on Outstanding Stock. Pursuant to or in contemplation of termination, liquidation, dissolution or winding up of Borrower, not purchase, redeem or retire or make any dividend on or distribution on account of, if Borrower is a corporation, any shares of the capital stock of Borrower or if Borrower is a partnership, any capital account of any partner of such partnership. (q) Affiliated Entities. Not establish any partnership, subsidiary, corporation, joint venture or other form of business combination. (r) Insurance. Keep all insurable property, real and personal, now owned or hereafter acquired, insured at all times against loss or damage by fire and extended coverage risks and other hazards of the kinds customarily insured against and in amounts customarily carried by businesses engaged in comparable businesses and comparably situated: effect all such insurance under valid and enforceable policies issued by insurers of recognized responsibility not unacceptable to Bank; and, promptly from time to time upon request of Bank, deliver to Bank a summary schedule indicating all insurance then in effect. (s) Investments. Not purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities, or make or permit to exist any investment or capital contribution or acquire any interest whatsoever in any other person, firm or corporation or permit to exist any loans or advances for such purposes except for investments in direct obligations of the United States of America or any agency thereof, obligations guaranteed by the United States of America, certificates of deposit issued by a bank or trust company, organized under the laws of the United States, or any state thereof, or marketable securities which are publicly traded on a nationally recognized market. (t) Patents. Preserve and protect its patents, franchises, licenses, trademarks, trademark rights, tradenames, tradename rights, and copyrights used or useful in the conduct of its business. u) Guarantees and Contingencies. Not endorse, assume, guarantee, become surety for, or otherwise become or remain liable in connection with the obligations of any person, firm or corporation, except Borrower may endorse negotiable or other instruments for deposit or collection or similar transactions in the ordinary course of its business. v) Transactions with Affiliates. Not enter into any transaction, including, without limitation, the purchase, sale, leasing or exchange of property, real or personal, or the rendering of any service, with any person, firm or corporation affiliated with Borrower, except in the ordinary course of and pursuant to the reasonable requirements of Borrower's business and upon fair and reasonable terms no less favorable to Borrower than would be obtained in a comparable arm's-length transaction with any other person, firm or corporation not affiliated with Borrower. w) Modifications to Other Agreements. Not amend or modify any existing agreement with any person, firm or corporation in any manner materially adverse to Borrower. x) Notice of Event of Default. Promptly give notice in writing to Bank of the occurrence of any Event of Default under and as defined in the Note, and of any condition, event, act or omission which, with the giving of notice or the lapse of time or both, would constitute such an Event of Default. General Provisions. a) Waivers. The provisions of this Agreement may from time to time be waived in writing by Bank in its sole discretion. Any such waiver of any kind on the part of Bank of any breach or default under this Agreement or any waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent set forth in such writing. No delay by Bank in exercising any right or remedy hereunder shall operate as a waiver thereof b) Financial Covenants. Compliance or non-compliance with all financial covenants of Borrower contained herein, or in any supplement, addendum or amendment hereto, shall be determined in accordance with generally accepted accounting principles applied on a consistent basis. All financial statements of Borrower required to be delivered to Bank hereby, or by any written supplement now or hereafter executed by Borrower in which reference to this Agreement is made, shall be prepared on the basis of generally accepted accounting principles applied on a consistent basis. (c) Binding Nature. The rights and privileges of Bank contained in this Agreement shall inure to the benefit of its successors and assigns, and the duties of Borrower shall bind all heirs, personal representatives, successors, and assigns. "Borrower" refers individually and collectively to all signers of this Agreement, including, in the case of any partnership, all general partners of such partnership individually and collectively, whether or not such partners sign below. Each of the signers shall be jointly and severally bound by the terms hereof, and, with respect to any partnership executing this Agreement, each general partner shall be bound hereby both in such general partner's individual and partnership capacities. (d) Governing Law. Time of performance hereunder is of the essence of this Agreement. This Agreement and any written supplement hereto executed by Borrower in which reference to this Agreement is made shall in all respects be governed by the laws of the state where the Note is payable (except to the extent that federal law governs). (e) Severability. If any provision hereof shall for any reason be held invalid or unenforceable, no other provision shall be affected thereby, and this Agreement shall be construed as if the invalid or unenforceable provision had never been a part of it. The descriptive headings hereof are for convenience only and shall not in any way affect the meaning or construction of any provision hereof. (f) Definitions. i) "Eligible Accounts" shall be defined as trade accounts receivable created or acquired by Borrower in the ordinary course of business which are and at all times continue to be acceptable to Bank and in which Bank has a Prior Security Interest at all times. Standards of acceptability shall be fixed and may be revised from time to time solely by Bank in its exclusive judgment. ii) "Eligible Inventory" shall be defined as Borrower's inventory, excluding work in process, of saleable raw materials and finished goods manufactured or acquired by Borrower in the ordinary course of business, in its sole possession or control, stored in a location or locations and in a manner acceptable to Bank. valued at the lower of cost or market value, which inventory is and at all times continues to be acceptable to Bank and in which Bank has a Prior Security Interest at all times. Standards of acceptability shall be fixed and may be revised from time to time solely by Bank in its exclusive judgment. iii) "Prior Security Interest" shall be defined as an enforceable, perfected security interest (under the Uniform Commercial Code), which interest is senior and prior to all liens (including without limitation all security interests, pledges, bailments, leases, mortgages, conditional sales and title retention agreements, charges, claims, encumbrances, judgments, levies and all other types of liens whatsoever). 5. Loans Above Commitment Amount. Notwithstanding any other provision of this Agreement, the Note or the other Credit Documents, if, in Bank's sole determination, the principal balance of the Loans hereunder shall at any time exceed the Commitment Amount, Borrower shall pay such excess to Bank on demand. 6. Special Covenants. In addition to the covenants contained herein and in the Note and the other Credit Documents, Borrower hereby agrees that, so long as any of the Loans are outstanding, or if there are no Loans outstanding so long as the Commitment Period has not expired, Borrower shall, except as Bank may grant its prior written consent, comply with the special provisions or covenants set forth in any written supplement, now or hereafter executed by Borrower, in which reference to this Agreement is made. Attest: Joseph E. Zavacky (Corporate Seal) C-COR Electronics, Inc. By: Chris A. Miller Title: Vice President - Finance Address for Notices to Undersigned: 60 Decibel Road State College, PA 16801 Mellon Bank, N.A. By: John A. Rodgers Address for Notices to Bank: Mellon Bank, N.A. Attn: Middle Market Banking P.O. Box 19 State College, PA 16804-0019 EX-10.(NN) 6 PERRY EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT THIS AGREEMENT, made this 21 day of July, 1997, by and between C-COR ELECTRONICS, INC., a Pennsylvania Business Corporation with its principal place of business at 60 Decibel Road, State College, Pennsylvania (hereinafter, "Corporation"), -AND- RICHARD E. PERRY (hereinafter, "Employee"). BACKGROUND A. Corporation has employed Employee since July 17, 1985, first as President and Chief Executive Officer and then as Chairman, President and Chief Executive Officer and then as Chairman. B. Corporation and Employee entered into an Amended and Restated Employment Agreement, dated April 1, 1988 for the period commencing on July 17, 1985 and ending on June 30, 1990. C. Corporation and Employee entered into an Amended and Restated Employment Agreement dated October 27, 1989 for the period commencing on July 17, 1985 and ending on June 30, 1993. D. Corporation and Employee entered into an Amended and Restated Employment Agreement dated September 4, 1990 to amend the section entitled, Bonus. E. Corporation and Employee entered into an Amended and Restated Employment Agreement dated April 23, 1991 to further amend the section entitled, Bonus and to extend the term hereof. F. Corporation and Employee entered into an Amended and Restated Employment Agreement dated April 19, 1994 for the period commencing on July 17, 1985 and ending on October 31, 1997. G. Corporation and Employee are also parties to a "Change of Control" Employment Agreement dated April 30, 1986 and an Amendment to such Agreement dated June 13, 1986 (together referred to herein as the "Change of Control Agreement"), and an Indemnification Agreement dated October 23, 1986 (the "Indemnification Agreement"). H. Corporation and Employee entered into an Amended and Restated Employment Agreement dated October 16, 1995 for the purpose of modifying the terms of the retirement annuity provided for in Section 2.05 hereof and incorporating herein and amending the terms of the Change of Control Agreement and the Indemnification Agreement. I. On August 13, 1996, in accordance with Section 1.02 hereof, Corporation notified Employee that Employee would, effective September 13, 1996, no longer serve Corporation as Chief Executive Officer. J. Corporation and Employee entered into an Amended and Restated Employment Agreement dated November 24, 1996 for the purpose of amending Section 2.01 hereof, concerning salary, Section 2.03 hereof, concerning incentive compensation, and Section 2.04 hereof, concerning stock options. K. On March 3, 1997, Employee notified Corporation that Employee would, effective immediately, voluntarily reduce his salary under Section 2.01 hereof from $150,000 to $125,000. L. Corporation and Employee desire to further amend and restate the Employment Agreement between Corporation and Employee for the purpose of amending Section 1.01 hereof, concerning employment and term, amending Section 2. 01 hereof, concerning salary, deleting Section 2.07 hereof, concerning automobile allowance, and deleting Section 2.11 hereof concerning club membership. NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound thereby, the parties hereto agree as follows: SECTION I. Description of Employment 1.01. Employment and Term. Corporation agrees to employ Employee and Employee agrees to be so employed for a term which initially commenced on July 17, 1985 and which will end on October 31, 2000. 1.02. Capacity. For the period commencing on September 13, 1997 and ending on October 31, 2000, Employee shall serve in the capacity of Chairman of the Board of Directors (if elected to the Board of Directors) and shall perform such other duties as Employee and the Board of Directors shall mutually determine; provided, however, that upon thirty (30) days advance written notice, Employee may, at his option, elect to resign and retire as Chairman of the Board of Directors. 1.03. Time and Efforts. For the period commencing on September 13, 1997 and ending on October 31, 2000, as provided for in Section 1.02 hereof, Employee shall diligently and conscientiously devote his best efforts and such time and attention as may be necessary to the discharge of his duties as Chairman of the Board and of such other duties as may be determined by mutual agreement. SECTION II. Compensation 2.01. Salary. During the period of Employee's employment hereunder beginning on September 13, 1997, the Corporation shall pay to Employee a salary at an annual rate of One Hundred Thousand ($100,000.00) Dollars, payable bi-weekly for services rendered. 2.02. Business Expenses. Employee shall be reimbursed by Corporation for all reasonable expenses incurred in carrying out his employment duties or in otherwise promoting the business of Corporation by presenting to the designated officer of Corporation an itemized expense account report with receipts attached. 2.03. Incentive Compensation. Corporation shall include Employee as a participant at the officer level under Corporation's "Profit Incentive Plan". Employee will be entitled to such awards as are declared from time to time by the Board of Directors under the terms of the "Profit Incentive Plan". 2.04. Stock options. As of April 19, 1994, Employee was granted Incentive Stock Options for 25,000 shares of C-COR common stock. Further, on August 13, 1996, Employee was granted Incentive Stock Options for 25,000 shares of C-COR common stock. All such Incentive Stock Options are exercisable at any time (not to exceed ten years after the date of grant), during Employee's employment by Corporation and, following termination of employment, for a period equal to the lesser of five (5) years or the period of time remaining for exercise of the respective options (not to exceed ten years after the date of grant). 2.05 (a) Retirement Annuity. Upon Employee's retirement on October 31, 2000, Corporation shall pay to Employee a retirement annuity in the amount of Fifty Thousand and No/100 ($50,000.00) Dollars per year, payable on July 1 of each year, for the life of Employee. In the event that Employee dies following retirement and is survived by his spouse, Betty Perry, annuity payments in like amount shall continue to be paid each July 1, following Employee's death to Betty Perry for her lifetime. All such annuity payments will cease on Betty Perry's death. (b) Pre-retirement Survivor's Annuity. In the event Employee dies prior to his retirement from Corporation and is survived by his spouse, Betty Perry, Corporation shall pay Betty Perry a survivor's annuity in the amount of Fifty Thousand and No/100 ($50,000.00) Dollars per year, payable on July 1 of each year, for Betty Perry's lifetime. All such annuity payments will cease on Betty Perry's death. (c) Conditions. Nothing contained in this Section 2.05 and no actions taken pursuant to this Agreement shall create or be construed to create a trust of any kind, or a fiduciary relationship between Corporation and Employee, or his spouse. Any funds which may be reserved by Corporation to pay for the retirement and survivor's annuity payments provided for herein shall continue for all purposes to be a part of the general funds of Corporation and no person other than Corporation shall by virtue of this Agreement have any right to or interest in such funds. Any bookkeeping reserve accounts for such payments will be maintained by Corporation solely as a convenience in the administration of this Agreement. To the extent that any person acquires a right to receive payments from Corporation under this Section, such right shall be no greater than the rights of any unsecured general creditor of the Corporation. Neither Employee nor his representative shall have any right to commute, sell, assign, transfer, encumber or otherwise dispose of the right to receive payments hereunder, which payments and the right thereto are expressly declared to be nonassignable and nontransferable and any attempted assignment or transfer by Employee, or his spouse, shall be void and of no effect. Title to and beneficial ownership of any assets, whether cash, investments, life insurance policies or other assets which Corporation may use to fund its obligation hereunder shall at all times remain in Corporation. (d) Insurance Policies. Employee understands that Corporation may make application to purchase a life insurance policy or policies on his life, or on the lives of Employee and his spouse in order to fund its obligations under this section, which policy or policies will be owned by Corporation and under which Corporation will be the sole beneficiary. Employee agrees to provide Corporation with such information as it may require in order to make such application and to cooperate fully with Corporation in respect of such application, including the taking of a physical examination if requested to do so. Further, Employee shall use his best efforts to cause his spouse to provide Corporation with such information as it may require in order to make such application and to cooperate fully with Corporation in respect of such application, including the taking of a physical examination if requested to do so. In the event the insurance company to which application is made declines to issue a policy at standard premium rates, Corporation's obligations under this section 2.05 will be void unless Corporation decides otherwise. Similarly, upon Employee's death, if the proceeds of the policy on Employee's life are not paid to Corporation because the information Employee furnished in connection with the application was materially false or Employee's or any other insured's death is caused by suicide within two (2) years of the date on which any policy on Employee's or Employee's spouse's life was issued, Corporation will be under no obligation to pay the annuity provided for in this Section 2.05. 2.06. Life Insurance Coverage. Corporation will provide to Employee group term life insurance in a face amount equal to three times the Employee's salary. Increases in life insurance coverage will occur at the same time the Employee's salary is increased pursuant to Section 2.01 hereof. 2.07. Financial and Tax Planning Reimbursement. Corporation agrees to reimburse Employee for expenses incurred in his personal financial and tax planning up to an amount not exceeding One Thousand Five Hundred ($1,500.00) Dollars per year during the term of this Agreement. 2.08. Other Benefit Plans. Employee shall also be eligible to participate in Corporation's other fringe benefit plans, including both those plans presently existing and those which may in the future be adopted, in accordance with the terms and provisions of such plans. 2.09. Vacation. Employee shall be entitled to a reasonable amount of vacation. 2.10. Physical Examination. Corporation agrees to reimburse Employee for the expense of an annual physical examination by a physician selected by Employee. SECTION III. Intellectual Property 3.01. Disclosure. Employee agrees to promptly and fully disclose to Corporation all inventions, improvements, original works of authorship, formulas, processes, computer programs, techniques, know-how and data (hereinafter collectively referred to as "Inventions"), whether or not patentable or copyrightable, made or conceived or first reduced to practice or learned by Employee either alone or jointly with others, whether or not during Employee's regular hours of employment and directly or indirectly relating to or capable of being used for the benefit of Corporation's business. Employee agrees, without compensation additional to that provided for in Section II of this Agreement, to assign all rights in and to such inventions to Corporation and to execute, at Corporation's request, appropriate documents effectuating such assignments. 3.02. Maintenance of Records. Employee agrees to maintain accurate and current written records of all such Inventions, in the form of notes, sketches, drawings, or reports which shall be and will remain the property of and available to Corporation at all times. 3.03. Provision of Assistance. Employee agrees, upon Corporation's request, during and after the term of employment set forth herein, to assist Corporation, its attorneys, and nominees at its or their expense in preparing and prosecuting applications for letters patent on Inventions created by him and applications to register copyrights on inventions created by him providing, however, that time actually spent by Employee at such work after termination of employment at Corporation's request, shall be paid for by Corporation at a reasonable rate, and that necessary expenses incurred by Employee in connection with Employee's duties under this paragraph shall be paid by Corporation. 3.04. Previous Inventions. Employee expressly retains an interest in and title to Inventions patented or unpatented which Employee conceived prior to his term of employment with Corporation. 3.05. Term of Obligations. Employee's termination of employment by Corporation under this Agreement shall not affect the obligations imposed on Employee by Paragraphs 3.01, 3.02 and 3.03 and such obligations shall be binding on Employee's heirs, executors and administrators. SECTION IV. Confidentiality and Noncompetition 4.01. Confidentiality. Employee agrees, during and after his term of employment hereunder, without the prior written consent of Corporation, not to disclose to any person other than Corporation, by publication or otherwise, or use for his own benefit, any confidential information of Corporation or any Inventions, whether conceived in whole or in part by Employee or by others. Employee's duty under this paragraph includes but is not limited to the nondisclosure of trade secrets or confidential information, knowledge or data of Corporation which he may obtain during the course of his employment relating to Corporation's business, technical or otherwise, including but not limited to manufacturing methods, processes, techniques, products, engineering development products, computer programs, customer lists, machines, research, compositions, inventions or discoveries. Employee agrees that upon leaving the employ of Corporation, he will not take with him any original or copy of documents, or records relating to the foregoing matters, without the written consent of Corporation. This Section does not apply to any Inventions described in Section 3.04 above. 4.02. Noncompetition. In consideration of Corporation's agreement to extend the term of Employee's employment, for the duration of his employment by Corporation, and for a period of two (2) years after the termination thereof, Employee agrees: (a) Not to, on behalf of himself or any other entity or corporation, directly or indirectly, as an employee, agent, independent contractor, owner, stockholder, partner, officer, director or otherwise, engage in the business of the manufacture or sale of electronic equipment for use in cable television or broadband data transmission systems in North America, Central America and South America, Europe, the Middle East and the Far East, including the Pacific Rim. (b) Not to call on or solicit, on behalf of himself or on behalf of any other entity or corporation, any of the customers of Corporation for the purpose of selling or distributing to any of said customers any product or service comparable to or competitive with products or services developed, sold and/or distributed by Corporation or products or services which Corporation may have under development during the period of time Employee was employed by Corporation ("Corporation's Products"); nor will Employee in any way, directly or indirectly, for himself or on behalf of any other entity or corporation, solicit, divert or take away any customer of Corporation. For purposes of this Agreement, "customer" shall mean any person, entity or corporation which has purchased Corporation's Products, or has received a price quotation from Corporation for Corporation's Products, at any time within the three (3) year period prior to the date of termination of Employee's employment. (c) Not to enter or attempt to enter into an employment or agency relationship with any person who, at the time of such entry (or attempted entry), or at the time of termination of Employee's service with Corporation, was an officer, director, employee, principal or agent of Corporation if, but only if, such employment or agency relationship is with respect to a business in competition with Corporation. (d) Not to induce or attempt to induce any person described in subparagraph (c) to leave his or her employment, agency, directorship or office with Corporation to enter into a business in competition with Corporation. It is understood by and between the parties to this Agreement that the aforesaid covenants set forth in this Section 4.02 are essential elements of this Agreement, and that, but for the agreement of Employee to comply with such covenants, Corporation would not have agreed to the terms of employment set forth in this Agreement. Such covenants by Employee shall be construed as agreements independent of any other provision in this Agreement. The existence of any claim or cause of action of Employee against Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Corporation of such covenants. In addition to all other legal remedies available to Corporation for enforcement of the covenants of this Section 4.02, the parties agree that Corporation shall be entitled to an injunction by any court of competent jurisdiction to prevent or restrain any breach or threatened breach thereof. The parties to this Agreement agree that, if any court of competent jurisdiction determines the specified time period or the specified geographical area of application, or the definition of Corporation's Products in such covenants to be unreasonable, arbitrary or against public policy, then a lesser time period and/or a smaller geographical area and/or a less encompassing definition of Corporation's Products which are determined to be reasonable, nonarbitrary and not against public policy may be enforced against Employee. The parties to this Agreement agree and acknowledge that they are familiar with the present and proposed operations of Corporation and believe that the restrictions set forth in this Section 4.02 are reasonable with respect to its subject matter, duration and geographical application. The provisions of this Section 4.02 may be waived, in part or fully, in writing by Corporation at its option. These restrictive covenants shall survive the termination of this Agreement. SECTION V. Change of Control 5.01. Change of Control. The provisions of Sections 5.02 and 5.03 of this Agreement shall become operative upon a change of control of Corporation, as hereinafter defined. For purposes of this Agreement, a "change of control" shall be deemed to have occurred if and when: (a) Subsequent to the date of this Agreement, any person or group of persons acting in concert shall have acquired ownership of or the right to vote or to direct the voting of shares of capital stock of Corporation representing thirty (30%) percent or more of the total voting power of Corporation, or (b) Corporation shall have merged into or consolidated with another corporation, or merged another corporation into Corporation, on a basis whereby less than fifty (50%) percent of the total voting power of the surviving corporation is represented by shares held by former shareholders of Corporation prior to such merger or consolidation, or (c) Corporation shall have sold more than fifty (50%) percent of its assets to another corporation or other entity or person, or (d) As the result of, or in connection with, any cash tender or exchange offer, merger or other business combination, sale of assets or contested election, the persons who were directors of Corporation before such transaction cease to constitute a majority of directors of Corporation. 5.02. Termination Within Eighteen (18) Months. In the event that the employment of Employee with Corporation is terminated involuntarily within eighteen (18) months after a change of control occurs: (a) Employee shall be entitled to receive an amount of cash equal to the sum of the following amounts: (i) two (2) times his annual salary as provided for in Section 2.01 hereof at his rate on the date of termination of employment (but not less than two times Employee's annual salary prior to the Change of Control); and (ii) two (2) times Corporation's annual 401(k) retirement plan contribution at the Employee's contribution rate on the termination of his employment (but not less than the amount the Corporation was matching prior to Change of Control) (and subject to applicable limitations of the Internal Revenue Code, which may dictate that such amount shall not be added to the retirement plan but shall be paid in cash). The sum of these amounts shall be paid in equal monthly installments over a period of twenty-four (24) months, the first such installment to be paid within ten (10) days after Employee's termination of employment. (b) Employee shall be entitled to receive an amount of cash equal to two times the amount that would have been awarded to him under the Profit Incentive Plan of the Company, pursuant to the terms of such plan as in effect immediately prior to such change in control and regardless of whether such plan may have been changed thereafter, for the then-current calendar year if such award were based on 100% of his share under said plan for such calendar year. Such amount shall be paid at the same time as awards are paid to other participants in said plan if such plan shall have been continued but in no event later than July 31 of the year following that year in respect of which the award was to have been paid. If no plan is in effect at the time of change of control, a cash payment of $40,200 will be paid to the Employee within 10 days after dismissal by the Company. (c) Employee shall continue for a period of twenty-four (24) months from the date of his termination to be covered at the expense of Corporation by the same or equivalent health, dental, accident, life and disability insurance coverages as he was enrolled in immediately prior to termination of his employment; provided, however, that the Employee may elect to be paid in cash within thirty (30) days after termination of his employment an amount equal to Corporation's cost of providing such coverages during such period. (d) If on the date of termination of employment, Employee was eligible for a retirement annuity, Employee shall become eligible for the benefits payable under such annuity and such annuity shall be paid to Employee, or, if applicable, Employee's spouse, in the same manner, amounts and intervals as if Employee had, on the date of his termination of employment following a change of control, retired from employment with Corporation. (e) All outstanding options held by Employee, both exercisable and nonexercisable, shall be immediately exercisable regardless of the time the option has been held by Employee and shall remain exercisable until their original expiration date, subject to applicable requirements of the Internal Revenue Code. (f) Corporation shall continue for a period of twenty-four (24) months to pay Employee's monthly dues and special assessments, if any, of any club of which Employee was a member at the time of termination and of which Corporation was paying such dues and shall permit the Employee to continue to use such membership thereafter, without reimbursement to Corporation of any membership or initiation fees or assessments, so long as Employee wishes to do so on the basis that monthly fees and special assessments will thereafter be paid by him. (g) Corporation shall for a period of twenty-four (24) months continue to pay Employee Six Hundred and 00/100 ($600.00) Dollars per month for expenses of operating an automobile owned by Employee. (h) Within thirty (30) days after Employee's termination of employment as a result of a change of control, Corporation shall pay to Employee in a lump sum an amount of cash, net of all federal, state and local income taxes, which shall be sufficient to enable Employee to purchase a paid-up annuity issuable by a financially sound and reputable insurance company providing for payment beginning at age sixty-two (62) of a monthly benefit equal to One Thousand and no/100 ($ 1,000.00) Dollars per month for the life of Employee. 5.03 Resignation Within Two Years. In the event the Employee should determine in good faith that his status or responsibilities with Corporation has or have diminished subsequent to a change of control, and shall for that reason resign from his employment with Corporation within two (2) years after such change of control, Employee shall be entitled to receive all of the payments and enjoy all of the benefits specified in Section 5.02 hereof as if Employee's employment by Corporation had terminated on the date of Employee's resignation. 5.04 Agreements Not Exclusive. The specific agreements referred to in this Section V are not intended to exclude Employee's participation in other benefits available to executive personnel generally or to preclude other compensation or benefits as may be authorized by the Board of Directors of Corporation at any time. 5.05 Enforcement Costs. Corporation is aware that upon the occurrence of a change of control the Board of Directors or a shareholder of Corporation may then cause or attempt to cause corporation to refuse to comply with its obligations under this Section V, or may cause or attempt to cause corporation to institute, or may institute, litigation seeking to have this Section V declared unenforceable, or may take, or attempt to take, other action to deny Employee the benefits intended under this Section V. In these circumstances, the purpose of this Section V could be frustrated. It is the intent of Corporation that Employee not be required to incur the expenses associated with the enforcement of his rights under this Section V by litigation or other legal action because the cost and expense thereof would substantially detract from the benefits extended to Employee hereunder, nor be bound to negotiate any settlement of his rights hereunder under threat of incurring such expenses. Accordingly, if following a change of control, it should appear to Employee that Corporation has failed to comply with any of its obligations under this Section V or in the event that Corporation or any other person takes any action to declare this Section V void or unenforceable, or institute any litigation or other legal action designed to deny, diminish or to recover from Employee the benefits intended to be provided to Employee hereunder and that Employee has complied with all reasonable obligations related to Employees employment with Corporation, Corporation irrevocably authorizes Employee from time to time to retain counsel of his choice at the direct expense and liability of Corporation as provided in this Section 5.05 to represent Employee in connection with the initiation or defense of any litigation or other legal action, whether by or against Corporation or any director, officer, shareholder or other person affiliated with Corporation, in any jurisdiction. Not withstanding any existing or prior attorney-client relationship between Corporation and such counsel, Corporation irrevocably consents to Employee entering into an attorney-client relationship with such counsel, and in that connection Corporation and Employee agree that a confidential relationship shall exist between Employee and such counsel. The reasonable fees and expenses of counsel selected from time to time by Employee as hereinabove provided shall be paid or reimbursed to Employee by Corporation on a regular, periodic basis upon presentation by Employee of a statement or statements prepared by such counsel in accordance with its customary practices up to a maximum aggregate amount of $500,000, said amount to be "grossed up" to cover federal and state income taxes. The amount of the gross up shall be calculated in accordance with the following formula: A /(1 - R), where A is the amount of legal fees and R is the combined highest marginal tax rate applicable to Employee in the tax year that the payment is made. 5.06. No Set-Off, Corporation shall not be entitled to set-off against the amount payable to Employee any amounts earned by Employee in other employment after termination of his employment with Corporation, or any amounts which might have been earned by Employee in other employment had he sought other employment. The amounts payable to Employee under this Section V shall not be treated as damages but as severance compensation to which Employee is entitled by reason of termination of his employment in the circumstances contemplated by this Section V. However, a set-off may be taken by Corporation against the amounts payable to Employee for expenses covering the same or equivalent hospital, medical, accident, and disability insurance coverages as set forth in Section 5.02(c); or for expenses covering monthly dues and special assessments of any club of which Employee was a member at the time of termination and of which Corporation was paying dues as set forth in Section 5.02(f); or for expenses related to monthly automobile allowance as set forth in Section 5.02(g) if such benefits are paid for the Employee by a new employer after Employee's termination of employment by Corporation under Section 5.02 hereof or after Employee's resignation under Section 5.03 hereof. 5.07. Termination. The provisions of this Section V shall continue during the Term hereof but shall terminate when the employment of Employee with Corporation shall terminate, so long as such termination was not in anticipation of or related to a change of control. SECTION VI Indemnification for Service as Director 6.01. Indemnity of Employee. In consideration of Employee's service to Corporation as a director of Corporation since October 23, 1986, Corporation hereby agrees to hold harmless and indemnify Employee as a director to the full extent authorized or permitted by the provisions of the Pennsylvania Business Corporation Law (the "State Statute"), or by any amendment thereof or other statutory provisions authorizing or permitting such indemnification which is adopted after the date hereof. 6.02. Maintenance of Insurance and Self-Insurance. (a) Corporation represents that it presently has in force and effect policies of Directors and Officers Liability Insurance ("D&O Insurance") in insurance companies and amounts as follows (the "Insurance Policies"): Insurer Policy No. Amount Federal Insurance Co. 8133-97-22 $10,000,000 Lexington Insurance Co. F0089OD95 $ 5,000,000 in excess of the above $10,000,000 Stonewall Insurance Co. TDX9823904 $ 5,000,000 in excess of the above $15,000,000
Subject only to the provisions of Section 6.02(b) hereof, Corporation hereby agrees that, so long as Employee shall continue to serve as a director of Corporation (or shall continue at the request of Corporation to serve as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and thereafter so long as Employee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative by reason of the fact that Employee was a director of Corporation (or served in any of said other capacities), Corporation will purchase and maintain in effect for the benefit of Employee one or more valid, binding and enforceable policy or policies of D&O Insurance providing, in all respects, coverage at least comparable to that presently provided pursuant to the Insurance Policies. (b) Corporation shall not be required to maintain said policy or of D&O Insurance in effect if said insurance is not reasonably available or if, in the reasonable business judgment of the then directors of Corporation, either (i) the premium cost for such insurance is substantially disproportionate to the amount of coverage or (ii) the coverage provided by such insurance is so limited by exclusions that there is insufficient benefit from such insurance. (c) In the event Corporation does not purchase and maintain in effect said policy or policies of D&O Insurance pursuant to the provisions of Section 6.02(a) hereof, Corporation agrees to hold harmless and indemnify Employee to the full extent of the coverage which would otherwise have been provided for the benefit of Employee pursuant to the Insurance Policies. 6.03. Additional Indemnity. Subject only to the exclusions set forth in Section 6.04 hereof, Corporation hereby further agrees to hold harmless and indemnify Employee: (a) Against any and all expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by Employee in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (including an action by or in the right of the Corporation) to which Employee is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Employee is, was or at any time becomes a director, officer, employee or agent of Corporation, or is or was serving or at any time serves at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise; and (b) Otherwise to the fullest extent as may be provided to Employee by Corporation under the non-exclusivity provisions of Section 7-1 of the By-laws of Corporation and the State Statute. 6.04. Limitations additional Indemnity. No indemnity pursuant to Section 6.03 hereof shall be paid by Corporation: (a) except to the extent the aggregate of losses to be indemnified thereunder exceeds the sum of $ 1,000 plus the amount of such losses for which Employee is indemnified either pursuant to Sections 6.01 or 6.02 hereof or pursuant to any D&O Insurance purchased and maintained by the Corporation; (b) in respect to remuneration paid to Employee if it shall be determined by a final judgment or other final adjudication that such remuneration was in violation of law; (c) on account of any suit in which judgment is rendered against Employee for an accounting of profits made from the purchase or sale by Employee of securities of Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (d) on account of Employee's conduct which is finally adjudged by a court of competent jurisdiction to have been knowingly fraudulent or deliberately dishonest or to have constituted willful misconduct or recklessness; (e) if a final decision by a court of competent jurisdiction shall determine that such indemnification is not lawful. 6.05. Continuation of Indemnity. All agreements and obligations of Corporation contained herein shall continue during the period Employee is a director, officer, employee or agent of Corporation (or is or was serving at the request of Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise) and shall continue thereafter so long as Employee shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal or investigative, by reason of the fact that Employee was a director of Corporation or serving in any other capacity referred to herein. 6.06. Notification and Defense of Claim. Promptly after receipt by Employee of notice of the commencement of any action, suit or proceeding, Employee will, if a claim in respect thereof is to be made against Corporation under this Section VI, notify Corporation of the commencement thereof; but the omission so to notify Corporation will not relieve it from any liability which it may have to Employee otherwise than under this Section VI. With respect to any such action, suit or proceeding as to which Employee notifies Corporation of the commencement thereof: (a) Corporation will be entitled to participate therein at its own expense; and (b) Except as otherwise provided below, to the extent that it may wish, Corporation jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel satisfactory to Employee. After notice from Corporation to Employee of its election so to assume the defense thereof, Corporation will not be liable to Employee under this Section VI for any legal or other expenses subsequently incurred by Employee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Employee shall have the right to employ Corporation's counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from Corporation of its assumption of the defense thereof shall be at the expense of Employee unless (i) the employment of counsel by Employee has been authorized by Corporation, (ii) Employee shall have reasonably concluded that there may be a conflict of interest between Corporation and Employee in the conduct of the defense of such action or (iii) Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of Corporation. Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of Corporation or as to which Employee shall have made the conclusion provided for in (ii) above. (c) Corporation shall not be liable to indemnify Employee under this Section VI for any amounts paid in settlement of any action or claim effected without its written consent. Corporation shall not settle any action or claim in any manner which would impose any penalty or limitation on Employee with Employee's written consent. Neither Corporation nor Employee will unreasonably withhold its or his consent to any proposed settlement. 6.07. Repayment @f Expenses. Employee will reimburse Corporation for all reasonable expenses paid by Corporation in defending any civil or criminal action, suit or proceeding against Employee in the event and only to the extent that it shall be ultimately determined that Employee is not entitled to be indemnified by Corporation for such expenses under the provisions of the State Statute, the By-laws of Corporation, this Section VI or otherwise. 6.08. Enforcement. (a) Corporation expressly confirms and agrees that it has entered into this Section VI and assumed the obligations imposed on Corporation hereby in order to induce Employee to continue as a director of Corporation, and acknowledges that Employee is relying upon this Section VI in continuing in such capacity. (b) In the event Employee is required to bring any action to enforce rights or to collect moneys due under this Agreement and is successful in such action, Corporation shall reimburse Employee for all of Employee's reasonable fees and expenses in bringing and pursuing such action. SECTION VII. Miscellaneous 7.01. Use of Name. Employee agrees to allow Corporation to have his name or picture used by Corporation for advertising or trade purposes during the term of this Agreement. 7.02. Binding Effect. This Agreement shall inure to the benefit of and be binding upon Employee and upon Corporation, their successors and assigns, including, without limitation, any person, partnership, company or corporation which may acquire substantially all of Corporation's assets or business or into which Corporation may be consolidated, merged or otherwise combined. 7.03. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 7.04. Legal Construction. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not effect any other provision thereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 7.05. Amendment. No amendment, modification or alteration of the term hereof shall be binding unless the same be in writing, dated subsequent to the date hereof and duly executed by the parties hereto. 7.06. Integration. This Agreement constitutes the entire understanding and agreement between C-COR and Employee with regard to the subject matter hereof and supersedes all other agreements and understandings between Corporation and Employee. IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the intent to be legally bound thereby on the day and year first above written. EX-10.(OO) 7 NEDERLOF EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT THIS AGREEMENT, made this 30 day of July, 1997 to be effective as of the 1st day of March, 1997, by and between C-COR ELECTRONICS, INC., a Pennsylvania Business Corporation with its principal place of business at 60 Decibel Road, State College, Pennsylvania ("Corporation"), -AND- GERHARD B. NEDERLOF, of Windwardside, Saba, Netherlands Antilles ("Employee") BACKGROUND A. Corporation desires to employ Employee as its Senior Vice President - Marketing, Business Development and Services and Employee desires to be so employed by Corporation. B. The parties mutually desire to set forth in this Employment Agreement (the "Agreement") the terms and conditions under which Employee will be employed by Corporation. NOW, THEREFORE, in consideration of the mutual promises contained herein, and intending to be legally bound thereby, the parties hereto agree as follows: SECTION I. Description of Employment 1.01. Employment and Term. Corporation agrees to employ Employee and Employee agrees to be so employed for a term commencing on March 1, 1997 and ending on November 3, 1999 (the "Term"). Provided, however, that Employee's employment hereunder shall be contingent upon Employee's securing an extension of his L1A Visa to November 3, 1999. Corporation may terminate this Agreement in the event that Employee fails to secure an extension to his current L1A Visa, effective as of the date of the expiration of Employee's current L1A Visa. 1.02. Capacity. During the Term, Employee shall serve as Corporation's Senior Vice President - Marketing, Business Development and Services, or in such other offices or capacities as shall be determined by Corporation's Board of Directors. 1.03. Time and Efforts. During the Term, Employee shall diligently and conscientiously devote his best efforts and his full time and attention to the discharge of his duties as Senior Vice President - Marketing, Business Development and Services and of such other duties as may be determined by the Board of Directors of Corporation. Employee acknowledges that during the period of this employment pursuant to this Agreement as the Senior Vice President - Marketing, Business Development and Services of Corporation, he will not have any other employment or business affiliations without the prior approval of the Board of Directors of Corporation. SECTION II. Compensation 2.01. Salary. During the period of Employee's employment hereunder as Senior Vice President Marketing, Business Development and Services Corporation shall pay to Employee a salary at an annual rate of One Hundred Fifteen Thousand ($115,000) Dollars through the period ending on June 27, 1997 and at the annual rate of One Hundred Twenty-Eight Thousand ($128,000.00) Dollars commencing on June 28, 1997, payable bi-weekly, for services rendered. Employee may be eligible for future increases in salary, based on Corporation's evaluation of Employee's performance. Further, Employee acknowledges receipt of a one (1) time initial relocation expense payment of Thirty-Six Thousand Nine Hundred ($36,900.00) Dollars. 2.02. Business Expenses. Employee shall be reimbursed by Corporation for all reasonable expenses incurred in carrying out his employment duties or in otherwise promoting the business of Corporation by presenting to the designated officer of Corporation an itemized expense account report with receipts attached. 2.03. Incentive Compensation. During the Term, Corporation shall include Employee as a participant at the Officer level under Corporation's "Variable Compensation Plans" or any successor Plans. Employee will be entitled to such awards as are declared from time to time by the Board of Directors under the terms of the "Variable Compensation Plans" or any successor Plans. 2.04. Stock Options. Employee shall be eligible for stock option awards in accordance with stock option plans adopted by the Corporation from time to time. All such stock option awards shall be nonqualified stock options and shall be granted under and be subject to all of the terms and conditions of the C-COR Electronics, Inc. 1988 Stock Option Plan and a Nonqualified Stock Option Granting Agreement or any successor plan and granting agreement. 2-05. Supplemental Retirement Plan. Employee will be entitled to participate in Corporation's Supplemental Retirement Plan with an annual supplemental retirement benefit of Eighteen Thousand and No/100 ($18,000.00) Dollars commencing at Employee's retirement at age sixty-five (65) and continuing for a period of fifteen years in accordance with and subject to the terms of such plan and a Participation Agreement entered into between Corporation and Employee on May 14, 1993 and attached hereto as Exhibit "A.". 2.06. Life Insurance Coverage. Corporation will provide to Employee group term life insurance in a face amount equal to three times the Employee's salary. Changes in life insurance coverage will occur at the same time Employee's salary is changed pursuant to Section 2.01 hereof. 2.07. Financial and Tax Planning Reimbursement. Corporation agrees to reimburse Employee for expenses incurred in his personal financial and tax planning up to an amount not exceeding One Thousand and No/ 100 ($1,000.00) Dollars per year during the term of this Agreement. 2.08. Other Benefit Plans. During the Term, Employee shall also be eligible to voluntarily participate in Corporation's other fringe benefit plans, upon Employee's payment of appropriate premiums, co-pays and deductibles, including both those plans presently existing and those which may in the future be adopted, in accordance with the terms and provisions of such plans. 2.09. Vacation. During the Term, Employee shall be entitled to three (3) weeks vacation per year. 2. 10. Physical Examination. Corporation agrees to reimburse Employee in an amount not to exceed Two Hundred and No/ 100 ($200. 00) Dollars per year for the expense of an annual physical examination by a physician selected by Employee. 2.1 I. Final Relocation Payment. On or before June 26, 1998, Corporation shall pay Employee a one (1) time lump sum payment of One Hundred Twenty Thousand ($120,000.00) Dollars, less appropriate federal, Pennsylvania and local withholding taxes, in consideration of Employee's relocation to State College, Pennsylvania. Should Employee voluntarily resign from his employment by Corporation within one (1) year from the date of the execution of this Agreement and the final relocation payment has already been paid to Employee at the time of Employee's resignation, Employee agrees to pay to Corporation an amount equal to the reduction of the final relocation payment determined in accordance with the following table within thirty (30) days of the Employee's termination of employment: Percentage Number of Months Between Execution Reduction of Date of this Agreement and Employee's Final Relocation Effective Date of Resignation Payment - ------------------------------------- ---------------- 0 - 6 months 100% 6 - 9 months 75% 9 - 12 months 25%
In the event such payment has not yet been paid to Employee prior to Employee's resignation, Corporation shall not have any obligation to pay Employee any portion of such final relocation payment. SECTION III. Intellectual Property 3.01. Disclosure. Employee agrees to promptly and fully disclose to Corporation all inventions, improvements, original works of authorship, formulas, processes, computer programs, techniques, know-how and data (hereinafter collectively referred to as "Inventions"), whether or not patentable or copyrightable, made or conceived or first reduced to practice or learned by Employee either alone or jointly with others, whether during Employee's regular hours of employment and directly or indirectly relating to or capable of being used for the benefit of Corporation's business. Employee agrees, without compensation additional to that provided for in Section II of this Agreement, to assign all rights in and to such inventions to Corporation and to execute, at Corporation's request, appropriate documents effectuating such assignments. 3.02. Maintenance of Records. Employee agrees to maintain accurate and current written records of all such Inventions, in the form of notes, sketches, drawings, or reports which shall be and will remain the property of and be available to Corporation at all times. 3.03. Provision of Assistance. Employee agrees, upon Corporation's request, during and after the Term, to assist Corporation, its attorneys, and nominees at its or their expense in preparing and prosecuting applications for letters patent on Inventions created by him and applications to register copyrights on inventions created by him providing, however, that time actually spent by Employee at such work after termination of employment, at Corporation's request, shall be paid for by Corporation at a reasonable rate, and that necessary expenses incurred by Employee in connection with Employee's duties under this paragraph shall be paid by Corporation. 3.04. Previous Inventions. Employee expressly retains an interest in and title to Inventions patented or unpatented which Employee conceived prior to the Term. 3.05. Term of Obligation. Employee's termination of employment by Corporation under this Agreement shall not affect the obligations imposed on Employee by Paragraphs 3.01, 3.02 and 3.03 and such obligations shall be binding on Employee's heirs, executors and administrators. SECTION IV. Confidentiality and Noncompetition 4.01. Confidentiality. Employee agrees, during and after the Term, without the prior written consent of Corporation, not to disclose to any person other than Corporation, by publication or otherwise, or use for his own benefit, any confidential information of Corporation or any Inventions, whether conceived in whole or in part by Employee or by others. Employee's duty under this section includes but is not limited to the nondisclosure of trade secrets or confidential information, knowledge or data of Corporation which he may obtain during the course of his employment relating to Corporation's business, technical or otherwise, including but not limited to manufacturing methods, processes, techniques, products, engineering development products, computer programs, customer lists. machines, research, compositions, inventions or discoveries. Employee agrees that upon leaving the employ of Corporation, he will not take with him any original or copy of documents, or records relating to the foregoing matters, without the written consent of Corporation. This Section does not apply to any Inventions described in Section 3.04 above. 4.02. Noncompetition. In consideration of Employee's employment, for the duration of his employment by Corporation, and for a period of two (2) years after the termination thereof, employee agrees: (a) Not to, on behalf of himself or any other entity or corporation, directly or indirectly, as an employee, agent, independent contractor, owner, stockholder, partner, officer, director or otherwise, engage in the business of the manufacture or sale of electronic equipment for use in cable television or broadband data transmission systems in North America, Central America and South America, Europe, the Middle East and the Far East, including the Pacific Rim. (b) Not to call on or solicit, on behalf of himself or on behalf of any other entity or corporation, any of the customers of Corporation for the purpose of selling or distributing to any of said customers any product or service comparable to or competitive with products or services developed, sold and/or distributed by Corporation or products or services which Corporation may have under development during the period of time Employee was employed by Corporation ("Corporation's Products"); nor will Employee in any way, directly or indirectly, for himself or on behalf of any other entity or corporation, solicit, divert or take away any customer of Corporation. For purposes of this Agreement, "customer" shall mean any person, entity or corporation which has purchased Corporation's Products, or has received a price quotation from Corporation for Corporation's Products, at any time within the three (3) year period prior to the date of termination of Employee's employment. (c) Not to enter or attempt to enter into an employment or agency relationship with any person who, at the time of such entry (or attempted entry), or at the time of termination of Employee's service with Corporation, was an officer, director, employee, principal or agent of Corporation if, but only if, such employment or agency relationship is with respect to a business in competition with Corporation. (d) Not to induce or attempt to induce any person described in subparagraph (c) to leave his or her employment, agency, directorship or office with Corporation to enter into a business in competition with Corporation. It is understood by and between the parties to this Agreement that the aforesaid covenants set forth in this Section 4.02 are essential elements of this Agreement, and that, but for the agreement of Employee to comply with such covenants, Corporation would not have agreed to the terms of employment set forth in this Agreement. Such covenants by Employee shall be construed as agreements independent of any other provisions in this Agreement. The existence of any claim or cause of action by Employee against Corporation, whether predicated on this Agreement or otherwise, shall not constitute a defense to the enforcement by Corporation of such covenants. In addition to all other legal remedies available to Corporation for enforcement of the covenants of this Section 4.02, the parties agree that Corporation shall be entitled to an injunction by any court of competent jurisdiction to prevent or restrain any breach or threatened breach hereof. The parties to this Agreement agree that, if any court of competent jurisdiction determines the specified time period or the specified geographical area of application, or the definition of Corporation's Products in such covenants to be unreasonable, arbitrary or against public policy, then a lesser time period and/or a smaller geographical area and/or a less encompassing definition of Corporation's Products which are determined to be reasonable, nonarbitrary and not against public policy may be enforced against Employee. The parties to this Agreement agree and acknowledge that they are familiar with the present and proposed operations of Corporation and believe that the restrictions set forth in this Section 4.02 are reasonable with respect to its subject matter, duration and geographical application. The provisions of this Section 4.02 may be waived, in part or fully, in writing by Corporation at its option. These restrictive covenants shall survive the termination of this Agreement. SECTION V. Change of Control: Indemnification Agreement 5.01. Change of Control. Employee will continue to be covered under the Change of Control Agreement between Corporation and Employee dated May 14, 1993 and attached hereto as Exhibit "B." 5.02. Indemnification. Employee will continue to be covered under the Indemnification Agreement between Corporation and Employee dated February 3, 1992 and attached hereto as Exhibit "C." SECTION VI. Miscellaneous 6.01. Use of Name. Employee agrees to allow Corporation to have his name or picture used by Corporation for advertising or trade purposes during the term of this Agreement. 6.02. Binding Effect. This Agreement shall inure to the benefit of and be binding upon Employee and upon Corporation, their successors and assigns, including, without limitation, any person, partnership, company or corporation which may acquire substantially all of Corporation's assets or business or into which Corporation may be consolidated, merged or otherwise combined. 6.03. Governing Law. This Agreement shall be construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania. 6.04. Legal Construction. In the event any one or more of the provisions contained in this Agreement shall for any reason be held invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not effect any other provision thereof and this Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein. 6.05. Amendment. No amendment, modification or alteration of the terms hereof shall be binding unless the same be in writing, dated subsequent to the date hereof and duly executed by the parties hereto. 6.06. Integration. This Agreement, plus the attached Exhibits, constitute the entire understanding and agreement between Corporation and Employee with regard to the subject matter hereof and supersedes all other agreements and understandings between Corporation and Employee, including, without limitation, the Employment Agreement between Corporation and Employee dated February 28, 1997 and a supplementary Memo dated March 17, 1997 from Joseph Zavacky to Edwin Childs and Gerhard B. Nederlof. IN WITNESS WHEREOF, the parties hereto have executed this Agreement with the intent to be legally bound thereby on the day and year first above written. C-COR ELECTRONICS, INC. By: Scott C. Chandler, President and Chief Executive Officer By: Gerhard B. Nederlof EX-11 8 COMPUTATION OF EARNINGS PER SHARE Computation of Earnings Per Share (in thousands except per share data) Year Ended Year Ended Year Ended June 27, 1997 June 28, 1996 June 30, 1995 Primary Average Shares Outstanding 9,504 9,554 9,332 Net effect of dilutive stock options-based on the treasury stock method using average market price - 314 527 Total(1) 9,504 9,868 9,859 Income from Continuing Operations $ 4,257 $ 9,014 $ 8,528 Loss from Discontinued Operations (6,605) (3,095) (213) Loss from Disposal of Discontinued Operations (3,830) - - Net Income (Loss) ($ 6,178) $ 5,919 $ 8,315 Net Income (Loss) Per Share Continuing Operations $ 0.45 $ 0.91 $ 0.86 Discontinued Operations (0.70) (0.31) (0.02) Disposal of Discontinued Operations (0.40) - - Net Income (Loss) Per Share(1) ($ 0.65) $ 0.60 $ 0.84 Fully Diluted Average Shares Outstanding 9,504 9,554 9,332 Net effect of dilutive stock options-based on the treasury stock method using the greater of the average market price or the year-end market price - 314 568 Total 9,504 9,869 9,900 Income from Continuing Operations $ 4,257 $ 9,014 $ 8,528 Loss from Discontinued Operations (6,605) (3,095) (213) Loss from Disposal of Discontinued Operations (3,830) - - Net Income (Loss) ($ 6,178) $ 5,919 $ 8,315 Net Income (Loss) Per Share Continuing Operation 0.45 $ 0.91 $ 0.86 Discontinued Operations (0.70) (0.31) (0.02) Disposal of Discontinued Operations (0.40) - - Net Income (Loss) Per Share(1) ($ 0.65) $ 0.60 $ 0.84 (1)Adjusted for two-for-one stock split effective December 5, 1994.
EX-13 9 1997 ANNUAL REPORT TO SHAREHOLDERS 1997 ANNUAL REPORT C-COR ELECTRONICS, INC. Our Legacy, Our Future There are opportune times during the life of every business when it is essential to stop and reflect on where you've been so that you can better focus on and prepare for where you're going. At C-COR, a challenging, transitional year provided the ideal opportunity for such self-examination. After all, it's been nearly 45 years since C-COR launched into the communications industry. We've recognized this as the appropriate time to reflect on and assess our role within a rapidly changing global marketplace. In tracking our evolution, we've rediscovered a number of strengths for which C-COR is known. Strengths that reflect the heart and soul of our business. Strengths that provide a solid foundation from which we operate today and on which to build our future. First and foremost, we are broadly recognized for providing a full line of robust, high quality network components for two-way HFC (hybrid fiber coax) [pg 6]. Used in a variety of communications networks worldwide, these products have helped earn us the trust and confidence of customers around the globe--customers like TCA Cable [pg 7], who rely on us for solutions that often define the industry standard. As you'll see in the story of our ten-year relationship with Rogers Cablesystems in Canada, we have historically placed great value on developing strong customer relationships [pages 8 & 9]. We have excelled at understanding and addressing our customers' specific needs. And it's why we count everyone from cable television operators and telephone companies, to major broadband communication network installers, among our list of satisfied customers. An industry leader in the distribution portion of the network [page 12], C-COR has established itself as an innovator of next-generation equipment and systems. In fact, our strategic alliance with one of today's leading-edge cable modem suppliers and the inclusion of C-COR components in active, two-way signal transmission, point to our respected role within the industry. Finally, factors such as our size, key process improvements and a strong balance sheet enable C-COR to remain flexible and agile enough to embrace and remain poised for change [pg 14]. As you can see, our legacy is impressive. And while it's been a challenging year, reinvesting our energy and focus on each of these strengths gives us every reason to believe that C-COR is well-positioned to move into the new century. It's a future we can all look forward to. C-COR conducts its sales efforts from headquarters in State College, PA, through regional offices in the U.S., Canada, Hong Kong, and the Netherlands, as well as through numerous distributors worldwide. Keep up with C-COR through our web site: http://www.c-cor.com. Selected Financial Data (in thousands of dollars except per share data) Fiscal Year Ended 1997 1996 1995 1994 1993 - ---------------------------------------------------------------------------------------------------------------- Statement of operations(1): Net Sales $131,941 $139,539 $121,269 $ 60,207 $ 47,114 Income from Continuing Operations 4,257 9,014 8,528 3,177 3,052 Income (Loss) from Discontinued Operations (6,605) (3,095) (213) 855 337 Loss from Disposal of Discontinued Operations (3,830) - - - - Net Income (Loss) (6,178) 5,919 8,315 4,032 3,389 Net Income (Loss) Per Share Continuing Operations $ 0.45 $ 0.91 $ 0.86 $ 0.34 $ 0.33 Discontinued Operations (0.70) (0.31) (0.02) 0.09 0.04 Disposal of Discontinued Operations (0.40) - - - - Net Income (Loss) Per Share(2) (0.65) 0.60 0.84 0.43 0.37 Balance sheet data (at period end)(1): Working Capital $ 22,745 $ 35,452 $ 24,442 $ 25,061 $ 22,072 Total Assets 71,119 77,278 85,868 47,499 36,614 Total Indebtedness 10,667 9,177 22,623 501 588 Shareholders' Equity 41,678 53,317 44,725 34,139 29,499 (1)Certain amounts have been reclassified for comparability with fiscal year 1997 presentation. (2)Adjusted to reflect a two-for-one stock split effective December 5, 1994.
NET SALES IN THOUSANDS OF DOLLARS 1993 47,114 1994 60,207 1995 121,269 1996 139,539 1997 131,941
INCOME FROM CONTINUING OPERATIONS IN THOUSANDS OF DOLLARS 1993 3,052 1994 3,177 1995 8,528 1996 9,014 1997 4,257
NET INCOME PER SHARE FROM CONTINUING OPERATIONS (1) IN DOLLARS 1993 0.33 1994 0.34 1995 0.86 1996 0.91 1997 0.45 (1) Adjusted to reflect a two-for-one stock split effective December 5, 1994.
Some of the information presented in this report constitutes forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes that its expectations are based on reasonable assumptions within the bounds of its knowledge of its business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers; the gain or loss of significant customers; changes in the mix of products sold; changes in the cost and availability of parts and supplies; fluctuations in warranty costs; new product development activities; regulatory changes affecting the telecommunications industry, in general, and the Company's operations, in particular; competition and changes in domestic and international demand for the Company's products, and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the reports filed by the Company with the Securities and Exchange Commission. ROBUST, HIGH QUALITY NETWORK COMPONENTS FOR TWO-WAY HFC TABLE OF CONTENTS Corporate Profile / Selected Financial Data Inside Cover Shareholders' Letter 3 Our Legacy, Our Future Robust Products 6 Customer Relationships 8 Industry Leader 12 Flexible and Agile 14 Management's Discussion and Analysis 17 Consolidated Balance Sheets 21 Consolidated Statements of Operations 22 Consolidated Statements of Cash Flows 23 Consolidated Statements of Shareholders' Equity 24 Notes to Consolidated Financial Statements 25 Reports 34 Directors & Officers 35 Corporate Data 36 Mission Statement 37
STRONG CUSTOMER RELATIONSHIPS INDUSTRY LEADER FLEXIBLE AND AGILE Dear C-COR Shareholders: As we reflect on the fiscal year just ended, we are reminded that with change comes challenge, and that growth is often preceded by periods of great transition. This year alone, the global communications marketplace has been marked by significant changes, with major consolidation taking place in both the network operator and vendor segments. Shifts in government regulation worldwide have opened many new markets, bringing with them new ways of doing business. Technological progress has continued to challenge businesses striving to provide the advanced, highly reliable products and services required for today's sophisticated networks. Even end-users of communications services have effected change as the interest for video and voice on the networks has been joined by the demand for high-speed data (Internet, private intranets and other online services). In response to these many changes, C-COR has been faced with making major decisions about the company's structure, product development priorities, and ways to build value for our shareholders, customers and employees. For fiscal year 1997, C-COR reported a net loss of ($6,178,000) or ($0.65) per share versus net income of $5,919,000 or $0.60 per share for fiscal year 1996. The primary factor contributing to the loss was our decision to discontinue the digital fiber optic business located in Fremont, California. (Reference Management's Discussion on page 17 for details.) The business segment discontinuation was booked in the fourth quarter of fiscal year 1997 and generated a loss for both the fourth quarter and the fiscal year. Revenues in fiscal year 1997 from continuing operations were down about 5% from the previous year, due primarily to a significant decrease in revenues from the international market. Revenues from domestic customers increased 26% in fiscal year 1997. Profitability in fiscal year 1997 was adversely impacted by product and customer mix, pricing pressures (especially in the domestic market), and excess manufacturing capacity. As a result, we put into place an aggressive plan to improve financial results. This plan involved implementing cost-cutting and restructuring initiatives such as work force adjustments, cutbacks in numerous operating budgets, an increased focus on vendor-managed material programs, the transfer of the manufacture of RF power supply assemblies to Mexico, and realignment and reorganization of our sales and service organizations. Another factor influencing fiscal 1997 results was a tax benefit in the third quarter from a reassessment of foreign sales transactions, which added $0.06 in earnings per share in that quarter. In December 1996, we announced the launch of a stock repurchase program based on our belief that our common stock was attractively priced, and that the repurchase would represent a favorable opportunity for C-COR. The repurchase of 500,000 shares was completed in May 1997. We have seen improvement in ordering during the year, resulting in a book-to-bill ratio from continuing operations of 1.08 for the year versus 0.79 at the end of fiscal year 1996. Consequently, the backlog from continuing operations at the end of fiscal year 1997 was up 43% from the end of the previous year. We are encouraged by the revenue growth in the fourth quarter, along with improvements in gross margins and productivity, resulting primarily from implementation of restructuring and cost-reduction initiatives taken during the year. Although orders from the domestic market were slow to start this past fiscal year, we are encouraged by trends that developed as the year progressed. The demand to provide expanded bandwidth for high-speed data can be characterized as the strongest driver. In the third quarter, we began to see improvement as system operators firmed up budgets and capital spending plans. Additionally, multiple system operators responded to the demand for improved financial performance and enhanced customer service. In the global marketplace, we have seen order trends improve in all sectors, including Europe, Latin America, Asia and Canada. During the last quarter of the fiscal year, international orders rebounded, increasing that component of the backlog to 28% of the total at year-end. In spite of the many challenges we faced during this transitional year, we are pleased to report a number of positive events and trends. Early in the year, we were chosen as Pennsylvania's 1996 Governor's Export Excellence Award recipient, followed shortly thereafter by placing sixty-eighth on Fortune magazine's Top 100 list of America's Fastest Growing Companies. Progress continues with the implementation of two RapidCycle(R) process improvement programs. Using the Order Fulfillment methods, we are consistently reaching our goals of reduced cycle time and improved first pass yield, which signals improved productivity and quality. Additionally, the RapidCycle(R) Product Development program has been fully implemented, and we are poised to apply these newly-acquired skills to create a whole new platform of AM fiber optic products designed to meet the need for flexibility in today's global networks. During the past fiscal year, we bolstered our line of FlexNet(R) amplifiers by adding the 900 Series, which has gained significant recognition in the marketplace for its superior reverse path performance and high power-passing capability. These wideband products offer improved performance for network operators planning to deploy two-way services such as digital and high-speed data. To accompany the FlexNet(R) Series of amplifiers in an HFC (hybrid fiber coax) network, C-COR began offering FlexNode(TM), a reliable, cost-effective AM fiber optic node solution for expanded bandwidth, high power-passing networks. We are also pleased to report deliveries of our popular I-Flex(TM) products to Hungary, the Netherlands, Norway, Poland, Russia, Spain, Turkey and the United Kingdom. Managed network solutions are key to meeting current and future needs in advanced communications networks. To address this need, C-COR has launched an aggressive program to develop next-generation network management systems, including software and hardware designed to meet the operators' requirements for the highest degree of reliability and predictability in their network. We expect availability of this new product during calendar year 1998. We now shift our focus to our objectives for the coming year, as well as plans for the more distant future. In the short term, our product goals include diversification of our HFC offerings and expansion into non-HFC product lines. The new optical node and bridger amplifier product platform, along with network management enhancements, are two examples of how we are working to do so. Our announcement in the second quarter of 1997 of a strategic alliance with Bay Networks' LANcity Cable Modem Division (now Broadband Technologies Division) provides further evidence of the move to an expanded product offering. Both companies have agreed to work together to ensure interoperability of equipment and quality delivery of high-speed data over HFC networks. Cost reduction is ongoing, with initiatives being implemented to reduce materials, labor and overhead costs in manufacturing. We are pleased to report the successful completion of the opening of our production facility in Mexico, with the first products being shipped in August 1997. We are investigating other methods for reducing labor and overhead costs. Looking out just a few years, we see the much publicized new millennium, from which we expect continued challenges and opportunities. We plan to expand our non-RF product offerings and add revenues from non-HFC products and services. Improvement of gross margins is a priority. The international market segment of the business is being targeted for expansion as we identify new opportunities in Asia, Europe, Latin America and North America. In closing, we recognize that in fiscal year 1997, we have faced a number of challenging situations. Our ability to successfully navigate these uncertain times is reflected in this report's theme, "Our Legacy, Our Future." As we look ahead, we are encouraged by the fact that the very issues that demanded our attention are helping us to build a stronger organization. We sincerely appreciate those who have continued to support us, and offer our optimism that the future looks brighter as C-COR enters the new year with a solid plan to reach or exceed our ambitious goals and objectives. Sincerely, Richard E. Perry Chairman of the Board Scott C. Chandler President and Chief Executive Officer August 19, 1997 Our Legacy ... Robust Network Components for Two-Way HFC For nearly 45 years, C-COR has offered the resources and support our customers need to plan, design, build and maintain complex communications networks. In doing so, we've created a niche as a developer and supplier of robust, high quality network distribution products for two-way hybrid fiber coax (HFC). More than simply keeping pace with customer demand, we have anticipated industry changes and responded to them swiftly. Most recently, C-COR was the first to offer 15 ampere current passing, reflecting our commitment to products that meet the latest powering requirements. We also had the foresight to create fiber and coax products that were two-way capable-- even before the need for an expanded return path became evident. Traditionally, signals flow through the cable network to the end-user in the forward path, with only a small portion dedicated to the return path. Today, the Internet, telephony and advanced digital services have brought the need for an active two-way architecture to the forefront. C-COR leads with products that are already capable of being installed and operated this way. The family of products on which our legacy is built includes: FlexNet(R) 900, 800 & 700 Series RF Amplifiers that boost the signal, delivering high quality performance to homes and businesses. With 750 MHz and 862 MHz bandwidth options, FlexNet(R) is ideal for HFC architectures requiring a combination of analog and digital channels. FlexNode(TM) AM Fiber Optic Node is a 6-port node/receiver that converts fiber signals to RF signals that can be sent over the coax portion of the network to homes and businesses. 862 MHz and 750 MHz options handle higher capacity while maintaining superior quality. AM Fiber Optics are used in aerial and underground fiber optic applications where signals in an HFC network are transmitted from the headend to the node. This application is ideal for C-COR's headend and strand mounted equipment, including forward and return path transmitters, forward and return path receivers, and power supplies, all housed in C-COR's sturdy mainframe racks. I-Flex(TM) Amplifiers and AM Nodes were originally designed for fiber-intensive architectures in European markets. The I-Flex(TM) global family features cabinet-mount equipment required for underground installations around the world. 862 MHz and 750 MHz capabilities maximize efficiency and offer flexibility for advanced services. Cable Network Manager (CNM(TM)) is a network management system that is playing an increasingly critical role in communications. This user-friendly, computer-based control and monitoring system aids in outage prediction, notifying the operator of problems--often before they even occur--so maintenance crews can go directly to a problem without having to search the system unit by unit. Network operators worldwide recognize the merits of HFC: strong vendor support, large installed base, scaleability and superior price / performance. Our Future ... New Product and Service Solutions In the coming years, C-COR will continue to provide products for the distribution of signals using the HFC network architecture. While our global product line currently includes RF amplifiers, AM fiber optics, and network management solutions, we anticipate offering a new family of AM fiber optic nodes and a more scaleable bridger amplifier in the next year. To meet the need for cost-effective, upgradable networks, we are preparing to release an entirely new product platform in which the RF electronics will occupy a separate module from the optics. This enables our customers to easily upgrade an RF amplifier to an AM fiber optic node by replacing just the fiber optic lid, rather than the entire piece of equipment. Our customers will benefit from this highly efficient and flexible way to migrate from one type of network configuration to another. In the domestic market, where most networks will continue to require rebuilds and upgrades, the ease and cost-effectiveness of this new approach is ideal. Internationally, where new builds are more prevalent, the modular design of our products will allow us to satisfy a variety of configuration requirements. Since system operators view monitoring and controlling of components as essential to network management, we plan to offer a next-generation Cable Network Manager (CNM(TM)) product. It will provide additional support for telephony applications overseas, a major revenue source for network operators in international markets. Finally, we will continue to provide ongoing support and development of RF amplifiers. Although we have typically been involved in coax cable and fiber optic transmission mediums, our future could also include opportunities to offer copper-based and wireless network distribution solutions. C-COR and TCA: Setting the Standard Together for 30 Years C-COR's distribution elctronics have certainly come a long way, thanks in part to customers like TCA Cable of Tyler, Texas. In 1967, TCA Cable purchased its very first C-COR amplifiers, the first of their kind to effectively dissipate heat. These new amplifiers offered the higher performance and increased reliability TCA Cable sought as it embarked on an ambitious network upgrade plan. Even back then, when our amplifiers featured just 12 channels operating at 220 MHZ, C-COR products were setting the standard. And over time as we increased the bandwidth, TCA made steady network upgrades, earning high customer satisfaction levels in the process. Many years ago, in a key strategic move, TCA decided to standardize its network products. For them, this has meant increased efficiency, solid vendor relationships, and exceptional financial strength. For C-COR, it has meant having a steady relationship with a satisfied customer for more than 30 years. Today, C-COR's robust line of fiber and amplifier products enables TCA to offer advanced services such as telephony, pay per view, high-speed data transmission and traffic control. In the areas of services, TCA has taken advantage of C-COR's network design capabilities and technical training programs. Working together, C-COR and TCA Cable have forged a strong, lasting relationship that has proven valuable as both have responded to continuous change over the years. Our Legacy . . . Strong Customer Relationships At C-COR, we've always known that it's customers who truly drive our business. That's why we are committed to developing relationships that bring our customers and staff together for the long-term. This kind of mutual participation helps us understand a customer's particular needs so that we can respond with the product solutions they want. In turn, their loyalty reflects a confidence in our capabilities that inspires us to go even farther. The working partnership we have with our customers occurs at many levels. For instance, C-COR sales engineers are involved during the proposal process, while regional account executives meet with customers on a regular basis. Our inside sales representatives process customer orders, and top management fosters the partnership at the highest levels. In support of the products we offer, we also provide the service our customers need to meet both short- and long-term goals. This includes network analysis and design, equipment repair, field engineering and technical documentation, plus multiple levels of technical training and seminars. As their needs change over time, customers can depend on C-COR to be there every step of the way. That's probably why the great majority of companies who do business with us once continue to do repeat business with C-COR. In fact, it's not unusual for us to establish and maintain strong partnerships with customers for ten years or more (see pg 9). These relationships have earned us a respected position within the industry, and we show our appreciation in many ways. Most recently, we launched a "Special Customer Day," during which we recognize a key customer for its continued loyalty and trust in our ability to meet its needs. On one occasion, the company's president personally addressed our employees, conveying how important C-COR is as a business partner. Confidence, trust and shared values are key to building and maintaining strong relationships. An Industry Pioneer Partners with C-COR Customer-driven solutions have played a critical role in changing the shape of the network distribution industry. Especially when it comes to Rogers Cablesystems in Canada, who approached C-COR in the mid-1980s with a vision for a "super distribution network." With drawings and plans in hand, they asked if we could design and produce network amplifiers to meet their particular specifications. Working together, C-COR was able to help Rogers lead the way in expanding network bandwidth in North America-- from 450 MHz to 550 MHz to 600 MHz and 750 MHz. In doing that, Rogers created an architecture that allowed for the industry's first fully modular, electronic upgrade. Other pioneering efforts by Rogers include the early adoption of fiber in the network and establishing itself as having one of the largest installations of high-speed data customers in North America. Over the years, Rogers has also promoted the need for tools such as status monitoring and network management. Because we listened and responded with the technology they needed, C-COR amplifier products are now used in the largest, most sophisticated remote status monitoring system in the world. The relationship between Rogers and C-COR has been nurtured at many levels in both organizations. In fact, many of the same sales and technical support personnel have remained at C-COR over the years, people in whom Rogers continues to place a great deal of confidence and trust. As we look to the future, we will continue to build the Rogers relationship, using it as a model in cultivating others. Our Future ... Expanding Our Horizons Looking ahead, C-COR is focused on two fronts: continually building on our domestic strengths, while expanding our customer base internationally to address the demands of challenging new markets throughout the world. In addition to increasing international sales, C-COR is working to expand the variety of products available to these markets. Three markets in particular present exciting opportunities for growth: Asia, Europe, and Latin America. To expand into these economies, we look to build on the model we have followed in the North American market--developing a sense of mutual respect and providing customers with solutions to their greatest challenges. In the Asian Pacific market, economic growth is driving the demand for voice and video networks. The HFC network configuration is dominant, giving us exceptional potential to bring our FlexNet(R) amplifiers and AM fiber optics to Thailand, the Philippines, Korea, Japan, Singapore, Hong Kong, China and New Zealand. We are pursuing our strongest business in the European market in countries such as Poland, the Czech Republic, Russia, Spain, Italy, Turkey and the United Kingdom. This is due in large part to the deregulation of the telecommunications market as well as the major consolidation of vendors who serve European customers. C-COR markets our global family of I-Flex(TM) amplifiers and AM fiber optics from its European office near Amsterdam, and other offices on the continent and in the United Kingdom. Economic growth in Latin America, including Argentina, Brazil and Chile, is driving the demand for video services, telephony and data. The HFC architecture is dominant, leading to growth opportunities for both amplifier and AM fiber optics sales. C-COR sales and engineering support professionals spend significant time in these countries working with our Latin American distributors to provide network equipment for upgrades and new builds. Our Legacy ... An Established Industry Leader As an industry leader in the distribution portion of the network, C-COR has carved out a niche role unlike that of any other supplier. We have been first to market time and again with products and services that have set the stage for an entire industry, beginning in 1953 when we introduced the first cable powering system. Each decade thereafter we achieved new heights, such as in the 1980s when we offered the 550 MHz feedforward trunk, or in the 90s when we introduced the first 1 GHz amplifiers. Today's leading-edge companies look to us as a partner in innovation. One example is @Home Network, a supplier of high-speed interactive services to residences and businesses. In a test lab located at its Redwood City, California, headquarters, @Home Network will be installing C-COR's new FlexNet(R) 900 Series amplifiers and FlexNode(TM) fiber optic nodes and other headend AM fiber optics to be used in the test and development of high-speed Internet applications and services for @Home's customers. C-COR's involvement in this trial represents an exciting opportunity to participate in one of today's hottest new technological arenas. Even in the relatively new world of active two-way signal transmission, cable operators have turned to C-COR. In fact, over 40% of the homes in the U.S. and Canada using two-way cable modems are doing so over networks equipped with C-COR distribution electronics. (1) And because C-COR knew that the two-way architecture would be critical, we put this technology in place even before the industry was ready for it. C-COR has been supplying two-way capable electronics for over five years in its FlexNet(R) series of amplifiers, and for nearly thirty years in earlier products. We've even partnered with the respected name in cable modems, Bay Networks' LANcity Cable Modem Division (now Broadband Technologies Division). In a cooperative marketing agreement, C-COR and Bay Networks offer C-COR DataSelect(TM), a complete set of equipment and services designed to deliver high-speed data over HFC networks. This alliance enables us to ensure the interoperability of equipment and quality delivery of high-speed data over these networks. (1) Source: Multichannel News, March 17, 1997. Calculations based on percentage of U.S. and Canadian homes equipped with two-way cable modems supplied by companies who purchase compatible C-COR network distribution products. Leadership in providing the latest technology enables delivery of advanced voice, video and data, including Internet and other online services. @Home Network, @Home and the logo @ are trademarks of @Home Network and may be registered in certain jurisdictions. Our Future ... Next-Generation Provider C-COR's vision is to become the leading provider of network distribution solutions for next-generation communication networks. Several strategic moves will help us accomplish this. First, we are working to diversify our product line to meet anticipated needs. This initiative could result in several new products or services to be used in HFC applications, or even in developing a coax/fiber product to be used outside of the HFC network. We are also exploring new products and services using wireless and copper technology. To enhance our competitive position, we are continually looking at ways to reduce the costs to manufacture C-COR products. This process will involve managing materials costs, specifying more cost-effective parts where possible, utilizing alternative labor resources, automating production processes, and reducing excessive test and alignment time. Internally, we are committed to continually monitoring sales, general and administrative expenses to achieve maximum efficiency. Throughout our operation, C-COR is focused on attracting, training, developing and retaining highly skilled people to help us achieve our vision. As our most valued resource, our employees are being empowered at all levels to take the lead in helping us meet our key objectives for the future. Our commitment to becoming a next-generation provider has been recognized in several ways. We are proud to hold a number of patents for innovation in engineering design, such as a radio frequency choke and method of use, a feedforward circuit and method for aligning and balancing the same, a one gigahertz repeater station, and a safety interlock system for telecommunication amplifiers, to name a few. Additionally, all C-COR facilities have achieved ISO 9001 registration, a testament to our commitment to quality assurance in design, development, production, installation and servicing. C-COR has an excellent reputation for equipment reliability, superior customer service and an enhanced warranty program, all key criteria for success in the future. Diversification, competitiveness and commitment to quality build value for our customers, shareholders and employees. Our Legacy ... Bringing Flexibility and Agility to Market C-COR has always been large enough to meet the needs of a diverse customer base, yet small enough to respond to change whenever necessary. Such flexibility and agility has served us well during this transitional year, giving us the ability to adapt to industry fluctuations and remain poised for the future. To identify and respond to our customers' needs more quickly, we've implemented a RapidCycle(R) process improvement program designed to reduce product development cycle time and increase on-time performance. This new process has enabled C-COR to identify market needs and respond swiftly. It also increases our flexibility by freeing up our product development resources sooner so we can move on to other projects. Today, we are significantly better positioned to keep pace with the rapidly changing marketplace. Another recent process change at C-COR has been in order fulfillment, where we have reduced the time from the point at which an order is placed to when it is delivered to the customer. Our slogan, "Four on the Floor" best describes our continuous goal of processing an order on the manufacturing floor in just four days. Prior to these process enhancements, cycle time may have gone as high as twenty days or more. Cost-reduction measures have also helped us gain added flexibility. We've improved and strengthened vendor relationships to manage the cost of producing products. Implementation of an in-plant supplier program permits us to literally place an order for parts, go to the lower level, pick them up, and deliver them to the manufacturing floor--all in a matter of minutes. Managing our personnel resources for maximum efficiency is another goal. To address the ebb and flow that occurs in some areas, we are using a variety of labor resources, including temporary help, interns and co-ops. And in sales and marketing, we have restructured the organization to reduce operating expenses and allow us to more effectively address the areas of value-added services and corporate development. Responsiveness is a key contributor to success. Process improvements in manufacturing and product development empower our employees to achieve and sustain the lead. Our Future ... Embracing Change C-COR stands poised to take advantage of the inevitable changes in our industry. We have a solid balance sheet, giving us the ability to expand into new areas, pursue acquisitions and shift additional focus onto R&D. As a dedicated group of employees, we measure our success not by sales revenue alone, but by our ability to navigate this volatile marketplace. Effective facilities utilization will help us embrace and quickly respond to new growth opportunities. In addition to expanded capacity, we have added many new automated assembly and test methods that take advantage of the latest manufacturing technology. The implementation of a RapidCycle(R) product development program at C-COR will also enable us to introduce products to market more quickly. Our goal is to reduce the design development cycle time from a baseline of 17 months to a total of 10 months from design inception to project completion. We are also working to achieve a 90% on-time performance record---a measure of our ability to respond promptly to market needs. Throughout the organization, we are implementing more team-based processes for achieving results. We anticipate the most impact in areas such as product development, order fulfillment and other complex tasks requiring multi-functional talents. High-performance, cross-functional teams instill a sense of unity in achieving a common goal. With a legacy to be proud of and a future to look forward to, the employees of C-COR enter the new fiscal year with a sense of anticipation and excitement about the possibilities that lie ahead. High-speed data service, digital television and telephony over HFC have emerged as key industry drivers. We will strive to meet the challenges, address the inevitable changes and maximize the opportunities offered by the global communications marketplace. Management's Discussion & Analysis (in thousands of dollars except share and per share data) Disclosure Regarding Forward-Looking Statements Some of the information presented in this Annual Report constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, without limitation, continuation of increased domestic spending for network upgrades, the continuation of competitive pricing pressures, anticipated new product development initiatives, and the continued availability of capital resources. Although the Company believes it expectations are based on reasonable assumptions within the bounds of it knowledge of it business and operations, there can be no assurance that actual results will not differ materially from its expectations. Factors which could cause actual results to differ from expectations include the timing of orders received from customers; the gain or loss of significant customers; changes in the mix of products sold; new product development activities; changes in the cost and availability of parts and supplies; fluctuations in warranty costs; regulatory changes affecting the telecommunications industry, in general, and the Company's operations, in particular; competition and changes in domestic and international demand for the Company's products, and other factors which may impact operations and manufacturing. For additional information concerning these and other important factors which may cause the Company's actual results to differ materially from expectations and underlying assumptions, please refer to the Company's reports filed on Form 10-K and other reports filed with the Securities and Exchange Commission. General In fiscal years 1997 and 1996, the Company operated in two industry segments: the Electronic Distribution Products segment, which represents the Company's continuing operations, and provides hybrid fiber coax (HFC) equipment for signal distribution applications primarily to the cable television (CATV) market; and the Digital Fiber Optics Transmission Products segment, which has been reported as a discontinued business segment, and provides products for long distance, point-to-point video, voice and data signal transmission applications, primarily for telephony, distance learning and other non-CATV markets. For fiscal year 1997, the Company incurred a net loss of ($6,178) or ($.65) per share versus net income of $5,919 and $8,315 or $.60 and $.84 per share for fiscal years 1996 and 1995, respectively. The primary factors in the fiscal year 1997 loss were losses deriving from the Company's Digital Fiber Optics Transmission Products segment in conjunction with the Company's decision to discontinue this business segment. The Company announced July 10, 1997, its intent to discontinue its Digital Fiber Optics Transmission Products business segment in a phase-down process expected to span nine months. This business has been accounted for as a discontinued business segment, and its results have been excluded from continuing operations in the consolidated statements of operations from all periods presented in the Company's fiscal year 1997 consolidated financial statements. The decision to discontinue this segment was based on an assessment of the potential return on continued funding of product development for the Company's proprietary digital technology versus other opportunities for investments in the Company's core business, especially AM fiber optics technology. The after-tax loss from operations of the discontinued business segment was ($6,605) or ($.70) per share for fiscal year 1997. This compares to a loss of ($3,095) and ($213) or ($.31) and ($.02) per share for fiscal years 1996 and 1995, respectively. The primary factors contributing to the increased loss from operations of the discontinued segment in fiscal year 1997 were increased warranty costs of $3,300 and an impairment loss on goodwill of $571 recorded in the fourth quarter of fiscal year 1997. In addition, an after-tax loss was recorded on the disposal of the discontinued business segment of ($3,830) or ($.40) per share, in fiscal year 1997. Included in the loss from disposal are write-offs of inventories and fixed assets, and the other costs from the measurement date to the disposal date. For additional information concerning discontinued operations, reference Notes B and P of the consolidated financial statements. The consolidated results discussion and analysis that follows, including comparisons against prior years results, are based on continuing operations only. Results of Operations Net sales in fiscal year 1997 were $131,941, a decrease of 5% from net sales of $139,539 in fiscal year 1996. The decrease in sales was primarily attributable to reduced international sales during the fiscal year. Net sales increased 15% in fiscal year 1996 from net sales of $121,269 in fiscal year 1995. The increase derived primarily from increased demand for the Company's products from both domestic and international customers. Domestic sales increased 26% in fiscal year 1997 to $106,785 from $84,792 in fiscal year 1996, as capital spending by Multiple System Operators (MSOs) increased over the prior fiscal year. The Company believes the increase was a result of network upgrade activity, by new and existing customers, to enhance capacity with expanded bandwidth products. The push to upgrade networks is being driven by demand for improved services, affecting not only video and voice requirements, but also demand for high-speed data. Domestic sales of hybrid fiber coax (HFC) equipment to customers in the telephone industry declined in fiscal year 1997. The Company believes that the decline resulted from a reassessment of strategic alternatives and priorities by the telcos in connection with pursuing direct competition with cable MSOs in providing video services. Domestic sales increased 16% in fiscal year 1996 from $73,368 in fiscal year 1995, due to increased RF product sales to customers in the telephone industry. International sales decreased 54% in fiscal year 1997 to $25,156 from $54,747 in fiscal year 1996, resulting primarily from reduced demand by a significant customer in Canada and reduced demand by customers in Asia and Latin America. Countries in the aforementioned areas continue to represent distinct markets for CATV equipment, and, in general, demand can be highly variable. International sales increased 14% in fiscal year 1996 from $47,901 in fiscal year 1995 due to increased demand in Asia. The Company is subject to certain risks as a result of market and customer concentration. For additional information regarding risks, reference Note N of the consolidated financial statements. The Company's open backlog of sales orders at June 27, 1997, was $34,851 compared to $24,333 at June 28, 1996. The backlog of sales orders at June 27, 1997, was comprised of 72% domestic and 28% international orders, compared to 86% domestic and 14% international orders at June 28, 1996. The Company's book-to-bill ratio was 1.08 for fiscal year 1997, compared to 0.79 for fiscal year 1996. Gross profit margin for fiscal year 1997 was 20.6%. This compares to 24.9% in fiscal year 1996 and 27.1% in fiscal year 1995. The decrease in the gross profit margin fiscal year 1997 relative to the prior fiscal year was attributed primarily to changes in product and customer sales mix. In addition, pricing pressures continue to negatively impact gross profit margins, particularly on RF coaxial cable amplifiers. The Company has taken steps to lower manufacturing costs by continued efforts to improve manufacturing processes in order to enhance efficiency and productivity, and continued efforts to redesign products to enhance manufacturability and reduce material costs. The Company announced during fiscal year 1997 that it would transfer the manufacture of the power supply assembly component of its RF amplifiers to the Company's new production facility in Mexico in the summer of 1997. The gross profit margin decrease in fiscal year 1996 relative to fiscal year 1995 was attributed primarily to fixed costs relating to underutilized capacity and product sales mix, as well as the aforementioned increase in pricing pressures on RF products. Selling and administrative expenses for fiscal year 1997 were $15,787 or 12% of net sales, compared to $15,917 or 11% of net sales for fiscal year 1996, and $15,949 or 13% of net sales for fiscal year 1995. The decrease in selling and administrative expenses for fiscal year 1997 compared to fiscal year 1996 was primarily due to various cost reduction initiatives which included personnel reductions and decreased in various administrative expenses. In the fourth quarter of fiscal year 1997, the Company reconfigured its worldwide sales territories and consolidated its domestic sales forces. Selling and administrative expenses remained relatively flat between fiscal years 1996 and 1995, with some fluctuation resulting from reductions in administrative personnel costs. Research and product development expenses for fiscal year 1997 were $5,681 or 4% of net sales, compared to $4,857 or 4% of net sales for fiscal year 1996, and $3,786 or 3% of net sales for fiscal year 1995. The increase research and development expense in fiscal year 1997 over fiscal years 1996 and 1995 was primarily due to the Company's strategy to increase investment in AM fiber optics product development and network management systems. Increased spending was also incurred in fiscal year 1997 for RF product development for the Company's 800 and 900 series expanded bandwidth product lines. In addition, the Company incurred expenditures in fiscal year 1997 to improve product development processes designed to reduce product development cycle time and promote cross-functional participation in the process. Anticipated new product development initiatives are expected to result in increased research and development expense in future years, as compared to fiscal year 1997. Interest expense for fiscal year 1997 was $318 compared to $960 for fiscal year 1996 and $706 for fiscal year 1995. The reduction in interest expense for fiscal year 1997 compared to fiscal year 1996 was primarily due to reduced level of outstanding borrowings during the fiscal year on the Company's line-of-credit. The increased interest expense for fiscal year 1996 compared to fiscal year 1995 was primarily due to higher borrowings on the Company's line-of-credit, resulting from equipment purchases and facility expansions begun during fiscal year 1995 and completed during fiscal year 1996. Other income for fiscal year 1997 was $250, compared to $341 for fiscal year 1996 and $264 for fiscal year 1995. The reduction in other income for fiscal year 1997 compared to fiscal years 1996 and 1995 was primarily due to lower foreign currency transaction gains. The Company's effective income tax rate for fiscal year 1997 was 25.4%. This compares to 32.2% for fiscal year 1996 and 33.0% for fiscal year 1995. The provision for income taxes is related to both U.S. and non-U.S. operations. The decrease in the effective tax rate for fiscal year 1997 compared to fiscal year 1996 was primarily due to a nonrecurring tax benefit of $593 recorded in the third quarter of fiscal year 1997, deriving from the Company's Foreign Sales Corporation (FSC). The tax benefit resulted from reassessment of the Company's foreign sales transactions for the prior three fiscal years. The decrease in the effective tax rate for fiscal year 1996 compared to fiscal year 1995 was primarily due to tax benefits arising out of increased foreign sales activity and changes in the applicable statutory tax rates used for both state and federal taxes. Income from continuing operations for fiscal year 1997 was $4,257 or $.45 per share. This compares to $9,014 or $.91 per share in fiscal year 1996 and $8,528 or $.86 per share in fiscal year 1995. The primary factors for the reduction in income from continuing operations in fiscal year 1997 compared to fiscal year 1996 were the aforementioned reduction in net sales and gross profit margins, coupled with increased expenditures for research and product development. Financial Condition The Company's financial condition remains strong at June 27, 1997. Accounts receivable at June 27, 1997, were $19,299, a decrease of $1,718 from a balance of $21,017 at June 28, 1996. Inventory levels were up $561 to $19,140 at June 27, 1997, from $18,579 at June 28, 1996. The increase was primarily in raw material inventories to support an increased business level as of the end of the fourth quarter of fiscal year 1997. Accounts payable at June 27, 1997, was $8,636, an increase of $2,784 from the balance of $5,852 at June 28, 1996. The increase is also a result of higher business activity in the fourth quarter of fiscal year 1997 and purchases in support of the increased backlog of sales orders. Liquidity and Capital Resources The Company's current ratio at June 27, 1997, decreased to 2.1 from 3.4 at the end of fiscal year 1996. As of June 27, 1997, total cash and cash equivalents totaled $452, down from $1,474 at June 28, 1996. Cash generated from operating activities decreased as a result of changes in operating assets and liabilities to $9,440 in fiscal year 1997 compared to $18,673 in fiscal year 1996, but increased relative to cash used by operating activities of $10,400 in fiscal year 1995. Cash used in investing activities was $6,551 in fiscal year 1997 compared to $8,000 in fiscal year 1996 and $12,060 in fiscal year 1995. The reduction of cash used in investing activities was primarily due to lower purchases of property, plant, and equipment in fiscal year 1997 compared to the prior two fiscal years. Cash totaling $3,911 was used in financing activities during fiscal year 1997. The Company repurchased 500,000 shares of its Common Stock during fiscal year 1997 for $5,765 under a stock repurchase program using its available capital resources to fund the purchases. Cash used in financing activities of $10,744 in fiscal year 1996 resulted from payments on borrowings on the Company's line-of-credit. Cash provided by financing activities of $22,644 in fiscal year 1995 resulted from borrowings on the Company's line-of-credit, primarily to fund capital equipment purchases and facility expansion costs until permanent financing was obtained. The Company maintains a line-of-credit with a bank under which it may borrow the lesser of $23,000 or a percentage of eligible accounts receivable and inventory. The borrowings are collateralized by accounts receivable and inventory. The line-of-credit is committed through October 31, 1997, and the Company anticipates renewing this line-of-credit annually. The Company had borrowings of $3,466 on this line-of-credit as of June 27, 1997. This compares to an outstanding balance of $1,147 as of June 28, 1996. Based upon the Company's analysis of eligible accounts receivable and inventory, an additional $16,523 was available to borrow as of June 27, 1997. Management believes that operating cash flow, as well as the aforementioned financing source, will adequately provide for all cash requirements for the foreseeable future, subject to requirements that additional growth or strategic development might dictate. CONSOLIDATED BALANCE SHEETS (in thousands of dollars except share data) June 27 June 28 1997 1996 Assets CURRENT ASSETS Cash and cash equivalents (Note A) $ 452 $ 1,474 Marketable securities (Notes A and C) 359 364 Accounts receivable, less allowance of $510 in 1997; $355 in 1996 (Notes G & N) 19,299 21,017 Inventories (Notes D and G) 19,140 18,579 Deferred taxes (Note J) 2,616 2,544 Other current assets 1,893 1,949 Net current assets of discontinued operations (Note B) -0- 4,421 - ---------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 43,759 50,348 PROPERTY, PLANT, AND EQUIPMENT, NET (Notes A, E and H) 25,060 24,168 INTANGIBLE ASSETS AND OTHER LONG-TERM ASSETS, NET OF ACCUMULATED AMORTIZATION OF $224 IN 1997; $202 IN 1996 (Notes A and F) 785 553 Net noncurrent assets of discontinued operations (Note B) 1,515 2,209 - ---------------------------------------------------------------------------------------------------------------------- TOTAL ASSETS $ 71,119 $ 77,278 - ---------------------------------------------------------------------------------------------------------------------- Liabilities and Shareholders' Equity CURRENT LIABILITIES Accounts payable $ 8,636 $ 5,852 Accrued liabilites (Note L) 6,825 7,068 Line-of-credit (Note G) 3,466 1,147 Current portion of long-term debt (Note H) 834 829 Net current liabilities of discontinued operations (Note B) 1,253 -0- - ----------------------------------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 21,014 14,896 LONG-TERM DEBT, less current portion (Note H) 6,367 7,201 DEFERRED TAXES (Note J) 1,311 1,367 OTHER LONG-TERM LIABILITIES 749 497 Committments and Contingent Liabilities (Notes H and O) - ----------------------------------------------------------------------------------------------------------------------- TOTAL LIABILITIES 29,441 23,961 - ----------------------------------------------------------------------------------------------------------------------- SHAREHOLDERS' EQUITY (Notes A and I) Preferred Stock, no par; authorized 2,000,000 shares; issued, none -0- -0- Common Stock, $.10 par; authorized shares 24,000,000; issued shares of 9,633,435 in 1997 and 9,602,528 in 1996 963 960 Additional paid-in capital 19,963 19,602 Treasury Stock ( 5,765) -0- Retained earnings 26,632 32,810 Translation adjustment ( 101) ( 34) Net unrealized loss on marketable securities ( 14) ( 21) - ------------------------------------------------------------------------------------------------------------------------ TOTAL SHAREHOLDERS' EQUITY 41,678 53,317 - ------------------------------------------------------------------------------------------------------------------------ TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $ 71,119 $ 77,278 - ------------------------------------------------------------------------------------------------------------------------ See notes to consolidated financial statements.
Consolidated Statements of Operations (in thousands except per share data) Year Ended June 27 June 28 June 30 1997 1996 1995 - ----------------------------------------------------------------------------------------------------------------------------- NET SALES $131,941 $139,539 $121,269 COST AND EXPENSES Cost of sales 104,702 104,852 88,373 Selling and administrative 15,787 15,917 15,949 Research and product development 5,681 4,857 3,786 Interest 318 960 706 Other income, net (Note M) (250) (341) (264) - ----------------------------------------------------------------------------------------------------------------------------- 126,238 126,245 108,550 - ----------------------------------------------------------------------------------------------------------------------------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 5,703 13,294 12,719 INCOME TAXES (BENEFIT) (Note J) Current 1,298 3,875 4,977 Deferred 148 405 (786) - ----------------------------------------------------------------------------------------------------------------------------- 1,446 4,280 4,191 - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME FROM CONTINUING OPERATIONS 4,257 9,014 8,528 - ----------------------------------------------------------------------------------------------------------------------------- DISCONTINUED OPERATIONS: (Notes B, P and R) Loss from operations of discontinued business segment, less applicable income tax benefit $2,752 in 1997, $1,505 in 1996, and $110 in 1995 (6,605) (3,095) (213) Loss on disposal of discontinued business segment, less applicable income tax benefit $1,974 in 1997 (3,830) -0- -0- - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) (6,178) 5,919 8,315 - ----------------------------------------------------------------------------------------------------------------------------- NET INCOME (LOSS) PER SHARE (Note A) Continuing operations $ 0.45 $ 0.91 $ 0.86 Discontinued operations Loss from operations (0.70) (0.31) (0.02) Loss on disposal of discontinued operations (0.40) -0- -0- - ----------------------------------------------------------------------------------------------------------------------------- Total $ (0.65) $ 0.60 $ 0.84 - ----------------------------------------------------------------------------------------------------------------------------- Weighted Average Common Shares and Common Share Equivalents 9,504 9,868 9,859 - ----------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands of dollars) Year Ended June 27 June 28 June 30 1997 1996 1995 - ---------------------------------------------------------------------------------------------------------------------------------- OPERATING ACTIVITIES NET INCOME (LOSS) $ (6,178) $ 5,919 $ 8,315 Adjustments to reconcile net income (loss) to net cash and cash equivalents provided by (used in) operating activities: Depreciation and amortization 4,910 3,972 2,921 Loss on disposal of discontinued operations, net of tax benefit 3,830 -0- -0- Provision for deferred retirement salary plan 252 129 49 Loss on sale of marketable securities -0- -0- 68 Loss (Gain) on sale of property, plant, and equipment 22 (3) 13 Changes in operating assets and liabilities: Accounts receivable 1,718 12,065 (17,812) Inventories (561) 3,491 (9,530) Discontinued operations - working capital changes and noncash charges 3,236 (1,972) 2,056 Other assets (197) (895) (735) Accounts payable 2,784 (2,055) 1,504 Accrued liabilities (243) (2,349) 3,572 Deferred income taxes (133) 371 (821) - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH AND CASH EQUIVALENTS PROVIDED BY (USED IN) OPERATING ACTIVITIES 9,440 18,673 (10,400) - ---------------------------------------------------------------------------------------------------------------------------------- INVESTING ACTIVITIES Purchase of property, plant, and equipment (5,884) (7,442) (14,355) Purchase of marketable securities (200) -0- -0- Proceeds from sale of marketable securities 216 -0- 3,184 Proceeds from maturity of marketable securities -0- 25 115 Investing activities of discontinued operations (698) (586) (1,016) Proceeds from sale of property, plant, and equipment 15 3 12 - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH AND CASH EQUIVALENTS USED IN INVESTING ACTIVITIES (6,551) (8,000) (12,060) - ---------------------------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES Payment of debt and capital lease obligations (829) (594) (56) Proceeds from long-term debt borrowing -0- 6,452 -0- Proceeds from line-of-credit 21,936 39,029 58,707 Payment of line-of-credit (19,617) (58,333) (38,256) Tax benefit deriving from exercise and sale of stock option shares 71 1,454 898 Issue common stock to employee stock purchase plan 88 107 67 Proceeds from exercise of stock options 205 1,141 1,284 Purchase of treasury stock (5,765) -0- -0- - ---------------------------------------------------------------------------------------------------------------------------------- NET CASH AND CASH EQUIVALENTS (USED IN) PROVIDED BY FINANCING ACTIVITIES (3,911) (10,744) 22,644 - ---------------------------------------------------------------------------------------------------------------------------------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (1,022) (71) 184 Cash and cash equivalents at beginning of year 1,474 1,545 1,361 - ---------------------------------------------------------------------------------------------------------------------------------- CASH AND CASH EQUIVALENTS AT END OF YEAR $ 452 $ 1,474 $ 1,545 - ---------------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
Consolidated Statement of Shareholders' Equity (in thousands of dollars) Net Unrealized Additional (Loss) Gain on Common Paid-in Treasury Retained Translation Marketable Stock Capital Stock Earnings Adjustment Securities - ------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 24, 1994 $ 460 $15,151 -0- $ 18,576 $ (9) $ (39) Net Income 8,315 Exercise of stock options 19 1,265 Tax benefit deriving from exercise and sale of stock option shares 898 Issue shares to employee stock purchase plan 67 Two-for-one stock split 466 (466) Foreign currency translation adjustment 2 Net unrealized gain on marketable securities 20 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 30, 1995 945 16,915 -0- 26,891 (7) (19) Net Income 5,919 Exercise of stock options 15 1,126 Tax benefit deriving from exercise and sale of stock option shares 1,454 Issue shares to employee stock purchase plan 107 Foreign currency translation adjustment (27) Net unrealized loss on marketable securities (2) - ------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 28, 1996 960 19,602 -0- 32,810 (34) (21) Net Loss (6,178) Exercise of stock options 2 203 Tax benefit deriving from exercise and sale of stock option shares 71 Issue shares to employee stock purchase plan 1 87 Purchase of Treasury Stock (5,765) Foreign currency translation adjustment (67) Net unrealized loss on marketable securities 7 - ------------------------------------------------------------------------------------------------------------------------- BALANCE, JUNE 27, 1997 $ 963 $19,963 $(5,765) $ 26,632 $ (101) $ (14) - ------------------------------------------------------------------------------------------------------------------------- See notes to consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (in thousands of dollars except share and per share data) June 27, 1997, and June 28, 1996 Description of Business: The Company designs and manufactures high-quality electronic equipment used in a variety of communication networks worldwide. In fiscal years 1997 and 1996, the Company operated in two industry segments: the Electronic Distribution Products segment, which provides hybrid fiber coax (HFC) equipment for signal distribution applications primarily to the CATV market; and, the Digital Fiber Optics Transmission Products segment, which provides products for long-distance, point-to-point video, voice, and data signal transmission applications, primarily for telephony, distance learning, and other non-CATV markets. A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its foreign and domestic subsidiaries. Intercompany accounts and transactions have been eliminated in consolidation. Reporting Periods: Management has adopted a fiscal year which ends on the last Friday in June. For the reporting periods presented herein, the years ended on June 27, 1997, June 28, 1996, and June 30, 1995. These years contained 52, 52, and 53 weeks, respectively. Use of Estimates: The preparation of the consolidated financial statements in conformity with generally accepted accounting principles, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair Value of Financial Instruments: The carrying value of cash, accounts receivable, accounts payable, and accrued liabilities approximate their fair value due to the short-term nature of those instruments. Inventories: Inventories are stated at the lower of cost or market. Cost is determined on the first-in, first-out method. Property, Plant, and Equipment: Property, plant, and equipment, which includes leased property under capital leases, is stated at cost. Cost includes interest associated with capital additions. Capitalized interest was $-0-, $23, and $-0- in fiscal years 1997, 1996 and 1995, respectively. Depreciation or amortization is calculated on the straight-line method for financial statement purposes based upon the following estimated useful lives: Building and improvements under capital lease 15 years Buildings 15 to 25 years Machinery and equipment under capital lease 5 years Machinery and equipment 3 to 10 years Leasehold improvements 10 to 15 years Intangible Assets: Intangible assets include goodwill arising from excess of the purchase price paid over the fair value of the net assets acquired with the purchases of COMLUX in July 1990, and DataCable B.V. in January 1992. In the beginning of fiscal year 1997, the Company adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (Statement 121). There was no impact upon initial adoption of Statement No. 121, however, in the fourth quarter, the Company recorded an impairment loss of the goodwill relating to the purchase of COMLUX. The amount of the impairment loss for fiscal year 1997 was $571, and was recorded in the loss from operations of the discontinued business segments. The impairment loss was recognized in the fourth quarter at the time the decision was made to cease research and development expenditures on a new platform of digital fiber optics products, and was determined by evaluating the realizability of the goodwill with respect to COMLUX, based upon expected future cash flows and operating results of the Company's Digital Fiber Optics Transmission Products segment which was discontinued in fiscal year 1997 (See Note B.) The goodwill related to the purchase of DataCable B.V. in January 1992 was fully amortized during fiscal year 1997. Income Taxes: Under Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" (Statement 109), deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Shareholders' Equity: In fiscal year 1995, a two-for-one stock split was approved by the Company's Board of Directors. The additional shares were distributed on December 5, 1994, to shareholders of record at the close of business on November 4, 1994, on the basis of one additional share for each share held. Par value of $466 for the additional shares issued was transferred from Additional Paid-in Capital to Common Stock. The par value of Common Stock remained the same at $.10 (ten cents) per share. Also, during fiscal year 1995, the shareholders of the Company approved a proposal to amend the Amended and Restated Articles of Incorporation to increase the number of shares of Common Stock authorized from 8,000,000 to 24,000,000. In fiscal year 1997, the Company repurchased 500,000 shares of its common stock for $5,765, under a stock repurchase program adopted in December 1996. The Company used its available capital resources to fund the purchases. The repurchased stock is expected to be held by the Company as treasury stock to be used to meet the Company's obligations under its present and future stock option plans and for other corporate purposes. Cash Equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased, to be cash equivalents. Cash equivalents are reflected at the lower of cost or market. Marketable Securities: Marketable securities at June 27, 1997, consist of municipal bonds and equity securities. The Company adopted the provisions of Statement of Financial Accounting Standards No. 115, "Accounting for Certain Investments in Debt and Equity Securities" (Statement 115) at June 24, 1994. Under Statement 115, the Company classifies all of its marketable securities as available-for-sale and records them at fair value. Unrealized holding gains and losses, net of the related tax effect, are excluded from earnings and are reported as a separate component of shareholders' equity until realized. Net income (loss) per share: Net income (loss) per share is determined by dividing net income (loss) by the weighted average number of common shares, including common share equivalents, outstanding during the fiscal quarter and year-end periods. Statement of Financial Accounting Standards No. 128, "Earnings Per Share" (Statement 128), is effective for financial statements issued for periods ending after December 15, 1997. It is anticipated that adoption of Statement No. 128 will not significantly impact the Company's net income per share. Product Warranty: The Company warrants its products against defects in materials and workmanship, generally for three to five years depending upon product lines. A provision for estimated future costs relating to warranty expense is recorded when product is shipped, based upon historical claims' history and specifically identified warranty exposures. Reclassification: Certain amounts have been reclassified for comparability with fiscal year 1997 presentation. B. DISCONTINUED OPERATIONS On July 10, 1997, the Company announced that it would discontinue its Digital Fiber Optics Transmission Products segment, in a phase-down process expected to span nine months. The loss on disposal included write-offs of inventory and fixed assets, and other costs from the measurement to the disposal date. The loss, net of tax benefit of $1,974 on the disposal of the discontinued business segment is $3,830. The after-tax loss from operations of the discontinued business segment was $6,605, $3,095, and $213 for fiscal years 1997, 1996, and 1995, respectively. The primary factors contributing to the loss from operations of the discontinued business segment in fiscal year 1997 were increased warranty costs of $3,300 and an impairment loss on goodwill of $571, recorded in the fourth quarter of fiscal year 1997. Operating results for the discontinued business segment are segregated and reported as discontinued operations in the accompanying consolidated statements of operations. Prior year financial statements have been reclassified to conform with the current year presentation. Summarized information relating to the discontinued operations for fiscal years 1997, 1996, and 1995 is as follows: June 27, June 28, June 30, 1997 1996 1995 ---------- ---------- ---------- Net sales $ 7,994 $ 9,359 $ 16,172 Costs and expenses ( 17,351) ( 13,959) ( 16,495) ---------- ---------- ---------- Loss before income taxes ( 9,357) ( 4,600) ( 323) Income tax (benefit) ( 2,752) ( 1,505) ( 110) ---------- ---------- ---------- Net loss ( 6,605) ( 3,095) ( 213) ---------- ---------- ----------
The assets and liabilities of the discontinued operations have been reclassified in the accompanying consolidated financial statements to separately identify them as net current assets (liabilities) and net noncurrent assets related to the discontinued operations. These net assets (liabilities) consist of net working capital, net property, plant and equipment, other assets and intangible assets, less related liabilities as follows for the periods ended June 27, 1997, and June 28, 1996. June 27, June 28, 1997 1996 ---------- ---------- Current assets: Accounts receivable $ 817 $ 448 Inventory 1,181 4,327 Deferred tax assets 4,013 760 Other assets 4 15 ---------- ---------- 6,015 5,550 ---------- ---------- Current liabilities: Accounts payable ( 342) ( 875) Accrued other ( 3,551) ( 254) Allowance for disposal of discontinued operations ( 3,375) -0- ---------- ---------- ( 7,268) ( 1,129) ---------- ---------- Net current assets (liabilities) of discontinued operations ($ 1,253) $ 4,421 ---------- ---------- Noncurrent assets: Plant and equipment, net $ 1,498 $ 1,449 Goodwill -0- 740 Other assets 17 20 ---------- ---------- 1,515 2,209 ---------- ---------- Noncurrent liabilities: -0- -0- ---------- ---------- Net noncurrent assets of discontinued operations $ 1,515 $ 2,209 ---------- ----------
C. MARKETABLE SECURITIES Marketable securities as of June 27, 1997, and June 28, 1996, consisted of the following: Gross Gross Unrealized Unrealized Amortized Holding Holding Fair Cost Gains Losses Value ---------- ---------- ---------- ---------- June 27, 1997: Available-for-sale: Municipal bonds $ 382 $ -0- ($ 24) $ 358 Equity securities 1 -0- -0- 1 ---------- ---------- ---------- ---------- $ 383 $ -0- ($ 24) $ 359 ---------- ---------- ---------- ---------- June 28, 1996: Available-for-sale: Municipal bonds $ 397 $ -0- ($ 34) $ 363 Equity securities 2 -0- ( 1) 1 ---------- ---------- ---------- ---------- $ 399 $ -0- ($ 35) $ 364 ---------- ---------- ---------- ----------
Maturities of investment securities classified as available-for-sale at June 27, 1997, were as follows: Amortized Fair Cost Value ---------- ---------- Available-for-sale: Due after one year through five years $ 382 $ 358 Equity securities 1 1 ---------- ---------- $ 383 $ 359 ---------- ----------
D. INVENTORIES June 27, June 28, 1997 1996 ---------- ---------- Finished goods $ 1,436 $ 2,821 Work-in-process 3,346 3,050 Raw materials 14,358 12,708 ---------- ---------- $ 19,140 $ 18,579 ---------- ----------
Included in the amounts above are reserves of $1,233 at June 27, 1997, and $1,112 at June 28, 1996. E. PROPERTY, PLANT, AND EQUIPMENT June 27, June 28, 1997 1996 ---------- ---------- Land $ 468 $ 468 Building and improvements under capital lease 1,727 1,727 Building 10,090 9,270 Machinery and equipment under capital lease 110 124 Machinery and equipment 33,586 28,654 Leasehold improvements 751 735 ---------- ---------- 46,732 40,978 Less accumulated depreciation and amortization 21,672 16,810 ---------- ---------- $ 25,060 $ 24,168 ---------- ----------
F. INTANGIBLE ASSETS June 27, June 28, 1997 1996 ---------- ---------- Cost of intangibles: Goodwill-DataCable B.V. 224 224 ---------- ---------- 224 224 ---------- ---------- Less accumulated amortization: Goodwill-DataCable B.V. 224 202 ---------- ---------- 224 202 ---------- ---------- Net Book Value $ -0- $ 22 ---------- ----------
G. LINE-OF-CREDIT At June 27, 1997, the Company had short-term borrowings of $3,466 under a revolving line-of-credit. On this line-of-credit, the Company may borrow the lesser of $23,000 or percentage of eligible accounts receivable and inventory. The borrowings bear interest at various rates generally equal to the London Interbank Offered Rate (LIBOR) plus 1.20%. The weighted average interest rate equaled 7.1% at June 27, 1997, and 6.90% at June 28, 1996, and requires compliance with certain covenants. Interest is payable in 30 and 90 days as billed. The line-of-credit agreement is committed through October 31, 1997. Borrowings are collateralized by accounts receivable and inventory. Based upon the Company's analysis of eligible accounts receivable and inventory, an additional $16,523 was available to borrow as of June 27, 1997. The line-of-credit balance at June 28, 1996, was $1,147. H. LONG-TERM DEBT June 27, June 28, 1997 1996 ---------- ---------- Notes payable $ 5,646 $ 6,369 Capital lease obligations 1,555 1,661 ---------- ---------- 7,201 8,030 Less current portion 834 829 ---------- ---------- $ 6,367 $ 7,201 ---------- ----------
Notes Payable: The Company obtained funding through the Pennsylvania Industrial Development Authority (PIDA) of $539 for construction of the Tipton, Pennsylvania, manufacturing facility. The PIDA borrowing has an interest rate of 3%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $4 are required through the year 2006. The borrowing is collateralized by certain property, plant, and equipment. The principal balance at June 27, 1997, was $335. The Company has obtained funding through the Pennsylvania Industrial Development Authority (PIDA) of $1,952 for 40% of the cost of building expansion at its manufacturing facility in State College, Pennsylvania. The PIDA borrowing has an interest rate of 2%, which is contingent upon meeting certain job creation commitments. Monthly payments of principal and interest of $13 are required through the year 2010. The borrowing is collateralized by certain property, plant, and equipment. The principal balance at June 27, 1997, was $1,763. Additional funding of $4,500 for the expansion and renovation of the State College facility was obtained from the Pennsylvania "Sunny Day Fund." This funding has an interest rate of 2% which is also contingent upon meeting certain job creation commitments. The funding is evidenced by two notes. The first note is for $488 with an original maturity of 15 years and the second is for $4,012 with an original maturity of 7 years. Monthly payments of principal and interest of $3 and $51, respectively, are required on these notes through the years 2010 and 2002, respectively. The borrowing is collateralized by certain equipment. The principal balances at June 27, 1997, were $441 and $3,107, respectively. Capital Lease Obligations: The Company has a Lease/Option to Purchase Agreement with the Mifflin County Industrial Development Corporation (MCIDC) for a building and improvements located in Mifflin County, Pennsylvania. The Company is the guarantor of several borrowing commitments by the MCIDC for financing the $1,727 cost of the project. The lease calls for a monthly payment of $14, which is equal to the monthly principal and interest of the various borrowing commitments by the MCIDC, through the year 2010. The original term of the lease is for 15 years with an option to purchase the leased premises at any time during the lease term for the outstanding balance of the borrowing commitments plus closing costs. The borrowing commitments carry a weighted average interest rate of 4.7%. For financial accounting purposes, the lease is accounted for as a capital lease and, accordingly, an asset and liability have been recorded. This was a noncash investing and financing transaction in fiscal year 1995. Long-term debt at June 27, 1997, had scheduled maturities as follows: Fiscal year ending 1998 $ 834 1999 853 2000 873 2001 892 2002 915 Thereafter 2,834 ------- $7,201 -------
Total interest paid on the line-of-credit (described in Note G) and long-term debt was $304, $958, and $608 for fiscal years ended 1997, 1996, and 1995, respectively. Operating Leases: The Company leases real property and other equipment under operating leases. Certain leases are renewable and provide for the payment of real estate taxes and other occupancy expenses. The future minimum lease payments for noncancelable leases with remaining lease terms in excess of one year are as follows: Fiscal year ending 1998 $ 215 1999 83 2000 76 2001 70 2002 38 ------- $ 482 -------
Rent expense relating to continuing operations was $748, $682, and $550 for fiscal years ended 1997, 1996, and 1995, respectively. I. STOCK OPTIONS The Company's stock option plans provide for the grant of options to employees with an exercise price per share of at least the fair market value of such shares on the date prior to grant, and to directors with an exercise price equal to the fair market value on the date of grant. Options granted to certain employees are exercisable in cumulative annual installments of 20 percent per year beginning one year after the date of grant. Options granted to non-employee directors are exerciseable one year after grant. Certain options held by the Chairman are exerciseable immediately. All shares and exercise prices have been adjusted for the two-for-one stock split effective December 5, 1994. In fiscal year 1997, the Company adopted the disclosure requirements of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (Statement 123). As allowed by Statement No. 123, the Company has chosen to continue to account for stock based compensation using Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related Interpretations. Accordingly, compensation cost for stock options is measured as the excess, if any, of the quoted market price of the Company's stock at the grant date over the amount an employee must pay to acquire the stock. Accordingly, no compensation cost has been recognized. Had compensation cost for the Company's Plans been determined under Statement No. 123, the Company's net income (loss) and net income (loss) per share would have been reduced to the pro forma amounts indicated below: June 27, June 28, 1997 1996 ---------- ---------- Net income (loss) As Reported ($ 6,178) $ 5,919 Pro forma ($ 6,396) $ 5,614 Net income (loss) As Reported ($ 0.65) $ 0.60 per share Pro forma ($ 0.67) $ 0.57
The per share weighted average fair values of stock options granted during fiscal years 1997 and 1996 were $4.28 and $9.29, respectively, on the date of grant using the Black-Scholes option-pricing model with the following weighted- average assumptions: Fiscal year 1997 - expected dividend yield 0%, risk-free interest rate of 6.38%, a volatility factor of the expected market price of the Company's common stock of .5941, and a weighted average expected life of approximately 4 years; Fiscal year 1996 - expected dividend yield 0%, risk-free interest rate of 5.95%, a volatility factor of the expected market price of the Company's common stock of .7235, and a weighted-average expected life of approximately 4 years. The fair value of stock options included in the pro forma amounts for fiscal years 1997 and 1996 is not necessarily indicative of future effects on net income and net income per share. A summary of the status of the Company's two stock option plans as of June 27, 1997, June 28, 1996, and June 30, 1995, and changes during the years ended on those dates is presented below: Fiscal years ended: June 27, 1997 June 28, 1996 June 30, 1995 -------------------- -------------------- -------------------- Weighted Weighted Weighted Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price --------- --------- --------- --------- --------- --------- Outstanding at beginning of year 776,542 $15.09 752,460 $11.41 914,130 $ 6.97 Granted 118,000 $14.99 233,265 $22.33 198,894 $21.97 Exercised ( 27,205) $ 8.32 (147,243) $ 7.82 (254,640) $ 5.04 Cancelled (115,888) $19.02 ( 61,940) $15.02 (105,924) $ 8.18 --------- --------- --------- Outstanding at end of year 751,449 $14.71 776,542 $15.08 752,460 $11.42 Options exercisable at year-end 433,292 344,841 301,566
The following table summarizes information about the Company's stock option plans as of June 27, 1997: Options Outstanding Options Exercisable - ---------------------------------------------------------------------- ----------------------------- Range of Number Weighted-Avg. Number Exercise Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg. Prices @ 06/27/97 Contractual Life Exercise Price @ 06/27/97 Exercise Price - ------------------ ----------- ---------------- -------------- ----------- -------------- $ 2.75 to $ 8.625 263,170 5.6 years $ 6.62 242,420 $ 6.56 $ 9.00 to $15.00 137,124 7.6 years $12.31 53,078 $11.87 $15.375 to $21.375 186,765 9.0 years $18.86 46,598 $18.41 $21.50 to $27.00 85,075 8.2 years $22.64 63,180 $22.12 $27.25 to $33.75 79,315 8.0 years $27.40 28,016 $27.37 ----------- ----------- 751,449 7.3 years $14.71 433,292 $12.10
J. INCOME TAXES Total income tax expense (benefit) is allocated as follows: Year Ended June 27, June 28, June 30, 1997 1996 1995 ---------- ---------- ---------- Income from continuing operations $ 1,446 $ 4,280 $ 4,191 Results of discontinued operations ($ 2,752) ($ 1,505) ($ 110) Loss on disposal of discontinued operations ($ 1,974) -0- -0- ---------- ---------- ---------- ($ 3,280) $ 2,775 $ 4,081 ---------- ---------- ----------
Income tax expense from continuing operations consists of the following components: Year Ended June 27, June 28, June 30, 1997 1996 1995 ---------- ---------- ---------- Current: Federal $ 1,493 $ 3,426 $ 3,617 State ( 97) 167 785 Foreign ( 98) 282 575 ---------- ---------- ---------- 1,298 3,875 4,977 ---------- ---------- ---------- Deferred Federal 133 356 ( 652) State 15 49 ( 134) ---------- ---------- ---------- 148 405 ( 786) ---------- ---------- ---------- $ 1,446 $ 4,280 $ 4,191 ---------- ---------- ----------
The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 27, 1997, and June 28, 1996, are presented below: June 27, June 28, 1997 1996 ---------- ---------- Gross deferred tax assets: Accounts receivable, due to allowance for doubtful accounts $ 101 $ 129 Inventories, due to additional costs inventoried for tax purposes pursuant to the Tax Reform Act of 1986 143 356 Inventories, due to accrual for obsolescence 315 341 Vacation expense accrual for accounting purposes 358 435 Workers' compensation expense accrual for accounting purposes 395 280 Warranty expense accrual for accounting purposes 762 705 Employee benefit plan accrual for accounting purposes 190 186 Alternative minimum tax credit carryforward 378 -0- State net operating loss carryforward 100 -0- Other 45 276 ---------- ---------- Total gross deferred tax assets 2,787 2,708 Less valuation allowance -0- -0- ---------- ---------- Net total deferred tax assets 2,787 2,708 ---------- ---------- Gross deferred tax liabilities: Plant and equipment principally due to differences in depreciation ( 1,482) ( 1,531) ---------- ---------- Total gross deferred tax liabilities ( 1,482) ( 1,531) ---------- ---------- Net deferred tax assets $ 1,305 $ 1,177 ---------- ---------- Reflected on attached consolidated balance sheets as: Current deferred asset $ 2,616 $ 2,544 Non-current deferred liability, net ( 1,311) ( 1,367) ---------- ---------- Net deferred tax asset $ 1,305 $ 1,177 ---------- ----------
At June 27, 1997, the Company had a state operating loss carryforward of $1,000 which is available to offset future state taxable income through the fiscal year 2000. In addition, the Company has an alternative minimum tax (AMT) credit carryforward of approximately $378 which is available to reduce future federal regular income taxes over an indefinite period. Under Statement 109, a valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax asset will not be realized. Based on the weight of all available evidence, the Company concludes that a valuation allowance is not needed. The Company has not recognized a deferred tax liability for the basis differences and the undistributed earnings related to its foreign subsidiaries since the investment is essentially permanent in duration. Undistributed earnings were approximately $790 at June 27, 1997. A reconciliation of the effective income tax rate from continuing operations with the statutory federal income tax rate is as follows: Year Ended June 27, June 28, June 30, 1997 1996 1995 ---------- ---------- ---------- Statutory rate 35.0% 35.0% 35.0% State income taxes, net of federal tax ( 1.7) 1.0 3.3 Tax effect of foreign income and losses ( 2.8) 2.4 1.9 Tax effect of foreign sales corporation ( 11.6) ( 4.1) ( 2.7) Permanent differences 3.0 ( 0.3) ( 2.0) Other 3.5 ( 1.8) ( 2.5) ---------- ---------- ---------- 25.4% 32.2% 33.0%
A tax benefit of $593, deriving from the Company's Foreign Sales Corporation (FSC), was recorded in the third quarter of its fiscal year 1997. the tax benefit resulted from reassessment of the Company's foreign sales transactions for fiscal years 1994, 1995, and 1996. Cash paid for income taxes was $1,071, $2,646, and $3,652 in fiscal years 1997, 1996, and 1995, respectively. K. RETIREMENT PLANS The Company has a retirement savings and profit sharing plan which qualifies under Section 401(k) of the Internal Revenue Code. Participation is available to all employees meeting minimum service and age requirements. During 1996, the Company implemented a Deferred Compensation Plan providing officers and key executives with the opportunity to participate in an unqualified deferred compensation plan. This plan does not qualify under Section 401 of the Internal Revenue Code. The total of net participant deferrals, which is reflected in other long-term liabilities, was $190 and $28 at June 27, 1997, and June 28, 1996, respectively. The Company also has a deferred retirement salary plan which is limited to certain officers. The Company has accrued the present value of the estimated future retirement benefit payments over the periods from the date of the agreements. The accrued balance of these plans, included in other long-term liabilities, was $559 and $469 at June 27, 1997, and June 28, 1996, respectively. Total expenses for these plans were $1,375, $1,341, and $808 for fiscal years ended 1997, 1996, and 1995, respectively. L. ACCRUED LIABILITIES Year Ended June 27, June 28, 1997 1996 ---------- ---------- Accrued incentive plan expense $ -0- $ 318 Accrued vacation expense 1,358 1,394 Accrued salary expense 569 686 Accrued salary and sales tax expense 555 940 Accrued warranty expense 2,185 1,724 Accrued workers' compensation self- insurance expense 1,162 704 Accrued other 996 1,302 ---------- ---------- $ 6,825 $ 7,068 ---------- ----------
M. OTHER INCOME, NET Year Ended June 27, June 28, June 30, 1997 1996 1995 ---------- ---------- ---------- Investment income ($ 110) ($ 114) ($ 126) Loss on sale/writedown of investments -0- -0- 68 (Gain) loss on foreign currency transactions ( 58) ( 166) ( 158) Amortization of intangibles 22 45 45 Other, net ( 104) ( 106) ( 93) ---------- ---------- ---------- ($ 250) ($ 341) ($ 264) ---------- ---------- ----------
N. CONCENTRATION OF CREDIT RISK The Company's customers are primarily in the cable television (CATV) industry. The Company performs periodic credit evaluations of its customers' financial conditions and generally does not require collateral. June 27, 1997, and June 28, 1996, accounts receivable from customers in the CATV industry were approximately $18,307 and $19,366, respectively. Receivables are generally due within 30 days. Credit losses are provided for in the consolidated financial statements and have consistently been within management's expectations. Sales to one customer were $48,039 (36%) in fiscal year 1997. Sales to two customers were $24,966 (18%) and $25,792 (18%), respectively in fiscal year 1996. Sales to two customers were $29,326 (24%) and $23,320 (19%), respectively in fiscal year 1995. O. COMMITMENTS AND CONTINGENCIES The Company had an established letter of credit of $900 at June 27, 1997, for its self-insured workers' compensation program. P. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of quarterly results of operations for the 1997 and 1996 fiscal years: First Second Third Fourth 1997 Quarter Quarter Quarter Quarter(1) - ---------- ---------- ---------- ---------- ---------- Net sales $ 31,844 $ 30,701 $ 32,801 $ 36,595 Gross profit 7,197 5,982 6,434 7,626 Income from continuing operations 1,533 563 1,346 815 Discontinued operations ( 774) ( 228) ( 1,182) ( 8,251) Net income (loss) 759 335 164 ( 7,436) Net income per share from continuing operations 0.16 0.06 0.14 0.09 Discontinued operations per share ( 0.08) ( 0.03) ( 0.12) ( 0.89) ---------- ---------- ---------- ---------- Net income (loss) per share $ 0.08 $ 0.03 $ 0.02 ($ 0.80) ---------- ---------- ---------- ---------- First Second Third Fourth 1996 Quarter Quarter Quarter Quarter - ---------- ---------- ---------- ---------- ---------- Net sales $ 35,839 $ 32,517 $ 35,609 $ 35,574 Gross profit 9,131 7,110 8,959 9,487 Income from continuing operations 2,515 1,089 2,771 2,639 Discontinued operations 116 ( 393) ( 1,409) ( 1,409) Net income 2,631 696 1,362 1,230 Net income per share from continuing operations 0.26 0.11 0.28 0.26 Discontinued operations income (loss) per share 0.01 ( 0.04) ( 0.14) ( 0.14) ---------- ---------- ---------- ---------- Net income per share $ 0.27 $ 0.07 $ 0.14 $ 0.12 ---------- ---------- ---------- ---------- (1) Results for the fourth quarter of fiscal year 1997 were negatively impacted by the Company's decision to discontinue its Digital Fiber Optics Transmission Products business segment. Discontinued operations include pre-tax charges of $3,300 related to warranty costs, an impairment loss on goodwill of $571, and a $3,830 after-tax charge for the loss on disposal of the Digital Fiber Optics Transmission Products business segment.
Q. LITIGATION On or about March 31, 1995, two shareholders of the Company filed a complaint in the United States District Court for the Eastern District of Pennsylvania against the Company, alleging violations of securities and common law. The complaint seeks permission to proceed as a class action on behalf of certain persons who purchased shares of the Company's Common Stock during the period January 17, 1995, through March 24, 1995. The complaint seeks compensatory damages in an unspecified amount and costs and expenses relating to the complaint, including reasonable attorney's fees. the Company's motion to dismiss the complaint was granted in part and denied in part. Discovery has commenced, but a trail date has not yet been set. Based upon the present stage of the proceedings, the ultimate outcome of this suit cannot be ascertained at this time. R. SEGMENT INFORMATION In fiscal years 1997 and 1996, the Company operated in two industry segments: the Electronic Distribution Products segment, which represents the Company's continuing operations and provides hybrid fiber coax (HFC) equipment for signal distribution applications primarily to the CATV market; and the Digital Fiber Optics Transmission Products segment, which is reported as a discontinued business segment and provides products for long-distance, point-to-point video, voice, and data signal transmission applications, primarily for telephony, distance learning, and other non-CATV markets. The Company announced on July 10, 1997, its intent to discontinue its Digital Fiber Optics Transmission Products segment in a phase-down process expected to span nine months. Information about industry segments for fiscal years 1997, 1996, and 1995 is as follows: Continuing Discontinued Operations Operations Total --------------------- --------------------- --------------------- Year Ended June 27, 1997 - ------------------------ Total revenue $ 131,941 $ 7,994 $ 139,935 Operating income (loss) $ 6,021 ($ 9,357) ($ 3,336) Identifiable assets at June 27, 1997 $ 69,604 $ 9,852 $ 79,456 Capital Expenditures $ 5,884 $ 698 $ 6,582 Depreciation and amortization $ 4,910 $ 1,388 $ 6,298 Year ended June 28, 1996 - ------------------------ Total revenue $ 139,539 $ 9,359 $ 148,898 Operating income (loss) $ 14,254 ($ 4,600) $ 9,654 Identifiable assets at June 28, 1996 $ 75,069 $ 7,387 $ 82,456 Capital Expenditures $ 7,442 $ 586 $ 8,028 Depreciation and amortization $ 3,972 $ 755 $ 4,727 Year Ended June 30, 1995 - ------------------------ Total revenue $ 121,269 $ 16,172 $ 137,441 Operating income (loss) $ 13,425 ($ 323) $ 13,102 Identifiable assets at June 30, 1995 $ 83,490 $ 5,817 $ 89,307 Capital Expenditures $ 14,355 $ 1,016 $ 15,371 Depreciation and amortization $ 2,921 $ 1,001 $ 3,922
The Company and subsidiaries operate in various geographic areas as indicted by the following: U.S. Canada Europe Eliminations Total ------------ ------------ ------------ ------------ ------------ Year Ended June 27, 1997 - ------------------------ Sales to unaffiliated customers: Domestic $ 106,785 $ 1,523 $ 751 $ -0- $ 109,059 Export 22,882 -0- -0- -0- 22,882 Transfers between geographic areas ( 95) -0- -0- 95 -0- ------------ ------------ ------------ ------------ ------------ Total revenue $ 129,572 $ 1,523 $ 751 $ 95 $ 131,941 Operating income $ 5,842 $ 162 $ 17 $ -0- $ 6,021 Identifiable assets at June 27, 1997 $ 67,464 $ 1,542 $ 598 $ -0- $ 69,604 Capital expenditures $ 5,852 $ 6 $ 26 $ -0- $ 5,884 Depreciation and amortization $ 4,847 $ 12 $ 51 $ -0- $ 4,910 Year ended June 28, 1996 - ------------------------ Sales to unaffiliated customers: Domestic $ 84,792 $ 6,223 $ 5,968 $ -0- $ 96,983 Export 42,556 -0- -0- -0- 42,556 Transfers between geographic areas 9,570 -0- -0- ( 9,570) -0- ------------ ------------ ------------ ------------ ------------ Total revenue $ 136,918 $ 6,223 $ 5,968 ($ 9,570) $ 139,539 Operating income $ 11,596 $ 2,210 $ 448 $ -0- $ 14,254 Identifiable assets at June 28, 1996 $ 69,960 $ 3,464 $ 1,645 $ -0- $ 75,069 Capital expenditures $ 7,414 $ 10 $ 18 $ -0- $ 7,442 Depreciation and amortization $ 3,848 $ 15 $ 109 $ -0- $ 3,972 Year Ended June 30, 1995 - ------------------------ Sales to unaffiliated customers: Domestic $ 73,368 $ 4,787 $ 7,616 $ -0- $ 85,771 Export 35,498 -0- -0- -0- 35,498 Transfers between geographic areas 8,649 -0- -0- ( 8,649) -0- ------------ ------------ ------------ ------------ ------------ Total revenue $ 117,515 $ 4,787 $ 7,616 ($ 8,649) $ 121,269 Operating income $ 11,349 $ 1,428 $ 648 $ -0- $ 13,425 Identifiable assets at June 30, 1995 $ 74,958 $ 3,213 $ 5,319 $ -0- $ 83,490 Capital expenditures $ 14,327 $ 10 $ 18 $ -0- $ 14,355 Depreciation and amortization $ 2,797 $ 15 $ 109 $ -0- $ 2,921
Most transfers between geographic areas are made at the cost of producing the items plus a profit margin. Identifiable assets are those assets identified with the operations in each geographic area. Financial Report To The Shareholders: The management of C-COR Electronics, Inc. is responsible for the preparation of all financial statements in this Annual Report. These statements were prepared in accordance with generally accepted accounting principles from the books and records maintained by the Company. Adequate accounting systems and financial controls are maintained to assure that these records reflect the transactions of the Company and that its assets are protected from loss or unauthorized use. In addition, the Audit Committee of the Board of Directors meets periodically with management and KPMG Peat Marwick LLP to discuss financial reporting matters, the internal controls, and the scope and results of the audit. /s/ Chris A. Miller Vice President-Finance, Secretary and Treasurer August 15, 1997 Independent Auditors' Report To the Board of Directors C-COR Electronics, Inc. and Subsidiaries: We have audited the accompanying consolidated balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 27, 1997 and June 28, 1996, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the years in the three-year period end June 27, 1997. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of C-COR Electronics, Inc. and Subsidiaries as of June 27, 1997 and June 28, 1996, and the results of their operations and their cash flows for each of the years in the three-year period ended June 27, 1997, in conformity with generally accepted accounting principles. /s/ KPMG Peat Marwick LLP State College, Pennsylvania August 15, 1997 DIRECTORS & OFFICERS
Year first elected Directors a director - ------------------------------------------------------------------------------- Richard E. Perry 1985 Chairman of the Board (2,4,5) Scott C. Chandler 1996 President and Chief Executive Officer (2,4) Donald M. Cook, Jr. 1988 Retired President and Chief Operating Officer, SEMCOR, Inc. (2,3,4) I.N. Rendall Harper, Jr. 1982 President, Chief Executive Officer and Treasurer, American Micrographics Company, Inc. (1,4,5) Anne P. Jones, Esq. 1989 Telecommunications Consultant (1,4,5) John J. Omlor 1989 President and Chief Executive Officer, John J. Omlor Associates, Ltd. (2,4) Dr. Frank Rusinko, Jr. 1990 Senior Scientist and Director, Carbon Research Center, College of Earth and Mineral Sciences of The Pennsylvania State University (1,3,4,5) Dr. James J. Tietjen 1987 Dean, School of Technology Management, The Stevens Institute of Technology (2,3,4) Dr, Philip L. Walker, Jr. 1960 Evan Pugh Professor Emeritus of Material Science, The Pennsylvania State University (1,4) (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
Directors Emeriti - ------------------------------------------------------------------------------- Joseph C. Bates 1982 Dr. John L. McLucas 1982 Dr. Marsh W. White 1963
Officers - ------------------------------------------------------------------------------- Scott C. Chandler President and Chief Executive Officer Edwin S. Childs Vice President Human Resources David J. Eng Senior Vice President Worldwide Sales Lawrence R. Fisher, Jr. Vice President Engineering Chris A. Miller Vice President Finance, Secretary and Treasurer Donald F. Miller Vice President Operations and Manufacturing Gerhard B. Nederlof Senior Vice President Marketing, Business Development and Services Joseph E. Zavacky Controller and Assistant Secretary CORPORATE DATA Annual Meeting of Shareholders October 14, 1997 at 9:00 a.m. Headquarters C-COR Electronics, Inc. 60 Decibel Road State College, Pennsylvania Stock Listing The Common Stock of C-COR Electronics, Inc., traded in the Nasdaq Stock Market's National Market System, was first offered to the public in February 1981. The Nasdaq symbol is CCBL. The range of high and low price information as reported by Nasdaq follows: Quarter Ending Price September 30, 1995 High 36 Low 22 3/4 December 31, 1995 High 29 7/8 Low 21 March 31, 1996 High 24 Low 15 June 30, 1996 High 24 Low 15 September 30, 1996 High 18 Low 13 3/4 December 31, 1996 High 17 1/2 Low 11 7/8 March 31, 1997 High 15 3/4 Low 12 June 30, 1997 High 12 1/8 Low 9 1/2
C-COR Electronics, Inc. has never paid a dividend. As of June 27, 1997, there were 670 shareholders of record of Common Stock. General Counsel McQuaide, Blasko, Schwartz, Fleming & Faulkner, Inc. State College, Pennsylvania SEC Counsel Ballard Spahr Andrews & Ingersoll Philadelphia, Pennsylvania Independent Auditors KPMG Peat Marwick LLP State College, Pennsylvania Transfer Agent and Registrar American Stock Transfer Company New York, New York Form 10-K A copy of the Company's Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, will be furnished without charge to any shareholder upon written request. We encourage shareholders whose stock is held by brokers or banks to call the Investor Relations office at the Company's headquarters (Telephone: 814-231-4402, e-mail: sot@c-cor.com) to have their names placed on the financial mailing list, enabling them to receive interim reports. MISSION STATEMENT C-COR is dedicated to responsive customer service, innovative design, and the manufacture of quality products. We will be a leader in communication technology. The Company will research and develop market opportunities within our expertise to enhance profitable growth. WHAT WE STAND FOR At C-COR, our business practices are guided by a respect for ourselves and a profound sense of responsibility to our employees, shareholders and customers. EMPLOYEES Nothing is more important to C-COR than the people who work here. To our people we pledge a good work environment, fair compensation, recognition of accomplishments, honesty in communications and understanding. In return, we expect a positive attitude, an honest effort in the workplace and a dedication to principles that we espouse. CUSTOMERS We realize the value of our customers and we have committed ourselves to delivering a quality product at a fair price, to respond promptly to our customers' requests, to provide superior service and support, and most of all, to respect them and their needs. SHAREHOLDERS We recognize our responsibility to protect and nurture the investments of our shareholders. We will manage C-COR in a manner that will produce a fair return on investment while manifesting itself in capital appreciation. Our management will be cost-effective and efficient. We will be open and honest in communicating with shareholders and we will conduct our business in an ethical manner. SUPPLIERS The criteria for choosing suppliers will be on the basis of quality, price and performance; we expect of them what our customers expect of us. COMMUNITY C-COR is dedicated to being a good corporate citizen wherever we do business. And, we believe in encouraging our employees to become involved in civic affairs. We expect our employees to conduct business in an ethical manner, be dedicated in their efforts on behalf of the Company and to work to improve the quality of life in the workplace and the communities in which they live. WORLD HEADQUARTERS 60 Decibel Road State College, PA 16801 800-233-2267 814-238-2461 Fax 814-238-4065 EUROPEAN OFFICE P.O. Box 10.265 1301 AG Almere The Netherlands +31-36-546 1111 Fax +31-36-536 4255 DENVER OFFICE 5299 DTC Boulevard, Suite 552 Englewood, CO 80111 303-713-0776 Fax 303-713-0639 CANADIAN OFFICE 377 MacKenzie Avenue, Unit 5 Ajax, Ontario L1S 2G2 905-427-0366 Fax 905-428-0927 REGIONAL SALES OFFICES California, Colorado, Georgia, Indiana, Minnesota, Pennsylvania, South Carolina, and Texas Printed in the U.S.A. All rights reserved. (C) 1997, C-COR Electronics, Inc. EX-21 10 SUBSIDIARIES OF THE REGISTRANT Subsidiaries of the Registrant: State of Incorporation: C-COR/Comlux, Inc. Pennsylvania C-COR Electronics Canada, Inc. Foreign (Canada) C-COR Electronics Company Delaware C-COR Electronics Foreign Sales Corporation St. Thomas, V.I. C-COR Europe B.V. Foreign(Netherlands) C-COR Europe Holding B.V. Foreign(Netherlands) C-COR Royalty Corporation Delaware C COR de Mexico, S.A. de C.V. Foreign (Mexico) EX-23 11 CONSENT OF AUDITORS Consent of Independent Auditors The Board of Directors C-COR Electronics, Inc. and Subsidiaries: The audits referred to in our report dated August 15, 1997, included the related financial statement schedule as of June 27, 1997, and for each of the years in the three-year period ended June 27, 1997, included in the annual report on form 10-K. This financial statement schedule is the responsibility of the Company's management. Our responsibility is to express an opinion on this financial statement schedule based on our audits. In our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein. We consent to the incorporation by reference in the registration statements (Nos. 2-95959, 33-27440, 33-35208, 33-66590 and 333-02505) on form S-8 of C-COR Electronics, Inc. and Subsidiaries of our reports, related to the consolidated balance sheets of C-COR Electronics, Inc. and Subsidiaries as of June 27, 1997 and June 28, 1996, and the related consolidated statements of operations, shareholders' equity and cash flows and related financial statement schedule for each of the years in the three-year period ended June 27, 1997, which reports are incorporated by reference in or appear in the June 27, 1997 annual report on Form 10-K of C-COR Electronics, Inc. and Subsidiaries. /s/ KPMG Peat Marwick LLP State College, Pennsylvania September 25, 1997 EX-27 12 ART. 5-FDS FOR YEAR END 10K
5 1,000 12-MOS JUN-27-1997 JUN-27-1997 452 359 19,809 510 19,140 43,759 46,732 21,672 71,119 21,014 0 0 0 963 40,715 71,119 131,941 131,941 104,702 21,468 (250) 0 318 5,703 1,446 4,257 (10,435) 0 0 (6,178) (0.65) (0.65)
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